<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 10, 1997
REGISTRATION NO. 333-34755
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ANCHOR GAMING
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
NEVADA 88-0304253
(State or other jurisdiction (I.R.S. Employer
of Identification
incorporation or organization) Number)
</TABLE>
815 PILOT ROAD, SUITE G, LAS VEGAS, NEVADA 89119
(702) 896-7568
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
STANLEY E. FULTON
ANCHOR GAMING
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
815 PILOT ROAD, SUITE G
LAS VEGAS, NEVADA 89119
(702) 896-7568
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
GLEN HETTINGER WILLIAM M. HARTNETT
Hughes & Luce, L.L.P. Cahill Gordon & Reindel
1717 Main Street 80 Pine Street
Dallas, Texas 75201 New York, New York 10005
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 10, 1997
PROSPECTUS
1,800,000 SHARES
[LOGO]
ANCHOR GAMING
COMMON STOCK
-------------
All of the 1,800,000 shares of common stock, par value $.01 per share (the
"Common Stock"), of Anchor Gaming ("Anchor" or the "Company") offered hereby
(the "Offering") are being sold by certain stockholders (the "Selling
Stockholders") of Anchor. See "Principal and Selling Stockholders." The Company
will not receive any of the proceeds from the sale of shares of Common Stock by
the Selling Stockholders.
The Common Stock is traded on the Nasdaq National Market under the symbol
"SLOT." On October 9, 1997, the last reported sale price for the Common Stock on
the Nasdaq National Market was $93.50 per share. See "Price Range of Common
Stock."
-------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN
INFORMATION THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
COMMON STOCK.
-----------------
NEITHER THE NEVADA STATE GAMING CONTROL BOARD NOR THE GAMING COMMISSION, THE
COLORADO LIMITED GAMING CONTROL COMMISSION, NOR ANY OTHER GAMING AUTHORITY
HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE
INVESTMENT MERITS OF THE SECURITIES OFFERED HEREBY. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING SELLING
PUBLIC DISCOUNT(1) STOCKHOLDERS(2)
<S> <C> <C> <C>
Per Share.............................. $ $ $
Total (3).............................. $ $ $
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Selling Stockholders estimated to
be $445,000.
(3) One of the Selling Stockholders, Stanley E. Fulton, has granted the
Underwriters a 30-day option to purchase in the aggregate up to 270,000
additional shares of Common Stock solely to cover over-allotments, if any.
See "Underwriting." If the Underwriters exercise such option in full, the
total Price to Public, Underwriting Discount, and Proceeds to Selling
Stockholders will be $ , $ , and $ , respectively.
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as, and if delivered to and accepted by the Underwriters,
and subject to approval of certain legal matters by counsel. It is expected that
delivery of the shares of Common Stock subject to the Offering will be made in
New York, New York on or about , 1997.
-------------------
BTALEX.BROWN
MORGAN STANLEY DEAN WITTER
RAYMOND JAMES & ASSOCIATES, INC.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
[Players seated at dedicated proprietary
games installed at casino location.]
-------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK IN
CONNECTION WITH THE OFFERING, INCLUDING OVER-ALLOTMENT, STABILIZING, AND
SHORT-COVERING TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF PENALTY
BIDS. IN ADDITION, CERTAIN UNDERWRITERS (AND SELLING GROUP MEMBERS, IF ANY) MAY
ALSO ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE
NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE
SECURITIES EXCHANGE ACT OF 1934. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
Double Down Stud-Registered Trademark-, Colorado Central Station
Casino-Registered Trademark-, Silver Strike-Registered Trademark-, and Fast
Track Express-Registered Trademark- are registered trademarks, and Anchor
Coin-TM-, Anchor Gaming-TM-, Anchor Games-TM-, Spin for Cash-TM-, Wheel of
Gold-TM-, Clear Winner-TM-, Colorado Grande-TM-, Totem Pole-TM-, CashBall-TM-,
KenoBucks-TM-, Rock'N'Reels-TM-, Maggie's Slot Club-TM-, and Fast Track Slot
Club-TM- are trademarks of the Company.
<PAGE>
[Inside Gate]
Dedicated Proprietary Games
<TABLE>
<S> <C> <C>
[Five Totem Pole machines [Clear Winner slot machine.]
installed at a casino
location.]
[The Company's dedicated
proprietary games installed
at a casino location.]
[Two Wheel of Gold
[Silver Strike slot machine.] slot machines.]
</TABLE>
<PAGE>
[Inside Cover]
Wide Area Progressive Proprietary Games
<TABLE>
<S> <C> <C>
[Wheel of Fortune machine
installed on a wide area
progressive system.]
[Wheel of Fortune machine
installed at a casino location
on a
wide area progressive system
with
players seated at the
machines.]
[Totem Pole machine installed [Wheel of Gold machine
on a wide area installed on a wide area
progressive system.] progressive system.]
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION AND FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED
ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS. UNLESS OTHERWISE
INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES THE UNDERWRITERS'
OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED AND THAT NO OUTSTANDING OPTIONS OR
WARRANTS WILL BE EXERCISED. UNLESS OTHERWISE SPECIFIED, YEARS REFERRED TO IN
THIS PROSPECTUS ARE CALENDAR YEARS. THE COMPANY'S FISCAL YEAR ENDS ON JUNE 30.
THE COMPANY
Anchor Gaming ("Anchor" or the "Company") is a diversified gaming company
that seeks to capitalize on its experience as an operator and developer of
gaming machines and casinos by developing gaming oriented businesses. Anchor
develops and distributes unique proprietary games, operates two casinos in
Colorado, including the state's most profitable casino, and operates one of the
largest and one of the most profitable gaming machine routes in Nevada.
Management believes that the Company benefits from, among other factors: (i)
depth of experienced and proven management at both the corporate and operating
levels; (ii) a diversified and stable earnings base with significant recurring
revenue sources; (iii) unique experience in developing and marketing proprietary
games; (iv) proven experience in developing, constructing, and operating
profitable casino enterprises; (v) the ability to effectively and profitably
distribute existing and new proprietary games due to its large established
casino customer base and its licenses in virtually all major domestic gaming
jurisdictions; (vi) a strong balance sheet with which to fund future growth
opportunities; and (vii) attractive existing internal growth opportunities in
its core businesses. Since fiscal year 1990, its first full year of operations,
through fiscal year 1997, Anchor has achieved eight consecutive years of
revenue, net income, and earnings per share growth, with revenue, net income,
and earnings per share during this period growing at compounded annual rates of
44%, 63%, and 43%, respectively. Additionally, Anchor's operating results
through September 30, 1997 reflect 21 consecutive quarters in which revenue, net
income, and earnings per share increased over the comparable period in the prior
year.
PROPRIETARY GAMES
Anchor develops proprietary games, which it both markets to unaffiliated
casinos and uses in its own gaming operations. The Company's strategy is to
develop games that provide casinos with a higher win per machine than their
existing gaming devices while generating significant recurring revenues to the
Company from royalty, revenue participation, or other similar agreements.
Although the Company initially developed proprietary games as a complement to
its own gaming machine operations, since February 1993 the Company has actively
marketed its proprietary games to unaffiliated casinos. The Company currently
provides proprietary games to virtually every major casino in the United States,
as well as its own casinos. In September 1996, the Company entered into a
strategic alliance with International Game Technology ("IGT"), the largest
manufacturer of computerized gaming casino products, to enhance the Company's
ability to develop and distribute proprietary games. See "Business--Proprietary
Games--Anchor IGT Strategic Alliance." Through this strategic alliance the
Company and IGT have formed a joint venture (the "Anchor IGT JV") to develop,
integrate, and distribute proprietary game concepts on a wide area progressive
system ("WAP"). The Company's revenues from proprietary games totaled $49.7
million for the fiscal year ended June 30, 1997, an increase of approximately
132% over fiscal year 1996.
The Company, seeking to capitalize on its established sales and marketing
infrastructure, its extensive base of existing casino customers, and its
licenses in virtually all major domestic gaming jurisdictions, has been actively
developing proprietary games, which can be classified as either a dedicated
proprietary game, a proprietary game on a WAP, or a converted proprietary game.
The Company's proprietary games are designed to increase gaming customer play
levels by either enticing the customer to play longer or to wager more coins per
play. The Company believes that a significant opportunity exists to further
expand and develop the market for proprietary games distributed on a
participation basis.
1
<PAGE>
DEDICATED PROPRIETARY GAMES. The Company has successfully developed or
acquired the rights to five proprietary games that are currently installed and
approved for use in unaffiliated casinos. Anchor's dedicated proprietary games
include Wheel of Gold, Totem Pole, Silver Strike, Clear Winner, and
Rock'N'Reels. All of the machines are placed in casinos free of charge under
royalty, revenue participation, or other similar agreements, allowing the casino
to avoid up-front purchase costs and providing significant recurring revenues to
Anchor. The machines utilize numerous unique concepts and designs in order to
increase overall gaming customer play levels. For example, the Company's two
most popular dedicated proprietary games, Totem Pole and Wheel of Gold, each
incorporate innovative game features that contribute to higher play levels.
Totem Pole comprises three games in one slot machine creating a unique visual
presentation in the casino environment. Greater play levels are realized on
Totem Pole because the player must insert the maximum number of coins to
activate all three games and benefit from the addition of a "wild" symbol.
Players on the Wheel of Gold machine have the opportunity to activate on the
same machine a three dimensional "roulette" type wheel with significantly higher
potential winnings, providing a secondary game event and additional excitement
to the customer through the Company's "game within a game" concept. Anchor's
"game within a game" concept provides the player an incentive to increase play
through the secondary game event, thereby maximizing customer playing time.
Wheel of Gold is the first generation of the Company's "game within a game"
concept that management believes will form the basis of a significant portion of
its future dedicated proprietary game designs. The Company has additional
innovative game machine concepts in various stages of development using the
Company's "game within a game" concept and other unique concepts.
WAP PROPRIETARY GAMES. A WAP is a system that electronically links
individual slot machines among multiple locations, allowing all the machines to
share a common jackpot. The WAP jackpot increases, or progresses, by a certain
percentage of each coin inserted into any one of the machines on the WAP
network, thereby allowing the jackpot to increase rapidly to a significant
amount. Management believes that the larger jackpots offered by WAP machines
attract a distinct portion of a customer's gaming budget as compared to a
non-progressive slot machine. In order to capture this portion of a customer's
gaming budget, the Company has entered into a strategic alliance resulting in
the Anchor IGT JV for the purpose of developing and installing WAP machines
based on both existing dedicated proprietary games and other proprietary
designs. The Company and IGT share in the management of the Anchor IGT JV and
will share equally in its profits and losses. The first WAP machine introduced
by the Anchor IGT JV is the Wheel of Fortune, a game that is very similar to the
Company's Wheel of Gold. Additionally, the Anchor IGT JV has recently introduced
Totem Pole on a WAP and has other WAP concepts at various stages of development.
CONVERSION OPPORTUNITY. The Company's first proprietary game was the video
poker game Double Down Stud, a software conversion kit that the Company installs
in existing third party casino gaming machines. The enhancement created by this
installation provides the Company a daily royalty for each converted machine.
Management believes that as casinos experience pressure to increase "same store
sales" they will seek to enhance the performance of their installed base of
machines by adding new features by means of conversion kits. The Company is
currently developing technology to allow older generation slot machines to
utilize additional features such as the "game within a game" concept. The
Company anticipates that future conversion kits would be installed on a royalty
or similar basis. The Company estimates that there are currently more than
300,000 slot machines installed in the United States. The Company believes that
this installed base of machines represents a substantial opportunity for
installation of conversion kits.
CASINOS
In November 1990, the state of Colorado approved limited stakes gaming
($5.00 or less per wager) in two historic gold mining areas, Black Hawk/Central
City and Cripple Creek. Anchor currently operates a casino in each of these
markets, the Colorado Central Station Casino in Black Hawk and the Colorado
2
<PAGE>
Grande Casino in Cripple Creek. The Colorado gaming market experienced 5%
revenue growth in fiscal year 1997. The Company's revenues from casino
operations totalled $69.2 million for the fiscal year ended June 30, 1997, an
increase of approximately 6.3% over fiscal year 1996.
COLORADO CENTRAL STATION CASINO. On December 25, 1993, the Company opened
the Colorado Central Station Casino in Black Hawk, which is currently the
highest revenue producing and most profitable casino in the state. Approximately
three million people live within a 100-mile radius of the Black Hawk/Central
City area, which is located approximately 40 miles from Denver. After completion
of a 2,750 square foot expansion in 1996, the casino building has approximately
49,000 square feet of main facility area, with 16,637 square feet of gaming
space over three floors. The Colorado Central Station Casino features more than
680 gaming machines, ten blackjack tables, nine poker tables, and a food court
restaurant area. The casino benefits from a favorable location, as it is the
first casino encountered by customers traveling from Denver to the Black
Hawk/Central City area. In addition, the Colorado Central Station Casino offers
convenient parking to its customers, with more than 770 parking spaces, whereas
many other casinos in the Black Hawk/Central City market lack convenient parking
and, as a result, have had difficulty attracting and retaining customers. The
Colorado Central Station Casino is also the closest casino to Black Hawk's 3,000
space public parking facility, located one and one-half miles from the casino,
and is the first stop from the parking facility on the parking lot shuttle bus
route. Anchor believes that the Colorado Central Station Casino's location,
convenient parking, size, and design, and highly successful Fast Track Slot Club
and player tracking system give it a competitive advantage over the other
casinos in the Black Hawk/Central City market. The Colorado Central Station
Casino's net win per device (which includes both gaming machines and table
games) per day was $239 for the fiscal year ended June 30, 1997 as compared to a
reported average net win per device per day of $87 for the other casinos in the
Black Hawk/Central City market for the same period.
COLORADO GRANDE CASINO. The Company operates (through an 80% owned
subsidiary) the Colorado Grande Casino in Cripple Creek, which is located
approximately 45 miles from Colorado Springs and 75 miles from Pueblo. The
Colorado Grande Casino, which opened on October 11, 1991, is located at one of
the principal intersections in Cripple Creek and features more than 210 gaming
machines, 44 adjacent parking spaces, and a full service restaurant and bar.
Primarily as a result of a continual building of the customer base through a
slot club and player tracking system, along with monthly slot club promotions,
slot revenue at the Colorado Grande Casino increased approximately 24% during
fiscal year ended June 30, 1997 as compared to fiscal year ended June 30, 1996.
CANADIAN OPPORTUNITY. On September 26, 1997, the Ontario provincial
government granted RPC Anchor Gaming permission to own and operate six permanent
full-time and one part-time seasonal charity gaming clubs in Ontario, Canada.
RPC Anchor Gaming is a joint venture (the "Anchor RPC JV") entered into in
January 1997 between Anchor and RPC Gaming, Ltd., a subsidiary of Revenue
Properties Company Limited ("RPC"), for the purpose of submitting a proposal to
own and operate charity casino operations in the Province of Ontario. See
"Business--Casinos--Canadian Opportunity." RPC, an Ontario based public real
estate company, is engaged in the acquisition and ownership of income-producing
properties in Canada and the United States. RPC owns and operates 42 properties
in 20 communities in Canada and was recently granted a nonrestricted gaming
license in the state of Nevada.
The full-time charity gaming clubs awarded to the Anchor RPC JV are located
in Toronto-North York; Fort Erie; Toronto-South Etobicoke/York;
Hamilton/Oakville/Burlington; Kitchner/Waterloo; and Sarnia. The part-time
seasonal gaming club awarded to the Anchor RPC JV is in South Western Ontario
(Brantford). Fort Erie is located directly across the U.S. border from Buffalo,
New York and Sarnia is located directly across the U.S. border from Port Huron,
Michigan.
These charity gaming clubs will replace the current three-day roving Monte
Carlo events and are being introduced by the Ontario provincial government as a
way to both stabilize funding to charities and to increase control, supervision,
and accountability in this gaming sector. The provincial government has
3
<PAGE>
had substantial success in introducing other regulated gaming locations as
illustrated by the commercial casinos in Windsor and Niagara Falls, Canada. Each
permanent charity gaming club location will be limited to a total of 150 video
lottery terminals and 40 table games. The Province of Ontario anticipates that
the permanent charity gaming clubs will be approximately one-tenth of the size
of a commercial casino such as Niagara Casino. Since its opening on December 9,
1996, through July 31, 1997, the Niagara Casino has reported revenues of
approximately $313.0 million. The permanent charity gaming clubs will be
operated under management agreements with the provincial government, which will
provide the operator with 10% of video lottery terminal revenue, 5% of table
game, retail, and food and beverage revenue, and 10% of net income, as adjusted.
See "Risk Factors -- Risks of Pursuing New Casino Gaming Opportunities--Risks of
Canadian Development."
ROUTE OPERATIONS
Anchor is one of the largest gaming machine route operators in Nevada with
801 gaming machines in 58 locations at June 30, 1997, up from 692 gaming
machines at 50 locations at June 30, 1996. The Company's gaming machine route
operations in Nevada involve the installation, operation, and service of gaming
machines (virtually all video poker machines) under space leases with retail
chains and under revenue participation agreements with local taverns and retail
stores, principally in the Las Vegas area. Management believes that its route
operation contracts provide the Company with a long-term, stable revenue source
and that its route has the highest revenue and profit per machine of any route
operation in the state of Nevada. The Company's revenues from route operations
totalled $33.5 million for the fiscal year ended June 30, 1997, an increase of
approximately 17% over fiscal year 1996.
In 1996, the Company extended its exclusive space lease agreement with
Smith's Food and Drug Centers, Inc. ("Smiths"), its largest route customer, for
an additional five years at current rates through 2010. At June 30, 1997, 716 of
the Company's 801 gaming machines in Nevada were located in or near Las Vegas,
which has been one of the fastest growing cities in the United States in recent
years. Anchor believes that its route operations will benefit from the continued
growth of the Las Vegas area, the associated growth of its existing customers in
that market, and the Company's continued installation of bill validators on its
gaming machines.
RECENT DEVELOPMENTS
Anchor's unaudited results for its first fiscal quarter ended September 30,
1997 are as follows: net income increased 103% to $16.7 million, revenues
increased 55% to $54.5 million, and earnings per share increased 105% to $1.23.
For the first quarter of the previous year net income was $8.2 million, revenues
were $35.2 million, and earnings per share were $0.60. In addition, the
Company's cash balance at September 30, 1997 was approximately $70.0 million in
addition to an unused bank line of credit of $10.0 million.
------------------------
Anchor Gaming, a Nevada corporation, maintains its corporate headquarters at
815 Pilot Road, Suite G, Las Vegas, Nevada 89119, and its telephone number is
(702) 896-7568.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by Selling Stockholders (1)
(2)................................................. 1,800,000 shares
Common Stock to be outstanding after this Offering
(3)................................................. 12,958,607 shares
Nasdaq National Market symbol........................ SLOT
</TABLE>
- ------------------------------
(1) Selling Stockholders are Stanley E. Fulton, who is selling 657,700 shares of
Common Stock; and Mrs. Elizabeth Fulton and the six Fulton children who are
collectively selling 1,142,300 shares of Common Stock.
(2) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting."
(3) Excludes 1,069,450 shares of Common Stock issuable upon exercise of stock
options outstanding at October 9, 1997, of which 166,950 were then
exercisable and 196,075 will become exercisable on or before December 30,
1997. See "Risk Factors -- Shares Eligible for Future Sale."
RISK FACTORS
An investment in the Common Stock involves certain risks that a prospective
investor should carefully consider before investing in the Common Stock. See
"Risk Factors."
5
<PAGE>
SUMMARY FINANCIAL DATA
The following summary financial data presented below as of and for the
Company's fiscal years ended June 30, 1993, 1994, 1995, 1996, and 1997 have been
derived from the audited consolidated financial statements of the Company. The
data set forth below are qualified in their entirety by, and should be read in
conjunction with, "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the consolidated financial statements and the
related notes, and other financial data appearing elsewhere or incorporated by
reference in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
---------------------------------------------------------
1993 1994 (1) 1995 1996 1997
----------- ----------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Casino operations............................................ $ 3,896 $ 23,713 $ 56,184 $ 65,125 $ 69,223
Proprietary games............................................ 117 4,147 14,159 21,457 49,716
Route operations............................................. 25,018 26,123 25,818 28,651 33,509
Food and beverage............................................ 446 786 1,250 1,233 1,300
----------- ----------- --------- --------- ---------
Total revenues............................................. 29,477 54,769 97,411 116,466 153,749
Total costs and expenses....................................... 21,704 40,657 72,561 82,586 100,555
----------- ----------- --------- --------- ---------
Income from operations......................................... 7,773 14,112 24,850 33,881 53,194
Interest income................................................ 88 379 1,105 2,028 3,793
Interest expense............................................... (954) (1,314) (732) (429) (288)
Other income (expense) (2)..................................... 87 244 244 43 (22)
----------- ----------- --------- --------- ---------
Income before provision for income taxes....................... 6,994 13,421 25,467 35,523 56,677
Historical and pro forma provision for income taxes (3)........ 2,378 4,702 9,486 13,188 21,001
----------- ----------- --------- --------- ---------
Net income and pro forma net income (3)........................ $ 4,616 $ 8,719 $ 15,981 $ 22,335 $ 35,676
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
Weighted average common and common equivalent shares
outstanding (4).............................................. 6,459 8,481 11,447 12,153 13,691
Earnings and pro forma earnings per common and common
equivalent share (3)......................................... $ 0.71 $ 1.03 $ 1.40 $ 1.84 $ 2.61
OTHER DATA:
EBITDA (5)..................................................... $ 9,088 $ 16,233 $ 28,065 $ 37,990 $ 61,992
Capital expenditures........................................... 5,142 17,921 7,834 27,916 38,108
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------
(IN
THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................................ $ 66,427
Total assets..................................................................................... 188,876
Long term notes payable, principal stockholder................................................... 2,800
Stockholders' equity............................................................................. 171,331
</TABLE>
- ------------------------------
(1) Reflects six months of operations at the Company's Colorado Central Station
Casino in Black Hawk, Colorado, which opened December 25, 1993, and five
months of proprietary games operations acquired in conjunction with the
Company's initial public offering in February 1994 (the "IPO").
(2) Other income (expense) consists of minority interest in earnings of
consolidated subsidiary, and other income (expense).
(3) A pro forma provision for federal income taxes (assuming a 34% effective tax
rate through fiscal 1994) has been calculated for all periods prior to the
IPO as if the principal subsidiaries of the Company had not elected to be
treated as S corporations during those periods.
(4) Weighted average shares outstanding are presented as if the reorganization
completed in conjunction with the Company's IPO took place July 1, 1992.
(5) EBITDA consists of income from operations plus depreciation and
amortization. EBITDA is not a measure of performance or financial condition
under generally accepted accounting principles, but is presented solely as
supplemental disclosure because the Company believes that it enhances the
understanding of the ability to service debt. EBITDA should not be
considered in isolation or as a substitute for other measures of financial
performance or liquidity under generally accepted accounting principles.
6
<PAGE>
RISK FACTORS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH STATEMENTS REFER TO
EVENTS THAT COULD OCCUR IN THE FUTURE OR MAY BE IDENTIFIED BY THE USE OF WORDS
SUCH AS "INTEND," "PLAN," "BELIEVE," CORRELATIVE WORDS, AND OTHER EXPRESSIONS
INDICATING THAT FUTURE EVENTS ARE CONTEMPLATED. SUCH STATEMENTS ARE SUBJECT TO
INHERENT RISKS AND UNCERTAINTIES, AND ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN OF
THE RISK FACTORS SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. IN ADDITION
TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, INVESTORS SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS.
RISKS OF PROPRIETARY GAMES
The Company places its proprietary games in casinos at no cost to the
casinos under short-term arrangements, making these games susceptible to
replacement due to pressure from competitors, changes in economic conditions,
obsolescence, and declining popularity. Anchor intends to maintain and expand
the number of installed proprietary games through enhancement of existing games,
introduction of new games, and customer service, but there can be no assurance
that these efforts will be successful.
Introduction of new proprietary games involves significant risks, including
whether the Company will be able to place its games with casinos, the economic
terms on which casinos will accept the machines, the popularity of the games
with gaming patrons, and whether a successful game can maintain its popularity
over the long term. If the Company is not successful in introducing new games,
the effects on Anchor could be adverse.
Anchor has filed trademark and patent applications to protect its
intellectual property rights in certain of its trademarks and innovations on
certain of its proprietary games, respectively. At this time, however, the
United States Patent and Trademark Office has not acted upon all of these
applications. There can be no assurance that the pending patent or trademark
applications will actually issue as patents or trademark registrations or that
any of these rights will not be infringed by others. Certain of the Company's
games, including Silver Strike, Totem Pole, and Clear Winner, do not have
independent protection of the game itself, and it is possible that competitors
could produce a similar game without violating any legal rights of the Company.
Anchor intends to promote aggressively its trademarks to build goodwill and
customer loyalty. In addition, Anchor intends to improve and add innovations to
certain of its games, which may be subject to legal protection. There can be no
assurance, however, that the Company will be successful in these efforts, that
innovations will be subject to legal protection, or that the innovations will
give a competitive advantage to the Company.
Anchor also derives revenues from the sale of souvenir tokens that are paid
out by Silver Strike machines. The primary raw material for the tokens is
silver, the price of which is subject to wide fluctuations. As silver prices
rise, the Company may be unable to pass price increases through to its casino
customers.
COMPETITION
PROPRIETARY GAMES. Intense competition characterizes the market for
proprietary games. Competitors in the game industry include manufacturers of
gaming devices and other companies marketing gaming products and conversion
kits, which compete directly with the Company for the limited gaming spaces
available at casinos. The popularity of any of the Company's games may decline
over time as consumer preferences change or as new, competing games are
introduced. As a result, Anchor must continually anticipate and adapt its
products to consumer preferences in order to maximize the economics of the game
to the Company. There can be no assurance, however, that Anchor will continue to
be successful in developing and marketing its products. If the Company fails to
develop games that achieve market
7
<PAGE>
acceptance or if existing games become obsolete due to the introduction of
popular games by Anchor's competitors the effects on Anchor could be material
and adverse.
Anchor's strategy of creating recurring revenues from its proprietary games
by placing the games in casinos under a royalty, revenue participation, or
similar agreements involves a departure from the traditional practice of casinos
of owning or leasing gaming devices. To the extent that casinos are reluctant to
enter into arrangements that generate recurring revenues for suppliers of casino
games, the market for Anchor's proprietary games could be limited. Competition
within the market for games that generate recurring revenues could intensify as
other suppliers of gaming devices enter this market or offer competitive
products or terms.
COLORADO CASINOS. Intense competition also characterizes the Black
Hawk/Central City and Cripple Creek markets. Since limited stakes gaming was
instituted in Colorado in 1991, a number of Colorado casinos have ceased
operations and others have filed for protection under Chapter 11 of the
Bankruptcy Code. Others have closed temporarily or reduced the number of
employees, and many casinos may not be operating profitably. Several proposals
have been made to open new casinos or to expand existing casinos in Black Hawk,
some of which have been abandoned or modified. Two casinos are being developed
in Black Hawk located across the intersection from the Company's Colorado
Central Station Casino. Casino America and Nevada Gold & Casinos have commenced
construction of a casino scheduled to open in early 1999, which facility is
expected to include 1,100 slot machines, 24 table games, and a 1,000 car parking
garage. Riviera Holdings Corporation has announced that it plans to develop a
gaming facility with 1,000 slot machines, 14 table games, and a 500 space
covered parking garage, scheduled to open in the Spring of 1999. A joint venture
between Black Hawk Gaming & Development Company, Inc. and Jacobs Entertainment
Ltd. is constructing a gaming facility located near Colorado Central Station.
The facility is scheduled to be completed in June 1998 and is expected to
include 800 slot machines, 20 table games, and 500 parking spaces. In addition,
construction is proceeding on a third major intersection off State Highway 119,
which will provide access directly to one of the new casinos from State Highway
119, which is the primary access from the Denver metropolitan area. From time to
time other casino companies have publicly expressed an interest in pursuing
development or expansion in the Black Hawk/Central City market, and proposals to
develop competitive projects are ongoing.
It appears that national, regional, state, and local competition for the
casino gaming market in general will remain extremely high during the
foreseeable future, as casino gaming activities expand in traditional gaming
states and in new jurisdictions. In addition, passage of the Indian Gaming
Regulatory Act in 1988 has led to rapid increases in Native American gaming
operations, and the Company's two casinos may compete for customers with casinos
located on Indian reservations in southwestern Colorado. The Company expects
many competitors to enter new jurisdictions that authorize gaming, some of whom
may have greater financial and other resources than the Company. Such
proliferation of gaming activities could adversely affect the Company's
business. In particular, the legalization of casino gaming in or near any
metropolitan area, such as Denver, Colorado, from which the Company draws
customers would have a material adverse effect on the Company's business. The
Company believes, however, that proliferation of gaming activities into new
jurisdictions presents an opportunity for it to expand its proprietary games
operations.
CANADIAN OPPORTUNITY. The Company anticipates that the charity gaming clubs
in Ontario, Canada will experience intense competition and certain competitors
may have greater financial and other resources than the Company. Anchor RPC JV's
seven locations will compete with the other charity gaming clubs in the
province, along with other casinos in Canada and the United States.
ROUTE OPERATIONS. Gaming machines and gaming of all types are available in
Nevada casinos and in restricted gaming locations similar to those in which the
Company operates gaming machines, and all of these gaming establishments compete
directly or indirectly with Anchor's route operations. In addition, Anchor is
subject to substantial competition for the operation of gaming machines in
approved locations
8
<PAGE>
from numerous small gaming machine route operators and some large operators,
located principally in Las Vegas and Reno, Nevada, and their surrounding areas.
The principal methods of competition for gaming machine locations are the lease,
sublease, license, or revenue sharing terms, the service provided by the route
operator, the reputation of the route operator, and the financial strength of
the route operator. As existing space lease and revenue participation
arrangements expire, competition for renewals can be expected to increase the
amounts payable to location owners as compared to amounts payable under existing
agreements.
RISKS OF PURSUING NEW CASINO GAMING OPPORTUNITIES
GENERAL. The Company is actively seeking to expand its casino operations
into jurisdictions that have legalized or are expected to legalize gaming in the
future. There can be no assurance, however, that the Company will be able to
identify suitable casino projects in which to invest or will be able to complete
any such project as scheduled or contemplated. The Company's ability to complete
and operate new casino projects will be dependent on a number of factors, many
of which are beyond Anchor's control, including identifying suitable investment
partners (if appropriate), negotiating acceptable terms, securing required
state, foreign, and local licenses, permits, and approvals, securing adequate
financing on acceptable terms, identifying and securing suitable locations
(which management expects will be limited and in high demand), voter and other
political approvals, demographic trends, and consumers' gaming preferences. As a
result, there can be no assurance that the Company will be able to develop new
or expand its current casino operations. In addition, the Company may incur
costs in connection with pursuing new gaming opportunities that it cannot
recover and may be required to expense certain of these costs, which may
negatively affect the Company's reported operating performance for the periods
during which such costs are expensed.
RISKS OF CANADIAN DEVELOPMENT. On September 26, 1997, the provincial
government of Ontario, Canada granted the Anchor RPC JV permission to own and
operate six permanent full-time and one part-time seasonal charity gaming clubs
in Ontario, Canada. The ability of the Anchor RPC JV to commence operation of
the gaming clubs is subject to approval by various governmental authorities,
including municipalities, land-use authorities, zoning authorities, and other
regulatory authorities, which have power to prohibit, regulate, tax, and to
place conditions on the location, construction, and operation of the gaming
clubs. Failure of the Anchor RPC JV to obtain required regulatory licenses and
approvals on acceptable terms or a timely basis could prevent or delay opening
of the gaming clubs, which could have an adverse effect on the Anchor RPC JV.
Failure by the Anchor RPC JV to select successful sites or to acquire rights to
the sites on advantageous terms could adversely effect the results of the Anchor
RPC JV. Two of the sites awarded to the Anchor RPC JV are adjacent to the states
of New York and Michigan. Expansion of gaming in these states could adversely
effect the results of the Anchor RPC JV. If the Anchor RPC JV is not successful
in attracting, training, and retaining suitable personnel on an acceptable
basis, it could have a material adverse effect on the Anchor RPC JV.
Construction of the gaming clubs will involve certain risks, including shortages
of skilled labor and materials, unforseen engineering and construction problems,
work stoppages, adverse weather, and unanticipated cost increases. As start-up
enterprises, the gaming clubs are subject to all the risks typical for new
businesses in new areas with no history of operations. There can be no assurance
that the gaming clubs will be profitable.
RISKS OF DEPENDENCE ON SUPPLIERS
The Company utilizes outside vendors, some of which are competitors of the
Company, to manufacture a significant portion of its proprietary game machines
and parts. An inability to obtain gaming machines and components, production
parts, and replacement parts on reasonable terms or on a timely basis could have
an adverse effect on Anchor.
9
<PAGE>
GAMING REGULATIONS AND TAXES
The Company's operations are subject to extensive state and local regulation
and taxation in Nevada, Colorado, and other jurisdictions in which Anchor
operates, and any future activities in additional jurisdictions, such as
Ontario, Canada, will be similarly regulated and taxed. State and local
authorities require various licenses, permits, and approvals to be held by the
Company, and these authorities may, among other things, revoke the license of
any entity licensed as a gaming corporation, the registration of any entity
registered as a holding company of a gaming corporation, or the license of any
individual licensed as an officer, director, control person, employee, or
stockholder of a licensed or registered entity. Gaming licenses and related
approvals are deemed to be privileges under Nevada and Colorado law and the laws
of other jurisdictions, and no assurances can be given that existing licenses
will not be revoked. Regulatory changes or increases in applicable taxes or fees
in Nevada or Colorado or the laws of other jurisdictions in which the Company
operates could have a material adverse effect on the Company. There can be no
assurance that regulations adopted or taxes imposed by Nevada, Colorado, or
other jurisdictions will not have a material adverse effect on the Company. See
"Regulation."
Colorado law requires statewide voter approval of an amendment to the State
Constitution for any expansion of limited gaming into additional locations and,
depending on the authorization approved by the statewide vote, requires, in
addition, voter approval from the locality in question. In 1994, Colorado voters
defeated by a margin of 93% to 7% a proposal to permit gaming in Manitou Springs
(located near Colorado Springs and Cripple Creek) and slot machines in airports.
On November 5, 1996, Colorado voters defeated by a margin of 69% to 31% a
proposal to allow gaming in the community of Trinidad, located on the New Mexico
border. Recently, the state legislature passed, but the Governor vetoed, a bill
that would have permitted video lottery terminals at dog and horse racetracks
under certain terms and conditions. Several cities within Colorado have active
citizens' lobbies that were able to place gaming initiatives on recent statewide
ballots. Although these initiatives have failed, new initiatives could be
introduced on future statewide ballots to allow expansion of gaming in Colorado
or prohibit gaming in the particular markets in Colorado where the Company
operates. Future initiatives, if passed, could significantly increase the
competition for gaming customers, thereby adversely affecting the Company's
operations in Colorado. Additionally, there can be no assurance that future
legislation will not be enacted that would impose additional restrictions or
prohibitions on, or assess additional fees with respect to, the Company's
business.
Each of the Company's proprietary games must be approved and licensed in
each jurisdiction in which it is placed. The Company must still obtain approvals
for certain of its games in certain gaming jurisdictions before it can fill all
of its orders to place machines. Obtaining required licenses can be time
consuming and costly and there can be no assurance that any game will be
successfully licensed in any jurisdiction.
Any beneficial holder of the Common Stock may be subject to investigation by
gaming authorities in Nevada, Colorado, and other jurisdictions in which Anchor
does business if such authorities have reason to believe that such ownership may
be inconsistent with a state's gaming policies. Persons who acquire beneficial
ownership of more than certain designated percentages of the Common Stock may be
subject to certain reporting and qualification procedures. The Company's
Articles of Incorporation provide that all transfers of voting securities are
subject to the regulations of each regulatory body to which the Company's
activities are subject and provide for a mandatory repurchase of Common Stock if
a stockholder is found unsuitable. In addition, changes in control of the
Company and certain other corporate transactions may not be effected without the
prior approval of gaming authorities in Nevada, Colorado, and other
jurisdictions in which the Company does business. Such provisions could
adversely affect the marketability of the Common Stock or prevent certain
corporate transactions, including mergers or other business combinations. See
"Regulation."
10
<PAGE>
In August 1996, the United States Congress passed legislation creating the
National Gambling Impact and Policy Commission to conduct a comprehensive study
of all matters relating to the economic and social impact of gaming in the
United States. The legislation provides that, not later than two years after the
enactment of such legislation, the commission must issue a report to the
President and to Congress containing its findings and conclusions, together with
recommendations for legislation and administrative actions. Any such
recommendations, if enacted into law, could adversely impact the gaming industry
and have a material adverse effect on the Company's business or results of
operations. The Company is unable to predict whether this study will result in
legislation that would impose additional regulations on gaming industry
operators, including the Company, or whether such legislation, if any, would
have a material adverse effect on the Company. Additionally, from time to time,
certain federal legislators have proposed the imposition of a federal tax on
gaming revenues. Any such tax could have a material adverse effect on the
Company's financial condition or results of operations.
RISKS OF EXISTING COLORADO OPERATIONS
ACCESS TO BLACK HAWK AND CRIPPLE CREEK. The cities of Black Hawk and
Cripple Creek are located in the Colorado Rockies and each is serviced by
winding mountain roads that require extremely cautious driving, especially in
bad weather. These roads also have tunnels that are subject to closure.
Congestion on the roads leading into Black Hawk and Cripple Creek is not
uncommon during the peak summer season, holidays, and other times of the year,
and such congestion may discourage potential customers from traveling to the
Company's casinos. In addition, concerns about the overall availability of
convenient parking in Black Hawk and, to a lesser extent, Cripple Creek may
discourage some potential customers. Further, Black Hawk and, to a lesser
extent, Cripple Creek have experienced unanticipated demands for their municipal
systems, including water and sewage treatment facilities. Increased levels of
activity in the area may exacerbate old or pose new municipal and environmental
problems, the costs of which could be imposed on the gaming industry and in part
on the Company.
ENVIRONMENTAL CONSIDERATIONS. The Colorado Central Station Casino is
located in an area that has been designated by the Environmental Protection
Agency (the "EPA") as a superfund site on the National Priorities List, known as
the Central City-Clear Creek Superfund Site (the "Site"), as a result of
contamination from historic mining activity in the area. The EPA is entitled to
proceed against owners and operators of properties located within the Site for
remediation and response costs associated with their properties and with the
entire Site. The Colorado Central Station Casino is located within the drainage
basin of North Clear Creek and is therefore subject to potentially contaminated
surface and ground water from upstream mining-related sources. Soil and ground
water samples on the Site indicate that several contaminants exist in
concentrations exceeding drinking water standards. Records relating to
historical uses of the Site are uncertain as to whether mining actually occurred
below the Company's property. Records do indicate, however, that an ore loading
dock for a railroad depot was once located on adjacent property, and railroad
tracks were present on the Company's property. Management is not aware of any
environmental issues associated with these activities.
DEPENDENCE ON KEY PERSONNEL
The success of Anchor is largely dependent on the efforts and skills of
Stanley E. Fulton, its Chairman of the Board, and other key officers and
employees of Anchor. The loss of Mr. Fulton's or such other key officers' or
employees' services could have a material adverse effect on Anchor. The
expansion of Anchor's businesses may require additional managers with gaming
industry experience, as well as additional skilled employees. A shortage of
skilled management personnel exists in the gaming industry, which may make it
more difficult and expensive to attract and retain qualified managers and
employees. In addition, some of the Company's key employees perform their
services under contracts that do not contain covenants not to compete with the
Company, and it is therefore possible that competitors could attempt to hire
certain of the Company's key employees. One of the Company's key game
development employees has a contract
11
<PAGE>
that allows him to pursue certain gaming related businesses for an entity not
controlled by Anchor, and it is therefore possible that this key employee could
devote substantial attention to enterprises other than Anchor. See "Management
- -- Employment Contracts, Termination of Employment, and Change-in-Control
Arrangements."
CONTROL OF THE COMPANY
Upon completion of this Offering, the officers and directors of the Company
and members of their respective families will own beneficially approximately
40.5% of the outstanding Common Stock (38.4% if the Underwriters' over-allotment
option is exercised in full). The ability to vote these shares gives such
persons the ability to exert substantial influence over any matter coming to a
vote of stockholders of the Company, including the election of directors and
certain mergers, asset sales, or other major corporate transactions affecting
the Company. All six of Mr. Fulton's children and a third party have granted him
an irrevocable proxy expiring on December 31, 1998 to vote their shares of
Common Stock. As a result, Mr. Fulton will have voting control of 39.2% of the
Common Stock to be outstanding after this Offering. Such voting power, together
with certain anti-takeover provisions included in the Company's Articles of
Incorporation and Bylaws and a Shareholder Rights Plan, could have the effect of
delaying or discouraging an unsolicited takeover of the Company. See "Principal
and Selling Stockholders"; "Description of Capital Stock -- Rights Plan"; and
"Description of Capital Stock -- Certain Provisions Relating to Changes in
Control."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 12,958,607 shares of
Common Stock outstanding (assuming no exercise of outstanding options and
warrants). The 1,800,000 shares of Common Stock sold in this Offering will be
freely tradable without restriction or further registration under the Securities
Act of 1933, as amended (the "Securities Act"), except for shares purchased by
affiliates of the Company. Virtually all shares of Common Stock outstanding
prior to this Offering are freely tradeable or generally may be freely sold in
"brokers transactions" under Rule 144 under the Securities Act by the holders
thereof that have not been "affiliates" of the Company for a period of 90 days.
At October 9, 1997 there were outstanding options to purchase 1,069,450 shares
of Common Stock, of which 166,950 were exercisable at October 9, 1997 and
196,075 of which will become exercisable on or before December 30, 1997. In
connection with this Offering, the Selling Stockholders have agreed not to sell
any Common Stock for a period of 90 days following the date of the final
Prospectus without the prior written consent of the Representatives of the
Underwriters. See "Underwriting." The sale or availability for sale of
substantial amounts of Common Stock in the public market after this Offering
could adversely affect the market price of the Common Stock.
12
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock was listed on the Nasdaq National Market on January 28,
1994 and trades under the symbol "SLOT." The following table sets forth the
range of high and low closing prices per share of the Common Stock on the Nasdaq
National Market for the indicated periods.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
------------------
HIGH LOW
------- -------
<S> <C> <C>
YEAR ENDED JUNE 30, 1995
First quarter................................................................................. $19 1/2 $11 1/4
Second quarter................................................................................ 19 1/4 14 1/4
Third quarter................................................................................. 19 15 1/4
Fourth quarter................................................................................ 23 5/8 15 1/4
<CAPTION>
YEAR ENDED JUNE 30, 1996 HIGH LOW
------- -------
<S> <C> <C>
First quarter................................................................................. $26 1/2 $20 1/2
Second quarter................................................................................ 25 1/4 18 7/8
Third quarter................................................................................. 32 1/4 21 3/4
Fourth quarter................................................................................ 69 32 3/4
<CAPTION>
YEAR ENDED JUNE 30, 1997 HIGH LOW
------- -------
<S> <C> <C>
First quarter................................................................................. $68 3/4 $50 1/2
Second quarter................................................................................ 64 1/2 30 1/8
Third quarter................................................................................. 40 3/4 27 7/8
Fourth quarter................................................................................ 47 3/4 25
<CAPTION>
YEAR ENDED JUNE 30, 1998 HIGH LOW
------- -------
<S> <C> <C>
First quarter................................................................................. $90 1/2 $47 1/4
Second quarter (through October 9, 1997)...................................................... $93 1/2 $84
</TABLE>
On October 9, 1997, the last reported sale price of the Common Stock on the
Nasdaq National Market was $93.50 per share, and there were approximately 4,000
beneficial holders of the Common Stock.
DIVIDEND POLICY
The Company has not declared any dividends since the time of the IPO. The
board of directors of the Company intends to retain any earnings of the Company
to support operations and to finance expansion and does not intend to pay cash
dividends on the Common Stock in the foreseeable future. The Company is a party
to a revolving credit agreement with a bank that prohibits the payment of
dividends. Subject to contractual restrictions, any future determinations as to
the payment of dividends will be at the discretion of the board of directors of
the Company and will depend on the Company's financial condition, results of
operations, capital requirements, and such other factors as the board of
directors of the Company deems relevant.
13
<PAGE>
SELECTED FINANCIAL AND OPERATING INFORMATION
The following selected financial and operating information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and related
notes included elsewhere or incorporated by reference in this Prospectus. The
income statement and balance sheet data for each of the five fiscal years ended
June 30, 1997 are derived from the audited consolidated financial statements of
the Company.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-----------------------------------------------------
1993 1994 (1) 1995 1996 1997
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Casino operations........................................... $ 3,896 $ 23,713 $ 56,184 $ 65,125 $ 69,223
Proprietary games........................................... 117 4,147 14,159 21,457 49,716
Route operations............................................ 25,018 26,123 25,818 28,651 33,509
Food and beverage........................................... 446 786 1,250 1,233 1,300
--------- --------- --------- --------- ---------
Total revenues............................................ 29,477 54,769 97,411 116,466 153,749
Total costs and expenses:
Casino operations........................................... 1,326 8,199 21,500 26,830 29,100
Proprietary games........................................... 141 3,047 9,851 12,114 11,039
Route operations............................................ 14,869 15,416 15,659 17,158 19,905
Food and beverage........................................... 478 768 1,387 1,300 1,432
Selling, general, and administrative........................ 3,573 10,375 20,949 21,074 28,164
Preopening costs............................................ -- 731 -- -- --
Project cost write-downs.................................... -- -- -- -- 2,117
Depreciation and amortization............................... 1,317 2,121 3,215 4,110 8,798
--------- --------- --------- --------- ---------
Total costs and expenses.................................. 21,704 40,657 72,561 82,586 100,555
--------- --------- --------- --------- ---------
Income from operations........................................ 7,773 14,112 24,850 33,881 53,194
Interest income............................................... 88 379 1,105 2,028 3,793
Interest expense.............................................. (954) (1,314) (732) (429) (288)
Other income (expense) (2).................................... 87 244 244 43 (22)
--------- --------- --------- --------- ---------
Income before provision for income taxes...................... 6,994 13,421 25,467 35,523 56,677
Historical and pro forma provision for income taxes (3)....... 2,378 4,702 9,486 13,188 21,001
--------- --------- --------- --------- ---------
Net income and pro forma net income (3)....................... $ 4,616 $ 8,719 $ 15,981 $ 22,335 $ 35,676
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average common and common equivalent shares
outstanding (4)............................................. 6,459 8,481 11,447 12,153 13,691
Earnings and pro forma earnings per common and common
equivalent share (3)........................................ $ 0.71 $ 1.03 $ 1.40 $ 1.84 $ 2.61
OTHER DATA:
EBITDA (5).................................................... $ 9,088 $ 16,233 $ 28,065 $ 37,990 $ 61,992
Capital expenditures.......................................... 5,142 17,921 7,834 27,916 38,108
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
-----------------------------------------------------
1993 1994 (1) 1995 1996 1997
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................................... $ 3,872 $ 10,472 $ 26,132 $ 78,113 $ 66,427
Total assets.................................................. 22,576 58,903 79,266 162,312 188,876
Long term notes payable, principal stockholder................ 17,243 6,927 5,989 3,650 2,800
Stockholders' equity (6)...................................... 3,840 47,001 64,832 146,307 171,331
</TABLE>
- ------------------------------
(1) Reflects six months of operations at the Company's Colorado Central Station
Casino in Black Hawk, Colorado, which opened December 25, 1993, and five
months of proprietary games operations acquired in conjunction with the
Company's IPO.
(2) Other income (expense) consists of minority interest in earnings of
consolidated subsidiary, and other income (expense).
14
<PAGE>
(3) A pro forma provision for federal income taxes (assuming a 34% effective tax
rate through fiscal 1994) has been calculated for all periods prior to the
IPO as if the principal subsidiaries of the Company had not elected to be
treated as S corporations during those periods.
(4) Weighted average shares outstanding are presented as if the reorganization
completed in conjunction with the Company's IPO took place July 1, 1992.
(5) EBITDA consists of income from operations plus depreciation and
amortization. EBITDA is not a measure of performance or financial condition
under generally accepted accounting principles, but is presented solely as
supplemental disclosure because the Company believes that it enhances the
understanding of the ability to service debt. EBITDA should not be
considered in isolation or as a substitute for other measures of financial
performance or liquidity under generally accepted accounting principles.
(6) Because the principal subsidiaries of the Company elected to be treated as S
corporations prior to the Company's IPO, a substantial portion of the
Company's net income prior to the IPO was distributed to its stockholders.
Subsequent to its IPO, earnings have been retained to support operations and
to finance expansion.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
In February 1994, Anchor completed its IPO of 3,162,500 shares of Common
Stock at a price of $12 per share. Simultaneously with the closing of the IPO,
Anchor became the holding company for its subsidiaries, Anchor Coin, Colorado
Grande Enterprises, Inc., C.G. Investments, Inc., and D D Stud, Inc., each of
which had been operated under different ownership structures controlled
primarily by Stanley E. Fulton, the Chairman of the Board, Chief Executive
Officer, and acting Chief Financial Officer of Anchor. Also at the time of the
IPO, the Company acquired all of the beneficial ownership of Global Gaming
Products, L.L.C. and certain related assets from Global Distributors, Inc. (the
"Acquisition"), which were primarily involved in the distribution of the
proprietary game Silver Strike. Stanley E. Fulton also owned 50% of Global
Gaming Products, L.L.C. prior to the Acquisition. The financial position and
operating results of Colorado Grande Enterprises, Inc. are included in the
consolidated financial statements as an 80% consolidated subsidiary.
On April 23, 1996, the Company completed a secondary offering of 2.3 million
shares of Common Stock at a price of $37 per share. Of these shares, 1.55
million were sold by the Company (the "Secondary Offering") and the remaining
750,000 shares were sold by selling stockholders. Net proceeds to the Company
from the Secondary Offering were $53.9 million.
The following table sets forth the percentage of Anchor's total revenues
attributable to casino operations, proprietary games operations, gaming machine
route operations, and food and beverage operations during the fiscal years ended
June 30, 1995, 1996, and 1997. The growth in proprietary games revenue as a
percentage of total revenues is attributable primarily to the Company's
introduction of the new proprietary game Wheel of Gold, which began generating
revenue in the third quarter of fiscal 1996 and to a lesser extent, the
commencement of the Company's strategic alliance with IGT during the second half
of fiscal 1997. The Company's food and beverage revenues are derived primarily
from its casino operations and, to a lesser extent, from its route operations.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
SOURCES OF REVENUES:
Casino operations....................................................... 57.7% 55.9% 45.0%
Proprietary games operations............................................ 14.5 18.4 32.4
Route operations........................................................ 26.5 24.6 21.8
Food and beverage operations............................................ 1.3 1.1 0.8
----- ----- -----
Total revenues...................................................... 100.0% 100.0% 100.0%
----- ----- -----
----- ----- -----
</TABLE>
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
REVENUES. Total revenues were $153.7 million for the fiscal year ended June
30, 1997, an increase of $37.2 million or 31.9% from $116.5 million for the
fiscal year ended June 30, 1996.
Revenues from casino operations were $69.2 million for the fiscal year ended
June 30, 1997, an increase of $4.1 million or 6.3% from $65.1 million for the
fiscal year ended June 30, 1996. The increase is primarily due to increased
revenues at the Colorado Central Station Casino and, to a lesser extent, due to
increased revenues at the Colorado Grande Casino.
Revenues from proprietary games operations were $49.7 million for the fiscal
year ended June 30, 1997, an increase of $28.2 million or 131.2% from $21.5
million for the fiscal year ended June 30, 1996. The increase is primarily due
to revenues generated from the Company's proprietary game, Wheel of
16
<PAGE>
Gold, introduced December 29, 1995, as well as revenues from the Company's
strategic alliance with IGT and, to a lesser extent, from its newest proprietary
game, Totem Pole, and increased revenues generated from the proprietary game
Clear Winner. These increases were offset to some extent by decreased revenues
generated from the proprietary game Silver Strike.
Revenues from route operations were $33.5 million for the fiscal year ended
June 30, 1997, an increase of $4.8 million or 16.7% from $28.7 million for the
fiscal year ended June 30, 1996. Machines on route increased to 801 at June 30,
1997, from 692 at June 30, 1996, while average machines on route during fiscal
1997 were 106 machines greater than fiscal 1996.
COSTS AND EXPENSES. Total costs and expenses were $100.6 million for the
fiscal year ended June 30, 1997, an increase of $18.0 million or 21.8% from
$82.6 million for the fiscal year ended June 30, 1996. Total costs and expenses
as a percentage of total revenues decreased to 65.5% during fiscal 1997 from
70.9% during fiscal 1996.
Costs and expenses of casino operations were $29.1 million for the fiscal
year ended June 30, 1997, an increase of $2.3 million or 8.6% from $26.8 million
for the fiscal year ended June 30, 1996. Casino costs and expenses as a
percentage of casino revenue increased to 42.0% during fiscal year 1997 from
41.2% during fiscal year 1996. The increase in casino costs and expenses was
primarily due to increased gaming taxes and promotions at both of the Company's
casinos.
Costs and expenses of proprietary games operations were $11.0 million for
the fiscal year ended June 30, 1997, a decrease of $1.1 million or 9.1% from
$12.1 million for the fiscal year ended June 30, 1996. Prior to the introduction
of Wheel of Gold, most of the proprietary games operations' costs were
associated with the production of Silver Strike tokens. Costs and expenses of
proprietary games operations decreased primarily due to a decrease in Silver
Strike token sales in fiscal year 1997 compared to fiscal year 1996. Proprietary
games costs and expenses as a percentage of proprietary games revenues decreased
to 22.1% during fiscal year 1997 from 56.3% during fiscal year 1996. The
decrease in proprietary games costs and expenses as a percentage of revenue is a
result of increased revenues from the Company's newer proprietary games, which
incur less costs and expenses as a percentage of revenue than the Company's
Silver Strike game, which previously accounted for most of the Company's
proprietary games revenue.
Costs and expenses of route operations were $19.9 million for the fiscal
year ended June 30, 1997, an increase of $2.7 million or 15.7% from $17.2
million for the fiscal year ended June 30, 1996. Costs and expenses of route
operations as a percentage of route revenue remained fairly constant at 59.4%
during fiscal year 1997 compared to 59.9% during fiscal year 1996. The increase
in route costs and expenses was primarily due to increased location costs and,
to a lesser extent, increased direct payroll costs, both related to increased
machines on route.
Selling, general, and administrative ("SG&A") expenses were $28.2 million
for the fiscal year ended June 30, 1997, an increase of $7.1 million or 33.7%
from $21.1 million for the fiscal year ended June 30, 1996. SG&A expenses as a
percentage of total revenue remained fairly constant at 18.4% during fiscal year
1997 compared to 18.1% during fiscal year 1996. The increase in total SG&A
expenses is primarily due to increased expenses in the Company's proprietary
games operations of approximately $4.7 million primarily due to increased
research, development, and licensing costs and an increase in SG&A expenses at
the Colorado Central Station Casino of approximately $2.0 million.
In November 1996, the Company announced it was re-evaluating the scope and
nature of its proposed addition of a new casino across the street from the
Colorado Central Station Casino. During the fourth quarter of fiscal year 1997,
the Company determined it was necessary to recognize a project cost write-down
of $2.1 million. The project costs were specifically related to architectural
fees, building design costs, and deferred rent that were determined to have no
future benefit.
Depreciation and amortization expense was $8.8 million for the fiscal year
ended June 30, 1997, an increase of $4.7 million or 114.6% from $4.1 million for
the fiscal year ended June 30, 1996. This increase
17
<PAGE>
is primarily due to increased depreciation and amortization expense incurred in
the Company's proprietary games operations.
INCOME FROM OPERATIONS. As a result of the factors discussed above, income
from operations was $53.2 million for the fiscal year ended June 30, 1997, an
increase of $19.3 million or 56.9% from $33.9 million for the fiscal year ended
June 30, 1996. As a percentage of total revenues, income from operations
increased to 34.6% during fiscal year 1997 from 29.1% during fiscal year 1996.
INTEREST INCOME. Interest income was $3.8 million for the fiscal year ended
June 30, 1997, an increase of $1.8 million or 90.0% from $2.0 million for the
fiscal year ended June 30, 1996. The increase is due to increased short-term
investments resulting from an increase in working capital generated from
operations as well as cash invested from the Secondary Offering.
INTEREST EXPENSE. Interest expense was $288,000 for the fiscal year ended
June 30, 1997, a decrease of $141,000 or 32.9% from $429,000 for the fiscal year
ended June 30, 1996. The decrease is due to reduced average notes payable during
fiscal year 1997 as compared to fiscal year 1996.
NET INCOME. As a result of the factors discussed above, net income was $35.7
million for the fiscal year ended June 30, 1997, an increase of $13.4 million or
60.1% from $22.3 million for the fiscal year ended June 30, 1996.
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
REVENUES. Total revenues were $116.5 million for the fiscal year ended June
30, 1996, an increase of $19.1 million or 19.6% from $97.4 million for the
fiscal year ended June 30, 1995.
Revenues from casino operations were $65.1 million for the fiscal year ended
June 30, 1996, an increase of $8.9 million or 15.8% from $56.2 million for the
fiscal year ended June 30, 1995. The increase is primarily due to increased
revenue at the Colorado Central Station Casino and, to a lesser extent, due to
increased revenues at the Colorado Grande Casino.
Revenues from proprietary games operations were $21.5 million for the fiscal
year ended June 30, 1996, an increase of $7.3 million or 51.4% from $14.2
million for the fiscal year ended June 30, 1995. The increase is primarily due
to revenues generated from the Company's proprietary game, Wheel of Gold,
introduced December 29, 1995, as well as increased revenues generated from the
proprietary games Clear Winner and Silver Strike.
Revenues from route operations were $28.7 million for the fiscal year ended
June 30, 1996, an increase of $2.9 million or 11.2% from $25.8 million for the
fiscal year ended June 30, 1995. Machines on route increased to 692 at June 30,
1996, from 606 at June 30, 1995, while average machines on route during fiscal
year 1996 were 70 machines greater than fiscal year 1995.
COSTS AND EXPENSES. Total costs and expenses were $82.6 million for the
fiscal year ended June 30, 1996, an increase of $10.0 million or 13.8% from
$72.6 million for the fiscal year ended June 30, 1995. Total costs and expenses
as a percentage of total revenues decreased to 70.9% during fiscal 1996 from
74.5% during fiscal 1995.
Costs and expenses of casino operations were $26.8 million for the fiscal
year ended June 30, 1996, an increase of $5.3 million or 24.7% from $21.5
million for the fiscal year ended June 30, 1995. Casino costs and expenses as a
percentage of casino revenue increased to 41.2% during fiscal year 1996 from
38.3% during fiscal year 1995. The increase in casino costs and expenses was
primarily due to increased gaming taxes, direct payroll, and promotions at both
of the Company's casinos.
Costs and expenses of proprietary games operations were $12.1 million for
the fiscal year ended June 30, 1996, an increase of $2.2 million or 22.2% from
$9.9 million for the fiscal year ended June 30, 1995. Proprietary games costs
and expenses as a percentage of proprietary games revenues decreased to
18
<PAGE>
56.3% during fiscal year 1996 from 69.7% during fiscal year 1995. The decrease
in proprietary games costs as a percentage of revenue is a result of the
introduction during fiscal year 1996 of Wheel of Gold which incurs less costs
and expenses as a percentage of revenue than the Company's other proprietary
games.
Costs and expenses of route operations were $17.2 million for the fiscal
year ended June 30, 1996, an increase of $1.5 million or 9.6% from $15.7 million
for the fiscal year ended June 30, 1995. Costs and expenses of route operations
as a percentage of route revenue decreased to 59.9% during fiscal year 1996 from
60.9% during fiscal year 1995. The increase in route costs and expenses was
primarily due to increased location costs, related to increased machines on
route and, to a lesser extent, increased direct payroll costs.
SG&A expenses were $21.1 million for the fiscal year ended June 30, 1996, an
increase of $125,000 or 0.6% from $20.9 million for the fiscal year ended June
30, 1995. SG&A expenses as a percentage of total revenue decreased to 18.1%
during fiscal year 1996 from 21.5% during fiscal year 1995. The increase in SG&A
expenses is primarily due to increased expenses at the Company's Colorado
Central Station Casino of approximately $1.2 million and an increase in SG&A
expenses in the Company's proprietary games operations of approximately
$828,000, mostly offset by a reduction in corporate development costs. The
Company incurred $269,000 in development costs during the fiscal year ended June
30, 1996 as compared to approximately $2.1 million during the fiscal year ended
June 30, 1995.
Depreciation and amortization expense was $4.1 million for the fiscal year
ended June 30, 1996, an increase of $895,000 or 28.0% from $3.2 million for the
fiscal year ended June 30, 1995. The increase is primarily due to increased
depreciation and amortization expense incurred in the Company's proprietary
games operations.
INCOME FROM OPERATIONS. As a result of the factors discussed above, income
from operations was $33.9 million for the fiscal year ended June 30, 1996, an
increase of $9.0 million or 36.1% from $24.9 million for the fiscal year ended
June 30, 1995. As a percentage of total revenues, income from operations
increased to 29.1% during fiscal year 1996 from 25.6% during fiscal year 1995.
INTEREST INCOME. Interest income was $2.0 million for the fiscal year ended
June 30, 1996, an increase of $923,000 or 83.9% from $1.1 million for the fiscal
year ended June 30, 1995. The increase is due to increased short-term
investments resulting from an increase in working capital generated from
operations as well as cash invested from the Secondary Offering.
INTEREST EXPENSE. Interest expense was $429,000 for the fiscal year ended
June 30, 1996, a decrease of $303,000 or 41.4% from $732,000 for the fiscal year
ended June 30, 1995. The decrease is due to reduced average notes payable during
fiscal year 1996 as compared to fiscal year 1995.
NET INCOME. As a result of the factors discussed above, net income was $22.3
million for the fiscal year ended June 30, 1996, an increase of $6.3 million or
39.4% from $16.0 million for the fiscal year ended June 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Anchor's principal sources of liquidity have been cash flows from operations
and the net proceeds from the Secondary Offering in April 1996 and the IPO in
February 1994. Net proceeds to the Company from the Secondary Offering were
$53.9 million, and net proceeds from the IPO were $34.1 million. Net cash
provided by operating activities was $43.4 million during fiscal year 1997 and
$28.8 million during fiscal year 1996. At June 30, 1997, the Company had cash
and cash equivalents of $66.4 million, working capital of $64.6 million, and a
$10.0 million unsecured revolving bank line of credit (the "Bank Revolver").
In fiscal year 1997, the Company spent $38.1 million on capital
expenditures, primarily related to the purchase of gaming devices and equipment
for use in its proprietary games operations of approximately $30.0 million. In
addition, the Company spent $5.7 million during fiscal year 1997 related to
projects in
19
<PAGE>
Colorado including the expansion of the existing Colorado Central Station Casino
to accommodate an additional 65 gaming machines, the expansion and improvement
of parking facilities at the Colorado Central Station Casino, and the planned
development of a second casino in Black Hawk, Colorado. The Company spent $2.1
million on architectural and design costs for the planned development of the
second casino in fiscal year 1997 and fiscal year 1996 which was ultimately
written off in fiscal year 1997. The Company anticipates that capital
expenditures for the fiscal year ending June 30, 1998 will be at least $17.0
million, which will consist primarily of expenditures to purchase gaming devices
and equipment for use in its proprietary games operations.
In April 1997, the board of directors authorized a repurchase of up to
1,000,000 shares of Common Stock. At June 30, 1997, the Company had repurchased
336,000 shares of Common Stock at a cost of $13.5 million.
During fiscal year 1997, the Company made $3.1 million in advances to a 50%
owned joint venture engaged in the operation of proprietary gaming devices.
In November 1996, the Company's $20 million secured bank line of credit
expired. In April 1997, the Company entered into the Bank Revolver, which
expires November 30, 1998. The Bank Revolver bears interest at the prime rate of
interest or LIBOR plus 2%, at the Company's option. The Company has agreed to
maintain certain financial and non-financial covenants customary with lending
arrangements of this type. The Company has complied with the covenants
throughout the term of the expired credit facility and the Bank Revolver. During
fiscal year 1997 the Company did not borrow under the Bank Revolver or the line
of credit.
The Company believes its principal liquidity requirements will be the
purchase of additional proprietary gaming machines in formats that have already
been introduced to the market, the development and purchase of proprietary
gaming machines in formats that have not yet been introduced, and depending upon
the outcome of the Company's re-evaluation of the scope and nature of its
Colorado expansion options, the funding of such an expansion. At June 30, 1997,
the Company had commitments to purchase gaming equipment for approximately $5.6
million. The Company believes that cash on hand, cash flow from operations, and
available borrowings under the Bank Revolver will be sufficient to fund its
currently planned capital projects and operations.
The Company continually seeks opportunities to expand its gaming oriented
businesses in new and existing gaming jurisdictions. If successful in pursuing
another opportunity in any gaming oriented business and depending on the amount
of funding required, the Company may be required to obtain additional financing.
RECENTLY ADOPTED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("SFAS 121"). SFAS 121 requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS 121 is effective for
fiscal years beginning after December 15, 1995. Adoption of SFAS 121 in the
current year did not have a material effect on the consolidated financial
statements of the Company.
In October 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), which establishes financial accounting
and reporting standards for stock-based employee compensation plans and for
transactions in which an entity issues its equity instruments to acquire goods
or services from nonemployees. The Company continues to account for stock based
compensation arrangements in accordance with Accounting Principles Board No. 25,
"Accounting for Stock Issued to Employees," and therefore the adoption of SFAS
123 had no effect on the financial position or results of
20
<PAGE>
operations of the Company. The Company has included additional disclosures about
stock-based employee compensation plans as required by SFAS 123 in its financial
statements.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the FASB issued Statement No. 128, "Earnings per Share."
This statement establishes standards for computing and presenting earnings per
share and is effective for financial statements issued for periods ending after
December 15, 1997. Earlier application of this statement is not permitted and
upon adoption requires restatement (as applicable) of all prior-period earnings
per share data presented. Management believes that the implementation of this
standard will not have a significant effect on earnings per share.
In February 1997, the FASB issued Statement No. 129, "Disclosure of
Information about Capital Structure." This statement establishes standards for
disclosing information about an entity's capital structure. Management intends
to comply with the disclosure requirements of this statement, which are
effective for periods ending after December 15, 1997.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). This statement requires companies to classify items of
other comprehensive income by their nature in a financial statement and display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS 130 is effective for financial statements issued for
fiscal years beginning after December 15, 1997. Management does not believe that
SFAS 130 will have a material effect on Anchor's financial statements.
In June 1997, the FASB issued Statement No. 131, "Disclosure About Segments
of an Enterprise and Related Information" ("SFAS 131"). This statement
establishes additional standards for segment reporting in the financial
statements and is effective for fiscal years beginning after December 15, 1997.
The Company believes the segment information required to be disclosed under SFAS
131 will be more comprehensive than previously provided, including expanded
disclosure of income statement and balance sheet items for each of its
reportable segments under SFAS 131. However, the Company has not yet completed
its analysis of which operating segments will be subject to this reporting
requirement.
21
<PAGE>
BUSINESS
GENERAL
Anchor is a diversified gaming company that seeks to capitalize on its
experience as an operator and developer of gaming machines and casinos by
developing gaming oriented businesses. Anchor develops and distributes unique
proprietary games, operates two casinos in Colorado, including the state's most
profitable casino, and operates one of the largest and one of the most
profitable gaming machine routes in Nevada. Management believes that the Company
benefits from, among other factors: (i) depth of experienced and proven
management at both the corporate and operating levels; (ii) a diversified and
stable earnings base with significant recurring revenue sources; (iii) unique
experience in developing and marketing proprietary games; (iv) proven experience
in developing, constructing, and operating profitable casino enterprises; (v)
the ability to effectively and profitably distribute existing and new
proprietary games due to its large established casino customer base and its
licenses in virtually all major domestic gaming jurisdictions; (vi) a strong
balance sheet with which to fund future growth opportunities; and (vii)
attractive existing internal growth opportunities in its core businesses. Since
fiscal year 1990, its first full year of operations, through fiscal year 1997,
Anchor has achieved eight consecutive years of revenue, net income, and earnings
per share growth, with revenue, net income, and earnings per share during this
period growing at compounded annual rates of 44%, 63%, and 43%, respectively.
Additionally, Anchor's operating results through September 30, 1997 reflect 21
consecutive quarters in which revenue, net income, and earnings per share
increased over the comparable period in the prior year.
PROPRIETARY GAMES
Anchor develops proprietary games, which it both markets to unaffiliated
casinos and uses in its own gaming operations. The Company's strategy is to
develop games that provide casinos with a higher win per machine than their
existing gaming devices while generating significant recurring revenues to the
Company from royalty, revenue participation, or other similar agreements.
Although the Company initially developed proprietary games as a complement to
its own gaming machine operations, since February 1993 the Company has actively
marketed its proprietary games to unaffiliated casinos. The Company currently
provides proprietary games to virtually every major casino in the United States,
as well as its own casinos. In September 1996, the Company entered into a
strategic alliance with IGT to enhance the Company's ability to develop and
distribute proprietary games. Through this strategic alliance the Company and
IGT have formed the Anchor IGT JV to develop, integrate, and distribute
proprietary game concepts on a WAP system. The strategic alliance also
contemplates that in certain circumstances and in specified jurisdictions, the
proprietary game concepts may be developed and distributed on a stand alone
basis. The Company's revenues from proprietary games totaled $49.7 million for
the fiscal year ended June 30, 1997, an increase of approximately 132% over
fiscal year 1996.
The Company, seeking to capitalize on its established sales and marketing
infrastructure, its extensive base of existing casino customers, and its
licenses in virtually all major domestic gaming jurisdictions, has been actively
developing proprietary games, which can be classified as either a dedicated
proprietary game, a proprietary game on a WAP, or a converted proprietary game.
The Company's proprietary games are designed to increase gaming customer play
levels by either enticing the customer to play longer or to wager more coins per
play. The Company believes that a significant opportunity exists to further
expand and develop the market for proprietary games distributed on a
participation basis.
DEDICATED PROPRIETARY GAMES. The Company has successfully developed or
acquired the rights to five proprietary games that are currently installed and
approved for use in unaffiliated casinos. Anchor's dedicated proprietary games
include Wheel of Gold, Totem Pole, Silver Strike, Clear Winner, and
Rock'N'Reels. All of the machines are placed in casinos free of charge under
royalty, revenue participation, or other similar agreements, allowing the casino
to avoid up-front purchase costs and providing significant recurring revenues to
Anchor. The machines utilize numerous unique concepts and designs in
22
<PAGE>
order to increase overall gaming customer play levels. For example, the
Company's two most popular dedicated proprietary games, Totem Pole and Wheel of
Gold, each incorporate innovative game features that contribute to higher play
levels. Totem Pole comprises three games in one slot machine creating a unique
visual presentation in the casino environment. Greater play levels are realized
on Totem Pole because the player must insert the maximum number of coins to
activate all three games and benefit from the addition of a "wild" symbol.
Players on the Wheel of Gold machine have the opportunity to activate on the
same machine a three dimensional "roulette" type wheel with significantly higher
potential winnings, providing a secondary game event and additional excitement
to the customer through the Company's "game within a game" concept. Anchor's
"game within a game" concept provides the player an incentive to increase play
through the secondary game event, thereby maximizing customer playing time.
Wheel of Gold is the first generation of the Company's "game within a game"
concept that management believes will form the basis of a significant portion of
its future dedicated proprietary game designs. The Company has additional
innovative game machine concepts in various stages of development using the
Company's "game within a game" concept and other unique concepts.
WAP PROPRIETARY GAMES. A WAP is a system that electronically links
individual slot machines among multiple locations, allowing all the machines to
share a common jackpot. The WAP jackpot increases, or progresses, by a certain
percentage of each coin inserted into any one of the machines on the WAP
network, thereby allowing the jackpot to increase rapidly to a significant
amount. Management believes that the larger jackpots offered by WAP machines
attract a distinct portion of a customer's gaming budget as compared to a
non-progressive slot machine. In order to capture this portion of a customer's
gaming budget, the Company has entered into a strategic alliance resulting in
the Anchor IGT JV for the purpose of developing and installing WAP machines
based on both existing dedicated proprietary games and other proprietary
designs. The Company and IGT share in the management of the Anchor IGT JV and
will share equally in its profits and losses. The first WAP machine introduced
by the Anchor IGT JV is the Wheel of Fortune-TM-, a game that is very similar to
the Company's Wheel of Gold. Additionally, the Anchor IGT JV has recently
introduced Totem Pole on a WAP and has other WAP concepts at various stages of
development.
CONVERSION OPPORTUNITY. The Company's first proprietary game was the video
poker game Double Down Stud, a software conversion kit that the Company installs
in existing third party casino gaming machines. The enhancement created by this
installation provides the Company a daily royalty for each converted machine.
Management believes that as casinos experience pressure to increase "same store
sales" they will seek to enhance the performance of their installed base of
machines by adding new features by means of conversion kits. The Company is
currently developing technology to allow older generation slot machines to
utilize additional features such as the "game within a game" concept. The
Company anticipates that future conversion kits would be installed on a royalty
or similar basis. The Company estimates that there are currently more than
300,000 slot machines installed in the United States. The Company believes that
this installed base of machines represents a substantial opportunity for
installation of conversion kits.
23
<PAGE>
The following is a description of the Company's proprietary games that are
currently being distributed.
<TABLE>
<S> <C>
- - DOUBLE DOWN STUD Double Down Stud is a software conversion kit introduced in 1993 that
is installed in casino customers' gaming machines to allow players to
play a unique version of video poker.
- - SILVER STRIKE Silver Strike is a standard slot machine, the rights to which were
acquired at the time of the IPO in 1994, that pays out souvenir tokens
for certain winning combinations. Anchor furnishes Silver Strike
machines free of charge to its casino customers, who agree to purchase
the silver tokens exclusively from the Company.
- - CLEAR WINNER Clear Winner is a standard slot machine introduced in 1995 that is
remanufactured into a clear cabinet so that players can observe all of
its inner workings. The game includes state of the art signage and a
custom designed cabinet.
- - WHEEL OF GOLD Wheel of Gold is a standard slot machine introduced in 1995 that has
the added dimension of giving players the opportunity to activate on
the same machine a three-dimensional "roulette" type wheel with
significantly higher potential winnings, providing additional
excitement to the player through the Company's "game within a game"
concept.
- - TOTEM POLE Introduced in 1996, Totem Pole incorporates three games in one device,
each of which is activated by inserting two coins. Each successive game
played provides the possibility of greater payback to the player. When
the player activates all three games by playing six coins, the player
is rewarded with a "wild" symbol common to all three games.
- - ROCK'N'REELS Introduced in 1996, Rock'N'Reels is a specially packaged standard slot
machine designed to evoke the image of a vintage juke box. The game is
enhanced with state of the art sound and signage.
</TABLE>
The Company derives recurring revenues on these machines in various forms,
including daily or similar royalties, revenue participation agreements, and
other similar agreements with casinos, and, in the case of Silver Strike, by
selling the souvenir tokens to casinos.
DEVELOPMENT. Anchor is continually engaged both in the development of new
proprietary games and in the improvement of existing games. After the Company
has identified the basic concept for a new game, it works to refine the new game
to maximize player appeal. The Company's efforts include computer simulated
studies of the game probabilities to determine the optimal pay schedules;
research of, and application for, any significant intellectual property rights
that can be claimed; design of packaging for the game; establishment of a
pricing strategy for the game; and application for the necessary regulatory
approvals. Anchor then solicits feedback from potential casino customers to
further refine the game. At the production stage, Anchor and the manufacturer
refine the technology and construction of the game. Prior to the release of any
new game, Anchor must receive necessary regulatory approvals.
DISTRIBUTION. Anchor has an established sales organization with offices in
Nevada, Missouri, Mississippi, Louisiana, and New Jersey servicing an
established customer base of over 200 casinos at June 30, 1997. The Company
distributes its proprietary games primarily through a direct sales effort in
which sales representatives call on casinos and other potential customers.
Anchor also uses distributors in a limited number of jurisdictions.
ANCHOR IGT STRATEGIC ALLIANCE. In September 1996, the Company entered into
an agreement with IGT (the "Strategic Alliance"). The Company believes that the
Strategic Alliance will facilitate both the
24
<PAGE>
expansion of their proprietary games business and the Company's ability to
develop and distribute additional proprietary games on a WAP.
As part of the Strategic Alliance, Anchor and IGT have formed an initial
joint venture. The Company and IGT share in the management of the joint venture
and will share equally in its profits and losses. IGT's WAP system is being used
within the joint venture for a variety of the Company's dedicated proprietary
game concepts including Wheel of Gold and Totem Pole. IGT's Wheel of Fortune-TM-
game is also covered under the Strategic Alliance. Property, including
intellectual property, developed through the joint venture is owned by the joint
venture. The joint venture agreement has an initial duration of ten years and
terminates unless the parties thereto agree to an extension. After the initial
ten year term, either party may terminate the joint venture upon at least one
year's prior notice. The joint venture does not acquire any rights to the
intellectal property rights of each of Anchor and IGT that are developed outside
of the joint venture.
The Company believes the Strategic Alliance will enhance the profitability
of games developed by the Company in the future through either an expansion of
the initial joint venture or similar joint venture agreements with IGT, or both.
In the event that any particular state jurisdiction prohibits the equal share of
profits and losses, management responsibility, or allocation of expenses in the
joint venture, it is contemplated that alternative arrangements will be made to
satisfy such regulatory objections.
INTELLECTUAL PROPERTY RIGHTS. Anchor has secured and endeavors to secure,
to the extent possible, exclusive rights in its games, primarily through federal
and foreign intellectual property rights, such as patents and trademarks. The
United States Patent and Trademark Office has issued four patents covering the
Double Down Stud games in the United States. These patents expire on March 31,
2009. The United States Patent and Trademark Office has issued one patent
covering innovations of the Silver Strike game in the United States, but there
is no independent protection of the game itself. This patent expires on March
14, 2012. In 1993, the Company received a U.S. patent relating to a system it
developed that allows players of gaming devices to participate in a group game,
such as bingo, without leaving the gaming device they are playing. In order to
protect potential foreign sources of income, the Company has filed patent
applications and trademark applications in strategically selected foreign
countries. There can be no assurance that any of the pending U.S. or foreign
patent or trademark applications will issue as patents or trademark
registrations, respectively, or that any of these rights will not be infringed
by others or that already issued patents or trademark registrations will not be
invalidated or canceled. None of the foregoing measures provides assurance that
Anchor's proprietary games or the concepts incorporated in the games could not
be successfully duplicated by third parties. Third parties could infringe on
Anchor's rights, or Anchor's proprietary games could be successfully duplicated
without infringing on Anchor's legal rights. Many elements incorporated in
Anchor's proprietary games are in the public domain or otherwise not susceptible
to legal protection, and the steps taken by Anchor will not, in and of
themselves, preclude competition with Anchor's proprietary games.
Double Down Stud, Colorado Central Station Casino, Silver Strike, and Fast
Track Express are registered trademarks of Anchor. Anchor also has applications
pending on several other trademarks and/ or service marks, including Anchor
Coin, Anchor Gaming, Anchor Games, Spin for Cash, Wheel of Gold, Clear Winner,
Colorado Grande, Totem Pole, CashBall, KenoBucks, Rock'N'Reels, Maggie's Slot
Club, and Fast Track Slot Club. There can be no assurance that the pending
trademark or patent applications will be issued, that the Company's applications
will not be opposed by a third party, or that Anchor will not face third
parties' claims to prior use of one or more of these marks or patents.
CASINOS
GENERAL. In November 1990, the state of Colorado approved limited stakes
gaming ($5.00 or less per wager) in two historic gold mining areas, Black
Hawk/Central City and Cripple Creek. Because of the $5.00 maximum bet, Anchor's
casinos in Colorado emphasize gaming machine play. Anchor currently
25
<PAGE>
operates a casino in each of these markets, the Colorado Central Station Casino
in Black Hawk and the Colorado Grande Casino in Cripple Creek. Black Hawk and
Central City are contiguous and are located approximately 40 miles from Denver
and 10 miles from Interstate 70, the main highway connecting Denver to many of
Colorado's major ski resorts. Cripple Creek is located approximately 45 miles
from Colorado Springs and 75 miles from Pueblo. Casinos located in the Black
Hawk/Central City area serve primarily the residents of Denver and Boulder,
Colorado and surrounding communities, an area with a total population in excess
of 1.8 million. Approximately three million people live within a 100-mile radius
of the Black Hawk/Central City area. Casinos located in Cripple Creek serve
primarily the residents of Colorado Springs, Pueblo, and surrounding
communities. More than two million people live within a 100-mile radius of
Cripple Creek.
The following table sets forth statistical information related to casinos in
the state of Colorado, the Black Hawk/Central City market, Cripple Creek, and
the Company's casinos during the fiscal years ended June 30, 1995, 1996, and
1997 compiled from data published by the Colorado Limited Gaming Control
Commission.
<TABLE>
<CAPTION>
COMBINED COLORADO
BLACK HAWK/ CENTRAL COLORADO
CENTRAL STATION CRIPPLE GRANDE
FISCAL YEARS ENDED JUNE 30, COLORADO CITY CASINO CREEK CASINO
--------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenue per device per day (1):
1997.................................... $ 86 $ 99(2) $ 239 $ 63 $ 119
1996.................................... 87 96(2) 253 69 105
1995.................................... 81 88(2) 225 65 80
Aggregate gaming revenue (in thousands):
1997.................................... $ 423,432 $ 315,983 $ 60,284 $ 107,449 $ 9,170
1996.................................... 401,864 302,971 57,698 98,893 7,522
1995.................................... 358,861 270,282 50,763 88,579 5,583
Average number of gaming devices in
operation(1):
1997.................................... 13,435 8,758 689 4,677 212
1996.................................... 12,607 8,691 625 3,917 196
1995.................................... 12,117 8,394 617 3,723 192
Average number of casinos in operation:
1997.................................... 56 32 -- 25 --
1996.................................... 57 32 -- 25 --
1995.................................... 59 34 -- 24 --
</TABLE>
- ------------------------------
(1) Devices include gaming machines and table games.
(2) Revenue per device per day for the combined Black Hawk/Central City market
excluding the Colorado Central Station Casino was $87, $83, and $77 for the
fiscal years ended June 30, 1997, 1996, and 1995, respectively.
COLORADO CENTRAL STATION CASINO. On December 25, 1993, the Company opened
the Colorado Central Station Casino in Black Hawk at a cost of approximately
$25.0 million. The Colorado Central Station Casino is currently the highest
revenue producing and most profitable casino in the state. After completion of a
2,750 square foot expansion in 1996, the casino building has approximately
49,000 square feet of main facility area, with 16,637 square feet of gaming
space over three floors. The Colorado Central Station Casino features more than
680 gaming machines, ten blackjack tables, nine poker tables, and a food court
restaurant area. The casino benefits from a favorable location, as it is the
first casino encountered by customers traveling from Denver to the Black
Hawk/Central City area. In addition, the Colorado Central Station Casino offers
convenient parking to its customers, with more than 770 parking spaces, whereas
many other casinos in the Black Hawk/Central City market lack convenient parking
and,
26
<PAGE>
as a result, have had difficulty attracting and retaining customers. The
Colorado Central Station Casino is also the closest casino to Black Hawk's 3,000
space public parking facility, located one and one-half miles from the casino,
and is the first stop from the parking facility on the parking lot shuttle bus
route. Anchor believes that the Colorado Central Station Casino's location,
convenient parking, size and design, and highly successful Fast Track Slot Club
and player tracking system give it a competitive advantage over the other
casinos in the Black Hawk/Central City market. The Colorado Central Station
Casino is situated on approximately 1.8 acres of land on the south end of Black
Hawk, near Main Street and Colorado State Highway 119. The Colorado Central
Station Casino's net win per device (which includes both gaming machines and
table games) per day was $239 for the fiscal year ended June 30, 1997 as
compared to a reported average net win per device per day of $87 for the other
casinos in the Black Hawk/Central City market for the same period.
The Colorado Central Station Casino is fashioned in the style of a 19th
century mining town railroad station. According to information on file with the
Colorado Historic Preservation Office, the Colorado Central Station Casino
property is within the Black Hawk Registered Historic District and meets the
historical guidelines for use as a gaming establishment. Most casinos in
Colorado occupy buildings that were originally constructed for uses other than
gaming. In contrast, the Colorado Central Station Casino was constructed
specifically for gaming activities, and as a result offers a more open, spacious
gaming area, while using the maximum square footage allowed under Colorado law,
which limits the square footage of a casino that may be used for gaming
activities to 35% of the building and 50% of any one floor. At June 30, 1997,
the Colorado Central Station Casino employed approximately 444 people and by law
is allowed to be open seven days a week from 8:00 a.m. to 2:00 a.m.
All gaming machines at the Colorado Central Station Casino offer bill
validators that accept $1, $5, $10, $20, $50, and $100 bills. Management
believes that bill validators increase revenues from its machines by allowing
faster play and eliminating waiting time for change. In addition, the Company
has installed an automated player tracking system at the casino that is tied
into the Company's accounting system to provide detailed management reports
regarding gaming machine use. The system facilitates the casino's Fast Track
Slot Club, which is designed to attract and retain gaming patrons by enabling
the Company to identify, market to, and reward its loyal customers. For the year
ended June 30, 1997, over 65% of all money wagered at gaming machines at the
Colorado Central Station Casino was from Fast Track Slot Club members.
COLORADO GRANDE CASINO. The Company operates (through an 80% owned
subsidiary) the Colorado Grande Casino in Cripple Creek, which is located
approximately 45 miles from Colorado Springs and 75 miles from Pueblo. The
Colorado Grande Casino, which opened October 11, 1991, is located at one of the
principal intersections in Cripple Creek and features more than 210 gaming
machines, 44 adjacent parking spaces, and a full service restaurant and bar. In
August 1995, the Company completed the installation of an automated player
tracking system and a player slot club, "Maggie's Slot Club." Maggie's Slot Club
and the player tracking system have enabled the casino to implement marketing
programs designed to attract and increase the number of loyal casino customers.
At June 30, 1997, Maggie's Slot Club had more than 50,000 members, a 108%
increase over the prior year. Primarily as a result of a continual building of a
customer base through the slot club and player tracking system, along with
monthly Maggie's Slot Club promotions, slot revenue at the Colorado Grande
Casino increased approximately 24% during fiscal year ended June 30, 1997 as
compared to fiscal year ended June 30, 1996. At June 30, 1997, the Colorado
Grande Casino employed approximately 101 people and by law is allowed to be open
seven days a week from 8:00 a.m. to 2:00 a.m.
27
<PAGE>
CANADIAN OPPORTUNITY. On September 26, 1997 the Ontario provincial
government granted the Anchor RPC JV permission to own and operate six permanent
full-time and one part-time seasonal charity gaming clubs in Ontario, Canada.
The Anchor RPC JV is a joint venture entered into in January 1997 between Anchor
and RPC Gaming, Ltd., a subsidiary of RPC, for the purpose of submitting a
proposal to own and operate charity casino operations in the Province of
Ontario. RPC, an Ontario based public real estate company, is engaged in the
acquisition and ownership of income-producing properties in Canada and the
United States. RPC owns and operates 42 properties in 20 communities in Canada
and was recently granted a nonrestricted gaming license in the state of Nevada.
The full-time charity gaming clubs awarded to the Anchor RPC JV are located
in Toronto-North York; Fort Erie; Toronto-South Etobicoke/York;
Hamilton/Oakville/Burlington; Kitchner/Waterloo; and Sarnia. The part-time
seasonal gaming club awarded to the Anchor RPC JV is in South Western Ontario
(Brantford). Fort Erie is located directly across the U.S. border from Buffalo,
New York and Sarnia is located directly across the U.S. border from Port Huron,
Michigan. See "Risk Factors -- Risks of Pursuing New Gaming Opportunities--Risks
of Canadian Development."
These charity gaming clubs will replace the current three-day roving Monte
Carlo events and are being introduced by the Ontario provincial government as a
way to both stabilize funding to charities and to increase control, supervision,
and accountability in this gaming sector. The provincial government has had
substantial success in introducing other regulated gaming locations as
illustrated by the commercial casinos in Windsor and Niagara Falls, Canada. Each
permanent charity gaming club location will be limited to a total of 150 video
lottery terminals and 40 table games. The Province of Ontario anticipates that
the permanent charity gaming clubs will be approximately one-tenth of the size
of a commercial casino such as Niagara Casino. Since its opening on December 9,
1996, through July 31, 1997, the Niagara Casino has reported revenues of $313
million. The permanent charity gaming clubs will be operated under management
agreements with the provincial government, which will provide the operator with
10% of video lottery terminal revenue, 5% of table game, retail, and food and
beverage revenue, and 10% of net income, as adjusted.
The charity gaming clubs by law will be able to operate seven days a week up
to 24 hours a day depending upon market conditions and will have a minimum table
gaming bet of $2 and a maximum of $100. In addition, credit will not be
available to customers and the charity gaming clubs will have restrictions on
exterior signage and advertising.
ROUTE OPERATIONS
Anchor is one of the largest gaming machine route operators in Nevada with
801 gaming machines in 58 locations at June 30, 1997, up from 692 gaming
machines in 50 locations at June 30, 1996. The Company's gaming machine route
operations in Nevada involve the installation, operation, and service of gaming
machines (virtually all video poker machines) under space leases with retail
chains and under revenue participation agreements with local taverns and retail
stores, principally in the Las Vegas area. Management believes that its route
operation contracts provide the Company with a long-term, stable revenue source
and that its route has the highest revenue and profit per machine of any route
operation in the state of Nevada. In 1996, the Company extended its exclusive
space lease agreement with Smiths, its largest route customer, for an additional
five years at current rates through 2010. At June 30, 1997, 716 of the Company's
801 gaming machines in Nevada were located in or near Las Vegas, which has been
one of the fastest growing cities in the United States in recent years. Anchor
believes that its route operations will benefit from the continued growth of the
Las Vegas area, the associated growth of its existing customers in that market,
and the Company's continued installation of bill validators on its gaming
machines.
Anchor's agreements for its locations generally are in the form of either
written space lease agreements or revenue sharing contracts and generally give
Anchor the exclusive right to install gaming machines at such locations. Two of
the Company's gaming route agreements are space leases with major retail chains
that require payments of fixed monthly fees based on the amount of space used or
the number
28
<PAGE>
of gaming machines installed at each location. The remainder of the Company's
gaming route agreements are revenue participation arrangements, which provide
for the payment to the location owner of a percentage of revenues generated by
Anchor's machines at such location. A location owner is not permitted to receive
a percentage of revenues unless such owner is licensed by the Nevada Gaming
Commission. See "Regulation -- Nevada."
In 1996, Anchor extended its space lease agreement with its largest gaming
machine route customer, Smiths, which was scheduled to expire in the year 2005,
for five additional years at current rates through 2010. Anchor paid $5.0
million to Smiths for this extension. The agreement with Smiths provides for a
fixed monthly rental fee per store throughout the term of the agreement and
grants Anchor the exclusive right to install gaming machines at all Smiths
stores in Nevada, including stores opened in the future.
Anchor's space leases and revenue participation arrangements generally
require Anchor to pay all installation, maintenance, and insurance expenses
related to its operations at each location. Applicable taxes are paid by Anchor
under space leases and are generally shared on the same basis as revenues under
revenue participation arrangements. The leases generally provide that if Anchor
fails to pay the required rental or license fees or defaults in the performance
of any of its other obligations, the location operator can terminate the lease.
Anchor believes that it is not in default under any of its present space leases
or revenue participation arrangements. Generally, in the ordinary course of
business, Anchor has lease and other security deposits, prepaid rent, and
advances held by the owners of chain stores and other location operators.
Anchor attempts to attract and retain gaming machine route patrons by
offering an attractive selection of gaming machines. Prior to installing
machines at a location, Anchor studies the market potential and customer base
and determines the appropriate machine mix for the location. Progressive
jackpots are also offered at most of the Company's locations. Virtually all of
the gaming machines operated by the Company's route operation are video poker
machines because Anchor believes that interactive electronic games, such as
video poker, are more attractive to its gaming machine route patrons than
simple, mechanical reel-type slot machines.
In marketing its services to the owners of retail stores and taverns, the
Company also emphasizes quality service. The Company operates and services its
machines using its own employees, who routinely repair and maintain the
Company's gaming machines in order to improve reliability and in-service time.
Management believes that the Company's gaming machines and related equipment are
well maintained and in good working condition. In addition to physical service
of the gaming machines, employees of the Company remove coins from the machines,
refill machines that have exhausted their supply of coins, and provide payment
of jackpots in excess of machine limits. Anchor also operates change booths at
certain of its retail store locations.
SUPPLIERS
Anchor has contracted with several manufacturers to develop both Anchor's
existing and future product requirements. To date, the Company has purchased
substantially all of the gaming machines used in its route operations from IGT.
Silver Strike machines are currently produced by either IGT or Sigma Game, Inc.
The primary components of Wheel of Gold are purchased from Bally Gaming
International, Inc. and Acres Gaming. Totem Pole was originally manufactured for
the Company by Universal Distributing of Nevada, Inc. Since that time, the
Company has also contracted with Bally Gaming International, Inc. and IGT for
the manufacture of Totem Pole. The Company is expected to continue its reliance
on third parties for the manufacture of its proprietary games. An inability to
obtain quality gaming machines, production parts, and replacement parts on
reasonable terms or on a timely basis could have an adverse effect on Anchor.
COMPETITION
Anchor is subject to intense competition in all of its markets, and
management believes that national, regional, state, and local competition in the
gaming industry in general will be extremely high during the
29
<PAGE>
foreseeable future, as gaming activities continue to expand in both traditional
and new gaming jurisdictions. In addition, many of the Company's competitors
have greater financial resources than the Company.
PROPRIETARY GAMES. Intense competition characterizes the market for
proprietary games. Management believes that the primary bases for competition in
the casino game market are price and potential profit to gaming location
operators that install the games. The perceived popularity of games with casino
patrons as well as the economics of the game are, management believes, factors
considered by potential casino customers. The popularity of any of the Company's
games may decline over time as consumer preferences change or as new, competing
games are introduced. As a result, Anchor must continually anticipate and adapt
its products to consumer preferences to maximize the economics of the game to
the Company. There can be no assurance, however, that Anchor will continue to be
successful in developing and marketing its products. If the Company fails to
develop games that achieve market acceptance or if existing games become
obsolete due to the introduction of popular games by Anchor's competitors the
effects on Anchor could be material and adverse. Competitors in the game
industry include manufacturers of gaming devices and other companies marketing
gaming products and conversion kits that compete directly with the Company for
the limited gaming spaces available at casinos.
Anchor's strategy of creating recurring revenues from its proprietary games
by placing the games in casinos under a royalty, revenue participation, or
similar agreements involves a departure from the traditional practice of casinos
of owning or leasing gaming devices. To the extent that casinos are reluctant to
enter into arrangements that generate recurring revenues for suppliers of casino
games, the market for Anchor's proprietary games could be limited. Competition
within the market for games that generate recurring revenues could intensify as
other suppliers of gaming devices enter this market or offer competitive
products or terms.
CASINOS. Intense competition also characterizes the Black Hawk/Central City
and Cripple Creek markets. Since limited stakes gaming was instituted in
Colorado in 1991, a number of Colorado casinos have ceased operations and others
have filed for protection under Chapter 11 of the Bankruptcy Code. Others have
closed temporarily or reduced the number of employees, and many casinos may not
be operating profitably. Several proposals have been made to open new casinos or
to expand existing casinos in Black Hawk, some of which have been abandoned or
modified. Two casinos are being developed in Black Hawk located across the
intersection from the Company's Colorado Central Station Casino. Casino America
and Nevada Gold & Casinos have commenced construction of a casino scheduled to
open in early 1999, which facility is expected to include 1,100 slot machines,
24 table games, and a 1,000 car parking garage. Riviera Holdings Corporation has
announced that it plans to develop a gaming facility with 1,000 slot machines,
14 table games, and a 500 space covered parking garage, scheduled to open in the
Spring of 1999. A joint venture between Black Hawk Gaming & Development Company,
Inc. and Jacobs Entertainment Ltd. is constructing a gaming facility located
near Colorado Central Station. The facility is scheduled to be completed in June
1998 and is expected to include 800 slot machines, 20 table games, and 500
parking spaces. In addition, construction is proceeding on a third major
intersection off State Highway 119, which will provide access directly to one of
the new casinos from State Highway 119, which is the primary access from the
Denver metropolitan area. From time to time other casino companies have publicly
expressed an interest in pursuing development or expansion in the Black
Hawk/Central City market, and proposals to develop competitive projects are
ongoing.
It appears that national, regional, state, and local competition for the
casino gaming market in general will remain extremely high during the
foreseeable future, as casino gaming activities expand in traditional gaming
states and in new jurisdictions. In addition, passage of the Indian Gaming
Regulatory Act in 1988 has led to rapid increases in Native American gaming
operations, and the Company's two casinos may compete for customers with casinos
located on Indian reservations in southwestern Colorado. The Company expects
many competitors to enter new jurisdictions that authorize gaming, some of whom
may have greater financial and other resources than the Company. Such
proliferation of gaming activities could adversely affect the Company's
business. In particular, the legalization of casino gaming in or near any
metropolitan area, such as Denver, Colorado, from which the Company draws
customers would have a material adverse effect on the Company's business. The
Company believes, however, that proliferation of gaming activities into new
jurisdictions presents an opportunity for it to expand its proprietary games
operations.
Colorado law requires an amendment to the State Constitution followed by
local voter approval for any expansion of limited gaming. State and local public
initiatives regarding limited stakes gaming in
30
<PAGE>
Colorado are being actively pursued by many persons. Several cities within
Colorado have active citizens' lobbies that were able to place limited gaming
initiatives on the November 1994 and November 1996 statewide ballots. Although
these initiatives failed by substantial margins, new initiatives could be
introduced on future statewide ballots to allow expansion of gaming in Colorado.
Future initiatives, if passed, could significantly increase the competition for
gaming customers, thereby adversely affecting Anchor's current casino operations
in Colorado. In addition, Anchor's casinos in Colorado compete with casinos in
other parts of the United States, as legalized gambling continues to
proliferate.
CANADIAN OPPORTUNITY The Company anticipates that the charity gaming clubs
in Ontario, Canada will experience intense competition and certain competitors
may have greater financial and other resources than the Company. Anchor RPC JV's
seven locations will compete with the other charity gaming clubs in the
province, along with other casinos in Canada and the United States.
ROUTE OPERATIONS. Gaming machines and gaming of all types are available in
Nevada casinos and in restricted gaming locations similar to those in which the
Company operates gaming machines, and all of these gaming establishments compete
directly or indirectly with Anchor's route operations. In addition, Anchor is
subject to substantial competition for the operation of gaming machines in
approved locations from numerous small gaming machine route operators and some
large operators, located principally in Las Vegas and Reno, Nevada, and their
surrounding areas. The principal methods of competition for gaming machine
locations are the lease, sublease, license, or revenue sharing terms, the
service provided by the route operator, the reputation of the route operator,
and the financial strength of the route operator. As existing space lease and
revenue participation arrangements expire, competition for renewals can be
expected to increase the amounts payable to location owners as compared to
amounts payable under existing agreements. Anchor's route is the only route
operation that features Double Down Stud, as the Company does not offer the game
to competing route operators. Providing a proprietary game in its route
operation is one of the ways Anchor differentiates itself from its competitors.
SECURITY
Anchor's casino and gaming machine route operations generate, and require
the Company to maintain, a large supply of available cash. In order to mitigate
the risks of loss associated with maintaining such a supply, the Company employs
physical security measures and utilizes strict internal accounting and custodial
controls on receipts and disbursements. There can be no assurance, however, that
the Company's precautions, internal controls, and physical security will provide
security for its employees or prevent cash shortages resulting from employee
errors or from theft. In addition, the Company maintains insurance to mitigate
this risk.
EMPLOYEES
At June 30, 1997, Anchor employed 869 persons, the substantial majority of
whom are nonmanagement personnel. Of this total, approximately 545 people worked
at the Colorado Central Station Casino and the Colorado Grande Casino. The
balance of the Company's nonmanagement employees is involved in route and
proprietary games operations. None of Anchor's employees is covered by a
collective bargaining agreement, and Anchor believes that it has satisfactory
employee relations.
SEASONALITY
The Company's operations as a whole are not subject to significant seasonal
variations. However, in general, the highest levels of business activity at its
Colorado casinos occur during the tourist season from July to October of each
year. In addition, operations at the Colorado casinos during the winter months
could be significantly affected by weather and road conditions in Colorado. The
Company's proprietary games operations typically have their highest levels of
business during the summer tourist season when its casino customers experience
heavier tourist traffic.
LITIGATION
From time to time the Company is a defendant in various lawsuits in routine
matters incidental to its business. Management does not believe that the outcome
of any such litigation will have a material effect on Anchor.
31
<PAGE>
REGULATION
NEVADA
The manufacturing and distribution of gaming devices and the ownership and
operation of gaming machine routes in Nevada are subject to (i) the Nevada
Gaming Control Act and the regulations promulgated thereunder (collectively, the
"Nevada Act") and (ii) various local regulations. Generally, gaming activities
may not be conducted in Nevada unless licenses are obtained from the Nevada
Gaming Commission (the "Nevada Commission") and appropriate county and city
licensing agencies. The Nevada Commission, the Nevada State Gaming Control Board
(the "Nevada Board"), and the various county and city licensing agencies are
collectively referred to as the "Nevada Gaming Authorities."
The laws, regulations, and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy that are concerned
with, among other things, (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping, and requiring the filing of
periodic reports with the Nevada Gaming Authorities; (iv) the prevention of
cheating and fraudulent practices; and (v) providing a source of state and local
revenues through taxation and licensing fees. Changes in such laws, regulations,
and procedures could have an adverse effect on Anchor.
Anchor Coin, which is the Company's subsidiary engaged in the distribution
of gaming devices and route operations, is licensed by the Nevada Gaming
Authorities. Anchor Coin is also licensed as a manufacturer to enable it to
develop its proprietary games. Anchor Coin's gaming licenses require the
periodic payment of fees and taxes and are not transferable. Anchor is
registered by the Nevada Commission as a publicly traded corporation
("Registered Corporation") and, as such, is required periodically to submit
detailed financial and operating reports to the Nevada Commission and furnish
any other information that the Nevada Commission may require. No person may
become a stockholder of, or receive any percentage of profits from, Anchor Coin
without first obtaining licenses and approvals from the Nevada Gaming
Authorities. The Company and Anchor Coin have obtained from the Nevada Gaming
Authorities the various registrations, approvals, permits, and licenses required
in order to engage in gaming activities in Nevada.
Anchor Coin's operator's license enables it to operate gaming machines on
premises owned by others. At locations with 15 or fewer gaming machines, the
operation is considered to be a "restricted" gaming location. At locations with
more than 15 gaming machines, the operation is considered to be a
"nonrestricted" gaming location. Only one of the Company's route locations is a
nonrestricted location. The nonrestricted regulatory requirements are reduced to
some extent because no more than 35 gaming machines, and no table games, are
operated at this location. Slot machines operated at restricted and
nonrestricted locations are subject to various fixed fees and per-machine taxes
levied on a quarterly and annual basis by the Nevada Gaming Authorities.
Nonrestricted locations are subject to a tax on their gross revenues (the
difference between amounts wagered by casino patrons and payments to casino
patrons) that ranges from 3.0% to 6.25%. In its space lease agreements with
retail chains, Anchor has agreed to pay all taxes and fees relating to the
operation of gaming machines, and in its participation arrangements, taxes and
fees are typically shared on the same basis as revenues. Significant increases
in the fixed fees or taxes currently levied per machine or the tax currently
levied on gross revenues could have a material adverse effect on the Company.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company or Anchor
Coin in order to determine whether such individual is suitable or should be
licensed as a business associate of a gaming licensee. Officers, directors, and
certain key employees of Anchor Coin must file applications with the Nevada
Gaming Authorities and are
32
<PAGE>
required to be licensed by the Nevada Gaming Authorities. Officers, directors,
and key employees of the Company who are actively and directly involved in the
gaming activities of Anchor Coin may be required to be licensed or found
suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities may
deny an application for licensing or a finding of suitability for any cause they
deem reasonable. A finding of suitability is comparable to licensing, and both
require submission of detailed personal and financial information followed by a
thorough investigation. The applicant for licensing or a finding of suitability
must pay all the costs of the investigation. Changes in licensed positions must
be reported to the Nevada Gaming Authorities, and, in addition to their
authority to deny an application for a finding of suitability or licensure, the
Nevada Gaming Authorities have jurisdiction to disapprove a change in a
corporate position.
If the Nevada Gaming Authorities were to find an officer, director, or key
employee unsuitable for licensing or to have a continuing relationship with the
Company or Anchor Coin, the companies involved would have to sever all
relationships with such person. In addition, the Nevada Commission may require
the Company or Anchor Coin to terminate the employment of any person who refuses
to file appropriate applications. Determinations of suitability or of questions
pertaining to licensing are not subject to judicial review in Nevada.
The Company and Anchor Coin are required to submit detailed financial and
operating reports to the Nevada Commission. Substantially all material loans,
leases, sales of securities, and similar financing transactions by Anchor Coin
must be reported to or approved by, the Nevada Commission.
If it were determined that the Nevada Act was violated by Anchor Coin, the
gaming licenses it holds could be limited, conditioned, suspended, or revoked,
subject to compliance with certain statutory and regulatory procedures. In
addition, Anchor Coin, the Company, and the persons involved could be subject to
substantial fines for each separate violation of the Nevada Act at the
discretion of the Nevada Commission. Further, a supervisor could be appointed by
the Nevada Commission to operate the Company's nonrestricted locations, and,
under certain circumstances, earnings generated during the supervisor's
appointment (except for the reasonable rental value of the Company's gaming
property) could be forfeited to the state of Nevada. Limitation, conditioning,
or suspension of any gaming license or the appointment of a supervisor could
(and revocation of any gaming license would) materially and adversely affect
Anchor.
Any beneficial holder of the Company's voting securities, regardless of the
number of shares owned, may be required to file an application, be investigated,
and have his or her suitability as a beneficial holder of the Company's voting
securities determined if the Nevada Commission has reason to believe that such
ownership would otherwise be inconsistent with the declared policies of the
state of Nevada. The applicant must pay all costs of investigation incurred by
the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than five percent of
the Company's voting securities to report the acquisition to the Nevada
Commission. The Nevada Act requires that beneficial owners of more than 10% of
the Company's voting securities apply to the Nevada Commission for a finding of
suitability within thirty days after the Chairman of the Nevada Board mails a
written notice requiring such filing. Under certain circumstances, an
"institutional investor," as defined in the Nevada Act, that acquires more than
10% but not more than 15% of the Company's voting securities, may apply to the
Nevada Commission for a waiver of such finding of suitability if such
institutional investor holds the voting securities for investment purposes only.
An institutional investor will not be deemed to hold voting securities for
investment purposes unless the voting securities were acquired and are held in
the ordinary course of business as an institutional investor and not for the
purpose of causing, directly or indirectly, the election of a majority of the
members of the board of directors of the Company, any change in the Company's
corporate charter or bylaws, management, policies, or operations of the Company
or any of its gaming affiliates, or any other action that the Nevada Commission
finds to be inconsistent with holding the Company's voting securities for
investment purposes only. Activities that are not deemed to be inconsistent
33
<PAGE>
with holding voting securities for investment purposes only include (i) voting
on all matters voted on by stockholders; (ii) making financial and other
inquiries of management of the type normally made by securities analysts for
informational purposes and not to cause a change in its management, policies, or
operations; and (iii) such other activities as the Nevada Commission may
determine to be consistent with such investment intent. If the beneficial holder
of voting securities that must be found suitable is a corporation, partnership,
or trust, it must submit detailed business and financial information including a
list of its beneficial owners. The applicant is required to pay all costs of
investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Nevada Commission or
the Chairman of the Nevada Board may be found unsuitable. The same restrictions
apply to a record owner if the record owner, after request, fails to identity
the beneficial owner. Any stockholder found unsuitable and who holds, directly
or indirectly, any beneficial ownership of the common stock of a Registered
Corporation beyond such period of time as may be prescribed by the Nevada
Commission may be guilty of a criminal offense. The Company is subject to
disciplinary action if, after it receives notice that a person is unsuitable to
be a stockholder or to have any other relationship with the Company or Anchor
Coin, the Company (i) pays that person any dividend or interest upon voting
securities of the Company; (ii) allows that person to exercise, directly or
indirectly, any voting right conferred through securities held by that person;
(iii) pays remuneration in any form to that person for services rendered or
otherwise; or (iv) fails to pursue all lawful efforts to require such unsuitable
person to relinquish his or her voting securities for cash at fair market value.
Additionally, the Clark County, Nevada Liquor and Gaming Licensing Board has
taken the position that it has the authority to approve all persons owning or
controlling the stock of any corporation controlling a gaming license.
The Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered Corporation to file applications, be investigated, and
be found suitable to own the debt security of a Registered Corporation. If the
Nevada Commission determines that a person is unsuitable to own such security,
then pursuant to the Nevada Act, the Registered Corporation can be sanctioned,
including the loss of its approvals, if without the prior approval of the Nevada
Commission, it (i) pays to the unsuitable person any dividend, interest, or any
distribution whatsoever; (ii) recognizes any voting right by such unsuitable
person in connection with such securities; (iii) pays the unsuitable person
remuneration in any form; or (iv) makes any payment to the unsuitable person by
way of principal, redemption, conversion, exchange, liquidation, or similar
transaction.
The Company is required to maintain a current stock ledger in Nevada that
may be examined by the Nevada Gaming Authorities at any time. If any securities
are held in trust by an agent or by a nominee, the record holder may be required
to disclose the identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. The Company is also required to render maximum
assistance in determining the identity of the beneficial owner. The Nevada
Commission has the power to require the Company's stock certificates to bear a
legend indicating that such securities are subject to the Nevada Act. However,
to date, the Nevada Commission has not imposed such a requirement on the
Company.
The Company may not make a public offering of its securities without the
prior approval of the Nevada Commission if the securities or the proceeds
therefrom are intended to be used to construct, acquire, or finance gaming
facilities in Nevada, or to retire or extend obligations incurred for such
purposes. Since the Company will not receive any of the proceeds from the sale
of shares of Common Stock by the Selling Stockholders pursuant to this Offering,
this Offering is not subject to the prior approval of the Nevada Gaming
Commission. There has been no finding, recommendation, or approval by the Nevada
Commission or the Nevada Board as to the accuracy or adequacy of the Prospectus
or the investment merits of the securities. Any representation to the contrary
is unlawful.
Changes in control of the Company through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct
by a person whereby such person obtains
34
<PAGE>
control, may not occur without the prior approval of the Nevada Commission.
Entities seeking to acquire control of a Registered Corporation must satisfy the
Nevada Board and the Nevada Commission concerning a variety of stringent
standards prior to assuming control of such Registered Corporation. The Nevada
Commission may also require controlling stockholders, officers, directors, and
other persons having a material relationship or involvement with the entity
proposing to acquire control to be investigated and licensed as part of the
approval process of the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities, and corporate defense tactics
affecting Nevada gaming licensees and Registered Corporations that are
affiliated with those operations may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Company can make exceptional repurchases of voting
securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Company's
board of directors in response to a tender offer made directly to the Registered
Corporation's stockholders for the purpose of acquiring control of the
Registered Corporation.
Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation by
the Nevada Board of the Licensees' participation in such foreign gaming. The
revolving fund is subject to increase or decrease in the discretion of the
Nevada Commission. Thereafter, Licensees are also required to comply with
certain reporting requirements imposed by the Nevada Act. Licensees are also
subject to disciplinary action by the Nevada Commission if they knowingly
violate any laws of the foreign jurisdiction pertaining to the foreign gaming
operation, fail to conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming operations, engage
in activities that are harmful to the state of Nevada or its ability to collect
gaming taxes and fees, or employ a person in the foreign operation who has been
denied a license or a finding of suitability in Nevada on the ground of personal
unsuitability.
The placement and number of gaming machines that may be operated in various
locations are subject to limitation and control by local city and county laws
and ordinances. Acting through their zoning powers and their powers to regulate
gaming, local government entities determine the number of gaming machines that
may be operated at non-casino locations and the types of locations where gaming
operations may be conducted. Accordingly, changes in such local zoning laws and
ordinances could have a material adverse effect on Anchor.
COLORADO
The ownership and operation of gaming facilities in Colorado are subject to
extensive state and local regulation. No gaming may be conducted in Colorado
unless licenses are obtained from the Colorado Limited Gaming Control Commission
(the "Colorado Commission"). In addition, the State of Colorado created the
Division of Gaming (the "Colorado Division") within its Department of Revenue to
license, implement, regulate, and supervise the conduct of limited stakes
gaming. The Director (the "Colorado Director") of the Colorado Division, under
the supervision of the Colorado Commission, has been granted broad powers to
ensure compliance with the law and regulations. The Colorado Commission, the
Colorado Division, the Colorado Director, and city authorities in Black Hawk,
Central City, and Cripple Creek that have responsibility for regulation of
gaming are collectively referred to as the "Colorado Gaming Authorities."
35
<PAGE>
The laws, regulations, and supervisory procedures of the Colorado Gaming
Authorities seek to maintain public confidence and trust that licensed limited
gaming is conducted honestly and competitively, that the rights of the creditors
of licensees are protected, and that gaming is free from criminal and corruptive
elements. It is the stated policy of the Colorado Gaming Authorities that public
confidence and trust can be maintained only by strict regulation of all persons,
locations, practices, associations, and activities related to the operation of
licensed gaming establishments and the manufacture or distribution of gaming
devices and equipment.
The Colorado Commission is empowered to issue five types of gaming and
gaming related licenses. Anchor's casinos in Colorado each require a retail
gaming license, which must be renewed each year, and the Colorado Division has
broad discretion to revoke, suspend, condition, limit, or restrict a licensee at
any time. No person or entity can have an ownership interest in more than three
retail gaming licenses. The Colorado Grande Casino and the Colorado Central
Station Casino have each obtained the required retail gaming licenses.
In addition to retail gaming licenses for its casinos, all of Anchor's
casino employees involved in gaming activities must apply for and receive a
support gaming license prior to commencing employment. "Key" employees, which
are defined as any executive, employee, or agent of a licensee having the power
to exercise a significant influence over decisions concerning any part of the
operations of any licensee, must obtain key licenses. At least one key license
holder must be on the premises of each casino at all times. Anchor pays the cost
of obtaining and maintaining key licenses. All licenses are revocable,
nontransferable, and valid only for the particular location initially
authorized, except that support and key employee licenses move with the approved
individual and are not location specific.
Any person or group of related persons that acquires beneficial ownership of
between 5.0% and 9.99% of the outstanding Common Stock must report the
acquisition to the Colorado Commission within ten days of acquiring such
interest and may be required to provide additional information to the Colorado
Commission and be found suitable. Any person or group of related persons that
acquires beneficial ownership of 10% (or, with respect to institutional
investors, 15%) or more of the outstanding Common Stock must apply to the
Colorado Commission within 45 days after acquiring such interest and submit to
investigation for suitability by the Colorado Commission. Certain qualifying
institutional investors, at the Colorado Commission's discretion, may acquire up
to 15% ownership before a finding of suitability is required if such investors
provide certain information to the Colorado Commission regarding investment
intent and other matters. In order to be found suitable, a stockholder must be a
person of good moral character, honesty, integrity, and, in general terms, must
be free from previous criminal or unsavory convictions or similar acts. The
Colorado Commission may require substantial information in connection with a
suitability investigation, including personal background and financial
information, source of funding information, and a sworn statement that such
person or entity is not holding the Common Stock for any other party, and also
may require fingerprints. Until a finding of suitability occurs for a
stockholder who is undergoing a suitability investigation, Anchor cannot pay any
dividends to such stockholder nor may the stockholder exercise any voting rights
with respect to the Common Stock. A stockholder that is found to be unsuitable
must transfer its Common Stock to a suitable person within 60 days after the
finding of unsuitability. Otherwise, Anchor may offer such person the lesser of
the cash equivalent of such person's investment in the Common Stock or the
current market price of the Common Stock as of the date of the finding of
unsuitability, and the stockholder will be required to sell his or her Common
Stock to Anchor. Anchor's Articles of Incorporation include a statement that all
transfers of voting securities are subject to the regulations of the Colorado
Commission and each other regulatory body to which the Company's activities are
subject and detail the possibility of a repurchase if a stockholder is found
unsuitable.
The Colorado Commission has adopted comprehensive rules and regulations that
require Anchor to maintain adequate books and records and prescribe minimum
operating, security, and payoff procedures. Regulated operating procedures
include hours of operation and rules of play. Rules regarding gaming, cheating,
and fraudulent practices have also been adopted, which Anchor is obligated to
police and
36
<PAGE>
enforce. Upon request, Anchor must submit copies of all written gaming contracts
and summaries of all oral gaming contracts to which it is a party or intends to
become a party. Anchor and its subsidiaries must also promptly inform the
Colorado Commission of any change in their officers or directors and any such
new officer or director will be subject to possible investigation prior to
approval. Further, if any casino employee possessing a support license changes
employment, is terminated, or resigns, Anchor must notify the Colorado Director.
Anchor may not make a public offering of its securities without notifying
the Colorado Commission. The notification must occur within 10 business days
after the initial filing of a registration statement with the Securities and
Exchange Commission or, if the offering will not be registered with the
Securities and Exchange Commission, 10 days prior to the public use or
distribution of any offering document. The notification procedures apply to any
offering by Anchor where the proceeds will be used or intended for use (i) in
constructing gaming facilities; (ii) in financing the operation of gaming
facilities by any licensee; (iii) in acquiring any direct or indirect interest
in Colorado gaming facilities; or (iv) in retiring or extending obligations
incurred for any of the above purposes. The notification must disclose, among
other things, a description of the securities to be offered, the proposed terms
of the offering, its anticipated gross and net proceeds, and the use of the
proceeds. Anchor will file the requisite notice with the Colorado Commission.
Colorado law requires statewide voter approval of an amendment to the State
Constitution for any expansion of limited gaming into additional locations and,
depending on the authorization approved by the statewide vote, requires, in
addition, voter approval from the locality in question. In 1994, Colorado voters
defeated by a margin of 93% to 7% a proposal to permit gaming in Manitou Springs
(located near Colorado Springs and Cripple Creek) and slot machines in airports.
On November 5, 1996, Colorado voters defeated by a margin of 69% to 31% a
proposal to allow gaming in the community of Trinidad, located on the New Mexico
border. Recently, the state legislature passed, but the Governor vetoed, a bill
that would have permitted video lottery terminals at dog and horse racetracks
under certain terms and conditions. Several cities within Colorado have active
citizens' lobbies that were able to place gaming initiatives on recent statewide
ballots. Although these initiatives have failed, new initiatives could be
introduced on future statewide ballots to allow expansion of gaming in Colorado
or prohibit gaming in the particular markets in Colorado where the Company
operates. Future initiatives, if passed, could significantly increase the
competition for gaming customers, thereby adversely affecting the Company's
operations in Colorado. Additionally, there can be no assurance that future
legislation will not be enacted that would impose additional restrictions or
prohibitions on, or assess additional fees with respect to, the Company's
business.
The sale of alcoholic beverages at Anchor's casinos is subject to licensing,
control, and regulation by the applicable state and local authorities. All
alcoholic beverages licenses are revocable and are not transferable. The
agencies involved have full power to limit, condition, suspend, or revoke any
such license, and any such disciplinary action could (and revocation would) have
a material adverse effect on Anchor.
The State of Colorado has enacted an annual tax on adjusted gross proceeds,
as defined under Colorado law ("AGP") (gross gaming revenue being defined
generally as the total amount wagered minus the total amount paid out in prizes)
of 2% of the first $2.0 million of AGP, 4% from $2.0 million to $4.0 million of
AGP, 14% from $4.0 million to $5.0 million of AGP, 18% from $5.0 million to
$10.0 million of AGP, and 20% of amounts in excess of $10.0 million of AGP.
During the first year of gaming, casinos operated under a three-tiered tax
system in which they paid 4% on the first $440,000 of AGP, 8% from $440,000 to
$1.2 million of AGP, and 15% above $1.2 million of AGP. During the second gaming
year, October 1, 1992 to September 30, 1993, casinos paid 2% on the first $1.0
million of AGP and 20% on any amount above $1.0 million of AGP. In the third
year, October 1, 1993 to September 30, 1994, casinos paid 2% on the first $1.0
million of AGP, 8% from $1.0 million to $2.0 million of AGP, 15% from $2.0
million to $3.0 million of AGP, and 18% above $3.0 million of AGP. During the
fourth and fifth years, October 1, 1994 through September 30, 1996, casinos paid
2% on the
37
<PAGE>
first $2.0 million of AGP, 8% from $2.0 million to $4.0 million of AGP, 15% from
$4.0 million to $5.0 million of AGP, and 18% above $5.0 million of AGP. During
the sixth year, October 1, 1996 through September 30, 1997, casinos paid 2% on
the first $2.0 million of AGP, 4% from $2.0 million to $4.0 million of AGP, 14%
from $4.0 million to $5.0 million of AGP, 18% from $5.0 million to $10.0 million
of AGP, and 20% of amounts in excess of $10.0 million of AGP. Effective October
1 of each year, the Colorado Gaming Commission establishes the gross gaming
revenue tax for the following 12 months. Under the Colorado Constitution, the
Commission is authorized to increase the gaming tax rate to as much as 40%.
There can be no assurance that the taxes or fees applicable to the Company will
not be increased in the future, either by the Colorado electorate, legislation,
or action by the Colorado Commission resulting in an adverse effect on the
Company's operations.
In addition, a "device fee" is required for each gaming device (i.e., each
gaming machine and each gaming table). The State of Colorado currently imposes
an annual fee of $75 per device (reduced from $100 effective October 1, 1994),
and Black Hawk and Cripple Creek currently impose annual fees per device of $750
and $1,200, respectively. Black Hawk and Cripple Creek also impose liquor
licensing fees, restaurant fees, and parking impact fees. Further, Anchor has
paid, and in the future may be required to pay, local parking and other
municipal "impact fees" based on the square footage of its facilities.
Significant increases in the applicable taxes or fees, or the imposition of new
taxes or fees, could have a material adverse effect on Anchor, and it is not
unreasonable to expect that such taxes or fees could be increased or new taxes
or fees imposed.
PROPRIETARY GAMES APPROVAL
Anchor is licensed in several gaming jurisdictions as a distributor or
manufacturer of gaming machines. These jurisdictions exert substantial
regulatory controls over the Company and may impose restrictions on ownership of
the Company's securities and require findings of suitability of individuals
associated with the Company. Each of the Company's games must be approved and
licensed in each jurisdiction in which it is played. Obtaining required
approvals and licenses can be time consuming and costly and there can be no
assurance of success. In addition, there can be no assurance that regulations
adopted or taxes imposed by other states will permit profitable operations by
the Company.
OTHER JURISDICTIONS
The Federal Gambling Devices Act of 1962 (the "Federal Act") makes it
unlawful, in general, for a person to manufacture, deliver, or receive gaming
machines, gaming machine type devices, and components across state lines or to
operate gaming machines unless that person has first registered with the
Attorney General of the United States. The Federal Act does not apply to the
Company's proprietary table games but does apply to the Company's proprietary
gaming machines. Anchor has registered under the Federal Act and must renew its
registration annually. In addition, various record keeping and equipment
identification requirements are imposed by the Federal Act. Violation of the
Federal Act may result in seizure and forfeiture of the equipment, as well as
other penalties. Any expansion of Anchor's gaming activities in Nevada and
Colorado may require, and any expansion into other jurisdictions would require,
additional approvals, licenses, and permits from various gaming authorities.
In August 1996, the United States Congress passed legislation creating the
National Gambling Impact and Policy Commission to conduct a comprehensive study
of all matters relating to the economic and social impact of gaming in the
United States. The legislation provides that, not later than two years after the
enactment of such legislation, the commission must issue a report to the
President and to Congress containing its findings and conclusions, together with
recommendations for legislation and administrative actions. Any such
recommendations, if enacted into law, could adversely impact the gaming industry
and have a material adverse effect on the Company's business or results of
operations. The Company is unable to predict whether this study will result in
legislation that would impose regulations on gaming industry operators,
including the Company, or whether such legislation, if any, would have a
material adverse effect on the Company. Additionally, from time to time, certain
federal legislators have proposed the imposition
38
<PAGE>
of a federal tax on gaming revenues. Any such tax could have a material adverse
effect on the Company's financial condition or results of operations.
The activities of the Anchor RPC JV will be extensively regulated by
provincial and local authorities in Ontario, Canada. The Alcohol and Gaming
Commission of Ontario has been granted broad powers to ensure control,
supervision, and accountability in the charitable gaming sector. Opening of
gaming clubs in Ontario, Canada will also be subject to extensive local
regulation. See "Risk Factors--Risks of Pursuing New Casino Gaming
Opportunities--Risks of Canadian Development."
39
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information about the current
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ----------------------- --- ---------------------------------------------------------------
<S> <C> <C>
Stuart D. Beath 38 Director
Michael B. Fulton 38 Director
Stanley E. Fulton 66 Chairman of the Board, Chief Executive Officer, and acting
Chief Financial Officer
Glen J. Hettinger 40 Director
Elizabeth F. Jones 41 Director
Thomas J. Matthews 31 Executive Vice President and Secretary
Joseph Murphy 46 Vice President Casino Operations
Michael D. Rumbolz 43 President, Chief Operating Officer, and Director
Geoffrey A. Sage 37 Corporate Controller
Garret A. Scholz 57 Director
</TABLE>
STUART D. BEATH. Mr. Beath was elected as a director of the Company in
April 1994. Mr. Beath has been a private consultant since March 1997. Mr. Beath
served as First Vice President at Stifel, Nicolaus & Company, Incorporated, an
investment bank, from April 1993 until March 1997. Prior to that time, Mr. Beath
served in the corporate finance department at A.G. Edwards & Sons, Inc. for six
years, in various capacities, with the most recent being as an officer of the
firm.
MICHAEL B. FULTON. Mr. Fulton was elected as a director of the Company in
August 1995. Mr. Fulton has served as President of IllumiQuest, Inc., a
developer of educational based entertainment products, since January 1994. Prior
to that time, Mr. Fulton served as Executive Vice President and director of
Anchor Coin, a subsidiary of the Company responsible for its gaming machine
route operations and development of the Colorado Central Station Casino, from
March 1993 to December 1993. Prior to that time, Mr. Fulton was a tax attorney
with the Internal Revenue Service from December 1990 to March 1993 and an
independent consultant of tax and corporate law from January 1989 to November
1990. Mr. Fulton is the son of the Chairman of the Board of the Company.
STANLEY E. FULTON. Mr. Fulton serves as Chairman of the Board, Chief
Executive Officer, and acting Chief Financial Officer of the Company. Prior to
the IPO, Mr. Fulton also served as President of the Company. Mr. Fulton has also
served as Chairman of the Board, President, and Chief Executive Officer of
Anchor Coin, a subsidiary of the Company responsible for the Company's gaming
machine route operations and development of the Colorado Central Station Casino,
since its inception in 1988. Immediately prior to forming Anchor Coin, Mr.
Fulton was Chairman of the Board and President of Gaming and Technology, Inc.,
the predecessor of Alliance Gaming Corporation.
GLEN J. HETTINGER. Mr. Hettinger was elected as a director of the Company
in August 1997. Mr. Hettinger is a partner at the law firm of Hughes & Luce,
L.L.P., Dallas, Texas, where he has practiced corporate and securities law since
1984.
ELIZABETH F. JONES. Ms. Jones was elected as a director of the Company in
April 1994. Since November 1988, Ms. Jones has been principally engaged as a
private investor. Ms. Jones is the daughter of the Chairman of the Board of the
Company.
40
<PAGE>
THOMAS J. MATTHEWS. Since January 1994, Mr. Matthews has served as
Executive Vice President of the Company. In September 1994, he was elected
Secretary of the Company. Mr. Matthews served as President of Global
Distributors, Inc. ("Global Distributors") from August 1992 to January 1994.
Prior to that time, Mr. Matthews was General Manager of Global Distributors from
1990 until 1992, and was sales director of Mikohn Gaming Corporation from 1987
until 1990.
JOSEPH MURPHY. Mr. Murphy has served as Vice President Casino Operations of
the Company since February 1996. Prior to that time, Mr. Murphy served as
General Manager of Gaming Operations of the Company since January 1994. Mr.
Murphy managed the gaming operations of Global Distributors from May 1993 until
January 1994. From 1990 until 1993, Mr. Murphy served as General Manager of
IGT's gaming machine route operations, which operated more than 1,800 machines.
Mr. Murphy held similar positions with Sunset Coin from 1989 to 1990, United
Gaming from 1988 to 1989, and IGT from 1985 to 1988.
MICHAEL D. RUMBOLZ. Mr. Rumbolz was elected as a director of the Company in
August 1995. Mr. Rumbolz serves as the President and Chief Operating Officer of
the Company, positions he has held since August 1995. Prior to joining the
Company, Mr. Rumbolz was Director of Corporate Development for Circus Circus
Enterprises, Inc. from December 1992 to July 1995. During that time, Mr. Rumbolz
was also President of Windsor Casino Limited from January to September 1994 and
Canadian Gaming & Entertainment Corp. from February to July 1995. Windsor Casino
Limited was the Circus Circus/Hilton/ Caesar's consortium that opened and
operated Windsor Casino. From June 1993 to July 1995, Mr. Rumbolz was also a
director of Darling Casino Limited, an affiliate of Circus Circus Enterprises,
Inc., responsible for new project development in Australia. Prior to that time,
Mr. Rumbolz was Executive Vice President of Anchor Coin and DD Stud, Inc.,
subsidiaries of the Company responsible for gaming machine route operations,
development of the Colorado Central Station Casino, and distribution of the
proprietary game Double Down Stud from July 1992 to December 1992. Prior to that
time, Mr. Rumbolz was an independent consultant to Donald Trump from February
1992 to June 1992, Executive Vice President of Trump Castle Associates from
January 1991 to January 1992, and President and Chief Operating Officer of Trump
Nevada, Inc. from January 1989 to January 1991. Mr. Rumbolz is a former Chairman
and Board member of the State of Nevada Gaming Control Board.
GEOFFREY A. SAGE. Mr. Sage, a certified public accountant, joined Anchor in
July 1989 and serves as Corporate Controller of the Company. Before joining the
Company, Mr. Sage was the Controller for Frontier Savings and Loan Association
in Las Vegas for one year. Prior to that time, Mr. Sage was a senior auditor at
Citibank (Nevada), N.A. for three and one-half years and an auditor in the Las
Vegas office of Laventhol & Horwath.
GARRET A. SCHOLZ. Mr. Scholz was elected as a director of the Company in
February 1994. Mr. Scholz, a private investor, was until September 1995, Vice
President Finance with McKesson Corporation, an international distributor of
pharmaceutical and health care products and provider of health care management
services. He previously was its Vice President and Treasurer and had served with
McKesson Corporation since 1973 in various financial capacities.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT, AND CHANGE-IN-CONTROL
ARRANGEMENTS
In July 1995, the Company entered into a five-year agreement with Michael D.
Rumbolz providing for minimum annual compensation of $460,000.
Concurrent with the IPO, the Company entered into a five-year employment
agreement with each of Thomas J. Matthews and Joseph Murphy providing for
minimum annual compensation of $175,000. Each of these agreements was amended in
March 1997 to provide for (i) base compensation of $200,000 per year; (ii) a one
time bonus of $150,000 in July 1997; (iii) annual bonuses based on the
consolidated net income of Anchor; and (iv) an additional bonus payable in the
event of a change-of-control transaction or disposition of the Company's
proprietary games business substantially as an entirety.
41
<PAGE>
Also in March 1997, the Company granted to each of Messrs. Matthews and
Murphy options to purchase 200,000 shares of Common Stock at an exercise price
of $31.875 per share. Under each option agreement, options to purchase 75,000
shares vest in twelve equal quarterly increments beginning March 31, 1999. The
options with respect to the remaining 125,000 shares vest based upon Anchor's
achieving specified growth in earnings per share in calendar years 1997 through
2001. If the specified earnings per share growth targets are not achieved, the
options vest on June 30, 2005, so long as the named persons are employed by
Anchor at that time. A maximum of 25,000 shares per year can vest under this
formula. The options have a term of ten years.
Pursuant to option agreements entered into between the Company and each of
Thomas J. Matthews, Joseph Murphy (other than the options granted to Mr. Murphy
and Mr. Matthews in March 1997, as described above), and Geoffrey A. Sage, each
such officer's options will vest and become immediately exercisable if Stanley
E. Fulton is not the Chief Executive Officer of the Company. Pursuant to an
option agreement between the Company and Michael D. Rumbolz, Mr. Rumbolz's
options will vest and become immediately exercisable upon a change in control,
as defined in the agreement, or on December 31, 1998 in the event that Mr.
Rumbolz is not appointed as the Chief Executive Officer of the Company before
such date.
Each of the employment agreements described above provides that such officer
can only be terminated for "cause" as defined in the agreement, although the
agreements with Messrs. Matthews and Murphy can be terminated by the Company at
any time if the Company pays three months' severance pay, and Mr. Rumbolz's can
be terminated at any time if the Company pays one year's severance pay. The
agreements contain restrictive covenants regarding the treatment of the
Company's proprietary information. Certain key executives of the Company are not
bound by noncompetition agreements. The Company is also party to an arrangement
with one of its key employees that permits the employee to develop and sell
certain gaming machine related devices to entities not controlled by Anchor
during the term of his employment with the Company. See "Risk Factors --
Dependence on Key Personnel."
In no event will the Company be required to make to any of the foregoing
executives any payment under such agreements that would result, in the opinion
of tax counsel, in an "excess parachute payment" within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended, and the imposition of an
excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended.
42
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, at October 9, 1997, certain information with
respect to the beneficial ownership of Common Stock and as adjusted to give
effect to the sale of the Common Stock offered by this Prospectus for (i) each
director of the Company; (ii) each executive officer of the Company; (iii) the
Company's directors and executive officers as a group; (iv) each stockholder
known to the Company to own beneficially more than five percent of the Common
Stock; and (v) each Selling Stockholder. Notwithstanding their family
relationships, except as disclosed in footnote (4) to the table below, each
Fulton family member disclaims beneficial ownership of the shares of Common
Stock directly or indirectly owned or controlled by all other Fulton family
members.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
BEFORE THE OFFERING (1) AFTER THE OFFERING
----------------------------- -----------------------------
NUMBER OF NUMBER OF
NAME AND ADDRESS SHARES OF PERCENT OF SHARES OF PERCENT OF
OF BENEFICIAL OWNER COMMON STOCK CLASS COMMON STOCK CLASS
- ---------------------------------------------------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Stuart Beath (2).......................................... 13,000 * 13,000 *
FMR Corp (3).............................................. 1,482,490 11.3% 1,482,490 11.3%
Michael B. Fulton (4)(5).................................. 495,300 3.8% 300,000 2.3%
Stanley E. Fulton (5)(6).................................. 6,887,544 52.4% 5,157,544 39.2%
Glen J. Hettinger......................................... - * - *
Elizabeth F. Jones (5)(7)................................. 502,500 3.8% 300,000 2.3%
Thomas J. Matthews (8).................................... 33,750 * 33,750 *
Joseph Murphy (9)......................................... 12,500 * 12,500 *
Michael D. Rumbolz (10)................................... 87,500 * 87,500 *
Geoffrey A. Sage (11)..................................... 2,500 * 2,500 *
Garret A. Scholz (12)..................................... 15,800 * 15,800 *
Deborah J. Fulton (5)(13)................................. 479,500 3.6% 300,000 2.3%
Elizabeth M. Fulton (5)................................... 170,000 1.3% 100,000 *
Stanley M. Fulton (5)(14)................................. 482,500 3.7% 300,000 2.3%
Virginia L. Fulton (5)(15)................................ 482,500 3.7% 300,000 2.3%
Lucinda Fulton Tischer (5)(16)............................ 430,000 3.3% 300,000 2.3%
All executive officers & directors as a group (10 persons)
(17)..................................................... 7,052,594 53.6% 5,322,594 40.0%
</TABLE>
- ------------------------
* Less than one percent.
(1) Unless otherwise noted, and subject to community property laws, where
applicable, the persons in the table have sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned by
them. The address for each listed person is c/o Anchor Gaming, 815 Pilot
Road, Suite G, Las Vegas, Nevada 89119.
(2) Includes 1,000 shares with respect to which Mr. Beath shares voting and
dispositive power with his wife. Includes 12,000 shares that may be
acquired upon the exercise of options exercisable within the next 60 days.
(3) FMR Corp. is the holding company for an institutional investor, Fidelity
Management & Research Company. The information included herewith is based
upon publicly available information. FMR Corp.'s address is 82 Devonshire
Street, Boston, MA 02109-3614.
(4) Includes 495,300 shares before the Offering and 300,000 shares after the
Offering as to which Mr. Fulton's father, Stanley E. Fulton, exercises
voting power pursuant to an irrevocable proxy.
(5) Selling Stockholder.
(6) Includes 2,880,300 shares before the Offering and 1,808,000 shares after
the Offering owned by Stanley E. Fulton's six children and an unaffiliated
third party for which Mr. Fulton exercises voting power pursuant to
irrevocable proxies.
43
<PAGE>
(7) Includes 502,500 shares before the Offering and 300,000 shares after the
Offering as to which Ms. Jones' father, Stanley E. Fulton, exercises voting
power pursuant to an irrevocable proxy.
(8) Includes 21,250 shares that may be acquired upon the exercise of options
exercisable within the next 60 days.
(9) Includes 10,000 shares with respect to which Mr. Murphy shares voting and
dispositive power with his wife. Includes 2,500 shares that may be acquired
upon the exercise of options exercisable within the next 60 days.
(10) Includes 87,500 shares that may be acquired upon the exercise of options
exercisable within the next 60 days.
(11) Includes 2,500 shares that may be acquired upon the exercise of options
exercisable within the next 60 days.
(12) Includes 1,000 shares held in a trust for which Mr. Scholz acts as trustee.
Includes 13,800 shares that may be acquired upon the exercise of options
exercisable within the next 60 days.
(13) Includes 479,500 shares before the Offering and 300,000 shares after the
Offering as to which Ms. Fulton's father, Stanley E. Fulton, exercises
voting power pursuant to an irrevocable proxy.
(14) Includes 482,500 shares before the Offering and 300,000 shares after the
Offering as to which Mr. Fulton's father, Stanley E. Fulton, exercises
voting power pursuant to an irrevocable proxy.
(15) Includes 482,500 shares before the Offering and 300,000 shares after the
Offering as to which Ms. Fulton's father, Stanley E. Fulton, exercises
voting power pursuant to an irrevocable proxy.
(16) Includes 430,000 shares before the Offering and 300,000 shares after the
Offering as to which Ms. Tischer's father, Stanley E. Fulton, exercises
voting power pursuant to an irrevocable proxy.
(17) Includes 139,550 shares that may be acquired upon the exercise of options
exercisable within the next 60 days.
CERTAIN TRANSACTIONS
A relative of the children of Stanley E. Fulton, the principal stockholder,
Chairman of the Board, Chief Executive Officer, and acting Chief Financial
Officer of the Company, loaned $2.0 million to the Company in June 1993 for use
in connection with construction of the Colorado Central Station Casino. The
principal amount of this loan was payable in a single installment in 1998 and
bore interest at 12% payable monthly. As additional consideration for this loan,
the Company granted an option to purchase 40,000 shares of Common Stock at the
IPO price of $12.00 per share. Mr. Fulton personally guaranteed this loan. This
loan was paid in full on July 6, 1995.
At June 30, 1997, the Company had outstanding unsecured notes payable to
Stanley E. Fulton in the aggregate principal amount of $2,800,000, which is due
and payable on July 1, 1998 and bears interest at the rate of 8%. See Note 6 of
Notes to Consolidated Financial Statements.
Stanley E. Fulton owned 100% of the common stock of an Anchor slot route
location. On January 31, 1996, Stanley E. Fulton sold the location to an
unaffiliated third party. For providing the gaming machines and slot route
services, the Company received a percentage of the net win of the location
similar to other route locations. The Company held a note receivable from the
slot route operation in the amount of $284,704 at January 31, 1996 of which
$257,562 was assumed by the new owner. The remaining balance of the loan due
from Stanley E. Fulton at June 30, 1996 of $27,142 was paid in full on July 11,
1996. The slot route operation, under the ownership of Stanley E. Fulton,
accounted for $295,502 and $180,822 of gaming revenue during the years ended
June 30, 1995 and 1996, respectively and $279,059 and $145,684 of route costs
during the years ended June 30, 1995 and 1996, respectively.
In August 1996, the Company made certain payments to an entity controlled by
an employee of the Company. These funds were used to repay a debt of $500,000
owed by the employee and his affiliate to Stanley E. Fulton.
Mr. Hettinger is a director of the Company and a partner at Hughes & Luce,
L.L.P., which has rendered legal services to the Company in the past and is
expected to continue to do so in the future.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company is authorized to issue 50,000,000 shares of Common Stock, $.01
par value per share. At October 9, 1997, 12,958,607 shares of Common Stock are
issued and outstanding and beneficially owned by approximately 4,000
stockholders. An additional 1,069,450 shares are reserved for issuance in
connection with employee, director, and other stock options at an average
exercise price of $26.93 per share at October 9, 1997.
Subject to the rights of the holders of any outstanding shares of preferred
stock and any restrictions that may be imposed by any lender to the Company,
holders of Common Stock are entitled to receive such dividends, if any, as may
be declared by the board of directors out of legally available funds. In the
event of the liquidation, dissolution, or winding up of the Company, holders of
Common Stock are entitled to share equally and ratably, based on the number of
shares held, in the assets, if any, remaining after payment of all of the
Company's debts and liabilities and the liquidation preference of any
outstanding preferred stock. Certain gaming statutes and regulations may limit
the rights of holders of Common Stock under certain circumstances. See
"Regulation."
Holders of Common Stock are entitled to one vote per share for each share
held of record on any matter submitted to the holders of Common Stock for a
vote. Because holders of Common Stock do not have cumulative voting rights, the
holders of a majority of the shares of Common Stock represented at a meeting can
elect all the directors. Holders of Common Stock do not have preemptive rights
to subscribe for or purchase any additional shares of capital stock issued by
the Company. All outstanding shares of the Common Stock are, and the shares of
Common Stock offered by this Prospectus will be, when issued, duly authorized,
validly issued, fully paid, and nonassessable.
PREFERRED STOCK
The Company is authorized to issue 1,000,000 shares of preferred stock, $.01
par value per share (the "Preferred Stock"), in one or more series, and to
designate the rights, preferences, limitations, and restrictions of and upon
shares of each series, including voting, redemption, and conversion rights. The
board of directors also may designate dividend rights and preferences in
liquidation.
In connection with the authorization of the Rights Plan (discussed below),
the board of directors has authorized the designation of 50,000 shares of
Preferred Stock as Series A Junior Participating Preferred Stock (the "Series A
Preferred"). The shares of Series A Preferred have been reserved for issuance
pursuant to the Rights Plan. The following summarizes the terms of the Series A
Preferred.
The holders of shares of Series A Preferred will generally be entitled to
receive quarterly dividends payable in cash commencing on the first quarterly
dividend payment date after the first issuance of Series A Preferred, in an
amount per share (rounded to the nearest cent) equal to the greater of (i) $0.01
or (ii) subject to adjustment, an amount equal to one thousand times the per
share amount of any distributions or dividends made with respect to the Common
Stock.
Subject to adjustment, each share of Series A Preferred will entitle the
holder to a number of votes on all matters submitted to a vote of the
stockholders of the Company equal to one thousand times the number of votes per
share to which shares of Common Stock are entitled. Except as otherwise provided
by law, the holders of shares of Series A Preferred and the holders of shares of
Common Stock will generally vote together as one class on all matters submitted
to a vote of stockholders of the Company. If at any time dividends on any Series
A Preferred are in arrears in an amount equal to six quarterly dividends, the
occurrence of such contingency will mark the beginning of a period (a "default
period") that will extend until such time when all accrued and unpaid dividends
for all previous quarterly dividend periods and for the current quarterly
dividend period on all shares of Series A Preferred then outstanding have been
declared and paid or set apart for payment. During each default period, all
holders of Series A Preferred
45
<PAGE>
Stock with dividends in arrears in an amount equal to six quarterly dividends
thereon, voting as a class, irrespective of series, will have the right to elect
two directors.
During the period of dividend arrearages the Company will be prevented from
declaring dividends on or making distributions to, or repurchasing, redeeming,
or otherwise acquiring, any stock ranking on parity with or junior to the Series
A Preferred.
Upon any liquidation, dissolution, or winding up of the Company, no
distribution will be made to the holders of shares of stock ranking junior to
the Series A Preferred unless, prior thereto, the holders of shares of Series A
Preferred have received an amount equal to one thousand times the Purchase Price
for the Rights referred to below, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment (the "Series A Liquidation Preference"). Following the payment of
the full amount of the Series A Liquidation Preference, no additional
distributions will be made to the holders of shares of Series A Preferred
unless, prior thereto, the holders of shares of Common Stock have received an
amount per share (the "Common Adjustment") equal to the quotient obtained by
dividing (i) the Series A Liquidation Preference by (ii) 1,000 (as appropriately
adjusted). Following the payment of the full amount of the Series A Liquidation
Preference and the Common Adjustment in respect of all outstanding shares of
Series A Preferred and Common Stock, respectively, holders of Series A Preferred
and holders of shares of Common Stock will receive their ratable and
proportionate share of the remaining assets to be distributed.
It is not possible to state the actual effect of the authorization and
issuance of other series of preferred stock on the rights of holders of Common
Stock until the board of directors determines the specific terms, rights, and
preferences of a series of such preferred stock. Such effects, however, might
include, among other things, restricting dividends on the Common Stock, diluting
the voting power of the Common Stock, or impairing liquidation rights of the
Common Stock. Other series of preferred stock could be authorized and issued by
the Company without further action by holders of Common Stock. In addition,
under certain circumstances, the issuance of preferred stock may render more
difficult or tend to discourage a merger, tender offer, or proxy contest, the
assumption of control by a holder of a large block of the Company's securities,
or the removal of incumbent management. See "-- Certain Provisions Relating to
Changes in Control." At October 9, 1997, no shares of preferred stock are issued
or outstanding.
RIGHTS PLAN
The board of directors of Anchor has authorized the Company to enter into a
Stockholder Rights Plan (the "Rights Plan") providing that one right (a "Right")
will be attached to each share of Common Stock as of October 20, 1997 (the
"Record Date"). Each Right will entitle the registered holder to purchase from
the Company a unit (a "Unit") consisting of one one-thousandth of a share of
Series A Preferred at a Purchase Price of $400.00 per Unit (the "Purchase
Price"), subject to adjustment. The description and terms of the Rights are to
be set forth in the Rights Agreement (the "Rights Agreement"), between the
Company and The Chase Manhattan Bank, as Rights Agent (the "Rights Agent").
Initially, the Rights will be attached to all Common Stock certificates
representing shares outstanding as of the Record Date, and no separate
certificate (a "Rights Certificate") will be distributed. The Rights will
separate from the Common Stock and a "Distribution Date" will occur upon the
earlier of (i) 10 days following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of 15% or more of the
outstanding shares of Common Stock (the "Stock Acquisition Date"); (ii) 10
business days following the commencement of a tender offer or exchange offer
that would result in a person or group beneficially owning 15% or more of such
outstanding shares of Common Stock; or (iii) 10 business days after the board of
directors of the Company determines that any person or entity or group has
become the beneficial owner of an amount of Common Stock that the board of
directors determines to be substantial (which amount will in no event be less
than 10% of the shares of Common Stock outstanding) and that (a) such
46
<PAGE>
person or entity or group intends to cause the Company to repurchase the Common
Stock beneficially owned by such person or entity or group or to exert pressure
against the Company to take any action or enter into any transaction or series
of transactions with the intent or the effect of providing such person or entity
or group with short-term gains or profits under circumstances in which the board
of directors determines that the long-term interests of the Company and its
stockholders would not be served by taking such action or entering into such
transactions or series of transactions, or (b) beneficial ownership by such
person or entity or group is reasonably likely to have a material adverse effect
on the business, competitive position, prospects, or financial condition of the
Company and its subsidiaries (an "Adverse Person"). Until the Distribution Date,
(i) the Rights will be evidenced by the Common Stock certificates and will be
transferred with and only with such Common Stock certificates; (ii) new Common
Stock certificates will contain a notation incorporating the Rights Agreement by
reference; and (iii) the surrender for transfer of any certificates for Common
Stock outstanding will also constitute the transfer of the Rights associated
with the Common Stock represented by such certificate. The Rights Agreement
provides that Stanley E. Fulton, and certain of his transferees, donees, or
successors, who together were beneficial owners of more than 52.4% of the Common
Stock of the Company outstanding on September 15, 1997, are excluded from the
definition of "Acquiring Person." Mr. Fulton is also excluded from the
definition of "Adverse Person."
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on the tenth anniversary of the Rights Agreement,
unless earlier redeemed by the Company as described below.
As soon as practicable after the Distribution Date, Rights Certificates will
be mailed to holders of record of the Common Stock as of the close of business
on the Distribution Date and, thereafter, the separate Rights Certificates alone
will represent the Rights. Except as otherwise determined by the board of
directors, only shares of Common Stock outstanding prior to the Distribution
Date will be issued with Rights.
In the event that (i) the Company is the surviving corporation in a merger
or combination with any Acquiring Person or any Adverse Person, or any associate
or affiliate of any Acquiring Person or Adverse Person, and its Common Stock
remains outstanding; (ii) any Acquiring Person or any Adverse Person, or any
associate or affiliate of any Acquiring Person or Adverse Person, engages in one
or more "self-dealing" transactions to be set forth in the Rights Agreement;
(iii) an Acquiring Person becomes the beneficial owner of 15% or more of the
then outstanding shares of Common Stock (unless such acquisition is made
pursuant to a tender or exchange offer for all outstanding shares of the
Company, at a price determined by a majority of the Continuing Directors of the
Company (as defined below) who are not representatives, nominees, affiliates, or
associates of an Acquiring Person, to be fair and otherwise in the best interest
of the Company and its stockholders); (iv) during such time as there is an
Acquiring Person or Adverse Person an event occurs that results in such
Acquiring Person's or Adverse Person's ownership interest being increased by
more than 1% (E.G., a reverse stock split or recapitalization); or (v) the board
of directors determines that a person is an Adverse Person, each holder of a
Right will thereafter have the right to receive, upon exercise, Common Stock
(or, in certain circumstances, cash, property, or other securities of the
Company), having a value equal to two times the Exercise Price of the Right. The
Exercise Price is the Purchase Price times the number of shares of Common Stock
associated with each Right (initially, one). Notwithstanding any of the
foregoing, following the occurrence of any of the events set forth in this
paragraph (the "Flip-In Events"), all Rights that are, or (under certain
circumstances specified in the Rights Agreement) were, beneficially owned by any
Acquiring Person or any Adverse Person, or an associate or affiliate of any
Acquiring Person or Adverse Person, will be null and void. However, Rights are
not exercisable following the occurrence of any of the Flip-In Events set forth
above until such time as the Rights are no longer redeemable by the Company as
set forth below.
In the event that following the Stock Acquisition Date, (i) the Company is
acquired in a merger or consolidation in which the Company is not the surviving
corporation (other than a merger that follows a tender offer that the board of
directors has found to be fair to the stockholders of the Company, as
47
<PAGE>
described above); or (ii) 50% or more of the Company's assets or earning power
is sold or transferred, each holder of a Right (except Rights which have
previously been voided as set forth above) will thereafter have the right to
receive, upon exercise of the Right, Common Stock of the acquiring company
having a value equal to two times the Exercise Price of the Right.
The Purchase Price payable, and the number of Units of Series A Preferred or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination, or reclassification of, the Series A
Preferred; (ii) if holders of the Series A Preferred are granted certain rights
or warrants to subscribe for Series A Preferred or convertible securities at
less than the current market price of the Series A Preferred; or (iii) upon the
distribution to holders of the Series A Preferred of evidences of indebtedness
or assets (excluding regular quarterly cash dividends) or of subscription rights
or warrants (other than those referred to above).
With certain exceptions, no adjustments in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional Units will be issued and, in lieu thereof, an adjustment in
cash will be made based on the market price of the Series A Preferred on the
last trading date prior to the date of exercise.
At any time until 10 days following the Stock Acquisition Date, the Company
may redeem the Rights in whole, but not in part, at a price of $.01 per Right.
The ten day redemption period may be extended by the board of directors so long
as the Rights are still redeemable. Under certain circumstances, the decision to
redeem will require the concurrence of a majority of the Continuing Directors
referred to below. Immediately upon the action of the board of directors
ordering redemption of the Rights, the Rights will terminate and the only right
of the holders of Rights will be to receive the $.01 redemption price.
The term "Continuing Director" means any member of the board of directors of
the Company who was a member of the board of directors prior to the adoption of
the Rights Plan and any person who is subsequently elected to the board of
directors if such person is recommended or approved by a majority of the
Continuing Directors, but will not include an Acquiring Person or any Adverse
Person, or an affiliate or associate of an Acquiring Person or Adverse Person,
or any representative of the foregoing entities.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of the Company, including, without limitation, the right to
vote or to receive dividends. While the distribution of the Rights will not be
taxable to stockholders or to the Company, stockholders may, depending upon the
circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Stock (or other consideration) of the Company as set
forth above.
Other than those provisions relating to the principal economic terms of the
Rights, any of the provisions of the Rights Agreement may be amended by the
board of directors of the Company prior to the Distribution Date. After the
Distribution Date, the provisions of the Rights Agreement may be amended by the
board of directors (in certain circumstances, with the concurrence of the
Continuing Directors) in order to cure any ambiguity, to make changes which do
not adversely affect the interests of holders of Rights (excluding the interest
of any Acquiring Person or any Adverse Person), or to shorten or lengthen any
time period under the Rights Agreement; provided that no amendment to adjust the
time period governing redemption will be made at such time as the Rights are not
redeemable.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
in certain circumstances. Accordingly, the existence of the Rights may deter
certain acquirors from making takeover proposals or tender offers. However, the
Rights are not intended to prevent a takeover, but rather are designed to
enhance the ability of the board of directors to negotiate with an acquiror on
behalf of all of the shareholders.
48
<PAGE>
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services has been appointed as the transfer agent
and registrar for the Common Stock.
CERTAIN PROVISIONS RELATING TO CHANGES IN CONTROL
The Company's Articles of Incorporation and Bylaws, described below, contain
several provisions that may make the acquisition of control of the Company by
means of a tender offer, open market purchases, proxy contest, or otherwise more
difficult. In addition, upon completion of this Offering, the officers and
directors of the Company and members of their respective families will own
beneficially approximately 40.5% of the outstanding Common Stock and, therefore,
will be able to exert substantial influence over substantially all actions
requiring stockholder approval, including a proposed acquisition or the adoption
of additional charter and bylaw provisions that could make acquisition of
control of the Company more difficult. In addition, all six of Stanley E.
Fulton's children and a third party, who, after giving effect to this Offering,
will own a total of 1,808,000 shares of Common Stock, granted irrevocable
proxies to Mr. Fulton, which will allow him to vote such shares of Common Stock
through December 31, 1998. As a result, Mr. Fulton will have voting control of
39.2% of the Common Stock to be outstanding after this Offering.
AUTHORIZED BUT UNISSUED STOCK. As of the closing of this Offering, after
giving effect to the sale of the shares offered hereby, the Company will have
more than 35,900,000 authorized but unissued and unreserved shares of Common
Stock and 950,000 authorized, unissued, and unreserved shares of preferred stock
(after giving effect to the authorization of the Series A Preferred in
connection with the Rights Agreement). These additional shares may be utilized
for a variety of corporate purposes, including future public or private
offerings to raise additional capital and for facilitating corporate
acquisitions. The Company does not currently have any plans to issue additional
shares of Common Stock or Preferred Stock. One of the effects of authorized but
unissued shares of capital stock may be to enable the board of directors to
render more difficult or discourage an attempt to obtain control of the Company
by means of a merger, tender offer, proxy contest, or otherwise, and thereby to
protect the continuity of the Company's management. If, in the due exercise of
its fiduciary obligations, for example, the board of directors determines that a
takeover proposal is not in the Company's best interest, such shares could be
issued by the board of directors without stockholder approval in one or more
private transactions or other transactions that might prevent or render more
difficult or costly the completion of the takeover transaction by diluting the
voting or other rights of the proposed acquirer or insurgent stockholder group,
by creating a substantial voting block in institutional or other hands that
might undertake to support the position of the incumbent board of directors, by
effecting an acquisition that might complicate or preclude the takeover, or
otherwise.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS. The Company's Bylaws
establish advance notice procedures with regard to stockholder proposals and the
nomination, other than by or at the direction of the board of directors or a
committee thereof, of candidates for election as directors. The Company may
reject a stockholder proposal or nomination that is not made in accordance with
such procedures.
AMENDMENT OF THE BYLAWS. The Company's Articles of Incorporation provide
that the Bylaws may be amended only by the board of directors or by an
affirmative vote of the holders of at least two-thirds of the outstanding shares
of capital stock then entitled to vote on the matter. These voting requirements
will have the effect of making more difficult any amendment to the Bylaws by the
Company's stockholders, even if a majority of the stockholders favors such an
amendment.
APPROVAL OF NEW DIRECTORS AND STOCKHOLDERS. The Company's Articles of
Incorporation provide that newly elected directors may be required to be found
suitable or qualified by state gaming authorities with jurisdiction over the
Company. In addition, in general, any person who acquires or proposes to acquire
49
<PAGE>
more than specified percentages of the outstanding shares of Common Stock (and
other stockholders, under certain circumstances) must be found suitable or
qualified by the Nevada Commission and the Colorado Commission. Anchor's
Articles of Incorporation also include a statement that all transfers of voting
securities are subject to the regulations of each regulatory body to which the
Company's activities are subject and detail the possibility of a repurchase if a
stockholder is found unsuitable. The gaming laws and regulations of Nevada and
Colorado, as well as other jurisdictions in which the Company conducts or may
conduct business, include numerous other provisions that may make it difficult
for a third party to acquire control of Anchor. See "Regulation."
NEVADA LEGISLATION
Nevada's "Combination with Interested Stockholders Statute" and "Control
Share Acquisition Statute" may have the effect of delaying or making it more
difficult to effect a change in control of the Company.
The Combination with Interested Stockholders Statute prevents an "interested
stockholder" and a covered Nevada corporation from entering into a
"combination," unless certain conditions are met. A "combination" means any
merger or consolidation with an "interested stockholder," or any sale, lease,
exchange, mortgage, pledge, transfer, or other disposition, in one transaction
or a series of transactions with an "interested stockholder," having (i) an
aggregate market value equal to five percent or more of the aggregate market
value of the assets of the corporation; (ii) an aggregate market value equal to
five percent or more of the aggregate market value of all outstanding shares of
the corporation; or (iii) representing 10% or more of the earning power or net
income of the corporation, or an affiliate or associate thereof. A corporation
to which the statute applies may not engage in a "combination" within five years
after the interested stockholder acquired such person's shares unless the
combination or purchase is approved by the board of directors before the
interested stockholder acquires such shares. If this approval is not obtained,
then after the expiration of the five-year period, the business combination may
be consummated with the approval of the board of directors or a majority of the
voting power held by disinterested stockholders, or if the consideration to be
paid by the interested stockholder is at least equal to the higher of (i) the
highest price per share paid by the interested stockholder within the five years
immediately preceding the date of the announcement of the combination or in the
transaction in which such person became an interested stockholder, whichever is
higher; (ii) the market value per common share on the date of announcement of
the combination or the date the interested stockholder acquired the shares,
whichever is higher; or (iii) if higher for the holders of preferred stock, the
highest liquidation value of the preferred stock.
Nevada's Control Share Acquisition Statute prohibits an acquirer, under
certain circumstances, from voting shares of a target corporation's stock after
crossing certain threshold ownership percentages, unless the acquirer obtains
the approval of the target corporation's disinterested stockholders. The Control
Share Acquisition Statute specifies three thresholds: one-fifth or more but less
than one-third, one-third but less than a majority, and a majority or more, of
the outstanding voting power. All other stockholders who do not vote in favor of
authorizing voting rights to the Control Shares are entitled to demand payment
for the fair value of their shares. The board of directors is to notify the
stockholders as soon as practicable after such an event has occurred that they
have the right to receive the fair value of their shares in accordance with
statutory procedures established generally for dissenters' rights.
50
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement"), the Selling Stockholders have agreed to sell to
the underwriters named below (the "Underwriters"), and each of the Underwriters,
for whom BT Alex. Brown Incorporated, Morgan Stanley & Co. Incorporated, and
Raymond James & Associates, Inc. are acting as representatives (the
"Representatives"), has severally agreed to purchase from the Selling
Stockholders, the aggregate number of shares of Common Stock (the "Shares") set
forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
BT Alex. Brown Incorporated..........................................................................
Morgan Stanley & Co. Incorporated....................................................................
Raymond James & Associates, Inc. ....................................................................
----------
Total............................................................................................ 1,800,000
----------
----------
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Shares offered by
this Prospectus (other than those subject to the over-allotment option described
below) if any such Shares are purchased. In the event of a default by the
Underwriters, the Underwriting Agreement provides that, in certain
circumstances, the purchase commitments of non-defaulting Underwriters may be
increased or the Underwriting Agreement may be terminated.
Stanley E. Fulton has granted to the Underwriters an option, exercisable by
the Representatives during the 30-day period after the date of this Prospectus,
to purchase up to 270,000 shares of Common Stock at the same price per share as
the initial shares of Common Stock to be purchased by the Underwriters. The
Representatives may exercise such option only to cover over-allotments in the
sale of the shares of Common Stock. To the extent that the Representatives
exercise such option, the Underwriters will have a firm commitment, subject to
certain conditions, to purchase the same proportion of such additional shares of
Common Stock as the number of shares of Common Stock to be purchased and offered
by such Underwriters in the above table bears to the total number of shares in
the above table.
The Selling Stockholders have been advised by the Representatives that the
Underwriters propose initially to offer the Shares to the public at the offering
price set forth on the cover page of this Prospectus, and through the
Representatives to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After the
Offering, the public offering price and other selling terms may be changed.
The Selling Stockholders, holding in the aggregate approximately 39.9% of
the shares of Common Stock outstanding after completion of this Offering
(including options and warrants of such persons exercisable during the period of
the agreement), have agreed that they will not offer, sell, contract to sell, or
otherwise dispose of, directly or indirectly, any shares of Common Stock, or any
interests therein, or any
51
<PAGE>
securities convertible into, or exchangeable for, shares of Common Stock, or
rights to acquire the same, for a period of 90 days from the date of this
Prospectus without the prior written consent of the Representatives, except
pursuant to the Underwriting Agreement.
The Company and Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
In connection with the Offering, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions, "passive" market making, and purchases to cover
syndicate short positions created in connection with the Offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the Common Stock.
Syndicate short positions involve the sale by the Underwriters of a greater
number of shares of Common Stock than they are required to purchase from the
Selling Stockholders in the Offering. The Underwriters also may impose a penalty
bid, whereby the syndicate may reclaim selling concessions allowed to syndicate
members or other broker dealers in respect of the Common Stock sold in the
Offering for their account if the syndicate repurchases the shares in
stabilizing or covering transactions. These activities may stabilize, maintain,
or otherwise affect the market price of the Common Stock, which may be higher
than the price that might otherwise prevail in the open market. These
activities, if commenced, may be discontinued at any time. These transactions
may be effected on the Nasdaq National Market, in the over-the-counter market or
otherwise.
As permitted by Rule 103 of Regulation M under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), Underwriters or prospective
Underwriters that are market makers (passive market makers) in the Common Stock
may make bids for or purchases of shares of Common Stock on the Nasdaq National
Market until such time, if any, when a stabilizing bid for such securities has
been made. Rule 103 generally provides that (i) a passive market maker's net
daily purchases of the Common Stock may not exceed 30% of its average daily
trading volume in such securities for the two full consecutive calendar months
(or any 60 consecutive days ending within the 10 days) immediately preceding the
filing date of the registration statement of which this Prospectus forms a part;
(ii) a passive market maker may not effect transactions or display bids for the
Common Stock at a price that exceeds the highest independent bid for shares of
Common Stock by persons who are not passive market makers; and (iii) bids made
by passive market makers must be identified as such.
Each Representative has represented and agreed that (i) it will not offer or
sell any shares of Common Stock to persons in the United Kingdom except to
persons whose ordinary activities involve them in acquiring, holding, managing,
or disposing of investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances that will not involve an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995 ("the Regulations"); (ii) it will comply with all
applicable provisions of the Financial Services Act 1986 and the Regulations
with respect to anything done by it in relation to the shares of Common Stock
in, from, or otherwise involving the United Kingdom; and (iii) it will only
issue or pass on to any person in the United Kingdom any document received by it
in connection with the offering of the shares of Common Stock if that person is
of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such
document may otherwise lawfully be issued or passed on.
No action has been or will be taken in any jurisdiction by the Selling
Stockholders, the Company, or the Representatives that would permit an offering
to the general public of the shares of Common Stock offered by this Prospectus
in any jurisdiction other than the United States.
From time to time, BT Alex. Brown Incorporated has provided investment
banking services to the Company, including acting as lead manager in the
Company's Secondary Offering in April 1996, for which it has received customary
underwriting fees. From time to time, Morgan Stanley & Co. Incorporated and
52
<PAGE>
Raymond James & Associates, Inc. also have provided investment banking services
to the Company for which they have received customary fees.
LEGAL MATTERS
The validity of the shares of Common Stock offered by this Prospectus and
certain legal matters in connection with the Offering for the Selling
Stockholders will be passed upon by Hughes & Luce, L.L.P., Dallas, Texas. Glen
Hettinger, a member of the board of directors of the Company, is a partner in
Hughes & Luce, L.L.P. and the beneficial owner of options to purchase 25,000
shares of Common Stock. Certain legal matters in connection with the Offering
will be passed upon for the Underwriters by Cahill Gordon & Reindel (a
partnership including a professional corporation), New York, New York.
EXPERTS
The consolidated financial statements of Anchor Gaming and subsidiaries as
of June 30, 1996 and 1997, and for each of the three years in the period ended
June 30, 1997 included in this Prospectus, and the related financial statement
schedule included elsewhere in the registration statement have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein and elsewhere in the registration statement, and are included
in reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
The information provided under the caption "Business -- Proprietary Games --
Intellectual Property Rights" and "Risk Factors -- Risks of Proprietary Games"
has been reviewed by Daniel P. Burke, Hauppauge, New York, special patent
counsel to the Company, and is included in this Prospectus in reliance on his
authority as an expert in intellectual property law.
53
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements, information
statements, and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements, and other information filed
by the Company with the Commission may be inspected without charge at the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and will also be available for inspection
and copying at the regional offices of the Commission located at Seven World
Trade Center, 13th Floor, New York, New York 10048, and the Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
materials may be obtained from the Public Reference Section of the Commission
upon payment of certain prescribed fees. Electronic registration statements, as
well as reports, proxy, and information statements, and other information made
through the Electronic Data Gathering, Analysis, and Retrieval system are
publicly available through the Commission's web site (http://www.sec.gov), which
is maintained by the Commission.
The Company has filed with the Commission a Registration Statement (which
term encompasses any amendment to the Registration Statement) under the
Securities Act with respect to the Common Stock offered by this Prospectus. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
exhibits thereto, to which reference is hereby made. With respect to each
contract, agreement, or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a detailed description of the
matter involved.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission (File No. 0-23124)
pursuant to the Exchange Act are incorporated in this Prospectus by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1997.
2. The Company's Current Report on Form 8-K dated September 10, 1997.
3. All other documents filed by the Company pursuant to Sections 13(a),
13(c), 14, or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the Offering.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14, or 15(d) of the Exchange Act prior to the termination of the Offering
will be deemed to be incorporated by reference in this Prospectus and will be
part of this Prospectus from the date of filing of such documents. Any statement
contained in this Prospectus or in any document incorporated or deemed to be
incorporated by reference in this Prospectus will be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained in this Prospectus or in any subsequently filed document that also is
or is deemed to be incorporated by reference in this Prospectus modifies or
supersedes such statement. Any statement so modified or superseded will not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company undertakes to provide without charge to each person, including
any beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any document described in
this Prospectus (not including exhibits to those documents unless such exhibits
are incorporated by reference into the information incorporated into this
Prospectus). Requests for such copies should be directed to Anchor Gaming, 815
Pilot Road, Suite G, Las Vegas, Nevada 89119,
Attention: Corporate Secretary.
54
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets as of June 30, 1996 and 1997................................................... F-3
Consolidated Statements of Income for the Years Ended June 30, 1995, 1996, and 1997........................ F-4
Consolidated Statements of Stockholders' Equity for the Years Ended June 30, 1995, 1996, and 1997.......... F-5
Consolidated Statements of Cash Flows for the Years Ended June 30, 1995, 1996, and 1997.................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Anchor Gaming and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Anchor
Gaming and subsidiaries (the "Company") as of June 30, 1996 and 1997, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended June 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principals used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Anchor Gaming and subsidiaries
at June 30, 1996 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended June 30, 1997 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
August 1, 1997
F-2
<PAGE>
ANCHOR GAMING
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
------------------------------
1996 1997
-------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents...................................................... $ 78,112,530 $ 66,427,369
Accounts receivable, net....................................................... 4,720,689 6,358,052
Current portion of notes receivable, net....................................... 881,173 45,619
Inventory...................................................................... 3,197,955 3,196,918
Prepaid expenses............................................................... 1,739,263 1,835,913
Other current assets........................................................... 300,761 400,180
-------------- --------------
Total current assets....................................................... 88,952,371 78,264,051
Property and equipment, net...................................................... 57,776,237 85,033,436
Long-term notes receivable, net.................................................. 311,856 1,543,159
Intangible assets, net........................................................... 2,054,710 2,128,306
Deposits and other............................................................... 13,216,623 21,907,417
-------------- --------------
Total assets............................................................... $ 162,311,797 $ 188,876,369
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion, long-term notes payable....................................... $ 100,000 $ --
Accounts payable............................................................... 4,574,213 2,663,156
Accrued salaries, wages and vacation pay....................................... 2,488,014 2,712,764
Income tax payable............................................................. 281,886 2,138,934
Other current liabilities...................................................... 3,530,130 6,103,394
-------------- --------------
Total current liabilities.................................................. 10,974,243 13,618,248
Long-term notes payable, principal stockholder................................... 2,800,000 2,800,000
Long-term notes payable, net of current portion.................................. 850,000 --
Other long-term liabilities...................................................... 707,318 143,691
Minority interest in consolidated subsidiary..................................... 672,955 983,562
-------------- --------------
Total liabilities and minority interest in consolidated subsidiary......... 16,004,516 17,545,501
-------------- --------------
Commitments and contingencies.................................................... -- --
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized, 0 shares issued
and outstanding at June 30, 1996 and 1997.................................... -- --
Common stock, $.01 par value, 25,000,000 shares authorized, 13,474,150 issued,
and 13,283,382 outstanding at June 30, 1996; 50,000,000 shares authorized,
13,579,575 issued, and 13,052,807 outstanding at June 30, 1997............... 134,742 135,796
Additional paid-in capital..................................................... 104,448,080 107,267,684
Treasury stock at cost, 190,768 shares at June 30, 1996, 526,768 shares at June
30, 1997..................................................................... (3,095,830) (16,569,329)
Retained earnings.............................................................. 44,820,289 80,496,717
-------------- --------------
Total stockholders' equity................................................. 146,307,281 171,330,868
-------------- --------------
Total liabilities and stockholders' equity................................. $ 162,311,797 $ 188,876,369
-------------- --------------
-------------- --------------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
ANCHOR GAMING
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------------------------
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues:
Casino operations............................................. $ 56,183,629 $ 65,125,194 $ 69,223,321
Proprietary games operations.................................. 14,158,737 21,457,135 49,715,779
Route operations.............................................. 25,818,170 28,650,989 33,509,497
Food and beverage............................................. 1,250,593 1,233,003 1,300,002
-------------- -------------- --------------
Total revenues.............................................. 97,411,129 116,466,321 153,748,599
-------------- -------------- --------------
Costs and expenses:
Casino operations............................................. 21,500,172 26,830,475 29,100,285
Proprietary games operations.................................. 9,850,963 12,113,595 11,039,227
Route operations.............................................. 15,659,336 17,158,172 19,904,608
Food and beverage............................................. 1,386,438 1,300,012 1,431,734
Selling, general and administrative........................... 20,949,047 21,073,631 28,163,608
Project cost write-downs...................................... -- -- 2,116,968
Depreciation and amortization................................. 3,215,017 4,109,835 8,798,163
-------------- -------------- --------------
Total costs and expenses.................................... 72,560,973 82,585,720 100,554,593
-------------- -------------- --------------
Income from operations.......................................... 24,850,156 33,880,601 53,194,006
-------------- -------------- --------------
Other income (expense):
Interest income............................................... 1,105,212 2,028,347 3,792,739
Interest expense.............................................. (731,954) (428,991) (287,711)
Other income.................................................. 405,831 260,439 288,703
Minority interest in earnings of consolidated subsidiary...... (162,262) (217,793) (310,607)
-------------- -------------- --------------
Total other income (expense)................................ 616,827 1,642,002 3,483,124
-------------- -------------- --------------
Income before provision for income taxes........................ 25,466,983 35,522,603 56,677,130
Income tax provision............................................ 9,486,451 13,187,559 21,000,702
-------------- -------------- --------------
Net income...................................................... $ 15,980,532 $ 22,335,044 $ 35,676,428
-------------- -------------- --------------
-------------- -------------- --------------
Weighted average common and common equivalent shares
outstanding................................................... 11,446,646 12,153,419 13,691,158
-------------- -------------- --------------
-------------- -------------- --------------
Earnings per common and common equivalent share................. $ 1.40 $ 1.84 $ 2.61
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ANCHOR GAMING
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1995, 1996, AND 1997
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
------------------------ ---------------------- ADDITIONAL
SHARES AMOUNT SHARES AMOUNT PAID-IN CAPITAL
----------- ----------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Balance -- July 1, 1994....... 11,377,100 $ 113,771 (163,789) $ (1,799,830) $ 42,181,989
Stock issued for exercise of
options................... 128,450 1,285 1,544,615
Tax effects of stock option
transactions.............. 304,495
Net income..................
----------- ----------- -------- ------------ ---------------
Balance -- June 30, 1995...... 11,505,550 115,056 (163,789) (1,799,830) 44,031,099
Stock issued for exercise of
warrants and options...... 418,600 4,186 (26,979) (1,296,000) 5,694,414
Shares issued in public
offering.................. 1,550,000 15,500 53,859,015
Tax effects of stock option
transactions.............. 863,552
Net income..................
----------- ----------- -------- ------------ ---------------
Balance -- June 30, 1996...... 13,474,150 134,742 (190,768) (3,095,830) 104,448,080
Stock issued for exercise of
warrants and options...... 105,425 1,054 1,285,403
Treasury shares purchased... (336,000) (13,473,499)
Tax effects of stock option
transactions.............. 1,534,201
Net income..................
----------- ----------- -------- ------------ ---------------
Balance -- June 30, 1997...... 13,579,575 $ 135,796 (526,768) $(16,569,329) $107,267,684
----------- ----------- -------- ------------ ---------------
----------- ----------- -------- ------------ ---------------
<CAPTION>
RETAINED
EARNINGS TOTAL
----------- ------------
<S> <C> <C>
Balance -- July 1, 1994....... $ 6,504,713 $ 47,000,643
Stock issued for exercise of
options................... 1,545,900
Tax effects of stock option
transactions.............. 304,495
Net income.................. 15,980,532 15,980,532
----------- ------------
Balance -- June 30, 1995...... 22,485,245 64,831,570
Stock issued for exercise of
warrants and options...... 4,402,600
Shares issued in public
offering.................. 53,874,515
Tax effects of stock option
transactions.............. 863,552
Net income.................. 22,335,044 22,335,044
----------- ------------
Balance -- June 30, 1996...... 44,820,289 146,307,281
Stock issued for exercise of
warrants and options...... 1,286,457
Treasury shares purchased... (13,473,499)
Tax effects of stock option
transactions.............. 1,534,201
Net income.................. 35,676,428 35,676,428
----------- ------------
Balance -- June 30, 1997...... $80,496,717 $171,330,868
----------- ------------
----------- ------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
ANCHOR GAMING
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................................................ $ 15,980,532 $ 22,335,044 $ 35,676,428
------------ ------------ ------------
Adjustments to reconcile net income to net cash provided by operating activities:
(Gain) loss on disposal of assets, including project cost write-downs........... (140,022) -- 2,208,878
Depreciation and amortization................................................... 3,337,356 4,085,573 8,955,446
Provision for doubtful accounts and notes....................................... 10,000 105,000 364,000
Minority interest in earnings of consolidated subsidiary........................ 162,262 217,793 310,607
(Increase) decrease in assets:
Accounts receivable............................................................. (1,206,323) (1,802,054) (2,001,363)
Inventory....................................................................... (472,432) (842,765) 1,037
Other current assets............................................................ 836,890 34,772 (83,898)
Prepaid expenses................................................................ 40,788 (105,769) (96,650)
Deposits and other assets....................................................... 1,490,739 58,925 (5,606,169)
Increase (decrease) in liabilities:
Accounts payable................................................................ 828,756 2,763,320 (1,911,057)
Accrued salaries, wages and vacation pay........................................ 593,835 380,048 224,750
Income tax payable.............................................................. 1,173,316 776,683 2,955,801
Other liabilities............................................................... 1,015,529 762,794 2,394,423
------------ ------------ ------------
Total adjustments............................................................. 7,670,694 6,434,320 7,715,805
------------ ------------ ------------
Net cash provided by operating activities........................................... 23,651,226 28,769,364 43,392,233
------------ ------------ ------------
Cash flows from investing activities:
Acquisition and construction of property and equipment............................ (7,834,258) (27,916,341) (38,108,284)
Expenditures for intangible assets................................................ (250,000) (274,013) (488,715)
Proceeds from sale of equipment................................................... 514,166 530,377 117,254
Issuance of notes receivable...................................................... (252,557) (114,614) (1,405,157)
Principal reductions on notes receivable.......................................... 973,243 947,678 1,009,408
Payments to extend operating leases............................................... (1,750,000) (5,000,000) --
Advances to joint venture......................................................... -- -- (3,100,000)
------------ ------------ ------------
Net cash used in investing activities........................................... (8,599,406) (31,826,913) (41,975,494)
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from sale of stock and warrants...................................... 1,545,900 58,277,115 1,321,600
Treasury stock purchases.......................................................... -- -- (13,473,500)
Principal payments on loans from related parties.................................. (937,393) (3,189,447) --
Principal payments on other loans................................................. -- (50,000) (950,000)
------------ ------------ ------------
Net cash provided by financing activities....................................... 608,507 55,037,668 (13,101,900)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents................................ 15,660,327 51,980,119 (11,685,161)
Cash and cash equivalents, beginning of period...................................... 10,472,084 26,132,411 78,112,530
------------ ------------ ------------
Cash and cash equivalents, end of period............................................ $ 26,132,411 $ 78,112,530 $ 66,427,369
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosure of cash flow information:
Cash paid for interest............................................................ $ 636,602 $ 392,643 $ 257,994
------------ ------------ ------------
------------ ------------ ------------
Cash paid for income taxes........................................................ $ 7,710,000 $ 12,404,763 $ 18,044,900
------------ ------------ ------------
------------ ------------ ------------
Supplemental schedule of noncash investing and financing transactions:
Stock issued for warrants in cashless exercise.................................... $ 1,296,000
------------
------------
Property and equipment acquired by assuming debt.................................. $ 1,000,000
------------
------------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
ANCHOR GAMING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Anchor Gaming ("Anchor" or the "Company") is a diversified gaming company
that seeks to capitalize on its experience as an operator and developer of
gaming machines and casinos by developing gaming oriented businesses. Anchor
develops and distributes unique proprietary games, currently operates two
casinos in Colorado, and operates one of the largest gaming machine routes in
Nevada.
Anchor Gaming was formed July 28, 1993 and completed its initial public
offering ("IPO") in February 1994. Simultaneous with the closing of the IPO,
Anchor became the holding company of Anchor Coin, C.G. Investments, Inc.
("CGI"), Colorado Grande Enterprises, Inc. ("Colorado Grande") and D D Stud,
Inc. ("DD Stud") (collectively the "Subsidiaries"), which had been operated
under different ownership structures controlled primarily by Stanley E. Fulton,
the Chairman of the Board, Chief Executive Officer and principal stockholder of
Anchor. Also at the time of the IPO, the Company acquired all of the beneficial
ownership of Global Gaming Products, L.L.C. and certain related assets from
Global Distributors, Inc. (the "Acquisition"), which were primarily involved in
the distribution of the proprietary game Silver Strike. The accounts of the
Subsidiaries are consolidated in the accompanying financial statements. All
significant intercompany accounts and transactions have been eliminated. The
financial position and operating results of Colorado Grande Enterprises, Inc.
are included in the consolidated financial statements as an 80% consolidated
subsidiary.
On April 23, 1996, Anchor completed a secondary offering of 2.3 million
shares of common stock at a price of $37 per share, with 1.55 million of these
shares being sold by the Company (the "Secondary Offering") and the remaining
750,000 shares being sold by selling stockholders. Net proceeds to the Company
from the Secondary Offering were $53.9 million.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments purchased with
maturities of three months or less.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's cash and cash equivalents, trade
receivables, and trade payables approximates fair value because of the short
maturities of these instruments. The Company estimates fair value on its
long-term obligations based on quoted market prices or on the current rates
offered to the Company for debt of the same remaining maturities. The estimated
fair values of the obligations closely approximated the carrying values at June
30, 1996 and 1997.
INVESTMENTS IN DEBT SECURITIES
The Company's investment securities, along with certain cash and cash
equivalents that are not deemed securities under Statement No. 115 ("SFAS 115"),
are carried on the consolidated balance sheets in the cash and cash equivalents
category. Management determines the appropriate classification of its investment
securities at the time of purchase as either held-to-maturity, trading, or
available for sale and re-evaluates such determination at each balance sheet
date. The Company has classified its investment securities as of June 30, 1996
and 1997 as held-to-maturity. Held-to-maturity securities are required to be
F-7
<PAGE>
ANCHOR GAMING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
carried at amortized cost. The securities classified as held-to-maturity consist
of the following amortized costs at June 30:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Debt securities issued by the U.S. Treasury and other U.S.
government agencies.......................................... $ 34,915,000 $ 52,734,000
Repurchase agreements.......................................... 30,013,000 --
------------- -------------
$ 64,928,000 $ 52,734,000
------------- -------------
------------- -------------
</TABLE>
All of the Company's investment securities mature in three months or less
from the date of purchase. The estimated fair value of the Company's portfolio
of investment securities at June 30, 1996 and 1997 closely approximated
amortized cost because of the short term nature of the portfolio.
ACCOUNTS RECEIVABLE
Accounts receivable result from the sale of products and services to gaming
properties primarily in the United States. The Company performs credit
evaluations of its customers and does not require collateral. Management reviews
customer balances for potential credit losses and maintains an allowance for
amounts deemed uncollectible. The amounts reserved at June 30, 1996 and 1997
were $278,821 and $665,605, respectively.
INVENTORY
Inventory consists of silver and silver tokens, parts for gaming machines,
and food and beverage items. Silver inventory of $1,092,671 and $594,615 at June
30, 1996 and 1997, respectively, is classified as raw material. The remainder of
inventory is classified as finished goods. All inventories are stated at the
lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Ordinary maintenance and
repairs are charged to expense as incurred. Costs that materially increase the
life or value of existing assets are capitalized. Assets that have been placed
in service are depreciated over their estimated useful lives or amortized over
lease terms using either straight-line or accelerated methods. Estimated useful
lives for furniture and equipment are 5 to 7 years, for leasehold improvements
are 4 1/2 years to 31 1/2 years and for buildings and improvements are 30 years.
INTANGIBLE ASSETS
Intangible assets include goodwill associated with the Acquisition, which is
amortized on a straight-line basis over 10 years. Intangible assets also include
amounts paid to acquire leases for route locations and casino property, amounts
to acquire route participation agreements, costs of patents issued, and
organization costs. These amounts are amortized on a straight-line basis over
the lives of the leases or agreements ranging from 2 to 15 years.
F-8
<PAGE>
ANCHOR GAMING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EQUITY INVESTMENTS
Equity investments in joint ventures and other entities that are 20% to 50%
owned are included in deposits and other assets and are accounted for using the
equity method. Income from the joint ventures is included in proprietary games
revenue on the income statements. During fiscal year 1997, the Company made $3.1
million in advances to a 50% owned Joint Venture.
REVENUE RECOGNITION
In accordance with industry practice, the Company recognized gaming revenues
as the net win from gaming operations, which is the difference between amounts
wagered by customers and payments to customers. Proprietary games revenue is
derived from royalty, revenue participation, or other similar short-term
recurring revenue arrangements.
Revenues exclude the retail value of complimentary food and beverage
furnished gratuitously to customers. The estimated departmental costs of
providing such goods and services as included in casino expense are $822,467,
$1,162,495, and $1,365,897 for the fiscal years ended June 30, 1995, 1996, and
1997, respectively.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred and are included in
selling, general, and administrative costs.
EARNINGS PER SHARE
Earnings per share on the income statement is computed by dividing net
income by the weighted average number of common and common equivalent shares
outstanding. Common equivalent shares include the effect of shares issuable upon
the exercise of warrants and stock options. Fully diluted earnings per share
amounts are substantially the same as primary per share amounts for the periods
presented.
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant estimates in the financial statements include the
estimated depreciable lives of property and equipment and certain estimated
liabilities and valuation reserves. Actual results could differ from those
estimates.
RECENTLY ADOPTED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("SFAS 121"). SFAS 121 requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS 121 is effective for
fiscal years beginning after December 15, 1995. Adoption of SFAS 121 in the
current year did not have a material impact on the consolidated financial
statements of the Company.
F-9
<PAGE>
ANCHOR GAMING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In October 1995, the FASB issued Statement No. 123 "Accounting for
Stock-Based Compensation" ("SFAS 123"), which establishes financial accounting
and reporting standards for stock-based employee compensation plans and for
transactions in which an entity issues its equity instruments to acquire goods
or services from nonemployees. The Company continues to account for stock based
compensation arrangements in accordance with Accounting Principles Board No. 25,
"Accounting for Stock Issued to Employees", and therefore the adoption of SFAS
123 had no effect on the financial position or results of operations of the
Company. The Company has included additional disclosures about stock-based
employee compensation plans as required by SFAS 123 (see Note 8).
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the FASB issued Statement No. 128, "Earnings per Share."
This statement establishes standards for computing and presenting earnings per
share and is effective for financial statements issued for periods ending after
December 15, 1997. Earlier application of this statement is not permitted and
upon adoption requires restatement (as applicable) of all prior-period earnings
per share data presented. Management believes that the implementation of this
standard will not have a significant impact on earnings per share.
In February 1997, the FASB issued Statement No. 129, "Disclosure of
Information about Capital Structure." This statement establishes standards for
disclosing information about an entity's capital structure. Management intends
to comply with the disclosure requirements of this statement which are effective
for periods ending after December 15, 1997.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). This statement requires companies to classify items of
other comprehensive income by their nature in a financial statement and display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS 130 is effective for financial statements issued for
fiscal years beginning after December 15, 1997. Management does not believe this
new standard will have a material impact on the Company's financial statements.
In June 1997, the FASB issued Statement No. 131 "Disclosure About Segments
of an Enterprise and Related Information" ("SFAS 131"). This statement
establishes additional standards for segment reporting in the financial
statements and is effective for fiscal years beginning after December 15, 1997.
The Company believes the segment information required to be disclosed under SFAS
131 will be more comprehensive than previously provided, including expanded
disclosure of income statement and balance sheet items for each of its
reportable segments under SFAS 131. However, the Company has not yet completed
its analysis of which operating segments it will report on.
3. NOTES RECEIVABLE
Notes receivable include notes due from an unaffiliated gaming company and
its stockholders for business development, which accrue interest at the prime
rate (8.5% at June 30, 1997) and notes due from various slot route location
owners with interest rates ranging from 8% to 12% to be paid over periods
ranging from three months to 5 years. At June 30, 1996, notes receivable also
include a note due from an unaffiliated Nevada gaming company with route
operations in Louisiana with interest accruing at the
F-10
<PAGE>
ANCHOR GAMING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. NOTES RECEIVABLE (CONTINUED)
prime rate plus a percentage of net cash flow (as defined in the loan
documents). This note was paid in full during the year ended June 30, 1997.
Notes receivable consist of the following at June 30:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Loans to unaffiliated gaming companies............................ $ 1,418,338 $ 610,905
Location loans for operating rights............................... 662,918 700,435
Loans to employees................................................ -- 1,200,000
Loans to related parties.......................................... 27,142 --
------------ ------------
2,108,398 2,511,340
Less allowance for doubtful accounts.............................. 915,369 922,562
------------ ------------
1,193,029 1,588,778
------------ ------------
Less current portion:.............................................
Loans to unaffiliated gaming companies.......................... 829,315 --
Location loans for operating rights............................. 24,716 45,619
Loans to related parties........................................ 27,142 --
------------ ------------
Notes receivable, current......................................... 881,173 45,619
------------ ------------
Long-term notes receivable, net................................... $ 311,856 $ 1,543,159
------------ ------------
------------ ------------
</TABLE>
Loans to related parties at June 30, 1996 consist of advances made by the
Company to a slot route operation owned by the principal stockholder of the
Company, which were paid in full on July 11, 1996.
Loans to employees at June 30, 1997 consist of a $1.2 million line of credit
arrangement with an entity controlled by an employee of the Company. Loans
outstanding under the line of credit bear interest at prime rate plus 1%.
Payment of all principal and accrued interest is due on August 13, 1998 if
certain licensing events have not occurred as of that date. If the licensing
events have occurred, payment terms may be extended.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at June 30:
<TABLE>
<CAPTION>
1996 1997
------------- --------------
<S> <C> <C>
Land and improvements......................................... $ 14,725,645 $ 15,316,178
Buildings and improvements.................................... 11,326,850 13,023,440
Gaming equipment.............................................. 30,276,982 61,641,351
Furniture, fixtures and equipment............................. 3,953,544 5,144,212
Leasehold improvements........................................ 3,657,726 6,143,415
Construction in progress...................................... 3,362,235 1,496,089
------------- --------------
67,302,982 102,764,685
Less accumulated depreciation................................. 9,526,745 17,731,249
------------- --------------
Total..................................................... $ 57,776,237 $ 85,033,436
------------- --------------
------------- --------------
</TABLE>
F-11
<PAGE>
ANCHOR GAMING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT (CONTINUED)
On November 11, 1996, the Company announced that it was re-evaluating the
scope and nature of its proposed addition of a new casino across the street from
the Colorado Central Station Casino. During the fourth quarter of the year ended
June 30, 1997, the Company determined that it was necessary to recognize a
write-down of costs associated with the new casino in the amount of $2,116,968.
The costs were specifically related to architectural fees, building design
costs, and deferred rent that were determined to have no future benefit.
Although the Company has proceeded with this asset write-down, it has not
abandoned the concept of an expansion and will continue to re-evaluate its
Colorado expansion options.
5. INTANGIBLE ASSETS
Intangible assets consist of the following at June 30:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Lease acquisition costs........................................... $ 2,085,857 $ 2,312,951
Goodwill.......................................................... 1,134,865 1,134,865
Patents........................................................... 98,595 98,595
Organization costs and other...................................... 221,310 221,310
------------ ------------
3,540,627 3,767,721
Less accumulated amortization..................................... 1,485,917 1,639,415
------------ ------------
Total......................................................... $ 2,054,710 $ 2,128,306
------------ ------------
------------ ------------
</TABLE>
6. NOTES PAYABLE
Notes payable consist of the following at June 30:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
PRINCIPAL STOCKHOLDER
Unsecured note payable to principal stockholder, interest at 8%,
due July 1, 1998(a)........................................... $ 2,300,000 $ 2,300,000
Unsecured note payable to principal stockholder, interest at 8%,
due July 1, 1998.............................................. 500,000 500,000
------------ ------------
Long-term notes payable, principal stockholder.................. $ 2,800,000 $ 2,800,000
------------ ------------
------------ ------------
OTHER
Note payable secured by land, interest at 6%, due in 120 equal
monthly principal installments plus interest, final payment
due December 2005. Paid in full during the year ended June 30,
1997.......................................................... $ 950,000 $ --
Less current portion............................................ 100,000 --
------------ ------------
Long-term portion............................................... $ 850,000 $ --
------------ ------------
------------ ------------
</TABLE>
- ------------------------
(a) At June 30, 1997, the stockholder amended the terms of the notes to be due
July 1, 1998.
F-12
<PAGE>
ANCHOR GAMING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. NOTES PAYABLE (CONTINUED)
Notes payable to the principal stockholder and related party resulted in
interest expense of $623,060, $289,373, and $223,693 for the years ended June
30, 1995, 1996, and 1997, respectively, and accrued interest payable of $18,400
at June 30, 1996 and 1997.
7. OTHER DEBT
In April 1997, the Company entered into a $10 million unsecured revolving
bank line of credit (the "Bank Revolver") expiring November 30, 1998. The Bank
Revolver bears interest at the prime rate, or LIBOR plus 2%, at the Company's
option. The Company has agreed to maintain certain financial and non-financial
covenants customary with lending arrangements of this type. Financial covenants
include maintenance of minimum cash and cash equivalent balances, tangible net
worth, annual EBITDA, and maximum funded debt to EBITDA ratio. The covenants
also restrict payment of cash dividends. The Company has remained in compliance
with the covenants throughout the term of the Bank Revolver and the previous
credit facility. As of June 30, 1997, the Company had not borrowed under the
Bank Revolver.
8. OPTIONS AND WARRANTS
As of June 30, 1997, 1,085,000 shares of common stock were reserved for
issuance upon exercise of employee and director stock options under an employee
stock option plan. Employee and director options to purchase 930,500 shares at
the fair market values at the grant dates have been granted as of June 30, 1997.
As of June 30, 1997, options to purchase 402,475 shares had been exercised. Of
the 930,500 options, 100,000 vest in equal quarterly increments over two years,
93,000 vest in equal annual increments over five years, 50,000 vest in a single
installment six months after issuance, 20,000 vest in decreasing annual
increments over five years, 250,000 vest in varying increments and periods over
five years, 8,000 vest at the end of three years and the remainder vest in equal
quarterly increments over five years.
An additional 40,000 shares are reserved for issuance upon exercise of
vested options at the IPO price that were granted to a relative of certain
minority stockholders (none of which were exercised at June 30, 1997), and
250,000 shares are reserved for issuance upon exercise of vested warrants
granted to the managing underwriters of the IPO (and their designees)
exercisable at 120% of the IPO price, all of which were exercised at June 30,
1997.
Options to purchase an additional 600,000 shares were granted at the fair
market value at the grant date to certain employees outside of the employee
stock option plan. These options vest in varying increments over periods from
nine months to eight years.
F-13
<PAGE>
ANCHOR GAMING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. OPTIONS AND WARRANTS (CONTINUED)
Summarized information for all options is as follows for the years ended
June 30:
<TABLE>
<CAPTION>
1995 1996 1997
----------------------- ----------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of the
year............................. 954,500 $ 12.80 820,300 $ 12.95 670,700 $ 17.79
Granted......................... 8,000 16.81 288,000 25.07 600,000 31.88
Exercised....................... (128,450) 12.18 (418,600) 13.57 (105,425) 12.54
Canceled........................ (13,750) 12.00 (19,000) 12.00 (32,250) 44.44
---------- ---------- ----------
Outstanding, end of the year...... 820,300 12.95 670,700 17.79 1,133,025 24.98
---------- ---------- ----------
---------- ---------- ----------
Exercisable at end of the year.... 453,950 13.44 148,050 12.31 245,475 16.11
---------- ---------- ----------
---------- ---------- ----------
Options available for grant....... 26,250 107,250 189,500
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The following table summarizes information about the options outstanding at
June 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- --------------------------
NUMBER WEIGHTED NUMBER WEIGHTED
OUTSTANDING WEIGHTED AVERAGE AVERAGE EXERCISABLE AVERAGE
AT JUNE 30, REMAINING EXERCISE AT JUNE 30, EXERCISE
RANGE OF EXERCISE PRICES 1997 CONTRACTUAL LIFE PRICE 1997 PRICE
- ----------------------------------- ------------- ------------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
$12.00 - $13.50 268,125 6.6 $ 12.13 142,375 $ 12.14
14.75 - 21.75 256,900 8.0 21.61 103,100 21.60
31.88 - 46.88 608,000 9.7 32.07 -- --
------------- -------------
1,133,025 8.6 24.98 245,475 16.11
------------- -------------
------------- -------------
</TABLE>
The Company is authorized to issue 1,000,000 shares of preferred stock, $.01
par value per share (the "Preferred Stock"), in one or more series, and to
designate the rights, preferences, limitations, and restrictions of and upon
shares of each series, including voting, redemption, and conversion rights. The
board of directors of the Company also may designate dividend rights and
preferences in liquidation. The board of directors of Anchor has authorized the
Company to designate a series of Series A Junior Participating Preferred Stock
in connection with the Rights Plan discussed in Note 12. In connection with the
authorization of the Rights Plan, the board of directors of the Company has
authorized the designation of 50,000 shares of Preferred Stock as Series A
Junior Participating Preferred Stock.
The Company has adopted the disclosures-only provision of Statement No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). The Company applies APB
Opinion No. 25 and related interpretations in accounting for its stock options.
Under APB 25, no compensation cost has been recognized in the financial
statements for the Stock Option Plan or other stock options granted. The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model. Had compensation cost for the stock option
grants been determined based on the fair value at the date of grant for awards
consistent with the provision of SFAS 123, the Company's net income per common
and
F-14
<PAGE>
ANCHOR GAMING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. OPTIONS AND WARRANTS (CONTINUED)
common equivalent share would have been decreased to the pro forma amounts
indicated below for the years ended June 30:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Net income--as reported........................................ $ 22,335,044 $ 35,676,428
Net income--pro forma.......................................... 21,758,657 34,940,303
Earnings per common and common
equivalent shares--as reported............................... $ 1.84 $ 2.61
Earnings per common and common
equivalent shares--pro forma................................. 1.79 2.55
</TABLE>
The fair value of each option granted in fiscal year 1996 and 1997 was
estimated using the following assumptions for the Black-Scholes option pricing
model: (i) no dividends; (ii) expected volatility for both years of 50%; (iii)
risk free interest rates averaging 6% for both years; and (iv) the expected
average life of 3.2 years for 1996 and 3.6 years for 1997. The weighted average
fair value of the options granted in 1996 and 1997 were $9.03 and $9.82,
respectively. Because the SFAS 123 method of accounting has not been applied to
options granted prior to July 1, 1995, the resulting pro forma net income may
not be representative of that to be expected in future years.
9. OTHER RELATED PARTY TRANSACTIONS
The principal stockholder of the Company owned 100% of the common stock of
an Anchor Gaming slot route location. On January 31, 1996, the principal
stockholder sold the location to an unaffiliated third party. For providing the
gaming machines and slot route services, the Company received a percentage of
the net win of the location similar to other route locations. The Company held a
note receivable from the slot route operation in the amount of $284,704 at
January 31, 1996 of which $257,562 was assumed by the new owner. The remaining
balance of the loan due from the principal stockholder at June 30, 1996 of
$27,142 was paid in full on July 11, 1996. The slot route operation, under the
ownership of the principal stockholder, accounted for $295,502 and $180,822 of
gaming revenue during the years ended June 30, 1995 and 1996, respectively and
$279,059 and $145,684 of route costs during the years ended June 30, 1995 and
1996, respectively.
In August 1996, the Company made certain payments to an entity controlled by
an employee of the Company. These funds were used to repay a debt of $500,000
owed by the employee and his affiliate to the principal stockholder of the
Company.
F-15
<PAGE>
ANCHOR GAMING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES
The provision (benefit) for income taxes for the years ended June 30, 1995,
1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------- -------------
<S> <C> <C> <C>
Currently payable per tax return:
Federal........................................ $ 8,976,859 $ 11,750,029 $ 20,066,284
State.......................................... 474,051 846,278 1,369,887
------------ ------------- -------------
9,450,910 12,596,307 21,436,171
------------ ------------- -------------
Deferred:
Federal........................................ (381,402) 579,569 (399,219)
State.......................................... 416,943 11,683 (36,250)
------------ ------------- -------------
35,541 591,252 (435,469)
------------ ------------- -------------
Total........................................ $ 9,486,451 $ 13,187,559 $ 21,000,702
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
The historical provision for income taxes differs from the amount of income
tax determined by applying the applicable U.S. statutory federal income tax rate
to pre-tax income from continuing operations as a result of the following
differences:
<TABLE>
<CAPTION>
1995 1996 1997
--------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Statutory U.S. tax rate...................... $ 8,913,449 35.0% $ 12,432,911 35.0% $ 19,836,995 35.0%
Increase (decrease) in tax resulting from:
State income taxes, net of federal tax
effect................................... 579,147 2.3 557,674 1.6 866,864 1.5
Other, net................................... (6,145) (.1) 196.974 .5 296,843 .6
------------- ----- ------------- ----- ------------- -----
Actual provision for income taxes............ $ 9,486,451 37.2% $ 13,187,559 37.1% $ 21,000,702 37.1%
------------- ----- ------------- ----- ------------- -----
------------- ----- ------------- ----- ------------- -----
</TABLE>
Statement No. 109 "Accounting for Income Taxes" requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been included in the financial statements or income tax
returns. Deferred income taxes included in other current assets, deposits and
other, and other long-term liabilities on the consolidated balance sheets
reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting
F-16
<PAGE>
ANCHOR GAMING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES (CONTINUED)
purposes and the amounts used for income tax purposes. The tax items comprising
the Company's net deferred tax asset as of June 30, 1996 and 1997 are as
follows:
<TABLE>
<CAPTION>
1996 1997
------------ -------------
<S> <C> <C>
Deferred tax assets:
Receivable reserve............................................. $ 478,000 $ 617,000
Pre-opening expenditures....................................... 140,000 86,000
Reserves not currently deductible.............................. 229,000 417,000
------------ -------------
847,000 1,120,000
Deferred tax liabilities:
Difference between book and tax basis of property.............. (1,038,000) (876,000)
------------ -------------
Net deferred tax asset (liability)............................... $ (191,000) $ 244,000
------------ -------------
------------ -------------
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
NON-CANCELABLE OPERATING LEASES:
The Company leases parking lot space, office space, casino space, and slot
route locations under non-cancelable operating leases. The original terms of the
leases range from 3 to 15 years with various renewal options from 1 to 15 years.
The casino space lease has contingent rentals based on gaming revenues of
the casino occupying the space. The lease provides for a monthly payment of the
greater of a base amount of $12,000 or 5% of adjusted gross gaming revenue, with
a payment ceiling of $400,000 per year. Contingent rentals paid above base
amounts were $100,898, $184,312, and $254,472 for the years ended June 30, 1995,
1996, and 1997, respectively.
Future minimum rentals under non-cancelable operating leases at June 30,
1997 are:
<TABLE>
<S> <C>
Year ending June 30,
1998...................................................... $ 10,656,000
1999...................................................... 10,571,000
2000...................................................... 7,990,000
2001...................................................... 7,875,000
2002...................................................... 7,864,000
Thereafter................................................ 57,230,000
-------------
$ 102,186,000
-------------
-------------
</TABLE>
Operating lease rental expense was $7,706,000, $9,539,000, and $10,940,000
for the fiscal years ended June 30, 1995, 1996, and 1997, respectively.
Included in deposits at June 30, 1996 and 1997 is a space lease deposit of
$3,300,000, which is held by the lessor of several slot route locations pursuant
to an agreement that provides that the deposit, or any portion thereof, may, at
the option of the Company, be applied against rents owing during the last two
years of the lease agreement. Also included in deposits are payments totaling
$10,750,000 to this lessor to extend the lease term for these locations through
the year 2010. The lease extension payments are
F-17
<PAGE>
ANCHOR GAMING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
amortized to rent expense on a straight-line basis over the remaining term of
the lease. The Company's slot route operations at locations leased from this
lessor accounted for more than 10% of the Company's total revenues for the years
ended June 30, 1995, 1996, and 1997.
GAMING REGULATIONS
The Company's route operations are subject to the licensing and regulatory
requirements of the Nevada State Gaming Control Board and the Nevada Gaming
Commission. The Company's casino operations are subject to the licensing and
regulatory requirements of the Colorado Limited Gaming Control Commission. The
Company's proprietary games operations are subject to the licensing and
regulatory requirements of multiple jurisdictions throughout the United States
and Canada including the Nevada and Colorado requirements. The Company's gaming
licenses are subject to certain conditions and periodic renewal. Management
believes that the conditions will continue to be satisfied and that subsequent
license renewals will be granted.
ENVIRONMENTAL MATTERS
The Colorado Central Station Casino is located in an area that has been
designated by the Environmental Protection Agency ("EPA") as a superfund site on
the National Priorities List, known as the Central City-Clear Creek Superfund
Site (the "Site") as a result of contamination from historic mining activity in
the area. The EPA is entitled to proceed against owners and operators of
properties located within the Site for remediation and response costs associated
with their properties and with the entire Site. The Colorado Central Station
Casino is located within the drainage basin of North Clear Creek and is
therefore subjected to potentially contaminated surface and ground water from
upstream mining-related sources. Soil and ground water samples on the Site
indicate that several contaminants exist in concentrations exceeding drinking
water standards. Records relating to historical uses of the Site are uncertain
as to whether mining actually occurred below the Company's property. Records do
indicate that an ore loading dock for a railroad depot was once located on an
adjacent property, and railroad tracks were present on the Company's property.
Management is not aware of any environmental issues associated with these
activities.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with seven executives and
top management personnel. The agreements vary in starting date and are for
periods ranging from two to five years. Agreements with aggregate annual
salaries of $1,435,000 are terminable at the Company's option with 90 days to
one year severance pay.
LITIGATION
The Company is party to several routine lawsuits arising from normal
operations. Management does not believe that the outcome of such litigation in
the aggregate will have a material adverse effect on the consolidated financial
statements of the Company.
PURCHASE COMMITMENTS
At June 30, 1997, the Company had entered into various purchase agreements
to purchase gaming equipment for approximately $5,594,000.
F-18
<PAGE>
ANCHOR GAMING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SUBSEQUENT EVENT
In August 1997, the board of directors of Anchor authorized the Company to
enter into a Stockholder Rights Plan (the "Rights Plan") providing that one
right (a "Right") will be attached to each share of Common Stock as of October
20, 1997 (the "Record Date"). Each Right will entitle the registered holder to
purchase from the Company a unit (a "Unit") consisting of one one-thousandth of
a share of Series A Junior Participating Preferred Stock, par value $20.00 per
share, to be authorized by the Company at a Purchase Price of $400.00 per Unit,
subject to adjustment. The Rights convert in certain circumstances into a right
to purchase Common Stock or securities of a successor entity. The description
and terms of the Rights are to be set forth in the Rights Agreement, between the
Company and The Chase Manhattan Bank, as Rights Agent.
F-19
<PAGE>
[Inside back cover]
<TABLE>
<S> <C> <C>
[Winners of a progressive
[Interior of the Colorado jackpot at a Smiths Food King
Central Station Casino.] slot route location.]
[Exterior aerial view of
the Colorado Central
Station Casino.]
</TABLE>
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY
OTHER THAN THE COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE COMMON STOCK BY ANYONE
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE UNDER THIS PROSPECTUS WILL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION IN THIS
PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS
OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 1
Risk Factors................................... 7
Price Range of Common Stock.................... 13
Dividend Policy................................ 13
Selected Financial and Operating Information... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 16
Business....................................... 22
Regulation..................................... 32
Management..................................... 40
Principal and Selling Stockholders............. 43
Certain Transactions........................... 44
Description of Capital Stock................... 45
Underwriting................................... 51
Legal Matters.................................. 53
Experts........................................ 53
Available Information.......................... 54
Incorporation of Certain Information by
Reference..................................... 54
Index to Consolidated Financial Statements..... F-1
</TABLE>
1,800,000 SHARES
[LOGO]
ANCHOR GAMING
COMMON STOCK
--------------
PROSPECTUS
--------------
BTALEX.BROWN
MORGAN STANLEY DEAN WITTER
RAYMOND JAMES & ASSOCIATES, INC.
, 1997
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Registration Fee.................................................. $ 49,084
NASD Filing Fee................................................... 16,698
Nasdaq Fee........................................................ 17,500
Printing.......................................................... 165,000*
Accounting fees and expenses...................................... 65,000*
Legal fees and expenses........................................... 120,000*
Miscellaneous expenses............................................ 11,718*
---------
Total......................................................... $ 445,000
---------
---------
</TABLE>
- ------------------------
*Estimated
All of the above expenses will be paid by the Selling Stockholders.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 78.751 of the Nevada General Corporation Law permits a corporation
to indemnify any person who was, or is, or is threatened to be made a party in a
completed, pending, or threatened proceeding, whether civil, criminal,
administrative, or investigative (except an action by or in the right of the
corporation), by reason of being or having been an officer, director, employee,
or agent of the corporation or serving in certain capacities at the request of
the corporation. Indemnification may include attorneys fees, judgments, fines,
and amounts paid in settlement. The person to be indemnified must have acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of the corporation and, with respect to any criminal
action, such person must have had no reasonable cause to believe his or her
conduct was unlawful.
With respect to actions by or in the right of the corporation,
indemnification may not be made for any claim, issue, or matter as to which such
a person has been finally adjudged by a court of competent jurisdiction to be
liable to the corporation or for amounts paid in settlement to the corporation,
unless and only to the extent that the court in which the action was brought or
other court of competent jurisdiction determines upon application that in view
of all circumstances the person is fairly and reasonably entitled to indemnity
for such expenses as the court deems proper.
Unless indemnification is ordered by a court, the determination to pay
indemnification must be made by the stockholders, by a majority vote of a quorum
of the board of directors who were not parties to the action, suit or
proceeding, or in certain circumstances by independent legal counsel in a
written opinion. Section 78.751 permits the Articles of Incorporation or Bylaws
to provide for payment to an officer or director of the expenses of defending an
action as incurred upon receipt of an undertaking to repay the amount if it is
ultimately determined by a court of competent jurisdiction that the person is
not entitled to indemnification.
Section 78.751 also provides that to the extent a director, officer,
employee, or agent has been successful on the merits or otherwise in the defense
of any such action, he or she must be indemnified by the corporation against
expenses, including attorneys' fees, actually and reasonably incurred in
connection with the defense.
Section 78.751 also permits a corporation to make other financial
arrangements to indemnify officers, directors, agents, and employees without
regard to the limitations set forth above.
The Company's Articles of Incorporation and Bylaws contain provisions
requiring it to indemnify its executive officers and directors to the full
extent permitted by the Nevada General Corporation Law.
II-1
<PAGE>
The Company has entered into indemnity agreements (the "Indemnification
Agreements") with each of its directors and executive officers. Each such
Indemnification Agreement provides for indemnification of directors and
executive officers of the Company to the fullest extent permitted by Nevada Law
and additionally permits advancing attorneys' fees and all other costs,
expenses, obligations, fines, and losses, paid or incurred by a director or
executive officer generally in connection with the investigation, defense or
other participation in any threatened, pending or completed action, suit or
proceeding or any inquiry or investigation thereof, whether conducted by or on
behalf of the Company or any other party. If it is later determined that the
director or executive officer is or was not entitled to indemnification under
applicable law, the Company is entitled to reimbursement by the director or
executive officer.
The Indemnification Agreements further provide that in the event of a change
in control of Anchor, all matters thereafter arising concerning the rights of
directors and executive officers to indemnity payments and expense advances, all
determinations regarding excludable claims will be made by a special independent
legal counsel engaged by the Company.
To the extent that the board of directors or the stockholders of the Company
may in the future wish to limit or repeal the ability of Anchor to indemnify
directors and executive officers, such repeal or limitation may not be effective
as to directors and executive officers who are currently parties to the
Indemnification Agreements, because their rights to full protection are
contractually assured by the Indemnification Agreements. It is anticipated that
similar contracts may be entered into, from time to time, with future directors
and executive officers of Anchor.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------
<C> <C> <S>
1.1* -- Form of Underwriting Agreement
2.1 -- Reorganization Agreement among Anchor Gaming, Anchor Coin, D D Stud, Inc., C.G. Investments,
Inc. Colorado Grande Enterprises, Inc., New AC, New DD, New CG, and certain stockholders of
such corporations, filed as Exhibit 2.1 to the Company's Registration Statement on Form S-1
(Registration No. 33-71870) and incorporated herein by reference
4.1* -- Form of Rights Agreement
4.2* -- Form of Certificate of Designation, Preferences, and Rights of Series A Junior Participating
Preferred Stock (included as Exhibit A to Exhibit 4.1)
5.1* -- Opinion of Hughes & Luce, L.L.P. regarding legality of securities being registered
23.1* -- Consent of Hughes & Luce, L.L.P. (included in Exhibit 5.1)
23.2* -- Consent of Deloitte & Touche LLP
23.3* -- Consent of Daniel P. Burke
24.1 -- Powers of Attorney (included in Part II of the Registration Statement)
</TABLE>
- ------------------------
* Filed herewith.
(b) Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that:
For purposes of determining any liability under the Securities Act of 1933,
each filing of the Registrant's annual report pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
For the purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Pre-Effective
Amendment No. 2 to this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Las Vegas, State of
Nevada, on October 10, 1997.
ANCHOR GAMING
By: /s/ GEOFFREY A. SAGE
-----------------------------------
Geoffrey A. Sage
Corporate Controller
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or amendment thereto has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- -------------------------------------------- ------------------------------------- ----------------------
* Director, Chairman of the Board,
----------------------------------- Chief Executive Officer, and October 10, 1997
Stanley E. Fulton acting Chief Financial Officer
*
----------------------------------- Director October 10, 1997
Elizabeth F. Jones
*
----------------------------------- Director October 10, 1997
Stuart D. Beath
*
----------------------------------- Director October 10, 1997
Garret A. Scholz
*
----------------------------------- Director October 10, 1997
Michael B. Fulton
*
----------------------------------- Director October 10, 1997
Michael D. Rumbolz
/s/ GEOFFREY A. SAGE
----------------------------------- Corporate Controller October 10, 1997
Geoffrey A. Sage
/s/ GLEN J. HETTINGER
----------------------------------- Director October 10, 1997
Glen J. Hettinger
*By: /s/ GEOFFREY A. SAGE
------------------------------
Geoffrey A. Sage
ATTORNEY-IN-FACT
</TABLE>
II-4
<PAGE>
ANCHOR GAMING AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1995, 1996, AND 1997
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING CHARGED TO COST OTHER BALANCE AT
DESCRIPTION OF YEAR AND EXPENSES ADJUSTMENTS END OF YEAR
- ---------------------------------------- ----------- ---------------- ---------------- -----------
<S> <C> <C> <C> <C>
Year ended June 30, 1995:
Allowance for doubtful accounts
(deducted from accounts receivable)... $ 28,720 $ 52,101 $ -- $ 80,821
Allowance for doubtful accounts
(deducted from notes receivable)...... 352,078 495,000 (4,931)(2) 842,147
----------- -------- -------- -----------
$ 380,798 $ 547,101 $ (4,931) $ 922,968
----------- -------- -------- -----------
----------- -------- -------- -----------
Year ended June 30, 1996:
Allowance for doubtful accounts
(deducted from accounts receivable)... $ 80,821 $ 198,000 $ -- $ 278,821
Allowance for doubtful accounts
(deducted from notes receivable)...... 842,147 99,022(3) (20,000)(1) 915,369
(5,800)(2)
----------- -------- -------- -----------
$ 922,968 $ 297,022 $ (25,800) $ 1,194,190
----------- -------- -------- -----------
----------- -------- -------- -----------
Year ended June 30, 1997:
Allowance for doubtful accounts
(deducted from accounts receivable)... $ 278,821 $ 437,784 $ (51,000)(2) $ 665,605
Allowance for doubtful accounts
(deducted from notes receivable)...... 915,369 21,883(3) (14,690)(2) 922,562
----------- -------- -------- -----------
$ 1,194,190 $ 459,667 $ (65,690) $ 1,588,167
----------- -------- -------- -----------
----------- -------- -------- -----------
</TABLE>
- ------------------------
(1) Amounts deemed to be uncollectible
(2) Amounts recovered
(3) Primarily charged to development costs included in selling, general and
administrative expenses
<PAGE>
ANCHOR GAMING
1,800,000 SHARES
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
UNDERWRITING AGREEMENT
----------------------
October , 1997
BT Alex. Brown Incorporated
Morgan Stanley & Co. Incorporated
Raymond James & Associates, Inc.
As Representatives of the
Several Underwriters
c/o BT Alex. Brown Incorporated
One Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Ladies and Gentlemen:
Anchor Gaming (the "Company"), a Nevada corporation, and the persons
named in Schedule I annexed hereto (each a "Selling Stockholder"), hereby
confirm their agreement with you, as set forth below.
1. THE SECURITIES. Subject to the terms and conditions herein
contained, the Selling Stockholders, severally, propose to sell to the
underwriters named in Schedule II hereto (the "Underwriters"), for whom you
are acting as representatives (the "Representatives"), an aggregate of
1,800,000 shares of common stock, par value $.01 per share, of the Company
(the "Common Stock"), in the respective amounts set forth opposite their
respective names in Schedule I (the "Firm Securities"). In addition, solely
for the purpose of covering over-allotments, Stanley E. Fulton proposes to
grant to the Underwriters the option, exercisable by the Representatives of
the Underwriters, to purchase from such Selling Stockholder up to an
additional 270,000 shares of Common Stock (the "Additional Securities") as
set forth below. The Firm Securities and the Additional Securities that may
be sold to the Underwriters are hereinafter collectively referred to as the
"Securities."
<PAGE>
-2-
The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form S-3 (SEC File No.
333-34755) and a related preliminary prospectus for the registration of the
Securities under the Securities Act of 1933, as amended (the "Act") and has
filed such amendments thereto, if any, as may have been required prior to the
date hereof.
As used in this Agreement, the term "Registration Statement" means
such registration statement, as amended at the time when it was or is
declared effective, including all financial statements and schedules and
exhibits thereto and including any information omitted therefrom pursuant to
Rule 430A under the Rules and Regulations ("Rule 430A"), if applicable, and
included in the Prospectus (as hereinafter defined); the term "Preliminary
Prospectus" means each prospectus relating to the Securities as filed with
such registration statement or any amendment thereto (including the
prospectus, if any, included in such registration statement or any amendment
thereto at the time it was or is declared effective if declared effective
prior to the execution and delivery of this Agreement); and the term
"Prospectus" means the prospectus relating to the Securities as first filed
with respect to such registration statement with the Commission pursuant to
Rule 430A and Rule 424(b) under the Rules and Regulations ("Rule 424(b)"), if
required, or, if no prospectus is required to be filed pursuant to Rule 430A
or Rule 424(b), such term means the prospectus included in such registration
statement at the time it became or becomes effective; PROVIDED that if a
revised Prospectus shall be provided to the Underwriters by the Company and
the Selling Stockholders for use in connection with the offering and sale of
the Securities that differs from the prospectus on file at the Commission at
the time such registration statement becomes effective or as first filed
under Rule 430A and Rule 424(b), the term "Prospectus" shall refer to the
revised prospectus from and after the time it is first provided to the
Underwriters for such use. If the Company has filed an abbreviated
registration statement to register additional securities pursuant to Rule
462(b) under the Act (the "Rule 462 Registration Statement") then any
reference herein to "Registration Statement" shall be deemed to include such
Rule 462 Registration Statement. All references in this Agreement to the
Registration Statement, Preliminary Prospectus and Prospectus and to
financial statements and schedules and other information that is
"contained," "included," "set forth," "described in" or "stated" therein (and
all other references of like import) shall be deemed to mean and include all
such financial statements and schedules and other information that is or is
deemed to be incorporated by reference therein; and all ref-
<PAGE>
-3-
erences in this Agreement to amendments or supplements to the Registration
Statement, the Preliminary Prospectus or the Prospectus shall be deemed to
mean and include the filing of any document under the Securities Exchange Act
of 1934, as amended (the "1934 Act"), that is or is deemed to be incorporated
by reference therein.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, each Underwriter that:
(a) The registration statement originally filed with the Commission
with respect to the Securities, including the form of prospectus, together
with all amendments thereto, has been prepared by the Company in conformity
in all material respects with the requirements of the Act and the rules and
regulations (the "Rules and Regulations") of the Commission thereunder and
the Company meets all the requirements for filing on Form S-3. The
Registration Statement at the time it was or will be declared effective and
at the Closing Date (as hereinafter defined) complies and will comply in
all material respects with the requirements of the Act and the Rules and
Regulations.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus nor instituted any proceeding for
such purpose. When the Registration Statement or any amendment thereto was
or is declared effective and on the Closing Date (as hereinafter defined),
it did not or will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. The Prospectus,
and any amendments or supplements thereto on the date first filed with
the Commission pursuant to Rule 424(b) (or if not filed, on the date
first provided to the Underwriters in connection with the offering and
sale of the Securities) and on the Closing Date, (i) complied and will
comply in all material respects with the requirements of the Act and the
Rules and Regulations, and (ii) did not and will not contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
The foregoing provisions of this paragraph (b) do not apply to statements
or omissions in the Registration Statement or any amendment thereto or
the Prospectus or any amendment or supplement thereto made in
<PAGE>
-4-
reliance upon and in conformity with written information with respect to
the Underwriters furnished to the Company by BT Alex. Brown Incorporated
specifically for use therein.
(c) The documents incorporated or deemed to be incorporated by
reference in the Prospectus, at the time they were or hereafter are filed
with the Commission, complied and will comply in all material respects with
the requirements of the 1934 Act and the rules and regulations (the "1934
Act Regulations") of the Commission thereunder, and when read together with
the other information in the Prospectus, at the time the Registration
Statement and any amendments thereto became or becomes effective and at the
Closing Date, did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(d) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Nevada. Each of the
corporations identified in Exhibit 21 to the Annual Report on Form 10-K
of the Company for the period ended June 30, 1997 and filed with the
Commission (collectively, the "Subsidiaries" and individually, a
"Subsidiary") is a corporation duly incorporated, validly existing and in
good standing under the laws of the state of its incorporation. Except
as otherwise set forth in the Registration Statement, the Company owns,
free and clear of all mortgages, pledges, liens, security interests,
conditional sale agreements and other charges (except for inchoate
statutory obligations that are not yet due and payable and other
immaterial liens), all of the outstanding shares of the capital stock of
each Subsidiary, and all of such shares have been duly and validly
authorized and issued and are fully paid and non-assessable. Except
where the failure to be so qualified or licensed would not have a
material adverse effect on the business, business prospects, financial
condition, results of operation, earnings or properties of the Company
and its Subsidiaries, taken as a whole (a "Material Adverse Effect") and
except as otherwise disclosed under the Registration Statement, (i) each
of the Company and the Subsidiaries has the power and authority
(corporate, governmental, regulatory and otherwise) and all approvals,
orders, licenses, certificates, permits and other governmental
authorizations necessary to conduct all of the ac-
<PAGE>
-5-
tivities conducted by it, to own or lease all of the assets owned or leased
by it and to conduct its business as described in the Registration
Statement and the Prospectus and (ii) each is duly licensed or qualified
to do business and in good standing as a foreign corporation in all
jurisdictions in which the nature of the activities conducted by it
and/or the character of the assets owned and leased by it makes such
license or qualification necessary. Except as otherwise set forth in the
Registration Statement (including, without limitation, the interest of
the Company in that certain joint venture formed with Revenue Properties
Company) and except for the shares of the stock of each Subsidiary owned
by the Company, neither the Company nor any Subsidiary owns any material
shares of stock or any other material equity securities of any
corporation or have any material equity interest in any firm,
partnership, association or other entity.
(e) The authorized, issued and outstanding capital stock of the
Company as of , 1997 is as set forth under the caption "Description
of Capital Stock" in the Registration Statement and the Prospectus and all
such capital stock, including all Securities to be sold by the Selling
Stockholders, has been validly authorized and issued and is fully paid
and non-assessable. Other than as disclosed in the Prospectus, the
Company does not have outstanding any options to purchase, or any rights
or warrants to subscribe for, or any securities or obligations
convertible into, or any contracts or commitments to issue or sell shares
of capital stock or any warrants or convertible securities. No holder of
securities of the Company or any Subsidiary is entitled to have such
securities registered under the Registration Statement.
(f) The consolidated financial statements of the Company and the
Subsidiaries (including the footnotes thereto) filed with and as part of
the Registration Statement and the Prospectus present fairly the combined
consolidated financial position, results of operation and cash flows of
the Company and the Subsidiaries as of the respective dates thereof and
for the respective periods covered thereby, all in conformity with
generally accepted accounting principles ("GAAP") applied on a basis
consistent with prior periods. The unaudited consolidated financial
statements and the related notes included in the Registration Statement
and the Prospectus present fairly the respective consolidated financial
position, results of operations and cash flows of the Company and its
consoli-
<PAGE>
-6-
dated subsidiaries at the dates and for the periods to which they relate,
subject to year end audit adjustments, have been prepared in accordance
with generally accepted accounting principles applied on a consistent
basis and have been prepared on a basis substantially consistent with
that of the audited financial statements referred to above. The summary
and selected financial data included in the Registration Statement and
the Prospectus present fairly the information shown therein and have been
prepared and compiled on a basis consistent with the audited and
unaudited financial statements included therein, except as otherwise
stated therein. Deloitte & Touche, LLP, who has reported on such
financial statements, is an independent accountant with respect to the
Company as required by the Act and the Rules and Regulations.
(g) The statistical and market-related data included in the
Prospectus are based on or derived from sources that the Company and the
Subsidiaries believe to be reliable and accurate.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus except as set
forth in or contemplated by the Registration Statement and the
Prospectus, (i) neither the Company nor any Subsidiary has incurred or
will have incurred any liabilities or obligations, direct or contingent,
or entered into any transactions not in the ordinary course of business,
except for liabilities, obligations or transactions that are not material
to the Company and its subsidiaries, taken as a whole; (ii) neither the
Company nor any Subsidiary has paid or declared nor will pay or declare
any dividends or other distributions on its capital stock and (iii) there
has not been and will not have been any change in the capitalization of
the Company (except for the exercise of warrants or options referred to
in the Registration Statement) or any Subsidiary or any material adverse
change in the business, business prospects, financial condition or
results of operations of the Company or any Subsidiary or in the
condition of the Company or any Subsidiary or in the value of the assets
of the Company and the Subsidiaries, in each case taken as a whole,
arising for any reason whatsoever.
(i) There are no actions, suits or proceedings at law or in equity
pending or, to the knowledge of the Company, threatened, against or
affecting the Company or any Subsidiary, any of their respective assets
or any of their
<PAGE>
-7-
respective officers or directors, before or by any federal, state, county
or local commission, regulatory body, administrative agency or other
governmental body, domestic or foreign, that could reasonably be expected
to have a Material Adverse Effect. Neither the Company nor any
Subsidiary is involved in any labor dispute (nor, to their knowledge, is
any such dispute threatened) that would have a Material Adverse Effect.
(j) Each of the Company and the Subsidiaries has complied with all
laws, regulations and orders applicable to it or its business, except for
any violation of which would not have a Material Adverse Effect. Each of
the Company and the Subsidiaries has in all material respects performed
all of the obligations required to be performed by it, and is not in
default under any indenture, mortgage, deed of trust, voting trust
agreement, loan agreement, letter of credit agreement, bond, debenture,
note agreement or other evidence of indebtedness, lease, contract or
other agreement or instrument to which it is a party or by which it or
any of its property is bound, except for such failures to perform or
defaults as would not have a Material Adverse Effect, and, to the
knowledge of the Company, no other party under any such agreement or
instrument to which the Company or any Subsidiary is a party is in
material default in any respect thereunder, except for such defaults as
would not have a Material Adverse Effect.
(k) The Company, to the extent required by Section 13(b)(2) of the
1934 Act, (i) keeps books, records and accounts that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions
of the assets of the Company and its Subsidiaries and (ii) maintains a
system of internal accounting controls sufficient to provide reasonable
assurances that (A) transactions are executed in accordance with
management's general or specific authorization, (B) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles or any other
criteria applicable to such statements and to maintain accountability for
assets, (C) access to assets is permitted only in accordance with
management's general or specific authorization and (D) the recorded
value of assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
<PAGE>
-8-
(l) Neither the Company nor any Subsidiary is in violation of its
Certificate of Incorporation or By-laws, in each case as amended as of
the date hereof.
(m) The Securities have been duly authorized by the Company and
will be, upon payment therefor in accordance with the terms hereof, duly
authorized, validly issued, fully paid and nonassessable and not subject
to preemptive rights or similar contractual rights to purchase securities
issued by the Company. The Securities conform in all material respects
to all statements with regard thereto contained in the Registration
Statement and the Prospectus.
(n) The Company has all requisite corporate power and authority to
execute and deliver and perform its obligations under this Agreement and
to consummate the transactions contemplated hereby. This Agreement and
the consummation by the Company of the transactions contemplated hereby
have been duly authorized by the Company. This Agreement has been duly
authorized, executed and delivered by the Company; no consent, approval,
authorization or order of any court or governmental agency or body is
required for the consummation by the Company of the transactions on its
part herein contemplated, except such as may have been obtained under the
Act or otherwise and such as may be required under state securities or
"Blue Sky" laws; the performance of this Agreement and the consummation
of the transactions contemplated hereby will not conflict with or result
in a breach or violation of any of the terms and provisions of or
constitute a default under the Certificate of Incorporation or By-laws of
the Company or any Subsidiary. Except, in each case, for instances that
would not result in a Material Adverse Effect or a material adverse
effect on the ability of the Company to perform its obligations under
this Agreement, the performance of this Agreement and consummation of the
transactions contemplated hereby will not conflict with or result in a
breach or violation of any of the terms and provisions of or constitute a
default under or result in the creation or imposition of any lien,
charge, or encumbrance upon the assets or properties of the Company or
any Subsidiary, pursuant to any indenture, mortgage, deed of trust,
voting trust agreement, loan agreement, letter of credit agreement, bond,
debenture, note agreement or other evidence of indebtedness, lease,
contract or other agreement or instrument to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary or any of
<PAGE>
-9-
their respective properties is bound, or under any statute or under any
order, rule or regulation applicable to the Company or any Subsidiary or
their respective businesses or properties or of any court or other
governmental body.
(o) Each of the Company and the Subsidiaries has good and
indefeasible title to all properties and assets owned by it, free and
clear of all liens, charges, encumbrances or restrictions, except such as
are described in or referred to in the Prospectus or are not material to
the business of the Company and its Subsidiaries, taken as a whole. Each
of the Company and the Subsidiaries has valid, subsisting and enforceable
leases for the real properties described in the Prospectus as leased by
it, with such exceptions as are not material or do not materially
interfere with the use made of such properties by it.
(p) There is no document or contract of a character required to be
described in the Prospectus or to be filed as an exhibit to the
Registration Statement that is not described or filed as required; and no
statement in this Agreement or in any certificate or document required by
this Agreement to be delivered to you is, was when made, or as of the
Closing Date (as hereinafter defined) or any Option Closing Date (as
hereinafter defined) will be, inaccurate, untrue or incorrect in any
material respect.
(q) Except for instances that would not result in a Material
Adverse Effect, the Company and each of the Subsidiaries possess the
right to use all patents, patent applications, trademarks, trade names,
service marks, service names, copyrights and licenses necessary for the
conduct of the business, as presently conducted, of the Company and the
Subsidiaries and, except as disclosed in the Registration Statement or
Prospectus have not received any notice of conflict with the asserted
rights of others in respect thereof.
(r) The Company is not, and does not intend to conduct its business
in a manner that would cause it to become, an "investment company" as
defined in Section 3(a) of the Investment Company Act of 1940 as amended
(the "Investment Company Act").
(s) None of the Company, the Subsidiaries or an agent acting on their
behalf has taken or will take any action that might cause this Agreement or
the sale of the
<PAGE>
-10-
Securities to violate Regulation G, T, U or X of the Board of Governors of
the Federal Reserve System.
(t) Neither the Company nor any of its officers or directors or
affiliates (as defined in the Rules and Regulations) has taken or will
take, directly or indirectly, any action designed to stabilize or
manipulate the price of any security of the Company, or that has
constituted or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the
Company, to facilitate the sale or resale of any of the Securities in
violation of the Exchange Act or any applicable rules of the Nasdaq
National Market System ("NASDAQ").
(u) The Company and each Subsidiary have filed all federal, state
and material local income and franchise tax returns required to be filed
through the date hereof except for returns being contested in good faith
and have paid all taxes due and owing thereon except for amounts being
contested in good faith, and no material tax deficiency is currently
being asserted against the Company or any Subsidiary that could have a
Material Adverse Effect.
(v) Each of the Company and its Subsidiaries is in compliance with
all environmental laws and with the terms and conditions of any permit,
license or approval required thereunder in connection with the operation
of its business, property and assets where the failure to be in such
compliance could reasonably be expected to have, singly or in the
aggregate, a Material Adverse Effect; and, except as disclosed in the
Prospectus, neither the Company nor any of its Subsidiaries has any
liability, absolute or contingent, under any environmental law and there
is no civil, criminal or administrative action, suit, demand, hearing,
notice of violation or deficiency, investigation, proceeding or notice or
demand letter pending or threatened against the Company or any of its
Subsidiaries under any environmental law.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each
Selling Stockholder severally represents and warrants to each Underwriter and
the Company that:
(a) Such Selling Stockholder has full right, power and authority to
enter into this Agreement and to sell, assign, transfer and deliver the
Firm Securities to be sold by such Selling Stockholder hereunder. This
Agree-
<PAGE>
-11-
ment and the Power of Attorney attached hereto as Exhibit A have been
duly executed and delivered by such Selling Stockholder.
(b) Such Selling Stockholder will convey good and valid title to the
Securities to be delivered by such Selling Stockholder hereunder, free and
clear of all liens, encumbrances, equities and claims whatsoever.
Certificates in negotiable form for the aggregate number of Securities to
be sold by such Selling Stockholder have been placed in custody, under a
custody agreement with the Company as custodian in the form attached hereto
as Exhibit B.
(c) The information with respect to such Selling Stockholder, as
such, included in the Registration Statement and the Prospectus under the
caption "Principal and Selling Stockholders" and "Underwriting" does not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein not misleading.
(d) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by such
Selling Stockholder of the transactions contemplated herein, except such as
may have been obtained under the Act or otherwise and such as may be
required under state securities or the "Blue Sky" laws.
(e) The performance of this Agreement and the consummation of the
transactions contemplated hereby will not conflict with or result in a
breach or violation of any of the terms and provisions of or constitute a
default under or result in the creation or imposition of any lien, charge,
or encumbrance upon the assets or properties of such Selling Stockholder,
pursuant to any indenture, mortgage, deed of trust, voting trust agreement,
loan agreement, letter of credit agreement, bond, debenture, note agreement
or other evidence of indebtedness, lease, contract or other agreement or
instrument to which such Selling Stockholder is a party or under any
statute or under any order, rule or regulation applicable to such Selling
Stockholder or of any court or other governmental body.
(f) The Registration Statement, the Prospectus or any post-effective
amendment or supplement thereto will (when they become effective or are
filed with the Commis
<PAGE>
-12-
sion, as the case may be), conform in all material respects to the
requirements of the Act and the Rules and Regulations and will not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading.
(g) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to, or which has constituted,
or which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of the Common Stock of the
Company and, other than as permitted by the Act or the Exchange Act, the
Selling Stockholder will not distribute any prospectus or other offering
material in connection with the offering of the Shares.
(h) Such Selling Stockholder (a) has no reason to believe that the
representations and warranties of the Company contained in Section 2 above
are not true and correct, (b) is familiar with the Preliminary Prospectus
and the Prospectus and (c) has no knowledge of any material fact, condition
or information not disclosed in the Preliminary Prospectus and the
Prospectus that could reasonable be expected to have a Material Adverse
Effect. The sale of the Firm Shares by such Selling Stockholder pursuant
hereto is not prompted by any information concerning the Company or the
Subsidiaries which is not set forth in the Registration Statement.
4. PURCHASE, SALE AND DELIVERY OF THE SECURITIES.
(a) On the basis of the representations, warranties, agreements and
covenants herein contained and subject to the terms and conditions herein set
forth, each of the Selling Stockholders agrees, severally and not jointly, to
sell to each of the Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase from each of the Selling Stockholders,
at a purchase price of $[ ] per share, the number of Firm Securities
(to be adjusted by you so as to eliminate fractional shares) determined by
multiplying the aggregate number of Firm Securities to be sold by each of the
Selling Stockholders, as set forth opposite their respective names in
Schedule I hereto by a fraction, the numerator of which is the aggregate
number of Firm Securities to be purchased by such Underwriter as set forth
opposite the name of such Underwriter in Schedule II hereto and the
denominator of which is the aggregate number of Firm Securities to be
purchased by all of the Under
<PAGE>
-13-
writers from all the Selling Stockholders hereunder (subject to adjustment by
you to eliminate fractions). The Representatives shall release the Firm
Securities for public sale promptly after this Agreement becomes effective.
The Representatives may from time to time change the public offering price
and other terms of the offering after the initial public offering to such
extent as they may determine.
Certificates in negotiable form for the total number of Securities
to be sold hereunder by the Selling Stockholders have been placed in custody
with the Company, as custodian (the "Custodian") pursuant to the Custody
Agreements executed by the Selling Stockholders for delivery of all
Securities. Each Selling Stockholder specifically agrees that the Firm
Securities represented by the certificates held in custody for such Selling
Stockholder under the Custody Agreement are subject to the interest of the
Underwriters hereunder, and that the arrangements made by such Selling
Stockholder for such custody are to that extent irrevocable, and that the
obligations of such Selling Stockholder hereunder shall not be terminable by
any act or deed of the Selling Stockholder (or by any other person, or
entity, including the Company, the Custodian or the Underwriters) or by
operation of law or by the occurrence of any other event or events, except as
set forth in the Custody Agreement. If any such event should occur prior to
the delivery to the Underwriters of the Firm Securities hereunder,
certificates for the Firm Securities shall be delivered by the Custodian in
accordance with the terms and conditions of this Agreement as if such event
had not occurred. The Custodian is authorized to receive and acknowledge
receipt of the proceeds of the sale of the Securities held by it against the
delivery of such Securities.
In addition, upon written notice from you to Stanley E. Fulton, not
more than 30 days from the date hereof, the Underwriters may purchase from
time to time all or less than all of the Additional Securities at the
purchase price per share to be paid for the Firm Securities solely to cover
over-allotments. Stanley E. Fulton agrees to sell to the Underwriters such
Additional Securities and the Underwriters agree, severally and not jointly,
to purchase such Additional Securities. Such Additional Securities shall be
purchased for the account of each Underwriter in the same proportion as the
number of shares of Firm Securities set forth opposite such Underwriter's
name bears to the total number of shares of Firm Securities (subject to
adjustment by you to eliminate fractions) and may be purchased by the
Underwriters only for the purpose of covering over-allotments made in
connection with the offering of the Firm Securities. This option may be
exercised at any time on or be
<PAGE>
-14-
fore the thirtieth day following the date hereof, by written notice to
Stanley E. Fulton. Such notice shall set forth the aggregate number of
Additional Securities as to which the option is being exercised, and the date
and time when the Additional Securities are to be delivered (such date and
time being herein referred to as an "Option Closing Date"); PROVIDED,
HOWEVER, that no Option Closing Date shall be earlier than the Closing Date
(as defined below) nor earlier than the second business day after the date on
which notice of the exercise of the option shall have been given nor later
than the eighth business day after the date on which notice of the option
shall have been given. No Additional Securities shall be sold or delivered
unless the Firm Securities previously have been, or simultaneously are, sold
and delivered. The right to purchase the Additional Securities or any
portion thereof may be surrendered and terminated at any time upon notice by
you to Stanley E. Fulton.
(b) Certificates in definitive form for the Firm Securities that
each Underwriter has agreed to purchase hereunder, and in such denomination
or denominations and registered in such name or names as such Underwriter
requests upon notice to the Selling Stockholders at least 48 hours prior to
the Closing Date, shall be delivered by or on behalf of the Selling
Stockholders to the Underwriters, against payment by or on behalf of such
Underwriter of the purchase price therefor by wire transfer of same day
funds, or such other payment procedures agreed to by the parties, to the
account designated by each Selling Stockholder. Such delivery of and payment
for the Firm Securities shall be made at the offices of Cahill Gordon &
Reindel, 80 Pine Street, New York, New York 10005, at 9:00 A.M., New York
time, on October , 1997, or at such other place, time or date as you, the
Company and the Selling Stockholders may agree upon or as you may determine
pursuant to Section 9(a) hereof, such time and date of delivery against
payment being herein referred to as the "Closing Date." The Selling
Stockholders will make such certificates for the Firm Securities available
for checking and packaging by the Underwriters at the offices of BT Alex.
Brown Incorporated in [New York, New York] at least 24 hours prior to the
Closing Date.
In the event the option with respect to the Additional Securities is
exercised, certificates in definitive form for the Additional Securities that
such Underwriter has agreed to purchase hereunder, and in such denomination or
denominations and registered in such name or names as such Underwriter requests
upon notice to Stanley E. Fulton at least 48 hours prior to the Option Closing
Date, shall be delivered by Stanley E. Fulton to the Underwriters, against
payment by or on behalf of
<PAGE>
-15-
such Underwriter of the purchase price therefore by wire transfer of same day
funds or such other payment procedures agreed to by the parties, to the
account designated by Stanley E. Fulton. Such delivery of and payment for
the Additional Securities shall be made at each Option Closing Date at the
above-mentioned offices. Stanley E. Fulton will make certificates for the
Additional Securities available for inspection, checking and packaging by the
Underwriters at the offices in New York, New York of BT Alex. Brown
Incorporated at least 24 hours prior to each Option Closing Date.
5. OFFERING BY THE UNDERWRITERS. After the Registration Statement
becomes effective, the Underwriters propose to offer for sale to the public
the Securities at the price and upon the terms set forth in the Prospectus
relating to the Securities.
6. COVENANTS OF THE COMPANY. The Company covenants and agrees
with the Underwriters that:
(a) The Company will, if the registration statement is not
effective at the time of the execution and delivery of this Agreement,
prepare and timely file with the Commission an amendment to the
registration statement that includes the form of final prospectus, which
amendment and form of final prospectus shall contain all required
information with respect to the Securities and the offering thereof,
and, if required by Rule 424(b), a prospectus under Rule 424(b) (in each
case only if the Representatives or their counsel have not reasonably
objected thereto after having been furnished a copy thereof prior to the
proposed filing thereof), and in each case will notify the
Representatives promptly of such filing and will use its best efforts to
cause the registration statement, if not effective at the time of
execution of this Agreement (and any amendments thereto), to become
effective promptly. If required, the Company will file the Prospectus
and any amendments or supplements thereto with the Commission in the
manner and within the time period required by Rule 424(b) (but only if
the Representatives or their counsel have not reasonably objected
thereto promptly after having been furnished a copy thereof a reasonable
time prior to the proposed filing thereof). During any time when a
prospectus relating to the Securities is required to be delivered under
the Act, the Company (i) will comply with all requirements imposed upon
it by the Act and the Rules and Regulations to the extent necessary to
permit the continuation of sales of or dealings in the Securities in
ac
<PAGE>
-16-
cordance with the provisions hereof and of the Prospectus, as then
amended or supplemented, and (ii) will not file with the Commission the
Prospectus or the amendment referred to in the second sentence of Section
2(a) hereof or any amendment or supplement to such Prospectus or any
amendment to the Registration Statement of which the Representatives and
their counsel shall not previously have been advised and furnished a copy
for a reasonable period of time prior to the proposed filing and as to
which filing the Representatives and their counsel shall not have given
their respective consent, which consent will not be unreasonably withheld
or delayed. The Company will prepare and will file with the Commission,
in accordance with the Act and the Rules and Regulations, promptly upon
request by the Representatives or counsel for the Representatives, any
amendments to the Registration Statement or amendments or supplements to
the Prospectus that may be necessary or reasonably advisable in
connection with the distribution of the Securities by the Underwriters,
and the Company will use its best efforts to cause any such amendment to
the Registration Statement to be declared effective by the Commission
promptly. The Company will advise the Representatives, promptly after it
receives notice thereof, of the time when the Registration Statement or
any amendment thereto has been filed or declared effective or the
Prospectus or any amendments or supplements thereto have been filed.
(b) The Company will advise the Representatives, promptly after
receiving notice or obtaining knowledge thereof, of (i) the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or any amendment thereto or any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus, or any
amendments or supplements thereto, (ii) the suspension of the qualification
of the Securities for offering or sale in any jurisdiction, (iii) the
institution, threat or contemplation of any proceeding for any such purpose
or (iv) any request made by the Commission for amending the Registration
Statement, for amending or supplementing the Prospectus or for additional
information. The Company will use its best efforts to prevent the issuance
of any such stop order and, if any such stop order is issued, to obtain the
withdrawal thereof as promptly as possible.
(c) The Company will cooperate with the Representatives in arranging
for the qualification of the Securities
<PAGE>
-17-
for offering and sale under the securities or "Blue Sky" laws of such
jurisdictions in the United States and Canada as the Representatives may
designate and will continue such qualifications in effect for as long as
may be necessary to complete the distribution of the Securities; PROVIDED
that in connection therewith the Company shall not be required to qualify
as a foreign corporation or to execute a general consent to service of
process in any jurisdiction or to subject itself to taxation in respect
of doing business in any jurisdiction in which it is not otherwise
subject.
(d) During such time as a prospectus relating to the Securities is
required to be delivered under the Act, if after due inquiry, the Company
should become aware of any event that occurs, and as a result of which the
Prospectus as then amended or supplemented would include any untrue
statement of a material fact, or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, or if the
Company should be of the opinion that for any other reason it is necessary
at any time to amend or supplement the Prospectus to comply with the Act or
the Rules and Regulations, the Company will promptly notify the
Representatives and their counsel thereof and the Company will prepare and,
subject to Section 6(a) hereof, will file with the Commission, at its sole
expense, an amendment to the Registration Statement or an amendment or
supplement to the Prospectus (in form and substance reasonably satisfactory
to the Representatives and their counsel and in compliance with the Act and
the Rules and Regulations) so that the Prospectus as so supplemented or
amended will not contain an untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or so that the Prospectus will comply with law, and
will deliver to the Representatives, without charge, such number of copies
thereof as they may reasonably request.
(e) The Company will, without charge, provide (i) to the
Representatives and to their counsel a signed copy of the registration
statement originally filed and each amendment thereto (in each case
including exhibits thereto) and the Registration Statement and (ii) so long
as a prospectus relating to the Securities is required to be delivered under
the Act, as many copies of each Pre
<PAGE>
-18-
liminary Prospectus and the Prospectus relating to the Securities and any
amendment or supplement thereto as each Underwriter may reasonably
request.
(f) The Company, as soon as reasonably practicable, will make
generally available to holders of the Securities and to the Underwriters
consolidated earning statements of the Company (which need not be certified
by an independent public accountant) that satisfy the provisions of Section
11(a) of the Act and Rule 158 thereunder.
(g) For and during the period ending five years after the effective
date of the Registration Statement, the Company will furnish to the
Representatives and, upon request, to each of the other Underwriters copies
of all reports and other communications (financial or otherwise) furnished
by the Company to its securityholders generally and copies of any reports
or financial statements furnished to or filed by the Company with the
Commission or any national securities exchange on which any class of
securities of the Company may be listed.
(h) Prior to the Closing Date and any Option Closing Date, as the
case may be, the Company will furnish to the Representatives, as soon as
they have been prepared and are available, a copy of any unaudited interim
consolidated financial statements of the Company and any pro forma
information for any period subsequent to the period covered by its most
recent financial statements included in the Registration Statement and the
Prospectus.
(i) The Company will file with the Nasdaq National Market System all
documents and notices required by the Nasdaq National Market System of
companies that have issued securities that are traded in the
over-the-counter market and quotations for which are reported by the Nasdaq
National Market System.
(j) The Company will not at any time, directly or indirectly, take
any action designed, or that might reasonably be expected, to cause or
result in, or that will constitute, stabilization or manipulation of the
price of the shares of Common Stock to facilitate the sale or resale of any
of the Securities in violation of the Exchange Act or any applicable rules
of the Nasdaq National Market System.
<PAGE>
-19-
(k) If, prior to the completion of the distribution of the Securities,
the Company commences engaging in business with the government of Cuba or
with any person or affiliate located in Cuba after the date the Registration
Statement becomes or has become effective with the Commissioner with the
Florida Department of Banking and Finance (the "Department"), whichever
date is later, or if the information reported in the Prospectus relating to
the Securities, if any, concerning the Company's business with Cuba or with
any person or affiliate located in Cuba changes in any material way, the
Company will provide the Department notice of such business or change, as
appropriate, in a form acceptable to the Department.
7. COVENANTS OF SELLING STOCKHOLDERS. Each Selling Stockholder
agrees with the several Underwriters as follows:
(a) Such Selling Stockholder will cooperate to the extent necessary
to cause the Registration Statement or any post-effective amendment thereto
to become effective at the earliest possible time.
(b) Such Selling Stockholder will use such Selling Stockholder's
reasonable best efforts to do or perform all things required to be done or
performed by it prior to the Closing Date to satisfy all conditions
precedent to the delivery of the Securities.
(c) During a period of 90 days from the date hereof ("Lock-up
Period"), such Selling Stockholder will not, without the Representatives'
prior written consent, offer, sell, contract to sell, or otherwise dispose
of, directly or indirectly, any shares of Common Stock or any interests
therein, or any securities convertible into, or exchangeable for, shares of
Common Stock, or rights to acquire the same except for Securities issued
pursuant to this Agreement.
(d) Such Selling Stockholder will not take, directly or indirectly,
any action designed to or that might reasonably be expected to cause or
result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Securities in violation of the
Exchange Act or any applicable rules of the Nasdaq National Market System.
(e) Each Selling Stockholder agrees to notify the Representatives
promptly of any information that comes to
<PAGE>
-20-
such Selling Stockholder's attention that would cause such Selling
Stockholder to have reason to believe that his or her representations,
warranties and statements in this Agreement are not accurate in all
material respects.
(f) Except as herein contemplated with respect to the Securities to
be included in the Registration Statement, each Selling Stockholder agrees
to waive any registration rights to which such Selling Stockholder may be
entitled in connection with the public offering herein contemplated.
8. EXPENSES. The Selling Stockholders, jointly and severally, agree
to pay all costs and expenses incident to the performance of their
obligations under this Agreement, whether or not the transactions
contemplated herein are consummated or this Agreement is terminated, as
provided in this Section 8 hereof including all costs and expenses incident
to (i) the printing or other production of documents with respect to the
transactions, including any costs of printing the registration statement
originally filed with respect to the Securities and any amendment thereto and
the Registration Statement, any Preliminary Prospectus and the Prospectus and
any amendment or supplement thereto, (ii) the printing (or reproduction) and
delivery of this Agreement, the Securities, any Blue Sky Memoranda and all
other documents and agreements printed (or reproduced) and delivered in
connection with the offering of the Securities, (iii) all arrangements
relating to the delivery to the Underwriters of copies of the foregoing
documents, (iv) the fees and disbursements of the counsel, the accountants
and any other experts or advisors retained by the Company or its
subsidiaries, (v) preparation (including printing), issuance and delivery to
the Underwriters of certificates evidencing the Securities, (vi) the
qualification of the Securities in the United States and Canada under state
securities and "Blue Sky" laws, including filing fees and reasonable fees and
disbursements of counsel for the Underwriters relating thereto, (vii) the
filing fees of the Commission and the National Association of Securities
Dealers, Inc. relating to the Securities, (viii) expenses of the Company and
its subsidiaries in connection with any meetings with prospective investors
in the Securities, (ix) advertising relating to the offering of the
Securities (other than as shall have been specifically approved in writing by
the Underwriters to be paid by the Underwriters), (x) the fees and expenses
incurred in connection with the quotation of the Securities on the Nasdaq
National Market System and (xi) the costs and expenses incident to the
performance by the Selling Stockholders of their obligations hereunder and in
connection with the offer, sale and delivery of
<PAGE>
-21-
the Securities to be sold by it, including any stock transfer taxes payable
upon the sale of such Securities to the Underwriters, the fees and expenses
of any counsel retained by them and the underwriting discounts and
commissions payable to the Underwriters.
If the sale of the Securities provided for herein is not consummated
because any condition to the obligations of the Underwriters set forth in
Section 9 hereof is not satisfied, because this Agreement is terminated
pursuant to Section 12 hereof or because of any failure, refusal or inability
on the part of the Company, any of the Company's subsidiaries or any Selling
Stockholder to perform all obligations and satisfy all conditions on their
respective parts to be performed or satisfied hereunder (other than solely by
reason of a default by the Underwriters of its obligations hereunder after
all conditions hereunder have been satisfied in accordance herewith), the
Selling Stockholders, jointly and severally, will promptly reimburse the
Underwriters upon demand for all reasonable out-of-pocket expenses (including
reasonable fees and disbursements of counsel for the Underwriters) that shall
have been incurred by the Underwriters in connection with the proposed
purchase and sale of the Securities not so delivered.
9. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligation of
the Underwriters to purchase and pay for the Firm Securities on the Closing Date
and the Additional Securities on each Option Closing Date shall be subject to
the following additional conditions:
(a) If the registration statement, as amended, with respect to the
Securities has not been declared effective as of the time of execution
and delivery hereof, the registration statement shall have been declared
effective not later than 11:00 A.M., New York City time, on the date of
this Agreement or, if any post-effective amendment to the Registration
Statement has been filed, 11:00 A.M., New York City time, on the date on
which such post-effective amendment to the Registration Statement has
been filed with the Commission, or such later time and date as shall have
been expressly consented to by the Representatives in writing; if
required, the Prospectus and any amendments or supplements thereto shall
have been timely filed in accordance with Rule 430A and Rule 424(b); no
stop order suspending the effectiveness of the Registration Statement or
any amendment thereto shall have been issued and no proceedings for that
purpose shall have been instituted or,
<PAGE>
-22-
to the best knowledge of the Company or the Underwriters, shall be
contemplated or threatened by the Commission.
(b) The Underwriters shall have received an opinion, in form and
substance satisfactory to the Underwriters and Cahill Gordon & Reindel,
counsel for the Underwriters, dated the Closing Date and each Option
Closing Date, as the case may be, and addressed to the Underwriters, of
Hughes & Luce, L.L.P. counsel for the Company and its subsidiaries to the
effect that:
(i) The Company and each Subsidiary is a corporation duly
incorporated, validly existing and in good standing under the laws
of the state of its incorporation. Each of the Company and the
Subsidiaries has the corporate power and authority to conduct its
business substantially as described in the Registration Statement
and the Prospectus and is duly licensed or qualified to do business
and in good standing as a foreign corporation in all jurisdictions
in which the Company and each Subsidiary has offices or employees or
property owned or leased by them makes such qualification or license
necessary except where the failure to so qualify or be licensed
would not have Material Adverse Effect.
(ii) No authorization, approval, consent or license of any
state or federal governmental or regulatory body, except as may be
required under the Act or the "Blue Sky" laws of the various
jurisdictions or state laws relating to gaming or gaming machines or
devices (except as specifically stated), is required in connection
with the (A) authorization, issuance, transfer, sale or delivery of
the Securities under this Agreement; (B) execution, delivery and
performance of this Agreement by the Company; (C) taking of any
action contemplated herein or in the Registration Statement or
Prospectus (other than with respect to state laws relating to gaming
or gaming machines or devices), or if so required all such
authorizations, approvals, consents and licenses, specifying the
same, have been obtained and are in full force and effect.
(iii) The Company has an authorized and outstanding capital
stock, and, to the knowledge of such counsel, stock options and
warrants as set forth in the Registration Statement and the
Prospectus. The
<PAGE>
-23-
outstanding shares of the Common Stock are, and all of the
Securities will be, upon sale and payment therefor under this
Agreement, duly authorized, validly issued, fully paid and
nonassessable, and are not subject to statutory preemptive rights.
The Common Stock has been duly authorized for quotation on the
Nasdaq National Market. All issuances of securities by the Company
were exempt from, or complied in all respects with, the registration
or qualification provisions of all applicable federal and state
securities laws.
(iv) All of the issued and outstanding shares of the capital
stock of each Subsidiary are validly issued, fully paid and
nonassessable and, to such counsel's knowledge, all of the issued
and outstanding shares of stock of each Subsidiary are owned by the
Company free and clear of all mortgages, pledges, liens, security
interests, conditional sales agreements, charges and encumbrances of
every nature.
(v) To such counsel's knowledge, no holder of any securities of
the Company has the right to require registration of shares of the
Common Stock or other securities of the Company because of the
filing or effectiveness of the Registration Statement.
(vi) The Company is not an "investment company" as defined in
Section 3(a) of the Investment Company Act.
(vii) The Company has full corporate power and authority to enter
into this Agreement and this Agreement has been duly authorized,
executed and delivered by the Company.
(viii) The Company possesses all state and federal authorizations,
approvals, consents and licenses necessary for the operation of a
gaming establishment at the Colorado Central Station Casino and the
Colorado Grande Casino.
(ix) The Registration Statement and the Prospectus, and each
amendment thereof or supplement thereto, comply in all material
respects as to form with the requirements of the Act and the Rules
and Regulations (except that no opinion need be expressed as to
financial statements, financial statement notes
<PAGE>
-24-
and other financial and statistical data contained in the
Registration Statement or the Prospectus).
(x) The descriptions in the Registration Statement and
Prospectus of contracts and other documents are accurate in all
material respects and fairly present the information required to be
shown; and such counsel does not know of any contracts or documents
of a character required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement (including, for this purpose, all exhibits
filed with respect to any document incorporated by reference
therein) that are not described or filed as required; it being
understood that such counsel need express no opinion as to the
financial statements, financial notes or schedules or other
financial or statistical data included therein.
(xi) The Registration Statement has become effective under the
Act, and, to the knowledge of such counsel, no stop order suspending
the effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are threatened,
pending or contemplated. All filings required by Rule 424 and Rule
430A of the Rules and Regulations have been made.
(xii) The execution and delivery of this Agreement by the
Company, the consummation by the Company of the transactions herein
contemplated and the compliance with the terms of this Agreement do
not and will not conflict with or result in a breach of any of the
terms or provisions of or violate or constitute a default under, the
Certificate of Incorporation or By-laws of the Company or any
Subsidiary, or any material indenture or mortgage known to such
counsel or other material agreement or instrument known to such
counsel to which the Company or any Subsidiary, is a party or by
which the Company or any Subsidiary or any of their respective
properties is bound, or any existing federal or state statute, rule
or regulation, or any judgment, order or decree known to such
counsel, of any government, governmental instrumentality or court,
domestic or foreign, having jurisdiction over the Company or any
Subsidiary or any of their respective properties.
<PAGE>
-25-
Such counsel shall also state that such counsel has participated in
the preparation of the Registration Statement and the Prospectus and
although such counsel has not independently checked the accuracy or
completeness of or otherwise verified, and such counsel is not passing
on and does not assume responsibility for the accuracy or completeness
of, the Registration Statement or the Prospectus, such counsel has
generally reviewed and discussed such information with representatives of
the Company, the Underwriters and their counsel and accountants for the
Company. Based on such review and discussion, nothing has come to the
attention of such counsel to lead them to believe that, both as of the
date on which the Registration Statement became effective and as of the
Closing Date and each Option Closing Date, as the case may be, either the
Registration Statement, or any amendment or supplement thereto, contained
or contains any untrue statement of a material fact or omitted or omits
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or the Prospectus, or any
amendment or supplement thereto, contained or contains any untrue
statement of a material fact or omitted or omits to state a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading (except that no opinion need be expressed as to financial
statements, financial statement notes and other financial and statistical
data contained in the Registration Statement or the Prospectus).
In rendering such opinion, such counsel may rely as to all matters
of law other than the law of the United States or of the State of Texas
and the corporate law of the State of Nevada upon opinions of counsel
satisfactory to you, in which case the opinion shall state that they have
no reason to believe that you and they are not entitled so to rely.
(c) Concurrently with the execution and delivery of this Agreement
and on the Closing Date and each Option Closing Date, Lionel Sawyer &
Collins, special Nevada counsel to the Company, shall furnish to you an
opinion, in form and substance satisfactory to you, dated as of the date
of its delivery, to the effect that (i) such counsel has reviewed the
statements contained in the Prospectus under the heading "Regulation"
insofar as such statements relate to the laws of the State of Nevada and
federal gaming laws regarding the transportation of gaming devices
<PAGE>
-26-
and nothing has come to the attention of such counsel to lead them to
believe that such statements contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (ii) no
authorization, approval, consent or license of any state or federal
governmental or regulatory body, except as may be required under the Act
or the "Blue Sky" laws of the various jurisdictions, is required in
connection with the (A) authorization, issuance, transfer, sale or
delivery of the Securities under this Agreement or (B) taking of any
action contemplated herein or in the Registration Statement or
Prospectus, or if so required all such authorizations, approvals,
consents and licenses specifying the same have been obtained and are in
full force and effect.
(d) Concurrently with the execution and delivery of this Agreement
and on the Closing Date and each Option Closing Date, Issacson,
Rosenbaum, Woods & Levy, P.C., special Colorado counsel to the Company
shall furnish to you an opinion in form and substance satisfactory to
you, dated as of the date of its delivery, to the effect that (i) such
counsel has reviewed the statements contained in the Prospectus under the
heading "Regulation" insofar as such statements relate to the laws of the
State of Colorado and nothing has come to the attention of such counsel
to lead them to believe that such statements contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading and
(ii) no authorization, approval, consent or license of any state or
federal governmental or regulatory body, except as may be required under
the Act or the "Blue Sky" laws of the various jurisdictions, is required
in connection with the (A) authorization, issuance, transfer, sale or
delivery of the Securities under this Agreement or (B) taking of any
action contemplated herein or in the Registration Statement or
Prospectus, or if so required all such authorizations, approvals,
consents and licenses specifying the same have been obtained and are in
full force and effect.
(e) The Selling Stockholders shall have furnished to you the
opinion of Hughes and Luce, L.L.P. counsel for the Selling Stockholders,
or of such other counsel to the Selling Stockholders as shall be
satisfactory to Cahill Gordon & Reindel, counsel for the Underwriters,
dated the Closing Date and each Option Closing Date, as the case may be,
to the effect that:
<PAGE>
-27-
(i) This Agreement, the Powers of Attorney and the Custody
Agreements have been duly executed and delivered by each of the
Selling Stockholders.
(ii) The Selling Stockholders have the power and authority to
sell, transfer and deliver in the manner provided in this Agreement
the Securities being sold by the Selling Stockholders hereunder.
(iii) The delivery by the Selling Stockholders to the several
Underwriters of certificates for the Securities being sold hereunder
by the Selling Stockholders against payment therefor as provided
herein, assuming the Representatives purchased the Securities in good
faith without knowledge of any adverse claim, will pass good and valid
title to such Securities to the several Underwriters, free and clear
of all liens, encumbrances, equities and claims whatsoever.
(f) The Underwriters shall have received an opinion, in form and
substance reasonably satisfactory to the Underwriters, dated the Closing
Date and each Option Closing Date, as the case may be, and addressed to
the Underwriters, of Cahill Gordon & Reindel, counsel for the
Underwriters, with respect to the sufficiency of certain corporate
proceedings and other legal matters relating to this Agreement and the
Securities and such other related matters as the Representatives may
reasonably require. In rendering such opinion, Cahill Gordon & Reindel
shall have received, in form and substance satisfactory to such counsel,
and may rely upon, such certificates and other documents and information
as they may reasonably request to pass upon such matters.
(g) The Underwriters shall have received from Deloitte & Touche,
LLP a letter dated the date hereof and the Closing Date and each Option
Closing Date, as the case may be, and addressed to the Underwriters, in
substantially the form previously approved by the Representatives and in
form and substance reasonably satisfactory to the Representatives and
Cahill Gordon & Reindel, counsel for the Underwriters.
(h) The representations and warranties of the Company and the
Selling Stockholders contained in this Agreement shall be true and
correct in all material respects on and as of the date hereof and on and
as of the Closing Date and each Option Closing Date, as the case may be,
as
<PAGE>
-28-
if made on and as of such date; the statements of the Company's officers
made pursuant to any certificate delivered in accordance with the
provisions hereof shall be true and correct in all material respects on
and as of the date made and on and as of the Closing Date and each
Option Closing Date, as the case may be; the Company and the Selling
Stockholders shall have complied in all material respects with all
agreements and satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to the Closing Date and each Option
Closing Date, as the case may be; and subsequent to the date of the most
recent financial statements in the Prospectus, there shall have been no
Material Adverse Change or any development involving a prospective
Material Adverse Change.
(i) The sale of the Securities by the Selling Stockholders hereunder
shall not be enjoined (temporarily or permanently) on the Closing Date or
any Option Closing Date, as the case may be.
(j) Subsequent to the respective dates as of which information is
given in the Prospectus, except in each case as described in the
Prospectus, none of the Company and its subsidiaries shall have incurred
any liabilities or obligations, direct or contingent (other than in the
ordinary course of business), that are material to the Company and its
subsidiaries, taken as a whole, or entered into any transactions not in
the ordinary course of business that are material to the Company and its
subsidiaries, taken as a whole, and there shall not have been any adverse
change in the capital stock or long-term indebtedness of the Company and
its subsidiaries that is material to the Company and its subsidiaries,
taken as a whole.
(k) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, the conduct of
the business and operations of each of the Company and its subsidiaries
shall not have been interfered with by strike, fire, flood, hurricane,
accident or other calamity (whether or not insured) or by any court or
governmental action, order or decree, and, except as otherwise stated
therein, the properties of each of the Company and its subsidiaries shall
not have sustained any loss or damage (whether or not insured) as a
result of any such occurrence, except any such interference, loss or
damage that would not have a Material Adverse Effect.
<PAGE>
-29-
(l) The Underwriters shall have received certificates, in form and
substance reasonably satisfactory to the Underwriters and Cahill Gordon &
Reindel, counsel for the Underwriters, dated the Closing Date and each
Option Closing Date, as the case may be, and addressed to the
Underwriters, of the Company, executed by its chief executive officer or
president and the chief financial officer or chief accounting officer, to
the effect that:
(i) The representations and warranties of the Company in this
Agreement are true and correct in all material respects as if made
on and as of the Closing Date and each Option Closing Date, as the
case may be, and the Company has performed in all material respects
all covenants and agreements and satisfied all conditions to be
performed or satisfied at or prior to the Closing Date and each
Option Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued,
and, to the best of such officers' knowledge, no proceedings for
those purposes have been instituted or threatened or are
contemplated by the Commission;
(iii) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, the
Company and its respective subsidiaries have not sustained any
material loss or interference with their respective businesses or
properties from fire, flood, hurricane, accident or other calamity,
whether or not covered by insurance, or from any labor dispute or
any legal or governmental proceeding and there has not been any
material change in the capital stock, long-term debt, obligations
under capital leases or short-term borrowings or other agreements or
instruments relating to the ownership of the property of the Company
and its subsidiaries or any Material Adverse Change, or any
development involving a prospective Material Adverse Change, except
in each case as described in or contemplated by the Prospectus; and
(iv) To the best of such officers' knowledge and belief, the
sale of the Securities by the Selling Stockholders has not been
enjoined (temporarily or permanently).
<PAGE>
-30-
(m) Each Selling Stockholder, shall have furnished to you "lock-up"
letters, in form and substance satisfactory to you, signed by each of the
Selling Stockholders, prohibiting such persons from offering, selling,
contracting to sell or otherwise disposing, directly or indirectly, of
any shares of Common Stock or any interests therein, or any securities
convertible into, or exchangeable for, shares of Common Stock or rights
to acquire the same, during the Lock-up Period, without the prior written
consent of the Representatives.
(n) All the representations and warranties of the Selling
Stockholders contained in this Agreement shall be true and correct in all
material respects on and as of the date hereof and on and as of the
Closing Date and each Option Closing Date, as the case may be, as if made
on and as of such date, and you shall have received certificates, dated
as of the Closing Date and signed by or on behalf of the Selling
Stockholders to the effect set forth in this Section 9(h).
(o) The Selling Stockholders shall not have failed at or prior to
the Closing Date and each Option Closing Date, as the case may be, to
have performed or complied with any of their agreements herein contained
and required to be performed or complied with by them hereunder at or
prior to the Closing Date.
On or before the Closing Date and each Option Closing Date, as the
case may be, the Underwriters and Cahill Gordon & Reindel, counsel for the
Underwriters, shall have received such further documents, opinions,
certificates and schedules or instruments relating to the business,
corporate, legal and financial affairs of the Company and each of its
subsidiaries and the Selling Stockholders as they shall have heretofore
reasonably requested.
All such opinions, certificates, letters, schedules, documents or
instruments delivered pursuant to this Agreement will comply with the
provisions hereof only if they are reasonably satisfactory in all respects to
the Underwriters and Cahill Gordon & Reindel, counsel for the Underwriters.
The Company and each of its subsidiaries and the Selling Stockholders shall
furnish to the Underwriters such conformed copies of such opinions,
certificates, letters, schedules, documents and instruments in such
quantities as the Underwriters shall reasonably request.
<PAGE>
-31-
10. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter, each Selling Stockholder and each person, if any, who
controls any Underwriter or any Selling Stockholder within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter, such Selling Stockholder or such controlling person may
become subject under the Act, the Exchange Act or otherwise, insofar as
any such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement or any
amendment thereto or any Preliminary Prospectus or the Prospectus or
any amendments or supplements thereto or (B) any application or
other document, or any amendment or supplement thereto, executed by
the Company or based upon written information furnished by or on
behalf of the Company filed in any jurisdiction in order to qualify
the Securities under the securities or "Blue Sky" laws thereof or
filed with the Commission or any securities association or
securities exchange (each an "Application"); or
(ii) the omission or alleged omission to state in such
Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto,
or any Application, a material fact required to be stated therein or
necessary to make the statements therein not misleading,
and will reimburse, as incurred, each Underwriter, each Selling
Stockholder and each such controlling person for any reasonable legal or
other out-of-pocket expenses reasonably incurred by any such Underwriter,
Selling Stockholder or any such controlling person in connection with
investigating or defending against or appearing as a third-party witness
in connection with any such loss, claim, damage, liability or action in
respect thereof; PROVIDED that the Company will not be liable in any such
case to the extent, but only to the extent, that any such loss, claim,
damage, or liability arises out of or is based upon any untrue statement
or alleged untrue statement or omission or alleged omission made in such
Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendments or supplements thereto, or
any Application in reliance upon and in conformity with written
information furnished
<PAGE>
-32-
to the Company by the Underwriters with respect to the Underwriters, or
by the Selling Stockholders with respect to the Selling Stockholders,
specifically as such, for use therein; PROVIDED, FURTHER, that the
Company will not be liable to any Underwriter if such untrue statement
or omission or alleged untrue statement or omission was contained or made
in any Preliminary Prospectus and completely corrected in the Prospectus
and any such loss, liability, claim, damage or expense suffered or
incurred by any Underwriter resulted from any action, claim or suit by
any person who purchased Securities that are the subject thereof from any
Underwriter and such Underwriter failed to deliver or provide a copy of
the Prospectus relating to the Securities to such person with or prior to
the confirmation of the sale of such Securities sold to such person in
any case where delivery is required by the Act or the Rules and
Regulations, unless such failure to deliver or provide a copy of the
Prospectus relating to the Securities was a result of noncompliance by
the Company with Section 6(e)(ii) of this Agreement. This indemnity
agreement will be in addition to any liability that the Company may
otherwise have to the indemnified parties. The Company shall not be
liable under this Section 10 for any settlement of any claim or action
effected without its consent, which shall not be unreasonably withheld.
(b) Each Selling Stockholder agrees, severally but not jointly, to
indemnify and hold harmless the Company, its directors and officers who
signed the Registration Statement, each Underwriter and each person, if
any, who controls the Company or any Underwriter within the meaning of
Section 15 of the Act of Section 20 of the Exchange Act against any
losses, claims, damages or liabilities to which the Company, or any such
director, officer or underwriter or controlling person may become subject
under the Act, the Exchange Act, or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or any Application or (ii) the omission
or the alleged omission to state therein a material fact required to be
stated in the Registration Statement or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or necessary to make the statements therein not misleading; and,
subject to the limitation set forth immediately preceding this clause,
will reimburse, as incurred, any legal or other expenses incurred by the
Company or any such director, officer or Underwriter or controlling
person in connection with investigating or defending against or appearing
as a
<PAGE>
-33-
third-party witness in connection with any such loss, claim, damage,
liability or action in respect thereof; PROVIDED, that each Selling
Stockholder shall not be liable under this Section 10 for any amounts in
excess of the product of the purchase price per share set forth in
Section 4 hereof and the number of shares being sold by such Selling
Stockholder hereunder. This indemnity agreement will be in addition to
any liability that the Selling Stockholders may otherwise have to the
indemnified parties. No Selling Stockholder shall be liable under this
Section 10 for any settlement of any claim or action effected without its
consent, which shall not be unreasonably withheld.
(c) Each Underwriter severally agrees to indemnify and hold
harmless the Company, each of its directors and each of its officers who
signed the Registration Statement, each Selling Stockholder and each
person, if any, who controls the Company or any Selling Stockholder
within the meaning of Section 15 of the Act or Section 20 of the Exchange
Act against any losses, claims, damages or liabilities to which the
Company, or any such director, officer or Selling Stockholder or
controlling person may become subject under the Act, the Exchange Act, or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in
the Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or
any Application or (ii) the omission or the alleged omission to state
therein a material fact required to be stated in the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or necessary to make
the statements therein not misleading, in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to the Company by any
Underwriter through the Representatives specifically for use therein;
and, subject to the limitation set forth immediately preceding this
clause, will reimburse, as incurred, any legal or other expenses incurred
by the Company or any such director, officer or Selling Stockholder or
controlling person in connection with investigating or defending against
or appearing as a third-party witness in connection with any such loss,
claim, damage, liability or action in respect thereof. This indemnity
agreement will be in addition to any liability that the Underwriters may
otherwise have to the indemnified parties. No Underwriter shall be
liable under this Section 10 for any settlement of any claim or action
effected without its consent, which shall not be unreasonably withheld.
<PAGE>
-34-
(d) Promptly after receipt by an indemnified party under this
Section 10 of notice of the commencement of any action for which such
indemnified party is entitled to indemnification under this Section 10,
such indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party under this Section 10, notify the
indemnifying party of the commencement thereof, but the omission so to
notify the indemnifying party will not relieve it from any liability that
it may have to any indemnified party otherwise than under this Section
10. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the
extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party; PROVIDED that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have been advised by
counsel that there may be one or more legal defenses available to it
and/or other indemnified parties that are different from or additional to
those available to the indemnifying party, then the indemnifying party
shall not have the right to direct the defense of such action on behalf
of such indemnified party or parties and such indemnified party or
parties shall have the right to select separate counsel to defend such
action on behalf of such indemnified party or parties. After notice from
the indemnifying party to such indemnified party of its election so to
assume the defense thereof and approval by such indemnified party of
counsel appointed to defend such action, the indemnifying party will not
be liable to such indemnified party under this Section 10 for any legal
or other expenses, other than reasonable costs of investigation,
subsequently incurred by such indemnified party in connection with the
defense thereof, unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the immediately
preceding sentence (it being understood, however, that in connection with
such action the indemnifying party shall not be liable for the expenses
of more than one separate counsel (in addition to local counsel) in any
one action or separate but substantially similar actions in the same
jurisdiction arising out of the same general allegations or
circumstances, designated by any Underwriter in the case of paragraphs
(a) and (b) of this Section 10 or the Company and the Selling
Stockholder, in the case of paragraph (c) of this Section 10,
representing the indemnified parties under such paragraph (a), (b) or
paragraph (c), as the case may be, who are parties to such action or
actions), (ii) the indemnifying party has authorized the employment of
counsel for the indemnified party at the expense of the indemnifying
party
<PAGE>
-35-
or (iii) the indemnifying party shall have failed to assume the defense or
retain counsel reasonably satisfactory to the indemnified party. After
such notice from the indemnifying party to such indemnified party, the
indemnifying party will not be liable for the costs and expenses of any
settlement of such action effected by such indemnified party without the
consent of the indemnifying party, which consent shall not be
unreasonably withheld.
(e) In circumstances in which the indemnity agreement provided for
in the preceding paragraphs of this Section 10 is for any reason
unavailable or insufficient to hold harmless an indemnified party in
respect of any losses, claims, damages or liabilities (or actions in
respect thereof), each indemnifying party, in order to provide for just
and equitable contribution, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion
as is appropriate to reflect (i) the relative benefits received by the
indemnifying party or parties on the one hand and the indemnified party
on the other from the offering of the Securities or (ii) if the
allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative
fault of the indemnifying party or parties on the one hand and the
indemnified party on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such
losses, claims, damages or liabilities (or actions in respect thereof).
The relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as (x) the total proceeds from the
offering (net of underwriter's discounts and commissions but before
deducting expenses) received by the Selling Stockholders and (y) the
total underwriting discounts and commissions received by the
Underwriters, respectively, in each case as set forth in the table on the
cover page of the Prospectus. The relative fault of the parties shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by an
indemnified party or parties on the one hand, or the indemnifying party
or parties on the other, the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission, and any other equitable considerations appropriate in the
circumstances. The Company, the Selling Stockholders and the
Underwriters agree that it would not be equitable if the amount of such
contribution were determined by PRO RATA or per capita allocation (even
if the Company
<PAGE>
-36-
and the Selling Stockholders on the one hand and the Underwriters on the
other hand were treated as one entity for such purpose) or by any other
method of allocation that does not take into account the equitable
considerations referred to in the first sentence of this paragraph (e).
Notwithstanding any other provision of this paragraph (e), no Underwriter
shall be obligated to make contributions hereunder that in the aggregate
exceed the total underwriting discounts and commissions received by such
Underwriter under this Agreement, less the aggregate amount of any
damages that such Underwriter has otherwise paid or been required to pay
by reason of the untrue or alleged untrue statements or the omissions or
alleged omissions to state a material fact, and no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. Notwithstanding any other
provision of this paragraph (e), no Selling Stockholder shall be liable
under this Section 10 for any amounts in excess of the product of the
purchase price per share set forth in Section 4 and the number of shares
being sold by such Selling Stockholder hereunder. For purposes of this
paragraph (e), each person, if any, who controls an Underwriter within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act
shall have the same rights to contribution as such Underwriter, and each
director of the Company, and each officer of the Company who signed the
Registration Statement and each person, if any, who controls the Company
or any Selling Stockholder within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, shall have the same rights to
contribution as the Company or such Selling Stockholder, as the case may
be.
11. SURVIVAL CLAUSE. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company, the
Company's officers, the Selling Stockholders and the Underwriters set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement shall remain in full force and effect, regardless of (i) any
investigation made by or on behalf of the Company or any of its officers or
directors or any Selling Stockholder, the Underwriters or any controlling
person referred to in Section 10 hereof and (ii) delivery of and payment for
the Securities. The respective agreements, covenants, indemnities and other
statements set forth in Sections 8 and 10 hereof shall remain in full force
and effect, regardless of any termination or cancellation of this Agreement.
<PAGE>
-37-
12. TERMINATION.
(a) This Agreement may be terminated in the sole discretion of the
Representatives by notice to the Company and the Selling Stockholders,
given prior to the Closing Date or Option Closing Date, as the case may
be, in the event that the Company or any of the Selling Stockholders
shall have failed, refused or become unable to perform all obligations
and satisfy all conditions on their respective parts to be performed or
satisfied hereunder at or prior thereto or, if at or prior to the Closing
Date or Option Closing Date, as the case may be:
(i) the Company or the Subsidiaries shall have sustained any loss
or interference with respect to its businesses or properties from
fire, flood, hurricane, accident or other calamity, whether or not
covered by insurance, or from any strike, labor dispute, slow down
or work stoppage or any legal or governmental proceeding, which loss
or interference, in the sole judgment of the Underwriters, has had
or has a Material Adverse Effect, or there shall have been, in the
sole judgment of the Underwriters, any event or development that,
individually or in the aggregate, has or could be reasonably likely
to have a Material Adverse Effect (including without limitation a
change in control of the Company), except in each case as described
in the Prospectus (exclusive of any amendment or supplement thereto
after the date hereof);
(ii) trading in securities of the Company or in securities
generally on the Nasdaq National Market System shall have been
suspended or minimum or maximum prices shall have been established
on the Nasdaq National Market System;
(iii) a banking moratorium shall have been declared by New York
or United States authorities; or
(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or any other national or international
calamity or emergency or (C) any material change in the financial
markets of the United States which, in the sole judgment of the
Representatives, makes it impracticable or inadvisable to proceed
with the public offering or the delivery of the Securities as
contemplated by the Registration Statement, as amended as of the
date hereof.
<PAGE>
-38-
(b) Termination of this Agreement pursuant to this Section 12 shall
be without liability of any party to any other party except as provided
in Section 11 hereof.
13. INCREASE IN UNDERWRITERS' COMMITMENTS. If any Underwriter
shall default in its obligation to take up and pay for the Securities to be
purchased by it hereunder on the Closing Date or any Option Closing Date and
if the amount of Securities that all Underwriters so defaulting shall have
agreed but failed to take up and pay for does not exceed 10% of the total
number of Securities that the Underwriters are obligated to purchase on the
Closing Date or Option Closing Date, as the case may be, the non-defaulting
Underwriters shall take up and pay for (in addition to the Securities they
are obligated to purchase pursuant to Section 1 hereof) the number of
Securities agreed to be purchased by all such defaulting Underwriters on the
Closing Date or Option Closing Date, as the case may be, as hereinafter
provided. Such Securities shall be taken up and paid for by such
non-defaulting Underwriter or Underwriters in such amount or amounts as you
may designate with the consent of each Underwriter so designated or, in the
event no such designation is made, such Securities shall be taken up and paid
for by all non-defaulting Underwriters PRO RATA in proportion to the
aggregate amount of Securities set opposite the names of such non-defaulting
Underwriters in Schedule II.
If a new allocation is made in accordance with the foregoing
provision, you shall have the right to postpone the Closing Date or Option
Closing Date, as the case may be, for a period not exceeding five business
days in order that any necessary changes in the Registration Statement and
Prospectus and other documents may be effected.
The term Underwriter as used in this agreement shall refer to and
include any Underwriter substituted under this Section 13 with like effect as
if such substituted Underwriter had originally been named in Schedule II.
If the amount of Securities that all Underwriters so defaulting
shall have agreed but failed to take up and pay for exceeds 10% of the total
number of Securities that the Underwriters are obligated to purchase on the
Closing Date or Option Closing Date, as the case may be, this Agreement
shall terminate without liability on the part of any non-defaulting
Underwriter (provided that if such default occurs with respect to Additional
Securities after the Closing Date, this Agreement will not terminate as to
the Firm Securities).
<PAGE>
-39-
14. UNITED KINGDOM DISTRIBUTION. Each Representative represents
and agrees that (i) it will not offer or sell any shares of Common Stock to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances that will not involve an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations
1995 ("the Regulations"); (ii) it will comply with all applicable provisions
of the Financial Sevices Act 1986 and the Regulations with respect to
anything done by it in relation to the shares of Common Stock, in, from or
otherwise involving the United Kingdom and (iii) it will only issue or pass
on to any person in the United Kingdom any document received by it in
connection with the offering of the shares of Common Stock if that person is
of a kind described in Article 11(3) of the Financial Sevices Act 1986
(Investment Advertisements) (Exemptions) Order 1995 or is a person to whom
such document may otherwise lawfully be issued or passed on.
15. INFORMATION SUPPLIED BY THE UNDERWRITERS AND SELLING
STOCKHOLDERS.
(a) The statements set forth in the last paragraph on the front
cover page of the Prospectus relating to the Securities and the first,
second, fourth, seventh and eighth paragraphs under the heading
"Underwriting" in the Prospectus relating to the Securities (to the
extent such statements relate to the Underwriters) constitute the only
information furnished by the Underwriters to the Company and the Selling
Stockholders for the purposes of Sections 2(b), 10(a) and 10(c) hereof.
Each Underwriter confirms that such statements, to the extent such
statements relate to each such Underwriter, are correct in all material
respects.
(b) As to the Selling Stockholder other than Stanley E. Fulton, the
number of shares of Common Stock beneficially owned by such Selling
Stockholders prior to and after the offering of the Securities and
footnotes in Table 1 under the heading "Principal and Selling
Stockholders" in the Prospectus constitute the only information furnished
by such Selling Stockholders to the Company and the Underwriters for the
purposes of Section 10(b) hereof. Such Selling Stockholder confirms that
such information, to the extent such statements relate to each Selling
Stockholder, is correct in all material respects.
16. NOTICES. All communications hereunder shall be in writing and,
if sent to the Underwriters, shall be mailed or
<PAGE>
-40-
delivered or telecopied and confirmed in writing to the Representatives in
care of BT Alex. Brown Incorporated, One Bankers Trust Plaza, 130 Liberty
Street, New York, New York 10006, Attention: Corporate Finance Department,
and if sent to any Selling Stockholder, to such Selling Stockholder in care
of the Company and if sent to the Company, shall be mailed, delivered or
telegraphed and confirmed in writing to Anchor Gaming at 815 Pilot Road,
Suite G, Las Vegas, Nevada 89119, Attention: Stanley E. Fulton.
17. SUCCESSORS. This Agreement shall inure to the benefit of and
be binding upon the Underwriters, the Company and the Selling Stockholders
and their respective successors and legal representatives, and nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any other person any legal or equitable right, remedy or claim under or
in respect of this Agreement, or any provisions herein contained. This
Agreement and all conditions and provisions hereof are intended to be and are
for the sole and exclusive benefit of such persons and for the benefit of no
other person except that (i) the indemnities of the Company and the Selling
Stockholders contained in Section 10 of this Agreement shall also be for the
benefit of any person or persons who control the Underwriters within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act and (ii)
the indemnities of the Underwriters contained in Section 10 of this Agreement
shall also be for the benefit of the directors of the Company, the Company's
officers who have signed the Registration Statement, the Selling Stockholders
and any person or persons who control the Company or the Selling Stockholders
within the meaning of Section 15 of the Act or Section 20 of the Exchange
Act. No purchaser of Securities from the Underwriters will be deemed a
successor because of such purchase.
18. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAW.
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
-41-
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement between the Company,
the Selling Stockholders and the Underwriters.
Very truly yours,
ANCHOR GAMING
By:
-----------------------------------
Name:
Title:
SELLING STOCKHOLDERS,
LISTED ON SCHEDULE II
Attorney-in-Fact for
each Selling Stockholder,
By:
-----------------------------------
Name:
Attorney-in-Fact
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
BT ALEX. BROWN INCORPORATED
MORGAN STANLEY & CO. INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC.
Acting on behalf of themselves and as
the Representatives of the several
Underwriters named in Schedule II hereto.
By BT ALEX. BROWN INCORPORATED
By
-----------------------------
Name: Michael Walsh
Title: Managing Director
<PAGE>
SCHEDULE I
ANCHOR GAMING
Stock Holdings of Selling Stockholders
Name/Entity Number of Shares
- ---------------------- ----------------
Stanley E. Fulton 657,700
Elizabeth F. Jones 202,500
Deborah J. Fulton 179,500
Stanley M. Fulton 182,500
Virginia L. Fulton 182,500
Lucinda Fulton Tischer 130,000
Michael B. Fulton 195,300
Elizabeth M. Fulton 70,000
<PAGE>
SCHEDULE II
Number of
Shares to
Underwriter Be Purchased
- -----------
BT Alex. Brown Incorporated . . . . . . . . . . . . . . . .
Morgan Stanley & Co. Incorporated . . . . . . . . . . . . .
Raymond James & Associates, Inc. . . . . . . . . . . . . .
---------
Total Underwriters 1,800,000
---------
<PAGE>
ANCHOR GAMING
and
THE CHASE MANHATTAN BANK,
as Rights Agent
Rights Agreement
October 17, 1997
<PAGE>
Table of Contents
Section
1. Certain Definitions. . . . . . . . . . . . . . . . . . . . . . . 1
2. Appointment of Rights Agent. . . . . . . . . . . . . . . . . . . 5
3. Issue of Rights Certificates . . . . . . . . . . . . . . . . . . 5
4. Form of Rights Certificates. . . . . . . . . . . . . . . . . . . 7
5. Countersignature and Registration. . . . . . . . . . . . . . . . 8
6. Transfer, Split Up, Combination, and Exchange of
Rights Certificates; Mutilated, Destroyed, Lost, or
Stolen Rights Certificates . . . . . . . . . . . . . . . . . . . 9
7. Exercise of Rights; Purchase Price;
Expiration Date of Rights. . . . . . . . . . . . . . . . . . . . 10
8. Cancellation and Destruction of Rights Certificates. . . . . . . 12
9. Reservation and Availability of
Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . . 13
10. Preferred Stock Record Date. . . . . . . . . . . . . . . . . . . 14
11. Adjustment of Purchase Price, Number, and Kind of Shares or
Number of Rights . . . . . . . . . . . . . . . . . . . . . . . . 15
12. Certificate of Adjusted Purchase Price or Number of Shares . . . 26
13. Consolidation, Merger, or Sale or Transfer of Assets or
Earning Power. . . . . . . . . . . . . . . . . . . . . . . . . . 26
14. Fractional Rights and Fractional Shares. . . . . . . . . . . . . 29
15. Rights of Action . . . . . . . . . . . . . . . . . . . . . . . . 30
16. Agreement of Rights Holders. . . . . . . . . . . . . . . . . . . 31
17. Rights Certificate Holder Not Deemed a Stockholder . . . . . . . 31
18. Concerning the Rights Agent. . . . . . . . . . . . . . . . . . . 32
<PAGE>
19. Merger or Consolidation or Change of Name of Rights Agent. . . . 32
20. Duties of Rights Agent . . . . . . . . . . . . . . . . . . . . . 33
21. Change of Rights Agent . . . . . . . . . . . . . . . . . . . . . 35
22. Issuance of New Rights Certificates. . . . . . . . . . . . . . . 36
23. Redemption and Termination . . . . . . . . . . . . . . . . . . . 37
24. Notice of Certain Events . . . . . . . . . . . . . . . . . . . . 38
25. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
26. Supplements and Amendments . . . . . . . . . . . . . . . . . . . 40
27. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
28. Determinations and Actions by the Board of Directors, Etc. . . . 41
29. Benefits of this Agreement . . . . . . . . . . . . . . . . . . . 41
30 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 41
31. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . 42
32. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 42
33. Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . 42
Exhibit A -- Form of Certificate of Designation, Preferences, and Rights
Exhibit B -- Form of Rights Certificate
Exhibit C -- Form of Summary of Rights
<PAGE>
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of October 17, 1997 (the "AGREEMENT"), between
Anchor Gaming, a Nevada corporation (the "COMPANY"), and The Chase Manhattan
Bank, a bank chartered by the State of New York (the "RIGHTS AGENT").
BACKGROUND
On August 26, 1997 (the "RIGHTS DIVIDEND DECLARATION DATE"), the Board of
Directors of the Company authorized and declared a dividend distribution of one
Right for each share of common stock, par value $.01 per share, of the Company
(the "COMMON STOCK") outstanding at the Close of Business on October 20, 1997
(the "RECORD DATE"), and has authorized the issuance of one Right (as such
number may be adjusted pursuant to the provisions of SECTION 11(p)) for each
share of Common Stock of the Company issued between the Record Date (whether
originally issued or delivered from the Company's treasury) and the Distribution
Date, each Right initially representing the right to purchase one one-thousandth
of a share of Series A Junior Participating Preferred Stock of the Company
having the rights, powers, and preferences set forth in the form of Certificate
of Designation, Preferences, and Rights attached to this Agreement as EXHIBIT A,
upon the terms and subject to the conditions set forth below (the "RIGHTS");
NOW, THEREFORE, in consideration of the premises and the mutual agreements
set forth in this Agreement, the parties hereby agree as follows:
Section 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "ACQUIRING PERSON" means any Person that, together with all
Affiliates and Associates of such Person, is the Beneficial Owner of 15% or
more of the shares of Common Stock then outstanding, but does not include
(i) the Company; (ii) any Subsidiary of the Company; (iii) any employee
benefit plan of the Company or of any Subsidiary of the Company; (iv) any
Person organized, appointed, or established by the Company for or pursuant
to the terms of any such plan; (v) Stanley E. Fulton ("FULTON"), any
transferee or donee from Fulton after the Record Date in a transaction not
involving a public offering of the Common Stock, or any heir or successor
to Fulton upon his death, or any trust established by Fulton for charitable
or estate planning purposes; (vi) any Person that has reported or is
required to report such beneficial ownership (but less than 18%) on
Schedule 13G (or any comparable or successor report) or on Schedule 13D
under the Exchange Act (or any comparable or successor report) under the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), which
1
<PAGE>
Schedule 13D does not state any intention to, or reserve the right to,
control or influence the management or policies of the Company or engage in
any of the actions specified in Item 4 of such Schedule 13D (other than the
disposition of the Common Stock) and, within five (5) Business Days (as
defined below) of being requested by the Company to advise it regarding the
same, certifies to the Company that such Person acquired beneficial
ownership of shares of Common Stock in excess of 14.9% inadvertently or
without knowledge of the terms of the Rights and such certification is
accepted as true by a Requisite Majority (as defined below) acting in good
faith and that, together with all of such Person's Affiliates and
Associates, thereafter does not acquire additional shares of Common Stock
while the Beneficial Owner of 15% or more of the shares of Common Stock
then outstanding; provided, however, that if the Person requested to so
certify fails to do so within five Business Days, then such Person will
become an Acquiring Person immediately after such five Business-Day Period;
and (vii) any Person that becomes an Acquiring Person solely as a result of
a reduction in the number of outstanding shares of Common Stock in a
transaction that is approved by a Requisite Majority, provided that such
Person will immediately be an Acquiring Person in the event such Person
thereafter acquires any additional shares of Common Stock (other than as a
result of a stock split or stock dividend) while the Beneficial Owner of
15% or more of the shares of Common Stock then outstanding.
(b) "ADVERSE PERSON" means a Person (alone or together with any other
Person) as to which the Board of Directors has, after consultation with
such advisors and such other investigation as it considers necessary, made
the following determinations: (i) such Person or Persons any time after
the Rights Dividend Declaration Date have become the Beneficial Owner of a
substantial (but in no event less than 10% of the shares of Common Stock
then outstanding) amount of Common Stock; and (ii) (A) such Person or
Persons intend to cause the Company or its Affiliates to repurchase such
Common Stock beneficially owned by such Person or Persons or to exert
pressure against the Company to take any action or enter into any
transaction or series of transactions with the intent or effect of
providing such Person or Persons with short-term gains or profits under
circumstances in which the Board of Directors of the Company determines
that the long-term interests of the Company and its stockholders would not
be served by taking such action or entering into such transaction or series
of transactions; or (B) beneficial ownership of Common Stock by such Person
or Persons is reasonably likely to have a material adverse effect on the
business, competitive position, prospects, or financial condition of the
Company and its Subsidiaries; provided, however, that Fulton will not be an
Adverse Person under the terms of this Agreement.
(c) "AFFILIATE" and "ASSOCIATE" have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under the
Exchange Act as in effect on the date of this Agreement.
2
<PAGE>
(d) A Person will be deemed the "BENEFICIAL OWNER" of, and will be
deemed to "BENEFICIALLY OWN," any securities that:
(i) such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to acquire (whether
such right is exercisable immediately or only after the passage of
time) pursuant to any agreement, arrangement, or understanding
(whether or not in writing) or upon the exercise of conversion rights,
exchange rights, rights, warrants or options, or otherwise; provided,
however, that a Person will not be deemed the "Beneficial Owner" of,
or to "beneficially own," (A) securities tendered pursuant to a tender
or exchange offer made by such Person or any of such Person's
Affiliates or Associates until such tendered securities are accepted
for purchase or exchange, (B) securities issuable upon exercise of
Rights at any time prior to the occurrence of a Triggering Event, or
(C) securities issuable upon exercise of Rights from and after the
occurrence of a Triggering Event, which Rights were acquired by such
Person or any of such Person's Affiliates or Associates prior to the
Distribution Date or pursuant to SECTION 3(a) or SECTION 22 (the
"ORIGINAL RIGHTS") or pursuant to SECTION 11(i) in connection with an
adjustment made with respect to any Original Rights;
(ii) such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to vote or dispose
of or has "beneficial ownership" of (as determined pursuant to Rule
13d-3 of the General Rules and Regulations under the Exchange Act),
including pursuant to any agreement, arrangement, or understanding,
whether or not in writing; provided, however, that a Person will not
be deemed the "Beneficial Owner" of, or to "beneficially own," any
security under this SECTION 1(c)(ii) as a result of an agreement,
arrangement, or understanding to vote such security if such agreement,
arrangement, or understanding: (1) arises solely from a revocable
proxy given in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable provisions of the
General Rules and Regulations under the Exchange Act, and (2) is not
also then reportable by such Person on Schedule 13D under the Exchange
Act (or any comparable or successor report); or
(iii) are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate of such Person) with which
such Person (or any of such Person's Affiliates or Associates) has any
agreement, arrangement, or understanding (whether or not in writing),
for the purpose of acquiring, holding, voting (except pursuant to a
revocable proxy as described in the proviso in SECTION 1(c)(ii)), or
disposing of any voting securities of the Company;
3
<PAGE>
provided, however, that nothing in this SECTION 1(c) will cause a Person
engaged in business as an underwriter of securities to be the "Beneficial
Owner" of, or to "beneficially own," any securities acquired through such
Person's participation in good faith in a bona fide firm commitment
underwriting until the expiration of forty days after the date of such
acquisition.
(e) "BUSINESS DAY" means any day other than a Saturday, Sunday, or a
day on which banking institutions in the State of Nevada are authorized or
obligated by law or executive order to close.
(f) "CLOSE OF BUSINESS" on any given date will mean 5:00 p.m., Las
Vegas, Nevada time, on such date; provided, however, that if such date is
not a Business Day it will mean 5:00 p.m., Las Vegas, Nevada time, on the
next succeeding Business Day.
(g) "COMMON STOCK" means the common stock, par value $.01 per share,
of the Company, except that "COMMON STOCK" when used with reference to any
Person other than the Company will mean the capital stock of such Person
with the greatest voting power, or the equity securities or other equity
interest having power to control or direct the management, of such Person.
(h) "CONTINUING DIRECTOR" means (i) any member of the Board of
Directors of the Company, while such Person is a member of the Board, who
is not an Acquiring Person or Adverse Person, an Affiliate or Associate of
an Acquiring Person or Adverse Person, or a representative or nominee of an
Acquiring Person or Adverse Person or of any such Affiliate or Associate,
and was a member of the Board prior to the date of this Agreement, or (ii)
any Person who subsequently becomes a member of the Board, while such
Person is a member of the Board, who is not an Acquiring Person or Adverse
Person, an Affiliate or Associate of an Acquiring Person or Adverse Person,
or a representative or nominee of an Acquiring Person or Adverse Person or
of any such Affiliate or Associate, if such Person's nomination for
election or election to the Board is recommended or approved by a majority
of the Continuing Directors or a nominating committee of the Board
consisting solely of Continuing Directors.
(i) "PERSON" means any individual, firm, corporation, partnership, or
other public or private entity.
(j) "PREFERRED STOCK" mean shares of Series A Junior Participating
Preferred Stock, par value $20.00 per share, of the Company, and, to the
extent that there are not a sufficient number of shares of Series A Junior
Participating Preferred Stock authorized to permit the full exercise of the
Rights, any other series of Preferred Stock, par value $20.00 per share, of
the Company
4
<PAGE>
designated for such purpose containing terms substantially similar to the
terms of the Series A Junior Participating Preferred Stock.
(k) "REQUISITE MAJORITY" means, at any time, the affirmative vote of
a majority of the Continuing Directors then in office.
(l) "SECTION 11(a)(ii) EVENT" means any event described in SECTION
11(a)(ii) .
(m) "SECTION 13 EVENT" means any event described in clauses (x), (y),
or (z) of SECTION 13(a).
(n) "STOCK ACQUISITION DATE" means the first date of public
announcement (which, for purposes of this definition, will include, without
limitation, a report filed pursuant to Section 13(d) under the Exchange
Act) by the Company or an Acquiring Person that an Acquiring Person has
become an Acquiring Person.
(o) "SUBSIDIARY" means, with reference to any Person, any entity of
which an amount of voting securities sufficient to elect at least a
majority of the directors or similar Persons of such entity is beneficially
owned, directly or indirectly, by such Person, or otherwise controlled by
such Person.
(p) "TRIGGERING EVENT" means any Section 11(a)(ii) Event or any
Section 13 Event.
Section 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints
the Rights Agent to act as agent for the Company in accordance with the terms
and conditions of this Agreement, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint such Co-Rights Agents as
it may deem necessary or desirable.
Section 3. ISSUE OF RIGHTS CERTIFICATES.
(a) Until the earlier of (i) the Close of Business on the tenth day
after the Stock Acquisition Date (or, if the tenth day after the Stock
Acquisition Date occurs before the Record Date, the Close of Business on
the Record Date) involving an Acquiring Person that has become such in a
transaction as to which a Requisite Majority has not made the determination
specified in SECTION 11(a)(ii)(B); (ii) the Close of Business on the tenth
Business Day (or such later date as the Board determines) after the date
that a tender offer or exchange offer by any Person (other than the
Company, any Subsidiary of the Company, any employee benefit plan of the
Company or of any Subsidiary of the Company, or any Person or entity
organized, appointed, or established by the Company for or pursuant to the
terms of any such plan) is first published or sent or given
5
<PAGE>
within the meaning of Rule 14d-2(a) of the General Rules and Regulations
under the Exchange Act, if upon consummation thereof, such Person would be
the Beneficial Owner of 15% or more of the shares of Common Stock then
outstanding; or (iii) the Close of Business on the tenth Business Day after
a Person has become an Adverse Person (the earlier of the times referred to
in CLAUSES (i), (ii), and (iii) being referred to as the "DISTRIBUTION
DATE"), (x) the Rights will be evidenced (subject to the provisions of this
SECTION 3(b)) by the certificates for the Common Stock registered in the
names of the holders of the Common Stock (which certificates for Common
Stock will be deemed also to be certificates for Rights) and not by
separate certificates, and (y) the Rights will be transferable only in
connection with the transfer of the underlying shares of Common Stock
(including a transfer to the Company). As soon as practicable after the
Distribution Date, the Rights Agent will send by first-class, insured,
postage prepaid mail, to each record holder of the Common Stock as of the
Distribution Date, at the address of such holder shown on the records of
the Company, one or more rights certificates, in substantially the form of
EXHIBIT B (the "RIGHTS CERTIFICATES"), evidencing one Right for each share
of Common Stock so held, subject to adjustment as provided in this
Agreement. In the event that an adjustment in the number of Rights per
share of Common Stock has been made pursuant to SECTION 11(p), at the time
of distribution of the Rights Certificates, the Company will make the
necessary and appropriate rounding adjustments (in accordance with SECTION
14(a)) so that Rights Certificates representing only whole numbers of
Rights are distributed and cash is paid in lieu of any fractional Rights.
As of and after the Distribution Date, the Rights will be evidenced solely
by such Rights Certificates.
(b) As promptly as practicable following the Record Date, the Company
will send a copy of a Summary of Rights, in substantially the form of
EXHIBIT C, by first-class, postage prepaid mail, to each record holder of
the Common Stock as of the Close of Business on the Record Date, at the
address of such holder shown on the records of the Company. With respect
to certificates for the Common Stock outstanding as of the Record Date,
until the Distribution Date, the Rights will be evidenced by such
certificates for the Common Stock and the registered holders of the Common
Stock will also be the registered holders of the associated Rights. Until
the earlier of the Distribution Date or the Expiration Date (as defined in
SECTION 7), the transfer of any certificates representing shares of Common
Stock in respect of which Rights have been issued will also constitute the
transfer of the Rights associated with such shares of Common Stock.
(c) Rights will be issued in respect of all shares of Common Stock
that are issued (whether originally issued or from the Company's treasury)
after the Record Date but prior to the earlier of the Distribution Date or
the Expiration Date. Certificates representing such shares of Common Stock
will also be deemed to be certificates for Rights, and will bear the
following legend:
6
<PAGE>
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER TO
CERTAIN RIGHTS AS SET FORTH IN THE RIGHTS AGREEMENT BETWEEN
ANCHOR GAMING (THE "COMPANY") AND THE CHASE MANHATTAN BANK (THE
"RIGHTS AGENT") DATED AS OF OCTOBER 17, 1997 (AS AMENDED FROM
TIME TO TIME, THE "RIGHTS AGREEMENT"), THE TERMS OF WHICH ARE
HEREBY INCORPORATED IN THIS CERTIFICATE BY REFERENCE AND A COPY
OF WHICH IS ON FILE AT THE PRINCIPAL OFFICES OF THE COMPANY.
UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS
AGREEMENT, SUCH RIGHTS WILL BE EVIDENCED BY SEPARATE CERTIFICATES
AND WILL NO LONGER BE EVIDENCED BY THIS CERTIFICATE. THE COMPANY
WILL MAIL TO THE HOLDER OF THIS CERTIFICATE A COPY OF THE RIGHTS
AGREEMENT, AS IN EFFECT ON THE DATE OF MAILING, WITHOUT CHARGE
PROMPTLY AFTER RECEIPT OF A WRITTEN REQUEST. UNDER CERTAIN
CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS
BENEFICIALLY OWNED BY ANY PERSON WHO IS, WAS, OR BECOMES AN
ACQUIRING PERSON OR AN ADVERSE PERSON OR ANY AFFILIATE OR
ASSOCIATE OF AN ACQUIRING PERSON OR AN ADVERSE PERSON (AS SUCH
TERMS ARE DEFINED IN THE RIGHTS AGREEMENT), WHETHER CURRENTLY
HELD BY OR ON BEHALF OF SUCH PERSON OR BY ANY SUBSEQUENT HOLDER,
MAY BECOME NULL AND VOID.
With respect to such certificates containing the foregoing legend,
until the earlier of (i) the Distribution Date or (ii) the Expiration Date,
the Rights associated with the Common Stock represented by such
certificates will be evidenced by such certificates alone and registered
holders of Common Stock will also be the registered holders of the
associated Rights, and the transfer of any of such certificates will also
constitute the transfer of the Rights associated with the Common Stock
represented by such certificates.
Section 4. FORM OF RIGHTS CERTIFICATES.
(a) The Rights Certificates (and the forms of election to purchase
and of assignment to be printed on the reverse of the rights certificates)
will each be substantially in the form set forth in EXHIBIT B and may have
such marks of identification or designation and such legends, summaries, or
endorsements as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required
to comply with any applicable law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange or
quotation system on which the Rights may from time to time be listed, or to
conform to usage. Subject to the provisions of SECTION 11 and SECTION 22,
the Rights Certificates, whenever distributed, will be dated as of the
Record Date and on their face will entitle the holders of such Rights
Certificates to purchase such number of one one-thousandths of a share
7
<PAGE>
of Preferred Stock as is set forth in such Rights Certificates at the price
set forth in such Rights Certificates (such exercise price per one
one-thousandth of a share, the "PURCHASE PRICE"), but the amount and type
of securities purchasable upon the exercise of each Right and the Purchase
Price will be subject to adjustment as provided in this Agreement.
(b) Any Rights Certificate issued pursuant to SECTION 3(a) or SECTION
22 that represents Rights beneficially owned by (i) an Acquiring Person or
an Adverse Person or any Associate or Affiliate of an Acquiring Person or
an Adverse Person, (ii) a transferee from an Acquiring Person or an Adverse
Person (or from any Associate or Affiliate of an Acquiring Person or an
Adverse Person) that becomes a transferee after the Acquiring Person or an
Adverse Person becomes an Acquiring Person or an Adverse Person, or (iii) a
transferee from an Acquiring Person or an Adverse Person (or of any
Associate or Affiliate of an Acquiring Person or an Adverse Person) that
becomes a transferee prior to or concurrently with the Acquiring Person or
an Adverse Person becoming an Acquiring Person or an Adverse Person and
receives such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person or Adverse Person to holders of
equity interests in such Acquiring Person or Adverse Person or to any
Person with whom such Acquiring Person or Adverse Person has any continuing
agreement, arrangement, or understanding regarding the transferred Rights
or (B) a transfer that the Board of Directors of the Company has determined
is part of an agreement, plan, arrangement, or understanding that has as a
substantial purpose or effect avoidance of SECTION 7(e), and any Rights
Certificate issued pursuant to SECTION 6 or SECTION 11 upon transfer,
exchange, replacement, or adjustment of any other Rights Certificate
referred to in this SECTION 4(b), will contain (to the extent feasible) the
following legend:
THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE
BENEFICIALLY OWNED BY A PERSON WHO IS, WAS, OR BECAME AN
ACQUIRING PERSON OR AN ADVERSE PERSON OR AN AFFILIATE OR
ASSOCIATE OF AN ACQUIRING PERSON OR AN ADVERSE PERSON (AS SUCH
TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS
RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME
NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SUCH AGREEMENT.
Section 5. COUNTERSIGNATURE AND REGISTRATION.
(a) The Rights Certificates will be executed on behalf of the Company
by its Chairman of the Board, its Chief Executive Officer, its Chief
Operating Officer, its President, or any Vice President, either manually or
by facsimile signature; will have affixed thereto the Company's seal or a
facsimile thereof; and will be attested by the Secretary or an Assistant
Secretary of the Company,
8
<PAGE>
either manually or by facsimile signature. The Rights Certificates will be
countersigned by the Rights Agent, either manually or by facsimile
signature and will not be valid for any purpose unless so countersigned. In
case any officer of the Company who has signed any of the Rights
Certificates ceases to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the
Company, such Rights Certificates, nevertheless, may be countersigned by
the Rights Agent and issued and delivered by the Company with the same
force and effect as though the Person who signed such Rights Certificates
had not ceased to be such officer of the Company, and any Rights
Certificate may be signed on behalf of the Company by any Person who, at
the actual date of the execution of such Rights Certificate, is a proper
officer of the Company to sign such Rights Certificate, although at the
date of the execution of such Rights Certificate any such Person was not
such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office or offices designated as the
appropriate place for surrender of Rights Certificates upon exercise or
transfer, books for registration and transfer of the Rights Certificates
issued under this Agreement. Such books will show the names and addresses
of the respective holders of the Rights Certificates, the number of Rights
evidenced on the face of the Rights Certificates, and the date of each of
the Rights Certificates.
Section 6. TRANSFER, SPLIT UP, COMBINATION, AND EXCHANGE OF RIGHTS
CERTIFICATES; MUTILATED, DESTROYED, LOST, OR STOLEN RIGHTS CERTIFICATES.
(a) Subject to the provisions of SECTION 4(b), SECTION 7(e), and
SECTION 14, at any time after the Distribution Date, and at or prior to the
Expiration Date, any Rights Certificate or Certificates may be transferred,
split up, combined, or exchanged for another Rights Certificate or Rights
Certificates, entitling the registered holder to purchase a like number of
one one-thousandths of a share of Preferred Stock (or, following a
Triggering Event, Common Stock, other securities, cash, or other property,
as the case may be) as the Rights Certificate or Rights Certificates
surrendered then entitled such holder (or former holder in the case of a
transfer) to purchase. Any registered holder desiring to transfer, split
up, combine, or exchange any Rights Certificate or Rights Certificates will
make such request in writing delivered to the Rights Agent, and will
surrender the Rights Certificate or Rights Certificates to be transferred,
split up, combined, or exchanged at the principal office or offices of the
Rights Agent designated for such purpose. Neither the Rights Agent nor the
Company will be obligated to take any action whatsoever with respect to the
transfer of any such surrendered Rights Certificate until the registered
holder has completed and signed the certificate contained in the form of
assignment on the reverse side of such Rights Certificate and has provided
such additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Company
requests in good faith. Thereupon, the Rights Agent will,
9
<PAGE>
subject to SECTION 4(b), SECTION 7(e), and SECTION 14, countersign and
deliver to the Person entitled thereto a Rights Certificate or Rights
Certificates, as the case may be, as so requested. The Company may require
payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer, split up, combination, or
exchange of any Rights Certificate.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction, or
mutilation of a Rights Certificate, and, in case of loss, theft, or
destruction, of indemnity or security satisfactory to them, and
reimbursement to the Company and the Rights Agent of all reasonable
expenses incidental thereto, and upon surrender to the Rights Agent and
cancellation of the Rights Certificate if mutilated, the Company will
execute and deliver a new Rights Certificate of like tenor to the Rights
Agent for countersignature and delivery to the registered owner in lieu of
the Rights Certificate so lost, stolen, destroyed, or mutilated.
Section 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF
RIGHTS.
(a) Subject to SECTION 7(e), the registered holder of any Rights
Certificate may exercise the Rights evidenced thereby (except as otherwise
provided in this Agreement including, without limitation, the restrictions
on exercisability set forth in SECTION 9(c), SECTION 11(a)(iii), and
SECTION 23(a)) in whole or in part at any time after the Distribution Date
upon surrender of the Rights Certificate, with the form of election to
purchase and the certificate on the reverse side of the Rights Certificate
duly executed, to the Rights Agent at the principal office or offices of
the Rights Agent designated for such purpose, together with payment of the
aggregate Purchase Price with respect to the total number of one
one-thousandths of a share (or other securities, cash, or other property,
as the case may be) as to which such surrendered Rights are then
exercisable, at or prior to the earlier of (i) the Close of Business on
October 20, 2007, (the "FINAL EXPIRATION DATE"), or (ii) the time at which
the Rights are redeemed as provided in SECTION 23 (the earlier of the
times referred to in CLAUSES (i) and (ii) being referred to as the
"EXPIRATION DATE")).
(b) The Purchase Price for each one one-thousandth of a share of
Preferred Stock pursuant to the exercise of a Right will initially be
$400.00; will be subject to adjustment from time to time as provided in
SECTION 11, and SECTION 13(a); and will be payable in accordance with
SECTION 7(c).
(c) Upon receipt of a Rights Certificate representing exercisable
Rights, with the form of election to purchase and the certificate duly
executed, accompanied by payment, with respect to each Right so exercised,
of the Purchase Price per one one-thousandth of a share of Preferred Stock
(or other shares, securities, cash, or other property, as the case may be)
to be purchased
10
<PAGE>
as set forth below and an amount equal to any applicable transfer tax, the
Rights Agent will, subject to SECTION 20(k), promptly (i) (A) requisition
from any transfer agent of the shares of Preferred Stock (or make
available, if the Rights Agent is the transfer agent for such shares)
certificates for the total number of one one-thousandths of a share of
Preferred Stock to be purchased, (the Company hereby irrevocably
authorizing its transfer agent to comply with all such requests), or (B) if
the Company has elected to deposit the total number of shares of Preferred
Stock issuable upon exercise of the Rights with a depository agent,
requisition from the depository agent depository receipts representing such
number of one one-thousandths of a share of Preferred Stock as are to be
purchased (in which case certificates for the shares of Preferred Stock
represented by such receipts will be deposited by the transfer agent with
the depository agent) and the Company will direct the depository agent to
comply with such request; (ii) requisition from the Company the amount of
cash, if any, to be paid in lieu of fractional shares in accordance with
SECTION 14; (iii) after receipt of such certificates or depository
receipts, cause such certificates or depository receipts to be delivered to
or upon the order of the registered holder of such Rights Certificate,
registered in such name or names as may be designated by such holder; and
(iv) after receipt thereof, deliver such cash, if any, to or upon the order
of the registered holder of such Rights Certificate. The payment of the
Purchase Price (as such amount may be reduced pursuant to SECTION
11(a)(iii)) will be made in cash or by certified bank check or bank draft
payable to the order of the Company. In the event that the Company is
obligated to issue other securities (including Common Stock) of the
Company, pay cash, or distribute other property pursuant to SECTION 11(a),
the Company will make all arrangements necessary so that such other
securities, cash, or other property are available for distribution by the
Rights Agent, if and when appropriate. The Company reserves the right to
require prior to the occurrence of a Triggering Event that, upon any
exercise of Rights, a number of Rights be exercised so that only whole
shares of Preferred Stock would be issued.
(d) In case the registered holder of any Rights Certificate exercises
less than all the Rights evidenced thereby, a new Rights Certificate
evidencing Rights equivalent to the Rights remaining unexercised will be
issued by the Rights Agent and delivered to, or upon the order of, the
registered holder of such Rights Certificate, registered in such name or
names as may be designated by such holder, subject to the provisions of
SECTION 14.
(e) Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of a Section 11(a)(ii) Event, any Rights
beneficially owned by any Person referred to in CLAUSES (i) through (iii)
below will become null and void without any further action, and no holder
of such Rights will have any rights whatsoever with respect to such Rights,
whether under any provision of this Agreement or otherwise: (i) an
Acquiring Person or an Adverse Person or an Associate or Affiliate of an
Acquiring Person or an Adverse Person, (ii) a
11
<PAGE>
transferee from an Acquiring Person or an Adverse Person (or from any
Associate or Affiliate of an Acquiring Person or Adverse Person) that
becomes a transferee after the Acquiring Person or an Adverse Person
becomes such, or (iii) a transferee from an Acquiring Person or an Adverse
Person (or of any such Associate or Affiliate) that becomes a transferee
prior to or concurrently with the Acquiring Person or Adverse Person
becoming such and that receives such Rights pursuant to either (A) a
transfer (whether or not for consideration) from the Acquiring Person or
the Adverse Person to holders of equity interests in such Acquiring Person
or Adverse Person or to any Person with whom the Acquiring Person or
Adverse Person has any continuing agreement, arrangement, or understanding
regarding the transferred Rights or (B) a transfer that the Board of
Directors of the Company has determined is part of an agreement, plan,
arrangement, or understanding that has as a substantial purpose or effect
the avoidance of this SECTION 7(e). The Company will use reasonable efforts
to insure that the provisions of this SECTION 7(e) and SECTION 4(b) are
complied with, but will have no liability under this Agreement to any
holder of Rights Certificates or other Person as a result of its failure to
make any determinations with respect to an Acquiring Person, an Adverse
Person, or any of their Affiliates, Associates, or transferees.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company will be obligated to undertake any
action with respect to a registered holder upon the occurrence of any
purported exercise as set forth in this SECTION 7 unless such registered
holder has (i) completed and signed the certificate contained in the form
of election to purchase set forth on the reverse side of the Rights
Certificate surrendered for such exercise, and (ii) provided such
additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Company
requests in good faith.
Section 8. CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES. All
Rights Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange will, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, will be cancelled by it, and no Rights
Certificates will be issued in lieu thereof except as expressly permitted by any
of the provisions of this Agreement. The Company will deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent will so cancel and
retire, any other Rights Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent will deliver all
cancelled Rights Certificates to the Company, or will, at the written request of
the Company, destroy such cancelled Rights Certificates, and in such case will
deliver a certificate of destruction to the Company.
12
<PAGE>
Section 9. RESERVATION AND AVAILABILITY OF CAPITAL STOCK.
(a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued shares of
Preferred Stock (and, following the occurrence of a Triggering Event, out
of its authorized and unissued shares of Common Stock or other securities
or out of its authorized and issued shares held in its treasury), the
number of shares of Preferred Stock (and, following the occurrence of a
Triggering Event, Common Stock or other securities) that (as provided in
this Agreement including, without limitation, SECTION 11(a)(iii)), will be
sufficient to permit the exercise in full of all outstanding Rights.
(b) So long as the shares of Preferred Stock (and, following the
occurrence of a Triggering Event, Common Stock or other securities)
issuable and deliverable upon the exercise of the Rights may be listed on
any national securities exchange or automated quotation system, the Company
will use its reasonable efforts to cause, from and after such time as the
Rights become exercisable, all shares reserved for such issuance to be
listed on such exchange or automated quotation system upon official notice
of issuance upon such exercise.
(c) The Company will use its best reasonable efforts to (i) file, as
soon as practicable following the earliest date after the first occurrence
of a Section 11(a)(ii) Event on which the consideration to be delivered by
the Company upon exercise of the Rights has been determined in accordance
with SECTION 11(a)(iii), a registration statement under the Securities Act
of 1933, as amended (the "ACT"), with respect to the securities purchasable
upon exercise of the Rights on an appropriate form, (ii) cause such
registration statement to become effective as soon as practicable after
such filing, and (iii) cause such registration statement to remain
effective (with a prospectus at all times meeting the requirements of the
Act) until the earlier of (A) the date as of which the Rights are no longer
exercisable for such securities, and (B) the date of the expiration of the
Rights. The Company will also take such action as may be appropriate under,
or to ensure compliance with, the securities or "blue sky" laws of the
various states in connection with the exercisability of the Rights. The
Company may temporarily suspend, for a period of time not to exceed ninety
(90) days after the date set forth in clause (i) of the first sentence of
this SECTION 9(c), the exercisability of the Rights in order to prepare and
file such registration statement and permit it to become effective. Upon
any such suspension, the Company will issue a public announcement stating
that the exercisability of the Rights has been temporarily suspended, as
well as a public announcement at such time as the suspension is no longer
in effect. In addition, if the Company determines that a registration
statement is required following the Distribution Date, the Company may
temporarily suspend the exercisability of the Rights until such time as a
registration statement has been declared effective.
13
<PAGE>
Notwithstanding any provision of this Agreement to the contrary, the Rights
will not be exercisable in any jurisdiction if the requisite qualification
in such jurisdiction has not been obtained, the exercise of such Rights is
not permitted under applicable law, or a registration statement has not
been declared effective.
(d) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all shares of Preferred Stock
(and, following the occurrence of a Triggering Event, Common Stock or other
securities) delivered upon exercise of Rights will, at the time of delivery
of the certificates for such shares (subject to payment of the Purchase
Price), be duly and validly authorized and issued and fully paid and
nonassessable.
(e) The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges
that may be payable in respect of the issuance or delivery of the Rights
Certificates and of any certificates for a number of one one-thousandths of
a share of Preferred Stock (or Common Stock or other securities, as the
case may be) upon the exercise of Rights. The Company will not, however, be
required to pay any transfer tax that may be payable in respect of any
transfer or delivery of Rights Certificates to a Person other than, or the
issuance or delivery of a number of one one-thousandths of a share of
Preferred Stock (or Common Stock or other securities, as the case may be)
in respect of a name other than that of, the registered holder of the
Rights Certificates evidencing Rights surrendered for exercise or to issue
or deliver any certificates for a number of one one-thousandths of a share
of Preferred Stock (or Common Stock or other securities, as the case may
be) in a name other than that of the registered holder upon the exercise of
any Rights until such tax has been paid (any such tax being payable by the
holder of such Rights Certificate at the time of surrender) or until it has
been established to the Company's satisfaction that no such tax is due.
Section 10. PREFERRED STOCK RECORD DATE. Each Person in whose name any
certificate for a number of one one-thousandths of a share of Preferred Stock
(or Common Stock or other securities, as the case may be) is issued upon the
exercise of Rights will for all purposes be deemed to have become the holder of
record of such fractional shares of Preferred Stock (or Common Stock or other
securities, as the case may be) represented thereby on, and such certificate
will be dated, the date upon which the Rights Certificate evidencing such Rights
was duly surrendered and payment of the Purchase Price (and all applicable
transfer taxes) was made; provided, however, that if the date of such surrender
and payment is a date upon which the Preferred Stock (or Common Stock or other
securities, as the case may be) transfer books of the Company are closed, such
Person will be deemed to have become the record holder of such shares
(fractional or otherwise) on, and such certificate will be dated, the next
succeeding Business Day on which the Preferred Stock (or Common Stock or other
securities, as the case may be) transfer books of the Company are open. Prior to
the exercise of the Rights evidenced thereby, the holder of a Rights Certificate
will not be
14
<PAGE>
entitled to any rights of a stockholder of the Company with respect to shares
for which the Rights is exercisable, including, without limitation, the right to
vote, to receive dividends or other distributions, or to exercise any preemptive
rights, and will not be entitled to receive any notice of any proceedings of the
Company, except as provided in this Agreement.
Section 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF SHARES, OR
NUMBER OF RIGHTS. The Purchase Price, the number and kind of shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this SECTION 11.
(a) (i) In the event the Company at any time after the date of this
Agreement (A) declares a dividend on the Preferred Stock payable in
shares of Preferred Stock, (B) subdivides the outstanding Preferred
Stock, (C) combines the outstanding Preferred Stock into a smaller
number of shares, or (D) issues any shares of its capital stock in a
reclassification of the Preferred Stock (including, without
limitation, any such reclassification in connection with a
consolidation or merger in which the Company is the continuing or
surviving corporation), except as otherwise provided in this SECTION
11(a) and SECTION 7(e), the Purchase Price in effect at the time of
the record date for such dividend or of the effective date of such
subdivision, combination, or reclassification, and the number and kind
of shares of Preferred Stock or capital stock, as the case may be,
issuable on such date, will be proportionately adjusted so that the
holder of any Right exercised after such time will be entitled to
receive, upon payment of the Purchase Price then in effect, the
aggregate number and kind of shares of Preferred Stock or capital
stock, as the case may be, that, if such Right had been exercised
immediately prior to such date and at a time when the Preferred Stock
transfer books of the Company were open, such holder would have owned
upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination, or reclassification. If an event
occurs that would require an adjustment under both this SECTION
11(a)(i) and SECTION 11(a)(ii), the adjustment provided for in this
SECTION 11(a)(i) will be in addition to, and will be made prior to,
any adjustment required pursuant to SECTION 11(a)(ii).
(ii) In the event that:
(A) Any Acquiring Person or Adverse Person or any Associate
or Affiliate of any Acquiring Person or Adverse Person, at any
time after the Stock Acquisition Date, directly or indirectly,
(1) merges from, with, or into the Company or otherwise combines
with the Company and the Company is the continuing or surviving
Person of such merger or combination and the Common Shares of the
Company or other equity securities of the Company remain
15
<PAGE>
outstanding, (2) in one transaction or a series of transactions,
transfers any assets to the Company or to any of the Company's
Subsidiaries in exchange (in whole or in part) for Common Stock,
for shares of other equity securities of the Company, or for
securities exercisable for or convertible into shares of equity
securities of the Company (Common Stock or otherwise) or
otherwise obtains from the Company, with or without
consideration, any additional shares of such equity securities or
securities exercisable for or convertible into shares of such
equity securities (other than pursuant to a pro rata distribution
to all holders of Common Shares), (3) sells, purchases, leases,
exchanges, mortgages, pledges, transfers, or otherwise acquires
or disposes of assets in one transaction or a series of
transactions, to, from, or with (as the case may be) the Company
or any of the Company's Subsidiaries, on terms or conditions less
favorable in any respect than the Company or such Subsidiary
would be able to obtain in arm's-length negotiation with an
unaffiliated third party, other than pursuant to a Section 13
Event, (4) sells, purchases, leases, exchanges, mortgages,
pledges, transfers, or otherwise acquires or disposes of assets
having an aggregate fair market value of more than $3,000,000 in
one transaction or a series of transactions to, from, or with (as
the case may be) the Company or any of the Company's Subsidiaries
(other than incidental to the lines of business, if any, engaged
in as of the date of this Agreement between the Company or such
Subsidiary, on the one hand, and such Acquiring Person or Adverse
Person or such Associate or Affiliate, on the other), other than
pursuant to a Section 13 Event, (5) receives any compensation
from the Company or any of the Company's Subsidiaries other than
compensation for full-time employment as a regular employee at
rates in accordance with the Company's (or such Subsidiaries')
past practices, or (6) receives the benefits, directly or
indirectly (except proportionately as a stockholder and as a
result of any requirement of law or governmental regulation), of
any loans, advances, guarantees, pledges, or other financial
assistance or any tax credits or other tax advantage provided by
the Company or any of the Company's Subsidiaries;
(B) any Person, alone or together with its Affiliates or
Associates, at any time after the Rights Dividend Declaration
Date, becomes an Acquiring Person, unless the event causing such
Person to become an Acquiring Person is a Section 13 Event, or is
an acquisition of shares of Common Stock pursuant to a tender
offer or an exchange offer for all outstanding shares of Common
Stock at a price and on terms determined by a Requisite Majority,
16
<PAGE>
after receiving advice from one or more nationally recognized
investment banking firms selected by such Requisite Majority, to
be (1) fair to all stockholders, after taking into consideration
all factors that such Requisite Majority deems relevant,
including, without limitation, the long-term prospects and value
of the Company and the prices and terms that such Requisite
Majority believes, in good faith, could reasonably be achieved if
the Company or its assets were sold on an orderly basis designed
to realize maximum value; and (2) otherwise in the best interests
of the Company and its stockholders;
(C) during such time as there is an Acquiring Person or
Adverse Person, there is any reclassification of securities
(including any reverse stock split), recapitalization of the
Company, or any merger or consolidation of the Company into,
from, or with any of its Subsidiaries or any other transaction or
series of transactions involving the Company or any of its
Subsidiaries, other than a Section 13 Event, or series of such
events (whether or not with or into or otherwise involving and
Acquiring Person or Adverse Person) that has the effect, directly
or indirectly, of increasing by more than 1% the proportionate
share of the outstanding shares of any class of equity securities
(or securities convertible into such equity securities) of the
Company or any of its Subsidiaries that is directly or indirectly
beneficially owned by an Acquiring Person or Adverse Person or
any Associate or Affiliate of any Acquiring Person or Adverse
Person; or
(D) the Board of Directors of the Company declares any
Person to be an Adverse Person;
then, promptly following the first occurrence of a Section 11(a)(ii) Event,
proper provision will be made so that each holder of a Right (except as
provided below in this SECTION 11(a)(ii) and in SECTION 7(e)) will
thereafter have the right to receive, upon exercise of such Right at the
then current Purchase Price in accordance with the terms of this Agreement,
in lieu of a number of one one-thousandths of a share of Preferred Stock,
such number of shares of Common Stock of the Company as equals the result
obtained by (x) multiplying the then current Purchase Price by the then
number of one one-thousandths of a share of Preferred Stock for which a
Right was exercisable immediately prior to the first occurrence of a
Section 11(a)(ii) Event, and (y) dividing that product (which, following
such first occurrence, will thereafter be referred to as the "PURCHASE
PRICE" for each Right and for all purposes of this Agreement) by 50% of the
Current Market Price (determined pursuant to SECTION 11(d)) per share of
Common Stock on the date of such first occurrence (such number of shares,
the "ADJUSTMENT SHARES").
17
<PAGE>
(iii) In the event that the number of shares of Common Stock
that are authorized by the Company's articles of incorporation but not
outstanding or reserved for issuance for purposes other than upon
exercise of the Rights is not sufficient to permit the exercise in
full of the Rights in accordance with SECTION 11(a)(ii), the Company
will (A) determine the value of the Adjustment Shares issuable upon
the exercise of a Right (the "CURRENT VALUE"), and (B) with respect to
each Right (subject to SECTION 7(e)), make adequate provision to
substitute for the Adjustment Shares, upon the exercise of a Right and
payment of the applicable Purchase Price, (1) cash, (2) a reduction in
the Purchase Price, (3) Common Stock or other equity securities of the
Company (including, without limitation, shares, or units of shares, of
preferred stock, such as the Preferred Stock, that a Requisite
Majority has deemed to have essentially the same value or economic
rights as shares of Common Stock (such securities being referred to as
"COMMON STOCK EQUIVALENTS")), (4) debt securities of the Company, (5)
other assets or property, or (6) any combination of the foregoing,
having an aggregate value equal to the Current Value (less the amount
of any reduction in the Purchase Price), where such aggregate value
has been conclusively determined by a Requisite Majority based upon
the advice of a nationally recognized investment banking firm selected
by a Requisite Majority; provided, however, that if the Company has
not made adequate provision to deliver value pursuant to CLAUSE (b)
above within thirty (30) days following the later of (x) the first
occurrence of a Section 11(a)(ii) Event and (y) the date on which the
Company's right of redemption pursuant to SECTION 23(a) expires (the
later of (x) and (y) being referred to as the "SECTION 11(a)(ii)
TRIGGER DATE"), then the Company will be obligated to deliver, upon
the surrender for exercise of a Right and without requiring payment of
the Purchase Price, shares of Common Stock (to the extent available)
and then, if necessary, cash, which shares or cash have an aggregate
value equal to the Spread. For purposes of the preceding sentence, the
term "SPREAD" means the excess of (i) the Current Value over (ii) the
Purchase Price. If the Board determines in good faith that it is
likely that sufficient additional shares of Common Stock could be
authorized for issuance upon exercise in full of the Rights, the
thirty (30) day period set forth above may be extended to the extent
necessary, but not more than ninety (90) days after the Section
11(a)(ii) Trigger Date, in order that the Company may seek shareholder
approval for the authorization of such additional shares (such thirty
(30) day period, as it may be extended, being the "SUBSTITUTION
PERIOD"). To the extent that action is to be taken pursuant to the
first or third sentences of this SECTION 11(a)(iii), the Company (1)
will provide, subject to SECTION 7(e), that such action will apply
uniformly to all outstanding Rights, and (2) may suspend the
exercisability of the Rights until the expiration of the Substitution
Period in
18
<PAGE>
order to seek such shareholder approval for such authorization of
additional shares or to determine the appropriate form of distribution
to be made pursuant to such first sentence and to determine the value
of such distribution. In the event of any such suspension, the Company
will issue a public announcement stating that the exercisability of
the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect.
For purposes of this SECTION 11(a)(iii), the value of each Adjustment
Share will be the Current Market Price per share of the Common Stock
on the Section 11(a)(ii) Trigger Date and the per share or per unit
value of any Common Stock Equivalent will be deemed to equal the
Current Market Price per share of the Common Stock on such date.
(b) In case the Company fixes a record date for the issuance of
rights, options, or warrants to all holders of Preferred Stock entitling
them to subscribe for or purchase (for a period expiring within forty-five
(45) calendar days after such record date) Preferred Stock (or securities
having the same rights, privileges, and preferences as the shares of
Preferred Stock ("EQUIVALENT PREFERRED STOCK")) or securities convertible
into Preferred Stock or Equivalent Preferred Stock at a price per share of
Preferred Stock or per share of Equivalent Preferred Stock (or having a
conversion price per share, if a security convertible into Preferred Stock
or Equivalent Preferred Stock) less than the Current Market Price (as
determined pursuant to SECTION 11(d)) per share of Preferred Stock on such
record date, the Purchase Price to be in effect after such record date will
be determined by multiplying the Purchase Price in effect immediately prior
to such record date by a fraction, the numerator of which is the number of
shares of Preferred Stock outstanding on such record date, plus the number
of shares of Preferred Stock that the aggregate offering price of the total
number of shares of Preferred Stock or Equivalent Preferred Stock so to be
offered (or the aggregate initial conversion price of the convertible
securities so to be offered) would purchase at such Current Market Price,
and the denominator of which is the number of shares of Preferred Stock
outstanding on such record date, plus the number of additional shares of
Preferred Stock or Equivalent Preferred Stock to be offered for
subscription or purchase (or into the maximum number of shares into which
the convertible securities so to be offered are initially convertible). In
the event that the number of shares of Preferred Stock or Equivalent
Preferred Stock issuable under the terms of a convertible security, or the
conversion or exercise price of such convertible security, changes after
the initial issuance of such convertible security, an adjustment will be
made to the Purchase Price that conforms with the adjustment set forth in
this SECTION 11(b). In case such subscription price may be paid by
delivery of consideration part or all of which may be in a form other than
cash, the value of such consideration will be as conclusively determined in
good faith by a Requisite Majority, whose determination will be described
in a statement filed with the Rights Agent and will be binding on the
Rights Agent and the holders of
19
<PAGE>
the Rights. Shares of Preferred Stock owned by or held for the account of
the Company will be deemed not to be outstanding for the purpose of any
such computation. Such adjustment will be made successively whenever such a
record date is fixed, and in the event that such rights, options, or
warrants are not so issued, the Purchase Price will be adjusted to be the
Purchase Price that would then be in effect if such record date had not
been fixed.
(c) In case the Company fixes a record date for a distribution to all
holders of Preferred Stock (including any such distribution made in
connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness, cash (other than a
regular quarterly cash dividend out of the earnings or retained earnings of
the Company), assets (other than a dividend payable in Preferred Stock, but
including any dividend payable in stock other than Preferred Stock) or
subscription rights or warrants (excluding those referred to in SECTION
11(b)), the Purchase Price to be in effect after such record date will be
determined by multiplying the Purchase Price in effect immediately prior to
such record date by a fraction, the numerator of which is the Current
Market Price (as determined pursuant to SECTION 11(d)) per share of
Preferred Stock on such record date, less the fair market value (as
conclusively determined in good faith by a Requisite Majority, whose
determination will be described in a statement filed with the Rights Agent)
of the portion of the cash, assets, or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to a
share of Preferred Stock and the denominator of which is such Current
Market Price (as determined pursuant to SECTION 11(d)) per share of
Preferred Stock). Such adjustments will be made successively whenever such
a record date is fixed, and in the event that such distribution is not so
made, the Purchase Price will be adjusted to be the Purchase Price that
would have been in effect if such record date had not been fixed.
(d) (i) For the purpose of any computation under this Agreement,
other than computations made pursuant to SECTION 11(a)(iii), the
"CURRENT MARKET PRICE" per share of Common Stock on any date will be
deemed to be the average of the daily closing prices per share of such
Common Stock for the thirty (30) consecutive Trading Days (as defined
below) immediately prior to such date, and for purposes of
computations made pursuant to SECTION 11(a)(iii), the "CURRENT MARKET
PRICE" per share of Common Stock on any date will be deemed to be the
average of the daily closing prices per share of such Common Stock for
the ten (10) consecutive Trading Days immediately following such date;
provided, however, that in the event that the Current Market Price per
share of the Common Stock is determined during a period following the
announcement by the issuer of such Common Stock of (A) a dividend or
distribution on such Common Stock payable in shares of such Common
Stock or securities convertible into shares of such Common Stock
(other than the
20
<PAGE>
Rights), or (B) any subdivision, combination, or reclassification of
such Common Stock, and the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination, or
reclassification has not occurred prior to the commencement of the
requisite thirty (30) Trading Day or ten (10) Trading Day period, as
set forth above, then, and in each such case, the Current Market Price
will be properly adjusted to take into account ex-dividend trading.
The closing price for each day will be the last sale price, regular
way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system
with respect to securities listed or admitted to trading on the New
York Stock Exchange or, if the shares of Common Stock are not listed
or admitted to trading on the New York Stock Exchange, as reported in
the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on
which the shares of Common Stock are listed or admitted to trading or,
if the shares of Common Stock are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by NASDAQ or such other system
then in use, or, if on any such date the shares of Common Stock are
not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a
market in the Common Stock selected by a Requisite Majority. If on any
such date no market maker is making a market in the Common Stock, the
fair value of such shares on such date as determined in good faith by
a Requisite Majority will be used. The term "TRADING DAY" means a day
on which the principal national securities exchange on which the
shares of Common Stock are listed or admitted to trading is open for
the transaction of business or, if the shares of Common Stock are not
listed or admitted to trading on any national securities exchange, a
Business Day. If the Common Stock is not publicly held or not so
listed or traded, Current Market Price per share will mean the fair
value per share as determined in good faith by a Requisite Majority,
the determination of which will be described in a statement filed with
the Rights Agent and will be conclusive for all purposes.
(ii) For the purpose of any computation under this Agreement, the
"CURRENT MARKET PRICE" per share of Preferred Stock will be determined
in the same manner as set forth above for the Common Stock in SECTION
11(d)(i) (other than the last sentence thereof). If the Current Market
Price per share of Preferred Stock cannot be determined in the manner
provided above or if the Preferred Stock is not publicly held or
listed or traded in a manner described in SECTION 11(d)(i), the
Current Market Price per share of Preferred Stock will be conclusively
deemed to be an amount equal to one thousand (1,000) (as such number
may be
21
<PAGE>
appropriately adjusted for such events as stock splits, stock
dividends, and recapitalizations with respect to the Common Stock
occurring after the date of this Agreement) multiplied by the Current
Market Price per share of the Common Stock. If neither the Common
Stock nor the Preferred Stock is publicly held or so listed or traded,
Current Market Price per share of the Preferred Stock will mean the
fair value per share as determined in good faith by a Requisite
Majority, whose determination will be described in a statement filed
with the Rights Agent and will be conclusive for all purposes. For all
purposes of this Agreement, the Current Market Price of one
one-thousandth of a share of Preferred Stock will be equal to the
Current Market Price of one share of Preferred Stock divided by one
thousand (1,000).
(e) Anything in this Agreement to the contrary notwithstanding, no
adjustment in the Purchase Price will be required unless such adjustment
would require an increase or decrease of at least one percent (1%) in the
Purchase Price; provided, however, that any adjustments that by reason of
this SECTION 11(e) are not required to be made will be carried forward and
taken into account in any subsequent adjustment. All calculations under
this SECTION 11 will be made to the nearest cent or to the nearest
ten-thousandth of a share of Common Stock or other share or one-millionth
of a share of Preferred Stock, as the case may be. Notwithstanding the
first sentence of this SECTION 11(e), any adjustment required by this
SECTION 11 will be made no later than the earlier of (i) three (3) years
from the date of the transaction that mandates such adjustment or (ii) the
Expiration Date.
(f) If, as a result of an adjustment made pursuant to SECTION
11(a)(ii) or SECTION 13(a), the holder of any Right thereafter exercised
becomes entitled to receive any shares of capital stock other than
Preferred Stock, then the number of such other shares so receivable upon
exercise of any Right and the Purchase Price will be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preferred Stock contained
in SECTIONS 11(a), (b), (c), (e), (g), (h), (i), (j), (k), (m), and (q) and
the provisions of SECTIONS 7, 9, 10, 13, and 14 with respect to the
Preferred Stock will apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price under this Agreement will evidence
the right to purchase, at the adjusted Purchase Price, the number of one
one-thousandths of a share of Preferred Stock purchasable from time to time
under this Agreement upon exercise of the Rights, all subject to further
adjustment as provided in this Agreement.
(h) Unless the Company has exercised its election as provided in
SECTION 11(i), upon each adjustment of the Purchase Price as a result of
the
22
<PAGE>
calculations made in SECTIONS 11(b) and (c), each Right outstanding
immediately prior to the making of such adjustment will thereafter evidence
the right to purchase, at the adjusted Purchase Price, that number of one
one-thousandths of a share of Preferred Stock (calculated to the nearest
one-millionth) obtained by (i) multiplying (x) the number of one
one-thousandths of a share covered by a Right immediately prior to this
adjustment, by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price, and (ii) dividing the product so obtained
by the Purchase Price in effect immediately after such adjustment of the
Purchase Price.
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in lieu of any
adjustment in the number of one one-thousandths of a share of Preferred
Stock purchasable upon the exercise of a Right. Each of the Rights
outstanding after such an adjustment in the number of Rights will be
exercisable for the number of one one-thousandths of a share of Preferred
Stock for which a Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to such adjustment of the
number of Rights will become that number of Rights (calculated to the
nearest one ten-thousandth) obtained by dividing the Purchase Price in
effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company will make a public announcement of its election to
adjust the number of Rights, indicating the record date for the adjustment,
and, if known at the time, the amount of the adjustment to be made. This
record date may be the date on which the Purchase Price is adjusted or any
day thereafter, but, if the Rights Certificates have been issued, will be
at least ten (10) days later than the date of the public announcement. If
Rights Certificates have been issued, upon each adjustment of the number of
Rights pursuant to this SECTION 11(i), the Company will, as promptly as
practicable, cause to be distributed to holders of record of Rights
Certificates on such record date Rights Certificates evidencing, subject to
SECTION 14, the additional Rights to which such holders are entitled as a
result of such adjustment, or, at the option of the Company, will cause to
be distributed to such holders of record in substitution and replacement
for the Rights Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Company, new
Rights Certificates evidencing all the Rights to which such holders are
entitled after such adjustment. Rights Certificates so to be distributed
will be issued, executed, and countersigned in the manner provided for in
this Agreement (and may bear, at the option of the Company, the adjusted
Purchase Price) and will be registered in the names of the holders of
record of Rights Certificates on the record date specified in the public
announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-thousandths of a share of Preferred Stock issuable
upon the exercise of the Rights, the Rights Certificates theretofore and
thereafter
23
<PAGE>
issued may continue to express the Purchase Price per one one-thousandth of
a share and the number of one one-thousandths of a share that were
expressed in the initial Rights Certificates issued under this Agreement.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then stated value, if any, of the number of
one one-thousandths of a share of Preferred Stock issuable upon exercise of
the Rights, the Company will take any corporate action that may, in the
opinion of its counsel, be necessary in order that the Company may validly
and legally issue such number of fully paid and nonassessable one
one-thousandths of a share of Preferred Stock at such adjusted Purchase
Price.
(l) In any case in which this SECTION 11 requires that an adjustment
in the Purchase Price be made effective as of a record date for a specified
event, the Company may elect to defer until the occurrence of such event
the issuance to the holder of any Right exercised after such record date
the number of one one-thousandths of a share of Preferred Stock and other
capital stock or securities of the Company, if any, issuable upon such
exercise over and above the number of one one-thousandths of a share of
Preferred Stock and other capital stock or securities of the Company, if
any, issuable upon such exercise on the basis of the Purchase Price in
effect prior to such adjustment; provided, however, that the Company will
deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional shares
(fractional or otherwise) or securities upon the occurrence of the event
requiring such adjustment.
(m) Anything in this SECTION 11 to the contrary notwithstanding, the
Company will be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this SECTION 11, as and
to the extent that, in its good faith judgment, the Board of Directors of
the Company determines it to be advisable in order that any (i)
consolidation or subdivision of the Preferred Stock, (ii) issuance wholly
for cash of any shares of Preferred Stock at less than the current market
price, (iii) issuance wholly for cash of shares of Preferred Stock or
securities that by their terms are convertible into or exchangeable for
shares of Preferred Stock, (iv) stock dividends, or (v) issuance of rights,
options, or warrants referred to in this SECTION 11, hereafter made by the
Company to holders of its Preferred Stock will not be taxable to such
stockholders.
(n) The Company covenants and agrees that it will not, at any time
after the Distribution Date, (i) consolidate with any other Person (other
than a Subsidiary of the Company in a transaction that complies with
SECTION 11(o)), (ii) merge with, from, or into any other Person (other than
a Subsidiary of the Company in a transaction that complies with SECTION
11(o)), or (iii) sell or transfer (or permit any Subsidiary to sell or
transfer), in one transaction, or a
24
<PAGE>
series of related transactions, assets or earning power aggregating more
than 50% of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person or Persons (other than the Company
or any of its Subsidiaries in one or more transactions each of which
complies with SECTION 11(o)), if (x) at the time of or immediately after
such consolidation, merger, sale, or transfer, there are any rights,
warrants, or other instruments or securities outstanding or agreements in
effect that could reasonably be expected to substantially diminish or
otherwise eliminate the benefits intended to be afforded by the Rights or
(y) prior to, simultaneously with, or immediately after, such
consolidation, merger, sale, or transfer, the stockholders of the Person
that constitutes, or would constitute, the "PRINCIPAL PARTY" for purposes
of SECTION 13(a) has received a distribution of Rights previously owned by
such Person or any of its Affiliates and Associates.
(o) The Company covenants and agrees that, after the Distribution
Date, it will not, except as permitted by SECTION 23 or SECTION 26, take
(or permit any Subsidiary to take) any action if at the time such action is
taken it is reasonably foreseeable that such action will diminish
substantially or otherwise eliminate the benefits intended to be afforded
by the Rights.
(p) Anything in this Agreement to the contrary notwithstanding, in
the event that the Company at any time after the Rights Dividend
Declaration Date and prior to the Distribution Date (i) declares a dividend
on the outstanding shares of Common Stock payable in shares of Common
Stock, (ii) subdivides the outstanding shares of Common Stock, or (iii)
combines the outstanding shares of Common Stock into a smaller number of
shares, the number of Rights associated with each share of Common Stock
then outstanding, or issued or delivered thereafter but prior to the
Distribution Date, will be proportionately adjusted so that the number of
Rights thereafter associated with each share of Common Stock following any
such event will equal the result obtained by multiplying the number of
Rights associated with each share of Common Stock immediately prior to such
event by a fraction the numerator of which is the total number of shares of
Common Stock outstanding immediately prior to the occurrence of the event
and the denominator of which is the total number of shares of Common Stock
outstanding immediately following the occurrence of such event.
(q) In the event that the Rights become exercisable following a
Section 11(a)(ii) Event, the Company, by action of a Requisite Majority,
may permit the Rights, subject to SECTION 7(e), to be exercised for 50% of
the shares of Common Stock (or cash or other securities or assets to be
substituted for the Adjustment Shares pursuant to SECTION 11(a)(iii)) that
would otherwise be purchasable under SECTION 11(a) in consideration of the
surrender to the Company of the Rights so exercised and without other
payment of the Purchase
25
<PAGE>
Price. Rights exercised under this SECTION 11(q) will be deemed to have
been exercised in full and will be cancelled.
(r) The failure by the Board of Directors at any time to determine a
Person to be an Adverse Person following such Person becoming a Beneficial
Owner of 10% or more of the outstanding Common Stock will not create any
implication that such Person is not or may not later be determined to be an
Adverse Person.
Section 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES.
Whenever an adjustment is made as provided in SECTION 11 or SECTION 13, the
Company will (a) promptly prepare a certificate setting forth such adjustment
and a brief statement of the facts accounting for such adjustment, (b) promptly
file with the Rights Agent, and with each transfer agent for the Preferred Stock
and the Common Stock, a copy of such certificate, and (c) mail a brief summary
thereof to each holder of a Rights Certificate (or, if prior to the Distribution
Date, to each holder of a certificate representing shares of Common Stock) in
accordance with SECTION 25. The Rights Agent will be fully protected in relying
on any such certificate and on any adjustment contained in such certificate.
Section 13. CONSOLIDATION, MERGER, OR SALE OR TRANSFER OF ASSETS OR EARNING
POWER.
(a) In the event that, following the Stock Acquisition Date, directly
or indirectly, (x) the Company consolidates with, or merges from, with, or
into, any other Person (other than a Subsidiary of the Company in a
transaction that complies with SECTION 11(o)), and the Company is not the
continuing or surviving Person of such consolidation or merger; (y) any
Person (other than a Subsidiary of the Company in a transaction that
complies with SECTION 11(o)) consolidates with, or merges from, with, or
into, the Company, and the Company is the continuing or surviving
corporation of such consolidation or merger and, in connection with such
consolidation or merger, all or part of the outstanding shares of Common
Stock of the Company is changed into or exchanged for stock or other
securities of any other Person or cash or any other property; or (z) the
Company sells or otherwise transfers (or one or more of its Subsidiaries
sells or otherwise transfers), in one transaction or a series of related
transactions, assets or earning power aggregating more than 50% of the
assets or earning power of the Company and its Subsidiaries (taken as a
whole) to any Person or Persons (other than the Company or any Subsidiary
of the Company in one or more transactions each of which complies with
SECTION 11(o)), then, and in each such case (except as contemplated by
SECTION 13(d)), proper provision will be made so that (i) each holder of a
Right, except as provided in SECTION 7(e) or SECTION 13(e), will thereafter
have the right to receive, upon the exercise of such Right at the then
current Purchase Price in accordance with the terms of this Agreement, such
number of validly authorized and issued, fully paid,
26
<PAGE>
nonassessable, and freely tradable shares of Common Stock of the Principal
Party (as defined below), not subject to any liens, encumbrances,
preemptive rights, rights of first refusal, or other adverse claims, as are
equal to the result obtained by (1) multiplying the then current Purchase
Price by the number of one one-thousandths of a share of Preferred Stock
for which a Right is exercisable immediately prior to the first occurrence
of a Section 13 Event (or, if a Section 11(a)(ii) Event has occurred prior
to the first occurrence of a Section 13 Event, multiplying the number of
such one one-thousandths of a share for which a Right was exercisable
immediately prior to the first occurrence of a Section 11(a)(ii) Event by
the Purchase Price in effect immediately prior to such first occurrence),
and dividing that product (which, following the first occurrence of a
Section 13 Event, will be referred to as the "PURCHASE PRICE" for each
Right and for all purposes of this Agreement) by (2) 50% of the Current
Market Price (determined pursuant to SECTION 11(d)(i)) per share of the
Common Stock of such Principal Party on the date of consummation of such
Section 13 Event; (ii) such Principal Party will thereafter be liable for,
and will assume, by virtue of such Section 13 Event, all the obligations
and duties of the Company pursuant to this Agreement; (iii) the term
"COMPANY" will thereafter be deemed to refer to such Principal Party, it
being specifically intended that the provisions of SECTION 11 will apply
only to such Principal Party following the first occurrence of a Section 13
Event; (iv) such Principal Party will take such steps (including, but not
limited to, the reservation of a sufficient number of shares of its Common
Stock) in connection with the consummation of any such transaction as may
be necessary to assure that the provisions of this Agreement will
thereafter be applicable, as nearly as may be, in relation to its shares of
Common Stock thereafter deliverable upon the exercise of the Rights; and
(v) the provisions of SECTION 11(a)(ii) will be of no effect following the
first occurrence of any Section 13 Event.
(b) "PRINCIPAL PARTY" means
(i) in the case of any transaction described in CLAUSE (x) or
(y) of the first sentence of SECTION 13(a), the Person that is the
issuer of any securities into which shares of Common Stock of the
Company are converted in such merger or consolidation, and if no
securities are so issued, the Person that is the other party to such
merger or consolidation; and
(ii) in the case of any transaction described in CLAUSE (z) of
the first sentence of SECTION 13(a), the Person that is the party
receiving the greatest portion of the assets or earning power
transferred pursuant to such transaction or transactions;
provided, however, that in any such case, (1) if the Common Stock of
such Person is not at such time and has not been continuously over the
preceding twelve (12) month period registered under Section 12 of the
27
<PAGE>
Exchange Act, and such Person is a direct or indirect Subsidiary of
another Person the Common Stock of which is and has been so
registered, "PRINCIPAL PARTY" will refer to such other Person; and (2)
in case such Person is a Subsidiary, directly or indirectly, of more
than one Person, the Common Stocks of two or more of which are and
have been so registered, "PRINCIPAL PARTY" will refer to whichever of
such Persons is the issuer of the Common Stock having the greatest
aggregate market value.
(c) The Company will not consummate any such consolidation, merger,
sale, or transfer unless the Principal Party has a sufficient number of
authorized shares of its Common Stock that have not been issued or reserved
for issuance to permit the exercise in full of the Rights in accordance
with this SECTION 13 and unless prior thereto the Company and such
Principal Party have executed and delivered to the Rights Agent a
supplemental agreement providing for the Principal Party to assume and
perform the terms set forth in SECTIONS 13(a) and (b) and further providing
that, as soon as practicable after the date of any consolidation, merger,
or transfer mentioned in SECTION 13(a), the Principal Party will
(i) prepare and file a registration statement under the Act,
with respect to the Rights and the securities purchasable upon
exercise of the Rights on an appropriate form, and will cause such
registration statement to (A) become effective as soon as practicable
after such filing and (B) remain effective (with a prospectus at all
times meeting the requirements of the Act) until the Expiration Date;
and
(ii) will deliver to holders of the Rights historical financial
statements for the Principal Party and each of its Affiliates that
comply in all respects with the requirements for registration on Form
10 under the Exchange Act.
The provisions of this SECTION 13 will similarly apply to successive mergers,
consolidations, and sales or other transfers. In the event that a Section 13
Event occurs at any time after the occurrence of a Section 11(a)(ii) Event, the
Rights that have not theretofore been exercised will thereafter become
exercisable in the manner described in SECTION 13(a).
(d) Notwithstanding anything in this Agreement to the contrary,
SECTION 13 will not be applicable to a transaction described in CLAUSE (x)
and (y) of the first sentence of SECTION 13(a) if (i) such transaction is
consummated with a Person or Persons that acquired shares of Common Stock
of the Company pursuant a tender offer or exchange offer for all
outstanding shares of Common Stock that complies with the provisions of
SECTION 11(a)(ii)(b) (or a wholly owned subsidiary of any such Person or
Persons), (ii) the price per share of
28
<PAGE>
Common Stock offered in such transaction is not less than the price per
share of Common Stock paid to all holders of shares of Common Stock whose
shares were purchased pursuant to such tender offer or exchange offer, and
(iii) the form of consideration being offered to the remaining holders of
shares of Common Stock pursuant to such transaction is the same as the form
of consideration paid pursuant to such tender offer or exchange offer. Upon
consummation of any such transaction contemplated by this SECTION 13(D),
all Rights under this Agreement will expire.
(e) In the event that the Rights become exercisable under SECTION
13(a), the Company, by action of a Requisite Majority, may agree with the
Principal Party that the Principal Party may permit the Rights to be
exercised for 50% of the Common Shares of the Principal Party that would
otherwise be purchasable under SECTION 13(a in consideration of the
surrender to the Principal Party, as the successor to the Company under
SECTION 13(a)(ii), of the Rights so exercised and without other payment of
the Purchase Price. Rights exercised under this SECTION 13(e) will be
deemed to have been exercised in full and cancelled.
Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) The Company will not be required to issue fractions of Rights,
except prior to the Distribution Date as provided in SECTION 11(p), or to
distribute Rights Certificates that evidence fractional Rights. In lieu of
such fractional Rights, there will be paid to the registered holders of the
Rights Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For purposes of this SECTION 14(a),
the current market value of a whole Right will be the closing price of the
Rights for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable. The closing price of
the Rights for any day will be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing bid
and asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed
or admitted to trading on the New York Stock Exchange or, if the Rights are
not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange
on which the Rights are listed or admitted to trading, or if the Rights are
not listed or admitted to trading on any national securities exchange, the
last quoted price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by NASDAQ or such
other system then in use or, if on any such date the Rights are not quoted
by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the Rights
selected by a Requisite Majority. If on any such date no such market
29
<PAGE>
maker is making a market in the Rights the fair value of the Rights on such
date as conclusively determined in good faith by a Requisite Majority will
be used.
(b) The Company will not be required to issue fractions of shares of
Preferred Stock (other than fractions that are integral multiples of one
one-thousandth of a share of Preferred Stock) upon exercise of the Rights
or to distribute certificates that evidence fractional shares of Preferred
Stock (other than fractions that are integral multiples of one
one-thousandth of a share of Preferred Stock). In lieu of fractional shares
of Preferred Stock that are not integral multiples of one one-thousandth of
a share of Preferred Stock, the Company may pay to the registered holders
of Rights Certificates at the time such Rights are exercised as provided in
this Agreement an amount in cash equal to the same fraction of the current
market value of one one-thousandth of a share of Preferred Stock. For
purposes of this SECTION 14(b), the current market value of one
one-thousandth of a share of Preferred Stock will be one one-thousandth of
the closing price of a share of Preferred Stock (as determined pursuant to
SECTION 11(d)(ii)) for the Trading Day immediately prior to the date of
such exercise.
(c) Following the occurrence of a Triggering Event, the Company will
not be required to issue fractions of shares of Common Stock upon exercise
of the Rights or to distribute certificates that evidence fractional shares
of Common Stock. In lieu of fractional shares of Common Stock, the Company
may pay to the registered holders of Rights Certificates at the time such
Rights are exercised as provided in this Agreement an amount in cash equal
to the same fraction of the current market value of one share of Common
Stock. For purposes of this SECTION 14(c), the current market value of one
share of Common Stock will be the Current Market Value of one share of
Common Stock (as determined pursuant to SECTION 11(d)(i)) for the Trading
Day immediately prior to the date of such exercise.
(d) The holder of a Right, by the acceptance of the Rights, expressly
waives the right to receive any fractional Rights or any fractional shares
upon exercise of a Right, except as permitted by this SECTION 14.
Section 15. RIGHTS OF ACTION. All rights of action in respect of this
Agreement are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Rights Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Stock), may, in its own behalf and for its own
benefit, enforce, and may institute and maintain any suit, action, or proceeding
against the Company to enforce, or otherwise act in respect of, its right to
exercise the Rights evidenced by such Rights Certificate in the manner provided
in such Rights Certificate and in this Agreement. Without limiting the foregoing
or any
30
<PAGE>
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and will be entitled to specific performance of the
obligations under this Agreement and injunctive relief against actual or
threatened violations of the obligations under this Agreement of any Person
subject to this Agreement.
Section 16. AGREEMENT OF RIGHTS HOLDERS. Every holder of a Right by
accepting the Rights consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of Common Stock;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered
at the principal office or offices of the Rights Agent designated for such
purposes, duly endorsed or accompanied by a proper instrument of transfer,
and with the appropriate forms and certificates fully executed;
(c) subject to SECTION 6(a) and SECTION 7(f), the Company and the
Rights Agent may deem and treat the person in whose name a Rights
Certificate (or, prior to the Distribution Date, the associated Common
Stock certificate) is registered as the absolute owner of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on
the Rights Certificates or the associated Common Stock certificate made by
anyone other than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent, subject to the
last sentence of SECTION 7(e), will be required to be affected by any
notice to the contrary; and
(d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent will have any liability to any
holder of a Right or other Person as a result of its inability to perform
any of its obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, decree, or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory, or administrative
agency or commission, or any statute, rule, regulation, or executive order
promulgated or enacted by any governmental authority, prohibiting or
otherwise restraining performance of such obligation; provided, however,
the Company will use its reasonable best efforts to have any such order,
decree, or ruling lifted or otherwise overturned as soon as possible.
Section 17. RIGHTS CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No holder,
as such, of any Rights Certificate will be entitled to vote or receive dividends
or be deemed for any purpose the holder of the number of one one-thousandths of
a share of Preferred Stock or any other securities of the Company that may at
any time be
31
<PAGE>
issuable on the exercise of the Rights represented thereby, nor will anything
contained in this Agreement or in any Rights Certificate be construed to confer
upon the holder of any Rights Certificate, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in SECTION 24), or to receive dividends or
subscription rights, or otherwise, until the Right or Rights evidenced by such
Rights Certificate have been exercised in accordance with the provisions of this
Agreement.
Section 18. CONCERNING THE RIGHTS AGENT.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it under this Agreement and, from
time to time, on demand of the Rights Agent, its reasonable expenses and
counsel fees and disbursements and other disbursements incurred in the
administration and execution of this Agreement and the exercise and
performance of its duties under this Agreement. The Company also agrees to
indemnify the Rights Agent for, and to hold it harmless against, any loss,
liability, or expense, incurred without negligence, bad faith, or willful
misconduct on the part of the Rights Agent, for anything done or omitted to
be done by the Rights Agent in connection with the acceptance and
administration of this Agreement, including, without limitation, the costs
and expenses of defending against any claim of liability. In no case will
the Rights Agent be liable for special, indirect, incidental, or
consequential loss or damages of any kind whatsoever, even if the Rights
Agent has been advised or is otherwise aware of the likelihood of such loss
or damage.
(b) The Rights Agent will be protected and will incur no liability
for or in respect of any action taken, suffered, or omitted by it in
connection with its administration of this Agreement in reliance upon any
Rights Certificate or certificate for Common Stock or for other securities
of the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to
be signed, executed, and, where necessary, verified or acknowledged, by the
proper Person or Persons.
Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.
(a) Any Person into or with which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
Person resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent is a party, or any corporation succeeding to
the corporate trust or shareholder services business of the Rights Agent or
any successor Rights Agent, will be the successor to the Rights Agent under
this Agreement without the execution or filing of any paper or any further
act on the
32
<PAGE>
part of any of the parties to this Agreement; provided, however, that such
corporation would be eligible for appointment as a successor Rights Agent
under the provisions of SECTION 21. In case at the time such successor
Rights Agent succeeds to the agency created by this Agreement, any of the
Rights Certificates have been countersigned but not delivered, any such
successor Rights Agent may adopt the countersignature of a predecessor
Rights Agent and deliver such Rights Certificates so countersigned; and in
case at that time any of the Rights Certificates not have been
countersigned, any successor Rights Agent may countersign such Rights
Certificates either in the name of the predecessor or in the name of the
successor Rights Agent; and in all such cases such Rights Certificates will
have the full force provided in the Rights Certificates and in this
Agreement.
(b) In case at any time the name of the Rights Agent is changed and
at such time any of the Rights Certificates have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Rights Certificates so countersigned; and in case at that
time any of the Rights Certificates have not been countersigned, the Rights
Agent may countersign such Rights Certificates either in its prior name or
in its changed name, and in all such cases such Rights Certificates will
have the full force provided in the Rights Certificates and in this
Agreement.
Section 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the duties
and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance of such Rights Certificates, will be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel will be full and
complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement
the Rights Agent deems it necessary or desirable that any fact or matter
(including, without limitation, the identity of any Acquiring Person or
Adverse Person and the determination of "Current Market Price") be proved
or established by the Company prior to taking or suffering any action under
this Agreement, such fact or matter (unless other evidence in respect of
such fact or matter is specifically prescribed in this Agreement) may be
deemed to be conclusively proved and established by a certificate signed by
the Chairman of the Board, the Chief Executive Officer, the Chief Operating
Officer, the President, any Vice President, the Treasurer, any Assistant
Treasurer, the Secretary, or any Assistant Secretary of the Company and
delivered to the Rights Agent; and such certificate will be full
authorization to the Rights Agent for
33
<PAGE>
any action taken or suffered in good faith by it under the provisions of
this Agreement in reliance upon such certificate.
(c) The Rights Agent will be liable under this Agreement only for its
own negligence, bad faith or willful misconduct.
(d) The Rights Agent will not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the
Rights Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), but all such statements and
recitals are and will be deemed to have been made by the Company only.
(e) The Rights Agent will not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery of this
Agreement (except the due execution of this Agreement by the Rights Agent)
or in respect of the validity or execution of any Rights Certificate
(except its countersignature); nor will it be responsible for any breach by
the Company of any covenant or condition contained in this Agreement or in
any Rights Certificate; nor will it be responsible for any adjustment
required under the provisions of SECTION 11 or SECTION 13, or responsible
for the manner, method, or amount of any such adjustment or the
ascertaining of the existence of facts that would require any such
adjustment (except with respect to the exercise of Rights evidenced by
Rights Certificates after actual notice of any such adjustment); nor will
it by any act under this Agreement be deemed to make any representation or
warranty as to the authorization or reservation of any shares of Common
Stock or Preferred Stock to be issued pursuant to this Agreement or any
Rights Certificate or as to whether any shares of Common Stock or Preferred
Stock will, when so issued, be validly authorized or issued, fully paid, or
nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge,
and deliver or cause to be performed, executed, acknowledged, and delivered
all such further and other acts, instruments, and assurances as may
reasonably be required by the Rights Agent for the carrying out or
performing by the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties under this
Agreement from the Chairman of the Board, the Chief Executive Officer, the
Chief Operating Officer, the President, any Vice President, the Secretary,
any Assistant Secretary, the Treasurer, or any Assistant Treasurer of the
Company, and to apply to such officers for advice or instructions in
connection with its duties, and it will not be liable for any action taken
or suffered to be taken by it in good faith in accordance with instructions
of any such officer.
34
<PAGE>
(h) The Rights Agent and any stockholder, director, officer, or
employee of the Rights Agent may buy, sell, or deal in any of the Rights or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, contract with or lend
money to the Company, or otherwise act as fully and freely as though it
were not Rights Agent under this Agreement. Nothing in this Agreement will
preclude the Rights Agent from acting in any other capacity for the Company
or for any other Person.
(i) The Rights Agent may execute and exercise any of the rights or
powers vested by this Agreement in it or perform any duty under this
Agreement either itself or by or through its attorneys or agents, and the
Rights Agent will not be answerable or accountable for any act, default,
neglect, or misconduct of any such attorneys or agents or for any loss to
the Company resulting from any such act, default, neglect, or misconduct;
provided, however, reasonable care was exercised in the selection and
continued employment of such Person.
(j) No provision of this Agreement will require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties under this Agreement or in the
exercise of its rights if there are reasonable grounds for believing that
repayment of such funds or adequate indemnification against such risk or
liability is not reasonably assured to it.
(k) If, with respect to any Right Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form
of assignment or form of election to purchase, as the case may be, has
either not been completed or indicates an affirmative response to clause 1
or 2 of such certificate, the Rights Agent will not take any further action
with respect to such requested exercise of transfer without first
consulting with the Company.
Section 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon thirty (30) days' notice in writing mailed to the Company, and to each
transfer agent of the Common Stock and Preferred Stock, by registered or
certified mail, and to the holders of the Rights Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
thirty (30) days' notice in writing, mailed to the Rights Agent or successor
Rights Agent, as the case may be, and to each transfer agent of the Common Stock
and Preferred Stock, by registered or certified mail, and to the holders of the
Rights Certificates by first-class mail. If the Rights Agent resigns or is
removed or otherwise becomes incapable of acting, the Company will appoint a
successor to the Rights Agent. If the Company fails to make such appointment
within a period of thirty (30) days after giving notice of such removal or after
it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Rights Certificate
(who will, with such notice, submit such holder's Rights Certificate for
inspection by the Company), then any registered holder of
35
<PAGE>
any Rights Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether appointed
by the Company or by such a court, will be a corporation organized and doing
business under the laws of the United States or a State of the United States, in
good standing, that is authorized under such laws to exercise corporate trust
powers and is subject to supervision or examination by federal or state
authority and that has at the time of its appointment as Rights Agent a combined
capital and surplus of at least $100,000,000. After appointment, the successor
Rights Agent will be vested with the same powers, rights, duties, and
responsibilities as if it had been originally named as Rights Agent without
further act or deed, except that the predecessor Rights Agent will deliver and
transfer to the successor Rights Agent any property at the time held by it under
this Agreement and execute and deliver any further assurance, conveyance, act,
or deed necessary for the purpose. Not later than the effective date of any such
appointment, the Company will file notice of such appointment in writing with
the predecessor Rights Agent and each transfer agent of the Common Stock and the
Preferred Stock, and mail a notice of such appointment in writing to the
registered holders of the Rights Certificates. Failure to give any notice
provided for in this SECTION 21, however, or any defect in such notice, will not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
Section 22. ISSUANCE OF NEW RIGHTS CERTIFICATES. Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Company may,
in its discretion, issue new Rights Certificates evidencing Rights in such form
as may be approved by its Board of Directors to reflect any adjustment or change
in the Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Rights Certificates made in
accordance with the provisions of this Agreement. In addition, in connection
with the issuance or sale of shares of Common Stock following the Distribution
Date and prior to the redemption or expiration of the Rights, the Company (a)
will, with respect to shares of Common Stock so issued or sold pursuant to the
exercise of stock options or under any employee plan or arrangement, granted or
awarded as of the Distribution Date, or upon the exercise, conversion, or
exchange of securities issued by the Company, and (b) may, in any other case, if
deemed necessary or appropriate by the Board of Directors of the Company, issue
Rights Certificates representing the appropriate number of Rights in connection
with such issuance or sale; provided, however, that (y) no such Rights
Certificate will be issued if, and to the extent that, the Company is advised by
counsel that such issuance would create a significant risk of material adverse
tax consequences to the Company or the Person to whom such Rights Certificate
would be issued, and (z) no such Rights Certificate will be issued if, and to
the extent that, appropriate adjustment has otherwise been made in lieu of the
issuance of such Rights Certificate.
36
<PAGE>
Section 23. REDEMPTION AND TERMINATION.
(a) The Company may, at its option, by action of its Board of
Directors at any time prior to the earlier of (i) the Close of Business on
the tenth day following the Stock Acquisition Date (or, if the Stock
Acquisition Date has occurred prior to the Record Date, the Close of
Business on the tenth day following the Record Date), or (ii) the Final
Expiration Date, redeem all but not less than all the then outstanding
Rights at a redemption price of $0.01 per Right, as such amount may be
appropriately adjusted to reflect any stock split, stock dividend, or
similar transaction occurring after the date of this Agreement (such
redemption price being referred to as the "REDEMPTION PRICE"); provided,
however, there must be at least two Continuing Directors then in office and
such authorization will require concurrence of a Requisite Majority if the
Board of Directors authorizes redemption of the Rights in either of the
following circumstances: (i) such authorization occurs on or after the time
any Person becomes an Acquiring Person or an Adverse Person, or (ii) such
authorization occurs on or after the time of a change (resulting from a
proxy or consent solicitation) in a majority of the directors in office at
the commencement of such solicitation if any Person who is a participant in
such solicitation has stated (or, if on or after the commencement of such
solicitation, a majority of the Board of Directors of the Company has
determined in good faith) that such Person (or any of its Affiliates or
Associates) intends to take, may consider taking, or reserves any right to
take, any action that would result in such Person becoming an Acquiring
Person or that would cause the occurrence of a Triggering Event; provided,
however, that if, following the occurrence of a Stock Acquisition Date and
following the expiration of the right of redemption under this SECTION 23
but prior to any Triggering Event, (x) all Acquiring Persons and Adverse
Persons have transferred or otherwise disposed of a number of Common Shares
in one transaction or series of transactions not directly or indirectly
involving the Company or any of its Subsidiaries that did not result in the
occurrence of a Triggering Event or the Company (with the approval of the
Requisite Majority) has issued additional equity securities, in either
instance such that each Acquiring Person and Adverse Person is thereafter a
Beneficial Owner of less that 10% of the outstanding shares of Common
Stock, and (y) there is no other Acquiring Person or (in the good faith
judgment of a Requisite Majority) Adverse Person immediately following the
occurrence of the event described in CLAUSE (x), then the right of
redemption will be reinstated and thereafter be subject to the provisions
of this SECTION 23. Notwithstanding anything contained in this Agreement to
the contrary, the Rights will not be exercisable after the first occurrence
of a Section 11(a)(ii) Event except during the period that the Company's
right of redemption under this Agreement has expired and not been
reinstated. The Company may, at its option, pay the Redemption Price, in
cash, shares of Common Stock (based on the Current Market Price as defined
in SECTION 11(d)(i), of the Common Stock at the time of redemption) or any
other form of consideration deemed appropriate by the Board of Directors.
37
<PAGE>
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights, evidence of which has been
filed with the Rights Agent and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights will be to receive the Redemption Price
for each Right so held. Promptly after the action of the Board of Directors
ordering the redemption of the Rights, the Company will give notice of such
redemption to the Rights Agent and the holders of the then outstanding
Rights by mailing such notice to all such holders at each holder's last
address as it appears upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the transfer agent for
the Common Stock. Any notice that is mailed in the manner in this Agreement
provided will be deemed given, whether or not the holder receives the
notice. Each such notice of redemption will state the method by which the
payment of the Redemption Price will be made.
Section 24. NOTICE OF CERTAIN EVENTS.
(a) In case the Company proposes, at any time after the Distribution
Date, (i) to pay any dividend payable in stock of any class to the holders
of Preferred Stock or to make any other distribution to the holders of
Preferred Stock (other than a regular quarterly cash dividend out of
earnings or retained earnings of the Company); (ii) to offer to the holders
of Preferred Stock rights or warrants to subscribe for or to purchase any
additional shares of Preferred Stock or shares of stock of any class or any
other securities, rights, or options; (iii) to effect any reclassification
of its Preferred Stock (other than a reclassification involving only the
subdivision of outstanding shares of Preferred Stock); (iv) to effect any
consolidation or merger from, into, or with any other Person (other than a
Subsidiary of the Company in a transaction that complies with SECTION
11(o)), or to effect any sale or other transfer (or to permit one or more
of its Subsidiaries to effect any sale or other transfer), in one
transaction or a series of related transactions, of more than 50% of the
assets or earning power of the Company and its Subsidiaries (taken as a
whole) to any other Person or Persons (other than the Company or any of its
Subsidiaries in one or more transactions each of which complies with
SECTION 11(o)); or (v) to effect the liquidation, dissolution or winding up
of the Company, then, in each such case, the Company will give to each
holder of a Rights Certificate, to the extent feasible and in accordance
with SECTION 25, a notice of such proposed action, which will specify the
record date for the purposes of such stock dividend, distribution of rights
or warrants, or the date on which such reclassification, consolidation,
merger, sale, transfer, liquidation, dissolution, or winding up is to take
place and the date of participation therein by the holders of the shares of
Preferred Stock, if any such date is to be fixed, and such notice will be
so given in the case of any action covered by CLAUSE (i) or (ii) above at
least twenty (20) days prior to the record date for determining holders of
the shares of Preferred Stock for purposes
38
<PAGE>
of such action, and in the case of any such other action, at least twenty
(20) days prior to the date of the taking of such proposed action or the
date of participation in such proposed action by the holders of the shares
of Preferred Stock, whichever is the earlier.
(b) In case any of the events set forth in SECTION 11(a)(ii) occurs,
then, in any such case, (i) the Company will as soon as practicable give to
each holder of a Rights Certificate, to the extent feasible and in
accordance with SECTION 25, a notice of the occurrence of such event, which
will specify the event and the consequences of the event to holders of
Rights under SECTION 11(a)(ii), and (ii) all references in SECTION 24(a) to
Preferred Stock will be deemed thereafter to refer to Common Stock or, if
appropriate, other securities.
Section 25. NOTICES. Notices or demands authorized by this Agreement to be
given or made by the Rights Agent or by the holder of any Rights Certificate to
or on the Company will be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
Anchor Gaming
815 Pilot Road
Suite G
Las Vegas, Nevada 89119
Attention: Chief Executive Officer
with a copy to:
Hughes & Luce, L.L.P.
1717 Main Street
Suite 2800
Dallas, Texas 75201
Attention: Glen Hettinger
Subject to the provisions of SECTION 21, any notice or demand authorized by
this Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent will be sufficiently given or made if sent
by first-class mail, postage prepaid, addressed (until another address is filed
in writing with the Company) as follows:
The Chase Manhattan Bank
______________________________
______________________________
______________________________
______________________________
Attention: _________________
39
<PAGE>
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Common Stock) will be sufficiently given or made if sent by first-
class mail, postage prepaid, addressed to such holder at the address of such
holder as shown on the registry books of the Company.
Section 26. SUPPLEMENT AND AMENDMENTS. Prior to the Distribution Date
and subject to the penultimate sentence of this SECTION 26, the Company and the
Rights Agent will, if the Company so directs, supplement or amend any provision
of this Agreement without the approval of any holders of certificates
representing shares of Common Stock. From and after the Distribution Date and
subject to the penultimate sentence of this SECTION 26, the Company and the
Rights Agent will, if the Company so directs, supplement or amend this Agreement
without the approval of any holders of Rights Certificates in order (i) to cure
any ambiguity, (ii) to correct or supplement any provision contained in this
Agreement that may be defective or inconsistent with any other provision in this
Agreement, (iii) to shorten or lengthen any time period under this Agreement
(which lengthening or shortening, following the first occurrence of an event set
forth in CLAUSES (i) and (ii) of the first proviso to SECTION 23(a), will be
effective only if there are at least two Continuing Directors and will require
the concurrence of a Requisite Majority), or (iv) to change or supplement the
provisions under this Agreement in any manner that the Company may deem
necessary or desirable and that will not adversely affect the interests of the
holders of Rights Certificates (other than an Acquiring Person or an Adverse
Person or an Affiliate or Associate of an Acquiring Person or an Adverse
Person); provided, however, this Agreement may not be supplemented or amended to
lengthen, pursuant to CLAUSE (iii) of this sentence, (A) a time period relating
to when the Rights may be redeemed at such time as the Rights are not then
redeemable, or (B) any other time period unless such lengthening is for the
purpose of protecting, enhancing, or clarifying the rights of, or the benefits
to, the holders of Rights. Upon the delivery of a certificate from an
appropriate officer of the Company that states that the proposed supplement or
amendment is in compliance with the terms of this SECTION 26, the Rights Agent
will execute such supplement or amendment. Notwithstanding anything contained in
this Agreement to the contrary after the occurrence of a Distribution Date, no
supplement or amendment will be made that changes the Redemption Price, the
Final Expiration Date, the Purchase Price or the number of one one-thousandths
of a share of Preferred Stock for which a Right is exercisable. Prior to the
Distribution Date, the interests of the holders of Rights will be deemed
coincident with the interests of the holders of Common Stock.
Section 27. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent will bind and
inure to the benefit of their respective successors and assigns under this
Agreement.
40
<PAGE>
Section 28. DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS, ETC.
For all purposes of this Agreement, any calculation of the number of shares of
Common Stock outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding shares of Common Stock
of which any Person is the Beneficial Owner, will be made in accordance with the
last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations under
the Exchange Act as in effect on the date of this Agreement. The Board of
Directors of the Company (with, where specifically provided for in this
Agreement, the concurrence of the Continuing Directors) will have the exclusive
power and authority to administer this Agreement and to exercise all rights and
powers specifically granted to the Board (with, where specifically provided for
in this Agreement, the concurrence of the Continuing Directors) or to the
Company, or as may be necessary or advisable in the administration of this
Agreement, including, without limitation, the right and power to (a) interpret
the provisions of this Agreement, and (b) make all determinations deemed
necessary or advisable for the administration of this Agreement (including,
without limitation, a determination to redeem or not redeem the Rights or to
amend the Agreement). All such actions, calculations, interpretations and
determinations (including, for purposes of CLAUSE (y) below, all omissions with
respect to the foregoing) that are done or made by the Board (with, where
specifically provided for in this Agreement, the concurrence of the Continuing
Directors) in good faith, will (x) be final, conclusive, and binding on the
Company, the Rights Agent, the holders of the Rights, and all other Persons, and
(y) not subject the Board or the Continuing Directors to any liability to the
holders of the Rights.
Section 29. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement will
be construed to give to any Person other than the Company, the Rights Agent, and
the registered holders of the Rights Certificates (and, prior to the
Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy, or claim under this Agreement; and this Agreement will
be for the sole and exclusive benefit of the Company, the Rights Agent, and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, registered holders of the Common Stock).
Section 30. SEVERABILITY. If any term, provision, covenant, or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, or unenforceable, the remainder of the
terms, provisions, covenants, and restrictions of this Agreement will remain in
full force and effect and will in no way be affected, impaired, or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant, or restriction is held by such
court or authority to be invalid, void, or unenforceable and the Board of
Directors of the Company determines in good faith that severing the invalid
language from this Agreement would adversely affect the purpose or effect of
this Agreement, the right of redemption set forth in SECTION 23 will be
reinstated and will not expire until the Close of Business on the tenth day
following the date of such determination by the Board of Directors. Without
limiting the foregoing, if any provision requiring a majority of the Board of
Directors of the Company to be Continuing Directors to act is held by any
41
<PAGE>
court of competent jurisdiction or other authority to be invalid, void, or
unenforceable, such determination will then be made by the Board of Directors of
the Company in accordance with applicable law and the Company's Certificate of
Incorporation and By-Laws.
Section 31. GOVERNING LAW. This Agreement, each Right, and each Rights
Certificate issued under this Agreement will be deemed to be a contract made
under the laws of the State of Nevada and for all purposes will be governed by
and construed in accordance with the laws of such State applicable to contracts
made and to be performed entirely within such State.
Section 32. COUNTERPARTS. This Agreement may be executed in any number
of counterparts and each of such counterparts will for all purposes be deemed to
be an original, and all such counterparts will together constitute but one and
the same instrument.
Section 33. INTERPRETATION. Descriptive headings of the several Sections
of this Agreement are inserted for convenience only and will not control or
affect the meaning or construction of any of the provisions of this Agreement.
References in this Agreement to Sections and Exhibits are references to the
Sections of and Exhibits to this Agreement unless the context requires
otherwise. In this Agreement, the word "or" is not exclusive.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
Attest: ANCHOR GAMING
-----------------------
By:
---------------------------
Name:
-------------------------
Its:
--------------------------
Attest: THE CHASE MANHATTAN BANK
------------------------
By:
---------------------------
Name:
-------------------------
Its:
-------------------------
42
<PAGE>
Exhibit A
to Rights Agreement
[FORM OF]
CERTIFICATE OF DESIGNATION, PREFERENCES,
AND RIGHTS OF SERIES A JUNIOR
PARTICIPATING PREFERRED STOCK
of
ANCHOR GAMING
Pursuant to Section 78.155 of the General Corporation Law of the State of
Nevada
The undersigned officers of Anchor Gaming (the "CORPORATION"), a
corporation organized and existing under the General Corporation Law of the
State of Nevada, in accordance with the provisions of Section 78.195 thereof, DO
HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by the
Restated Articles of Incorporation of such Corporation, such Board of Directors
on August 26, 1997, adopted the resolutions set forth below creating a series of
50,000 shares of Preferred Stock designated as "Series A Junior Participating
Preferred Stock":
That no shares of Series A Junior Participating Preferred Stock have
heretofore been issued.
RESOLVED, that pursuant to the authority vested in the Board of Directors
of this Corporation in accordance with the provisions of its Amended and
Restated Certificate of Incorporation, a series of Preferred Stock of the
Corporation be and it hereby is created, and that the designation and amount
thereof and the voting powers, preferences, and relative, participating,
optional, and other special rights of the shares of such series, and the
qualifications, limitations, or restrictions thereof are as follows:
(1) DESIGNATION AND AMOUNT. The shares of such series will be designated
as "Series A Junior Participating Preferred Stock" and the number of shares
constituting such series will be 50,000.
(2) DIVIDENDS AND DISTRIBUTIONS.
(a) The holders of shares of Series A Junior Participating Preferred
Stock will be entitled to receive, when, as, and if declared by the Board
of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the last day of March, June, September, and
December in each year (each such date being referred to as a "QUARTERLY
DIVIDEND PAYMENT DATE"), commencing on the first Quarterly Dividend Payment
Date after the first
A-1
<PAGE>
issuance of a share or fraction of a share of Series A Junior Participating
Preferred Stock, in an amount per share (rounded to the nearest cent) equal
to the greater of (i) $0.01 or (ii) subject to the provision for adjustment
set forth below, one thousand times the aggregate per share amount of all
cash dividends, and one thousand times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other
than a dividend payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise),
declared on the Common Stock, par value $.01 per share, of the Corporation
(the "COMMON STOCK") since the immediately preceding quarterly Dividend
Payment Date, or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of
Series A Junior Participating Preferred Stock. In the event the Corporation
at any time after October 20, 1997 (the "RIGHTS DECLARATION DATE") (i)
declares any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivides the outstanding Common Stock, or (iii) combines the
outstanding Common Stock into a smaller number of shares, then in each such
case the amount to which holders of shares of Series A Junior Participating
Preferred Stock were entitled immediately prior to such event under CLAUSE
(II) of the preceding sentence will be adjusted by multiplying such amount
by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which
is the number of shares of Common Stock that were outstanding immediately
prior to such event.
(b) The Corporation will declare a dividend or distribution on the
Series A Junior Participating Preferred Stock as provided in SECTION 2(a)
above immediately after it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common Stock);
provided that, in the event no dividend or distribution has been declared
on the Common Stock during the period between any quarterly Dividend
Payment Date and the next subsequent Quarterly Dividend Payment Date, a
dividend of $1.00 per share on the Series A Junior Participating Preferred
Stock will nevertheless be payable on such subsequent Quarterly Dividend
Payment Date.
(c) Dividends will begin to accrue and be cumulative on outstanding
shares of Series A Junior Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of
Series A Junior Participating Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares will begin to accrue
from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Junior Participating
Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends
will begin to accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends will not bear
A-2
<PAGE>
interest. Dividends paid on the shares of Series A Junior Participating
Preferred Stock in an amount less than the total amount of such dividends
at the time accrued and payable on such shares will be allocated pro rata
on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of
holders of shares of Series A Junior Participating Preferred Stock entitled
to receive payment of a dividend or distribution declared thereon, which
record date will be no more than 30 days prior to the date fixed for the
payment thereof.
(3) VOTING RIGHTS.
(a) The holders of shares of Series A Junior Participating Preferred
Stock will have the following voting rights:
Subject to the provision for adjustment set forth below, each share of
Series A Junior Participating Preferred Stock will entitled the holder to a
number of votes on all matters submitted to a vote of the stockholders of
the Corporation equal to one thousand times the number of votes per share
to which shares of Common Stock are entitled. In the event the Corporation
at any time after the Rights Declaration Date (i) declares any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivides the
outstanding Common Stock, or (iii) combines the outstanding Common Stock
into a smaller number of shares, then in each such case the number of votes
per share to which holders of shares of Series A Junior Participating
Preferred Stock were entitled immediately prior to such event will be
adjusted by multiplying such number by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
(b) Except as otherwise provided in this Agreement or by law, the
holders of shares of Series A Junior Participating Preferred Stock and the
holders of shares of Common Stock will vote together as one class on all
matters submitted to a vote of stockholders of the Corporation.
(c) (i) If at any time dividends on any Series A Junior
Participating Preferred Stock are in arrears in an amount equal to six
(6) quarterly dividends thereon, the occurrence of such contingency
will mark the beginning of a period (a "DEFAULT PERIOD") that will
extend until such time when all accrued and unpaid dividends for all
previous quarterly dividend periods and for the current quarterly
dividend period on all shares of Series A Junior Participating
Preferred Stock then outstanding have been declared and paid or set
apart for payment. During each default period, all holders of
preferred stock of the Corporation (the "PREFERRED STOCK") (including
holders of the Series A Junior Participating Preferred Stock) with
dividends in arrears in an amount equal to six (6) quarterly dividends
A-3
<PAGE>
thereon, voting as a class, irrespective of series, will have the
right to elect two (2) Directors.
(ii) During any default period, such voting right of the
holders of Series A Junior Participating Preferred Stock may be
exercised initially at a special meeting called pursuant to SECTION
3(c)(iii) or at any annual meeting of stockholders, and thereafter at
annual meetings of stockholders, provided that such voting right will
not be exercised unless the holders of ten percent (10%) in number of
shares of Preferred Stock outstanding are present in person or by
proxy. The absence of a quorum of the holders of Common Stock will not
affect the exercise by the holders of Preferred Stock of such voting
right. At any meeting at which the holders of Preferred Stock exercise
such voting right initially during an existing default period, they
will have the right, voting as a class, to elect Directors to fill
such vacancies, if any, in the Board of Directors as may then exist up
to two (2) Directors or, if such right is exercised at an annual
meeting, to elect two (2) Directors. If the number that may be so
elected at any special meeting does not amount to the required number,
the holders of the Preferred Stock will have the right to make such
increase in the number of Directors as is necessary to permit the
election by them of the required number. After the holders of the
Preferred Stock have exercised their right to elect Directors in any
default period and during the continuance of such period, the number
of Directors will not be increased or decreased except by vote of the
holders of Preferred Stock as provided herein or pursuant to the
rights of any equity securities ranking senior to or pari passu with
the Series A Junior Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock, during an existing
default period, have previously exercised their right to elect
Directors, the Board of Directors may order, or any stockholder or
stockholders owning in the aggregate not less than ten percent (10%)
of the total number of shares of Preferred Stock outstanding,
irrespective of series, may request, the calling of a special meeting
of the holders of Preferred Stock, which meeting will thereupon be
called by the Chief Executive Officer, the Chief Operating Officer,
the President, a Vice-President, or the Secretary of the Corporation.
Notice of such meeting and of any annual meeting at which holders of
Preferred Stock are entitled to vote pursuant to this SECTION
3(c)(iii) will be given to each holder of record of Preferred Stock by
mailing a copy of such notice such holder at such holder's last
address as it appears on the books of the Corporation. Such meeting
will be called for a time not earlier than 20 days and not later than
60 days after such order or request or in default of the calling of
such meeting within 60 days after such order or request, such meeting
may be called on similar notice by any stockholder or stockholders
owning in the aggregate not less than ten percent (10%) of the total
number of shares of Preferred Stock
A-4
<PAGE>
outstanding. Notwithstanding the provisions of this SECTION 3(c)(iii),
no such special meeting will be called during the period within 60
days immediately preceding the date fixed for the next annual meeting
of the stockholders.
(iv) In any default period, the holders of Common Stock, and
other classes of stock of the Corporation if applicable, will continue
to be entitled to elect the whole number of Directors until the
holders of Preferred Stock have exercised their right to elect two (2)
Directors voting as a class, after the exercise of which right (x) the
Directors so elected by the holders of Preferred Stock will continue
in office until their successors have been elected by such holders or
until the expiration of the default period, and (y) any vacancy in the
Board of Directors may (except as provided in SECTION 3(c)(ii)) be
filled by vote of a majority of the remaining Directors theretofore
elected by the holders of the class of stock that elected the Director
whose office has become vacant. References in this SECTION 3(c) to
Directors elected by the holders of a particular class of stock will
include Directors elected by such Directors to fill vacancies as
provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x)
the right of the holders of Preferred Stock as a class to elect
Directors will cease, (y) the term of any Directors elected by the
holders of Preferred Stock as a class will terminate, and (z) the
number of Directors will be such number as may be provided for in the
articles of incorporation or by-laws irrespective of any increase made
pursuant to the provisions of SECTION 3(c)(ii) (such number being
subject, however, to change thereafter in any manner provided by law
or in the articles of incorporation or by-laws). Any vacancies in the
Board of Directors effected by the provisions of CLAUSES (y) and (z)
in the preceding sentence may be filled by a majority of the remaining
Directors.
Except as set forth herein, holders of Series A Junior Participating
Preferred Stock will have no special voting rights and their consent will not be
required (except to the extent they are entitled to vote with holders of Common
Stock as set forth herein) for taking any corporate action.
(4) CERTAIN RESTRICTIONS.
(a) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Junior Participating Preferred Stock as provided in
SECTION 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of Series A
Junior Participating Preferred Stock outstanding have been paid in full,
the Corporation will not
A-5
<PAGE>
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution, or winding up) to the Series A Junior
Participating Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution, or winding up) with the
Series A Junior Participating Preferred Stock, except dividends paid
ratably on the Series A Junior Participating Preferred Stock and all
such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such
shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or
upon liquidation, dissolution, or winding up) with the Series A Junior
Participating Preferred Stock, provided that the Corporation may at
any time redeem, purchase, or otherwise acquire shares of any such
parity stock in exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon dissolution,
liquidation, or winding up) to the Series A Junior Participating
Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares
of Series A Junior Participating Preferred Stock, or any shares of
stock ranking on a parity with the Series A Junior Participating
Preferred Stock, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of Directors) to
all holders of such shares upon such terms as the Board of Directors,
after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes,
determines in good faith will result in fair and equitable treatment
among the respective series or classes.
(b) The Corporation will not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of
the Corporation unless the Corporation could, under SECTION 4(a), purchase
or otherwise acquire such shares at such time and in such manner.
(5) REACQUIRED SHARES. Any shares of Series A Junior Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever will be retired and cancelled promptly after the acquisition thereof.
All such shares will upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions
A-6
<PAGE>
of the Board of Directors, subject to the conditions and restrictions on
issuance set forth herein.
(6) LIQUIDATION, DISSOLUTION, OR WINDING UP.
(a) Upon any liquidation (voluntary or otherwise), dissolution, or
winding up of the Corporation, no distribution will be made to the holders
of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution, or winding up) to the Series A Junior
Participating Preferred Stock unless, prior thereto, the holders of shares
of Series A Junior Participating Preferred Stock have received an amount
equal to $400,000.00, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such
payment (the "SERIES A LIQUIDATION PREFERENCE"). Following the payment of
the full amount of the Series A Liquidation Preference, no additional
distributions will be made to the holders of shares of Series A Junior
Participating Preferred Stock unless, prior thereto, the holders of shares
of Common Stock have received an amount per share (the "COMMON ADJUSTMENT")
equal to the quotient obtained by dividing (i) the Series A Liquidation
Preference by (ii) 1,000 (as appropriately adjusted as set forth in SECTION
6(C) to reflect such events as stock splits, stock dividends, and
recapitalizations with respect to the Common Stock) (such number in CLAUSE
(ii), the "ADJUSTMENT NUMBER"). Following the payment of the full amount of
the Series A Liquidation Preference and the Common Adjustment in respect of
all outstanding shares of Series A Junior Participating Preferred Stock and
Common Stock, respectively, holders of Series A Junior Participating
Preferred Stock and holders of shares of Common Stock will receive their
ratable and proportionate share of the remaining assets to be distributed
in the ratio of the Adjustment Number to 1 with respect to such Preferred
Stock and Common Stock, on a per share basis, respectively.
(b) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference
and the liquidation preferences of all other series of preferred stock, if
any, that rank on a parity with the Series A Junior Participating Preferred
Stock, then such remaining assets will be distributed ratably to the
holders of such parity shares in proportion to their respective liquidation
preferences. In the event, however, that there are not sufficient assets
available to permit payment in full of the Common Adjustment, then such
remaining assets will be distributed ratably to the holders of Common
Stock.
(c) In the event the Corporation at any time after October 20, 1997
(i) declares any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivides the outstanding Common Stock, or (iii) combines the
outstanding Common Stock into a smaller number of shares, then in each such
case the Adjustment Number in effect immediately prior to such event will
be adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is
A-7
<PAGE>
the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
(7) CONSOLIDATION, MERGER, ETC. In case the Corporation enters into any
consolidation, merger, combination, or other transaction in which the shares of
Common Stock are exchanged for or changed into other stock or securities, cash,
and/or any other property, then in any such case the shares of Series A Junior
Participating Preferred Stock will at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment set
forth below) equal to one thousand times the aggregate amount of stock,
securities, cash, and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation at any time after October 20, 1997 (i) declares any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivides the
outstanding Common Stock, or (iii) combines the outstanding Common Stock into a
smaller number of shares, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of Series A
Junior Participating Preferred Stock will be adjusted by multiplying such amount
by a fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(8) NO REDEMPTION. The shares of Series A Junior Participating Preferred
Stock will not be redeemable.
(9) AMENDMENT. The Restated Articles of Incorporation of the Corporation
will not be further amended in any manner that would materially alter or change
the powers, preferences, or special rights of the Series A Junior Participating
Preferred Stock so as to affect them adversely without the affirmative vote of
the holders of a majority or more of the outstanding shares of Series A Junior
Participating Preferred Stock, voting separately as a class.
(10) FRACTIONAL SHARES. Series A Junior Participating Preferred Stock may
be issued in fractions of a share that entitle the holder, in proportion to such
holders fractional shares, to exercise voting rights, receive dividends,
participate in distributions, and to have the benefit of all other rights of
holders of Series A Junior Participating Preferred Stock.
A-8
<PAGE>
IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do
affirm the foregoing as true under the penalties of perjury this __ day of
October, 1997.
ANCHOR GAMING
By:
---------------------------
Name:
-------------------------
Title:
------------------------
By:
---------------------------
Name:
-------------------------
Title:
------------------------
The foregoing instrument was acknowledged before me by ____________________
and ____________________ on the ___ day of October 1997, in the capacities
indicated.
------------------------------
(Notary)
A-9
<PAGE>
Exhibit B
to Rights Agreement
Form of Rights Certificate
Certificate No. R-________ Rights
NOT EXERCISABLE AFTER OCTOBER 17, 2007 OR EARLIER IF REDEEMED BY THE
COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT
$0.01 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR AN ADVERSE
PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON OR ADVERSE PERSON (AS
SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF
SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS
CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO IS, WAS, OR BECAME AN
ACQUIRING PERSON OR AN ADVERSE PERSON OR AN AFFILIATE OR ASSOCIATE OF AN
ACQUIRING PERSON OR AN ADVERSE PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED
HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SUCH
AGREEMENT.]
Rights Certificate
ANCHOR GAMING
This certifies that _____________, or registered assigns, is the registered
owner of the number of Rights set forth above, each of which entitles the owner
thereof, subject to the terms, provisions, and conditions of the Rights
Agreement, dated as of October 17, 1997 (as amended from time to time, the
"RIGHTS AGREEMENT"), between Anchor Gaming, a Nevada corporation (the
"COMPANY"), and The Chase Manhattan Bank, (the "RIGHTS AGENT"), to purchase from
the Company at any time prior to 5:00 p.m. (Las Vegas, Nevada time) on October
17, 2007 at the office or offices of the Rights Agent designated for such
purpose, or its successors as Rights Agent, one one-thousandth of a fully paid,
nonassessable share of Series A Junior Participating Preferred Stock (the
"PREFERRED STOCK") of the Company, at a purchase price of $400.00 per one one-
thousandth of a share (the "PURCHASE PRICE"), upon presentation and surrender of
this Rights Certificate with the Form of Election to Purchase and related
Certificate duly executed. The number of Rights evidenced by this Rights
Certificate (and the number of shares that may be purchased upon exercise
thereof) set forth above, and the Purchase Price per share set forth above, are
the number and Purchase Price as of October 20, 1997 based on the Preferred
Stock as constituted at such date. The Company reserves the right to require
prior to the occurrence of a
B-1
<PAGE>
Triggering Event (as such term is defined in the Rights Agreement) that a number
of Rights be exercised so that only whole shares of Preferred Stock will be
issued.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is defined
in the Rights Agreement), if the Rights evidenced by this Rights Certificate are
beneficially owned by (i) an Acquiring Person or an Adverse Person or an
Affiliate or Associate of any such Acquiring Person or Adverse Person (as such
terms are defined in the Rights Agreement), (ii) a transferee of any such
Acquiring Person, Adverse Person, Associate, or Affiliate, or (iii) under
certain circumstances specified in the Rights Agreement, a transferee of a
Person who, after such transfer, became an Acquiring Person or an Adverse
Person, or an Affiliate or Associate of an Acquiring Person or an Adverse
Person, such Rights will become null and void and no holder of this certificate
will have any right with respect to such Rights from and after the occurrence of
such Section 11(a)(ii) Event.
As provided in the Rights Agreement, the Purchase Price and the number and
kind of shares of Preferred Stock or other securities, that may be purchased
upon the exercise of the Rights evidenced by this Rights Certificate are subject
to modification and adjustment upon the happening of certain events, including
Triggering Events.
This Rights Certificate is subject to all of the terms, provisions, and
conditions of the Rights Agreement, which terms, provisions, and conditions are
hereby incorporated in this Rights Certificate by reference and made a part of
this certificate and to which Rights Agreement reference is hereby made for a
full description of the rights, limitations of rights, obligations, duties, and
immunities hereunder of the Rights Agent, the Company, and the holders of the
Rights Certificates, which limitations of rights include the temporary
suspension of the exercisability of such Rights under the certain circumstances
set forth in the Rights Agreement. Copies of the Rights Agreement are on file at
the above-mentioned office of the Rights Agent and are also available upon
written request to the Rights Agent.
This Rights Certificate, with or without other Rights Certificates, upon
surrender at the principal office or offices of the Rights Agent designated for
such purpose, may be exchanged for another Rights Certificate or Rights
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of one one-thousandths of a share of Preferred
Stock as the Rights evidenced by the Rights Certificate or Rights Certificates
surrendered have entitled such holder to purchase. If this Rights Certificate is
exercised in part, the holder will be entitled to receive upon surrender of this
Rights Certificate another Rights Certificate or Rights Certificates for the
number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate may be redeemed by the Company at its option at a redemption
price of $0.01 per Right at any time prior to the earlier of the Close of
Business on (i) the tenth day following the Stock Acquisition Date (as such time
period may be extended
B-2
<PAGE>
pursuant to the Rights Agreement), and (ii) the Final Expiration Date. In
addition, in certain circumstances the Rights may be exchanged, in whole or in
part, for shares of the Common Stock, or shares of preferred stock of the
Company having essentially the same value or economic rights as such shares.
Immediately upon the action of the Board of Directors of the Company authorizing
any such exchange, and without any further action or any notice, the Rights
(other than Rights that are not subject to such exchange) will terminate and the
Rights will only enable holders to receive the shares issuable upon such
exchange. Under certain circumstances set forth in the Rights Agreement, the
decision to redeem the Rights will require the concurrence of a majority of the
Continuing Directors.
No fractional shares of Preferred Stock will be issued upon the exercise of
any Right or Rights evidenced hereby (other than fractions that are integral
multiples of one one-thousandth of a share of Preferred Stock, which may, at the
election of the Company, be evidenced by depository receipts), but in lieu
thereof a cash payment will be made, as provided in the Rights Agreement.
No holder of this Rights Certificate will be entitled to vote or receive
dividends or be deemed for any purpose the holder of shares of Preferred Stock
or of any other securities of the Company that may at any time be issuable on
the exercise hereof, nor will anything contained in the Rights Agreement or
herein be construed to confer upon the holder of this certificate, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or, to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Rights
Certificate have been exercised as provided in the Rights Agreement.
This Rights Certificate will not be valid or obligatory for any purpose
until it has been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal.
Dated as of ____________________
ATTEST: ANCHOR GAMING
By:
- ------------------- ---------------------------
Title:
------------------------
B-3
<PAGE>
Countersigned:
THE CHASE MANHATTAN BANK
By
--------------------------
Authorized Signature
B-4
<PAGE>
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer
the Rights Certificate.)
FOR VALUE RECEIVED hereby sells, assigns, and transfer unto
(Please print name and address of transferee)
This Rights Certificate, together with all right, title, and interest
therein, and does hereby irrevocably constitute and appoint _________________
attorney, to transfer the within Rights Certificate on the books of the within-
named Company, with full power of substitution.
Dated:__________________, ____ ________________________________________
Signature
Signature Guaranteed:
Certificate
The undersigned hereby certifies by checking the appropriate boxes that:
(1) this Rights Certificate [ ] is [ ] is not being sold, assigned, or
transferred by or on behalf of a Person who is or was an Acquiring Person or an
Adverse Person or an Affiliate or Associate of any such Acquiring Person or
Adverse Person (as such terms are defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it [ ] did
[ ] did not acquire the Rights evidenced by this Rights Certificate from any
Person who is, was, or subsequently became an Acquiring Person or an Adverse
Person or an Affiliate or Associate of an Acquiring Person or an Adverse Person.
Dated:_________________, ____ ________________________________________
Signature
Signature Guaranteed:
B-5
<PAGE>
NOTICE
The signature to the foregoing Assignment and Certificate must correspond
to the name as written upon the face of this Rights Certificate in every
particular, without alteration or enlargement or any change whatsoever.
To: ANCHOR GAMING:
The undersigned hereby irrevocably elects to exercise __________ Rights
represented by this Rights Certificate to purchase the shares of Preferred Stock
issuable upon the exercise of the Rights (or such other securities of the
Company or of any other Person that may be issuable upon the exercise of the
Rights) and requests that certificates for such shares be issued in the name of
and delivered to:
Please insert social security or other identifying number
(please print name and address)
If such number of Rights are not all the Rights evidenced by this Rights
Certificate, a new Rights Certificate for the balance of such Rights will be
registered in the name of and delivered to:
please insert social security
or other identifying number
(please print name and address)
Dated:_______________, ____ ________________________________________
Signature
Signature Guaranteed:
Certificate
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not
being exercised by or on behalf of a Person who is or was an Acquiring Person or
an Adverse Person or an Affiliate or Associate of any such Acquiring Person or
an Adverse Person (as such terms are defined in the Rights Agreement);
B-6
<PAGE>
(2) after due inquiry and to the best knowledge of the undersigned, it [ ]
did [ ] did not acquire the Rights evidenced by this Rights Certificate from
any Person who is, was or became an Acquiring Person or Adverse Person or an
Affiliate or Associate of an Acquiring Person or an Adverse Person.
Dated: ___________, ____ _____________________________________________
Signature
Signature Guaranteed:
B-7
<PAGE>
Exhibit C
to Rights Agreement
DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
On August 26, 1997, the Board of Directors of Anchor Gaming (the "COMPANY")
adopted a Stockholder Rights Plan, providing that one right (a "RIGHT") will be
attached to each share of common stock, par value $.01 per share, of the
Company (the "COMMON STOCK") as of October 20, 1997 (the "RECORD DATE"). Each
Right entitles the registered holder to purchase from the Company a unit (a
"UNIT") consisting of one one-thousandth of a share of Series A Junior
Participating Preferred Stock, par value $20.00 per share (the "PREFERRED
STOCK"), at a Purchase Price of $400.00 per Unit (the "PURCHASE PRICE"), subject
to adjustment. The description and terms of the Rights are set forth in the
Rights Agreement (the "RIGHTS AGREEMENT"), dated as of October 17, 1997, between
the Company and The Chase Manhattan Bank, as Rights Agent (the "RIGHTS AGENT").
Initially, the Rights will be attached to all Common Stock certificates
representing shares outstanding as of the Record Date, and no separate Rights
Certificate will be distributed. The Rights will separate from the Common Stock
and a Distribution Date will occur upon the earlier of (i) 10 days following a
public announcement that a person or group of affiliated or associated persons
(an "ACQUIRING PERSON") has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the outstanding shares of Common Stock
(the "STOCK ACQUISITION DATE"), (ii) 10 business days following the commencement
of a tender offer or exchange offer that would result in a person or group
beneficially owning 15% or more of such outstanding shares of Common Stock or
(iii) 10 business days after the Board of Directors of the Company determines
that any Person or Persons have become the Beneficial Owner of an amount of
Common Stock that the Board of Directors determines to be substantial (which
amount will in no event be less than 10% of the shares of Common Stock
outstanding) and that (a) such Person or Persons intend to cause the Company to
repurchase the Common Stock beneficially owned by such Person or Persons or to
exert pressure against the Company to take any action or enter into any
transaction or series of transactions with the intent or the effect of providing
such Person or Persons with short-term gains or profits under circumstances in
which the Board of Directors determines that the long-term interests of the
Company and its stockholders would not be served by taking such action or
entering into such transactions or series of transactions or (b) beneficial
ownership by such Person or Persons is reasonably likely to have a material
adverse effect on the business, competitive position, prospects, or financial
condition of the Company and its subsidiaries (an "ADVERSE PERSON"). Until the
Distribution Date, (i) the Rights will be evidenced by the Common Stock
certificates and will be transferred with
C-1
<PAGE>
and only with such Common Stock certificates, (ii) new Common Stock certificates
will contain a notation incorporating the Rights Agreement by reference; and
(iii) the surrender for transfer of any certificates for Common Stock
outstanding will also constitute the transfer of the Rights associated with the
Common Stock represented by such certificate.
The Rights Agreement provides that Stanley E. Fulton, and certain of his
transferees, donees or successors, who together will be beneficial owners of
more than 39.2% of the Common Stock of the Company outstanding on October 17,
1997, are excluded from the definition of "Acquiring Person." Mr. Fulton is
also excluded from the definition of "Adverse Person."
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on October 20, 2007, unless earlier redeemed by the
Company as described below.
As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of the Common Stock as of the close of
business on the Distribution Date and, thereafter, the separate Rights
Certificates alone will represent the Rights. Except as otherwise determined by
the Board of Directors, only shares of Common Stock outstanding prior to the
Distribution Date will be issued with Rights.
In the event that (i) the Company is the surviving corporation in a merger
or combination with any Acquiring Person or any Adverse Person, or any Associate
or Affiliate of any Acquiring Person or Adverse Person, and its Common Stock
remains outstanding, (ii) any Acquiring Person or any Adverse Person, or any
Associate or Affiliate of any Acquiring Person or Adverse Person, engages in one
or more "self-dealing" transactions as set forth in the Rights Agreement, (iii)
an Acquiring Person becomes the beneficial owner of 15% or more of the then
outstanding shares of Common Stock (unless such acquisition is made pursuant to
a tender or exchange offer for all outstanding shares of the Company, at a price
determined by a majority of the Continuing Directors of the Company who are not
representatives, nominees, Affiliates, or Associates of an Acquiring Person to
be fair and otherwise in the best interest of the Company and its stockholders),
(iv) during such time as there is an Acquiring Person or Adverse Person an event
occurs that results in such Acquiring Person's or Adverse Person's ownership
interest being increased by more than 1% (E.G., a reverse stock split or
recapitalization), or (v) the Board of Directors determines that a person is an
Adverse Person, each holder of a Right will thereafter have the right to
receive, upon exercise, Common Stock (or, in certain circumstances, cash,
property, or other securities of the Company), having a value equal to two times
the Exercise Price of the Right. The Exercise Price is the Purchase Price times
the number of shares of Common Stock associated with each Right (initially,
one). Notwithstanding any of the foregoing, following the occurrence of any of
the events set forth in this paragraph (the "Flip-In Events"), all Rights that
are, or (under certain circumstances specified in the Rights Agreement) were,
beneficially owned by any Acquiring Person or any Adverse
C-2
<PAGE>
Person, or an Associate or Affiliate of any Acquiring Person or Adverse Person,
will be null and void. However, Rights are not exercisable following the
occurrence of any of the Flip-In Events set forth above until such time as the
Rights are no longer redeemable by the Company as set forth below.
For example, at an exercise price of $400 per Right, each Right not owned
by an Acquiring Person or an Adverse Person (or by certain related parties)
following an event set forth in the preceding paragraph would entitle its holder
to purchase Common Stock with a value of $800 (or other consideration, as noted
above) for $400. Assuming that the Common Stock had a per share value of $400
at such time, the holder of each valid Right would be entitled to purchase 2.0
shares of Common Stock for $400. Alternatively, the Company could permit the
holder to surrender each Right in exchange for stock or cash equivalent to one
share of Common Stock (with a value of $400) without the payment of any
consideration other than the surrender of the Right.
In the event that following the Stock Acquisition Date, (i) the Company is
acquired in a merger or consolidation in which the Company is not the surviving
corporation (other than a merger that follows a tender offer that the Board of
Directors has found to be fair to the stockholders of the Company, as described
above) or (ii) 50% or more of the Company's assets or earning power is sold or
transferred, each holder of a Right (except Rights which have previously been
voided as set forth above) will thereafter have the right (a flip-over right) to
receive, upon exercise of the Right, Common Stock of the acquiring company
having a value equal to two times the Exercise Price of the Right.
The Purchase Price payable, and the number of Units of Preferred Stock or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Stock, (ii) if holders of the Preferred Stock are granted certain rights or
warrants to subscribe for Preferred Stock or convertible securities at less than
the current market price of the Preferred Stock, or (iii) upon the distribution
to holders of the Preferred Stock of evidences of indebtedness or assets
(excluding regular quarterly cash dividends) or of subscription rights or
warrants (other than those referred to above).
With certain exceptions, no adjustments in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional Units will be issued and, in lieu thereof, an adjustment
in cash will be made based on the market price of the Preferred Stock on the
last trading date prior to the date of exercise.
At any time until 10 days following the Stock Acquisition Date, the Company
may redeem the Rights in whole, but not in part, at a price of $.01 per Right.
The ten day redemption period may be extended by the Board of Directors so long
as the Rights are still redeemable. Under certain circumstances, the decision
to redeem will require the
C-3
<PAGE>
concurrence of a majority of the Continuing Directors referred to below.
Immediately upon the action of the Board of Directors ordering redemption of the
Rights, the Rights will terminate and the only right of the holders of Rights
will be to receive the $.01 redemption price.
The term "Continuing Director" means any member of the Board of Directors
of the Company who was a member of the Board prior to the adoption of the Rights
Plan and any person who is subsequently elected to the Board if such person is
recommended or approved by a majority of the Continuing Directors, but will not
include an Acquiring Person or any Adverse Person, or an Affiliate or Associate
of an Acquiring Person or Adverse Person, or any representative of the foregoing
entities.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to stockholders or to the Company, stockholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Stock (or other consideration) of the Company as set
forth above.
Any of the provisions of the Rights Agreement may be amended by the Board
of Directors of the Company prior to the Distribution Date. After the
Distribution Date, the provisions of the Rights Agreement may be amended by the
Board (in certain circumstances, with the concurrence of the Continuing
Directors) in order to cure any ambiguity, to make changes which do not
adversely affect the interests of holders of Rights (excluding the interest of
any Acquiring Person or any Adverse Person), or to shorten or lengthen any time
period under the Rights Agreement; provided that no amendment to adjust the time
period governing redemption will be made at such time as the Rights are not
redeemable.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
in certain circumstances. Accordingly, the existence of the Rights may deter
certain acquirors from making takeover proposals or tender offers. However, the
Rights are not intended to prevent a takeover, but rather are designed to
enhance the ability of the Board of Directors to negotiate with an acquiror on
behalf of all of the shareholders.
[The Rights Agreement between the Company and the Rights Agent specifying
the terms of the Rights, which includes as Exhibit B the Form of Rights
Certificate, is attached as an exhibit and incorporated by reference. The
foregoing description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement.]*
- -----------------------
* This paragraph to be included only in the Form 8-A to be filed with the
Commission.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD]
Hughes & Luce, L.L.P.
1717 Main Street
Suite 2800
Dallas, Texas 75201
(214) 939-5723
October 10, 1997
Anchor Gaming
815 Pilot Road
Suite G
Las Vegas, Nevada 89119
Ladies and Gentlemen:
We have acted as counsel to Anchor Gaming, a Nevada corporation (the
"Company"), in connection with the registration under the Securities Act of
1933, as amended (the "Act"), of 1,800,000 shares of the Company's common stock,
par value $0.01 per share (the "Common Stock"), for sale by certain selling
stockholders Company and up to an additional 270,000 shares of Common Stock
subject to an over-allotment option granted to the underwriters (the
"Underwriters") by one of the selling stockholders (collectively, the "Selling
Stockholder Shares"), pursuant to a Registration Statement on Form S-3 (the
"Registration Statement") filed with the Securities and Exchange Commission
(file no. 333-34755). Upon registration, the selling stockholders propose to
sell such shares to the Underwriters listed in the final Prospectus (the
"Prospectus"), which forms a part of the Registration Statement.
In rendering this opinion, we have examined and relied upon executed
originals, counterparts, or copies of such documents, records, and certificates
(including certificates of public officials and officers of the Company) as we
considered necessary or appropriate for enabling us to express the opinions set
forth below. In all such examinations, we have assumed the authenticity and
completeness of all documents submitted to us as originals and the conformity to
originals and completeness of all documents submitted to us as photostatic,
conformed, notarized, or certified copies.
Based on the foregoing, we are of the opinion that the Selling Stockholder
Shares are validly issued, fully paid, and nonassessable.
This opinion may be filed as an exhibit to the Registration Statement. We
also consent to the reference to this firm as having passed on the validity of
the Selling Stockholder Shares under the caption "Legal Matters" in the
Prospectus. In giving this consent, we do not admit that we are included in the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Securities and Exchange Commission promulgated
under the Act. We also call to your attention the fact that a member of this
firm beneficially owns options to purchase 25,000 shares of Common Stock, as
reflected in the Prospectus under the caption "Legal Matters."
Very truly yours,
/s/ Hughes & Luce, L.L.P.
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
To the Board of Directors of
Anchor Gaming and Subsidiaries:
We consent to the use in Pre-Effective Amendment No. 2 to Registration
Statement No. 333-34755 of Anchor Gaming and Subsidiaries (the "Company") on
Form S-3 of our report dated August 1, 1997, appearing in the Prospectus, which
is a part of this Registration Statement and to the references to us under the
heading "Experts" in such Prospectus.
Our audits of the consolidated financial statements referred to in our
aforementioned report also included the consolidated financial statement
schedule of the Company listed in Item 16(b). This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
October 10, 1997
<PAGE>
EXHIBIT 23.3
[LETTERHEAD]
CONSENT OF DANIEL P. BURKE, ESQ.
Hauppauge, New York
Dated: October 10, 1997
As special counsel to the "Company" (Anchor Gaming), I hereby consent to the
reference to myself in the Pre-effective Amendment No. 2 to the Registration
Statement filed on October 10, 1997 with respect to information provided under
the caption "Intellectual Property Rights" in the "Proprietary Games" section of
the "BUSINESS" section, and the section entitled "Risks of Proprietary Games" in
the "RISK FACTORS" section.
/s/ DANIEL P. BURKE
--------------------------------------
Daniel P. Burke
