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TABLE OF CONTENTS
TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy
Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant ý | ||
Filed by a Party other than the Registrant o |
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Check the appropriate box: |
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material under §240.14a-12 |
BALLY TECHNOLOGIES, INC. | ||||
(Name of Registrant as Specified In Its Charter) |
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N/A |
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant) |
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Payment of Filing Fee (Check the appropriate box): |
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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(1) | Title of each class of securities to which transaction applies: Common stock, par value $0.10 per share, of Bally Technologies, Inc. |
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(2) | Aggregate number of securities to which transaction applies: 39,104,919 shares of common stock, which consist of: (A) 38,320,525 shares of common stock issued and outstanding as of September 2, 2014 (including shares of restricted common stock); (B) 664,777 shares of common stock underlying options to purchase shares of common stock outstanding as of September 2, 2014 with an exercise price below $83.30; (C) 47,181 restricted stock units as of September 2, 2014; and (D) 72,436 shares of common stock underlying equity-based performance units outstanding as of September 2, 2014. |
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(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying 0.00012880 by the underlying value of the transaction of $3,239,154,529, which has been calculated as the sum of: (A) the product of 38,320,525 shares of common stock issued and outstanding as of September 2, 2014 (including shares of restricted common stock) and the merger consideration of $83.30 per share; plus (B) the product of: (i) 664,777 shares of common stock underlying options to purchase shares of common stock outstanding as of September 2, 2014 with an exercise price below $83.30 and (ii) the difference between $83.30 per share and the weighted-average exercise price of such options of $27.51 per share; plus (C) the product of 47,181 restricted stock units as of September 2, 2014 and the merger consideration of $83.30 per share; plus (D) the product of 72,436 shares of common stock underlying equity-based performance units outstanding as of September 2, 2014 and the merger consideration of $83.30 per share. |
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(4) | Proposed maximum aggregate value of transaction: = $3,239,154,529 |
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(5) | Total fee paid: = $417,203.10 |
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
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(1) |
Amount Previously Paid: |
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(2) | Form, Schedule or Registration Statement No.: |
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(3) | Filing Party: |
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(4) | Date Filed: |
PRELIMINARY PROXY MATERIAL SUBJECT TO COMPLETION
BALLY TECHNOLOGIES, INC.
6601 South Bermuda Road
Las Vegas, NV 89118
(702) 532-7700
MERGER PROPOSALYOUR VOTE IS VERY IMPORTANT
[ ], 2014
Dear Stockholder:
We cordially invite you to attend a special meeting of stockholders of Bally Technologies, Inc., a Nevada corporation, which we refer to as "Bally", the "Company", "we", "us" or "our" in the accompanying proxy statement, to be held on [ ], 2014, at [ ] local time, at [ ].
On August 1, 2014, we entered into an agreement and plan of merger, which, as it may be amended from time to time, we refer to as the "merger agreement", with Scientific Games Corporation, a Delaware corporation, which we refer to as "Scientific Games" in the accompanying proxy statement, Scientific Games Nevada, Inc., a Nevada corporation and a wholly owned subsidiary of Scientific Games, which we refer to as "Merger Sub" in the accompanying proxy statement, and Scientific Games International, Inc., a Delaware corporation and a wholly owned subsidiary of Scientific Games which we refer to as "Financing Sub" in the accompanying proxy statement, providing for the acquisition of Bally by Scientific Games. Pursuant to the terms of the merger agreement, Merger Sub will merge with and into Bally, which we refer to as the "merger" in the accompanying proxy statement, with Bally continuing as the surviving corporation and becoming a wholly owned subsidiary of Scientific Games. If the merger is completed, you will not own any shares of the surviving corporation. At the special meeting, we will ask you to consider and vote upon a proposal to approve the merger agreement by and among Bally, Scientific Games, Merger Sub and Financing Sub, thereby approving the merger, and certain other matters as set forth in the stockholder notice and the accompanying proxy statement.
If the merger is completed, you will be entitled to receive $83.30 in cash, without interest and less any applicable withholding taxes, for each share of Bally common stock you own.
The receipt of cash in exchange for shares of our common stock in the merger will generally be a taxable transaction to "U.S. holders" for U.S. federal income tax purposes. See the section entitled "Proposal 1: Approval of the Merger AgreementMaterial U.S. Federal Income Tax Consequences of the Merger for U.S. Holders" beginning on page 80 of the accompanying proxy statement for additional information.
The approval of the holders of a majority of the voting power of the outstanding shares of our common stock, par value $0.10 per share, which we refer to as the "Bally common stock" or "our common stock" in the accompanying proxy statement, is required to approve the merger agreement, thereby approving the merger. Our board of directors, after considering all factors that our board of directors deemed relevant, and after consultation with independent legal and financial advisors, unanimously determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable and fair to and in the best interests of Bally and its stockholders, and unanimously adopted the merger agreement and the transactions contemplated thereby, including the merger.
The Bally board of directors unanimously recommends that you vote:
The accompanying proxy statement provides you with detailed information about the merger agreement and the merger and provides specific information regarding the special meeting. A copy of the merger agreement is included as Annex A to the proxy statement. You can also obtain other information about Bally from documents that we have filed with the Securities and Exchange Commission. The proxy statement also describes the actions and determinations of our board of directors in connection with its evaluation of the merger agreement and the merger. We urge you to read the accompanying proxy statement, including any documents incorporated by reference, and the annexes carefully and in their entirety.
Your vote is very important to us regardless of the number of shares of Bally common stock you own. The merger cannot be completed unless the holders of a majority of the voting power of the outstanding shares of Bally common stock vote in favor of the approval of the merger agreement. If your shares of Bally common stock are held in an account at a broker, bank or other nominee, you should instruct your broker, bank or other nominee on how to vote in accordance with the voting instruction card furnished by your broker, bank or other nominee. If you fail to vote on the merger agreement or fail to instruct your broker, bank or other nominee on how to vote, the effect will be the same as a vote against the approval of the merger agreement. We greatly appreciate your cooperation in voting your shares. The enclosed proxy card contains instructions regarding voting. Whether or not you plan to attend the special meeting, we request that you authorize your proxy by completing and returning the enclosed proxy card. You may also submit a proxy by using a toll-free number or the Internet. We have provided instructions on the proxy card for using these convenient services. Submitting a proxy will not prevent you from voting your shares in person if you subsequently choose to attend the special meeting.
If you have any questions about the special meeting or the merger after reading the proxy statement, you may contact Innisfree M&A Incorporated, our proxy solicitor, toll free at (888) 750-5834. Banks and brokers may call collect at (212) 750-5833.
On behalf of the Bally board of directors, we thank you for your support of Bally Technologies, Inc. and appreciate your consideration of this matter.
David Robbins Chairman of the Board |
This transaction has not been approved or disapproved by the Securities and Exchange Commission or any state securities commission. Neither the Securities and Exchange Commission nor any state securities commission has passed upon the merits or fairness of this transaction or upon the adequacy or accuracy of the information contained in the proxy statement. Any representation to the contrary is a criminal offense.
PRELIMINARY PROXY MATERIAL SUBJECT TO COMPLETION
The proxy statement is dated [ ], 2014 and it and the enclosed proxy card are first being mailed to stockholders on or about [ ], 2014.
BALLY TECHNOLOGIES, INC.
6601 South Bermuda Road
Las Vegas, NV 89118
(702) 532-7700
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On [ ], 2014
To the Stockholders of Bally Technologies, Inc.:
Notice is hereby given that a special meeting of the stockholders of Bally Technologies, Inc. will be held on [ ], 2014, at [ ] local time, at [ ] for the following purposes:
Only stockholders of record of our common stock, par value $0.10 per share, which we refer to as the "Bally common stock" or "our common stock" in the accompanying proxy statement, at the close of business on [ ], 2014, the record date for the special meeting, are entitled to notice of, and to vote at, the special meeting or any adjournments or postponements thereof.
The approval of the merger agreement by the affirmative vote of the holders of a majority of the voting power of the outstanding shares of Bally common stock is a condition to the consummation of the merger and the merger cannot be completed unless the holders of a majority of the voting power of the outstanding shares of Bally common stock vote in favor of approval of the merger agreement.
The approval of each of the compensation proposal and the adjournment proposal requires the affirmative vote of the holders of a majority of the voting power of the shares of Bally stock that are present in person or by proxy and entitled to vote thereon. The vote to approve the compensation proposal is advisory only and will not be binding on Bally or Scientific Games and is not a condition to the consummation of the merger.
Even if you plan to attend the special meeting in person, we request that you complete, sign, date and return the enclosed proxy card and thus ensure that your shares will be represented at the special meeting if you are unable to attend. You may also submit your proxy by using a toll-free number or the Internet. We have provided instructions on the proxy card for using these convenient services. If your shares of Bally common stock are held in street name through a broker, bank or other nominee, you should instruct your broker, bank or other nominee how to vote in accordance with the voting instruction card furnished by your broker, bank or other nominee.
YOUR VOTE IS VERY IMPORTANT. YOU MAY VOTE BY MAIL, THROUGH THE INTERNET, BY TELEPHONE OR BY ATTENDING THE SPECIAL MEETING AND VOTING BY BALLOT, ALL AS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT. IF YOU FAIL TO VOTE ON THE MERGER AGREEMENT OR FAIL TO INSTRUCT YOUR BROKER, BANK OR OTHER NOMINEE ON HOW TO VOTE, THE EFFECT WILL BE THE SAME AS A VOTE AGAINST THE APPROVAL OF THE MERGER AGREEMENT.
The Bally board of directors unanimously recommends that you vote:
Please note that we intend to limit attendance at the special meeting to stockholders as of the record date (or their authorized representatives). If your shares are held by a broker, bank or other nominee, please bring to the special meeting your account statement evidencing your beneficial ownership of Bally common stock as of the record date. All stockholders should also bring photo identification.
The accompanying proxy statement provides a detailed description of the merger and the merger agreement. We urge you to read the accompanying proxy statement, including any documents incorporated by reference, and the annexes carefully and in their entirety. If you have any questions concerning the merger or the proxy statement of which this notice forms a part, would like additional
copies of the proxy statement or need help voting your shares of Bally common stock, please contact Innisfree M&A Incorporated, Bally's proxy solicitation firm, at:
Innisfree
M&A Incorporated
501 Madison Avenue
20th Floor
New York, NY 10022
Stockholders call toll-free: (888) 750-5834
Banks and brokers call collect: (212) 750-5834
By Order of the Bally Board of Directors, | ||
Neil Davidson Senior Vice President, Chief Financial Officer, Treasurer and Secretary |
Las
Vegas, Nevada
[ ], 2014
SUMMARY VOTING INSTRUCTIONS
YOUR VOTE IS VERY IMPORTANT
Ensure that your shares of Bally common stock are voted at the special meeting by submitting your proxy or, if your shares of Bally common stock are held in street name through a broker, bank or other nominee, by contacting your broker, bank or other nominee. If you do not vote or do not instruct your broker, bank or other nominee how to vote, it will have the same effect as voting "AGAINST" the approval of the merger agreement, but will have no effect on the outcome of any vote on the compensation proposal or the adjournment proposal.
If your shares of Bally common stock are registered in your name: submit your proxy as soon as possible by signing, dating and returning the enclosed proxy card in the enclosed postage-paid envelope, so that your shares of common stock can be voted in favor of the proposals at the special meeting. You may also submit your proxy by using a toll-free number or the Internet. We have provided instructions on the proxy card for using these convenient services.
If your shares of Bally common stock are registered in street name through a broker, bank or other nominee: check the voting instruction card forwarded by your broker, bank or other nominee or contact your broker, bank or other nominee in order to obtain directions as to how to ensure that your shares of Bally common stock are voted in favor of the proposals at the special meeting.
If you need assistance in completing your proxy card or have questions regarding the special meeting, please contact Innisfree M&A Incorporated, our proxy solicitation firm, at:
Innisfree
M&A Incorporated
501 Madison Avenue
20th Floor
New York, NY 10022
Stockholders call toll-free: (888) 750-5834
Banks and brokers call collect:(212) 750-5834
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This proxy statement contains information related to our special meeting of stockholders to be held on [ ], 2014, at [ ] local time, at [ ], and at any adjournments or postponements thereof. We are furnishing this proxy statement to the stockholders of Bally Technologies, Inc. as part of the solicitation of proxies by the Bally board of directors for use at the special meeting.
This summary term sheet briefly summarizes material information found in this proxy statement. The proxy statement contains a more detailed description of the terms described in this summary. You are urged to read this proxy statement carefully, including any documents incorporated by reference, and the annexes carefully and in their entirety, as this summary may not contain all of the information that may be important to you. We have included page references in parentheses to direct you to the appropriate place in this proxy statement for a more complete description of the topics presented in this summary term sheet. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions under "Where Stockholders Can Find More Information" beginning on page 120 of this proxy statement.
In this proxy statement, the terms "we", "us", "our", "Bally" and the "Company" refer to Bally Technologies, Inc. and, where appropriate, its subsidiaries. In this proxy statement, we refer to Scientific Games Corporation as "Scientific Games," Scientific Games Nevada, Inc. as "Merger Sub" and Scientific Games International, Inc. as "Financing Sub". All references to the "merger" refer to the merger of Merger Sub with and into Bally with Bally surviving as a wholly owned subsidiary of Scientific Games; and, unless otherwise indicated or as the context requires, all references to the "merger agreement" refer to the Agreement and Plan of Merger, dated as of August 1, 2014, as it may be amended from time to time, by and among Bally, Scientific Games, Merger Sub and Financing Sub, a copy of which is included as Annex A to this proxy statement. Bally, following the completion of the merger, is sometimes referred to in this proxy statement as the "surviving corporation".
Parties Involved in the Merger (Page 26)
Bally Technologies, Inc.
Bally Technologies, Inc., a Nevada corporation, is a diversified global gaming company that designs, manufactures, operates, and distributes electronic gaming machines, networked and casino-management systems, table game products and interactive applications that drive revenue and provide operating efficiencies for gaming operators. We supply innovative hardware and games, including spinning-reel and video gaming devices, specialty gaming devices, automatic card shufflers, proprietary table game content and wide-area progressive systems. Our casino-management technology solutions allow our customers to more effectively manage their operations using our wide range of marketing, data management and analysis, accounting, player tracking, security and other software applications and tools. Under our business-to-business model, we support customers that include traditional land-based, riverboat, and Native American casinos, interactive, video lottery, and central determination markets.
Bally's common stock is listed on the New York Stock Exchange (which we refer to as the "NYSE" in this proxy statement) under the symbol "BYI".
Bally's principal executive offices are located at 6601 South Bermuda Road, Las Vegas, NV 89119, its telephone number is (702) 584-7700 and its Internet website address is www.ballytech.com. The information provided on or accessible through Bally's website is not part of this proxy statement and is not incorporated in this proxy statement by this or any other reference to its website provided in this proxy statement.
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Scientific Games Corporation.
Scientific Games Corporation, a Delaware corporation, is a leading diversified supplier of technology-based products and services to the gaming and lottery industries. Its portfolio includes instant and draw-based lottery games, gaming machines and game content, server-based lottery and gaming systems, sports betting technology, loyalty and rewards programs, and interactive products and services. Scientific Games generates revenue from the manufacturing and sale of instant lottery games, as well as the provision of value-added services such as game design, sales and marketing support, specialty games and promotions, inventory management and warehousing and fulfillment services.
Scientific Games' common stock is listed on the Nasdaq Stock Exchange (which we refer to as the "NASDAQ" in this proxy statement) under the symbol "SGMS".
Scientific Games' principal executive offices are located at 750 Lexington Avenue, 25th Floor, New York, New York 10022, its telephone number is (212) 754-2233 and its Internet website address is www.scientificgames.com. The information provided on or accessible through Scientific Games' website is not part of this proxy statement and is not incorporated in this proxy statement by this or any other reference to its website provided in this proxy statement.
Scientific Games Nevada, Inc.
Scientific Games Nevada, Inc., a wholly owned subsidiary of Scientific Games Corporation, is a Nevada corporation that was formed on July 25, 2014 for the sole purpose of entering into the merger agreement and completing the transactions contemplated by the merger agreement, including the merger. Upon the terms and subject to the conditions of the merger agreement, Merger Sub will be merged with and into Bally, with Bally surviving the merger as a wholly owned subsidiary of Scientific Games.
The principal executive offices of Merger Sub are located at 750 Lexington Avenue, New York, NY 10022, and its telephone number is (212) 754-2233.
Scientific Games International, Inc.
Scientific Games International, Inc., a Delaware corporation, is a wholly owned subsidiary of Scientific Games. As set forth in the debt commitment letter, Financing Sub is expected to be the borrower of the debt financing incurred to finance the merger and the other transactions contemplated by the merger agreement.
The principal executive offices of Financing Sub are located at 1500 Bluegrass Lakes Parkway, Alpharetta, GA 30004, and its telephone number is (770) 664-3700.
The proposed transaction is the acquisition of Bally by Scientific Games pursuant to the merger agreement. The acquisition will be effected by the merger of Merger Sub with and into Bally, with Bally continuing as the surviving corporation and becoming a wholly owned subsidiary of Scientific Games. If the merger is completed, you will not own any shares of the capital stock of the surviving corporation as a result of the merger.
We expect to complete the merger promptly following the approval of the merger agreement by Bally's stockholders as described herein, the receipt of all required regulatory approvals and the satisfaction or waiver of the other conditions precedent to the parties' respective obligations to
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complete the merger, each as further set forth in the merger agreement, a copy of which is included as Annex A to this proxy statement.
We currently anticipate that the merger will be completed by the end of 2014. As noted above, however, consummation of the merger is subject to various conditions and it is possible that factors outside the control of Bally and/or Scientific Games could result in the merger being completed at a later time, or not at all. There may be a substantial amount of time between the special meeting and the completion of the merger.
If the merger is completed, each share of our common stock, par value $0.10 per share, which we refer to as "Bally common stock" or "our common stock" in this proxy statement, issued and outstanding immediately prior to the effective time of the merger, other than the shares of Bally common stock owned by Bally (which will be canceled at the consummation of the merger) or owned by any of Bally's wholly owned subsidiaries, Scientific Games, Merger Sub or Financing Sub or any other wholly owned subsidiary of Scientific Games (which will be converted into one fully paid share of common stock, par value $0.001 per share, of the surviving corporation at the consummation of the merger), which shares we refer to collectively as the "excluded shares" in this proxy statement, and shares of Bally restricted stock (the treatment of which is described under the section entitled "Terms of the Merger AgreementTreatment of Stock Options and Other Stock-Based Compensation" beginning on page 85 of this proxy statement), will be converted into the right to receive $83.30 in cash, without interest and less any applicable withholding taxes, which we refer to as the "merger consideration" in this proxy statement. At or immediately prior to the effective time of the merger, Scientific Games will deposit or cause to be deposited with the paying agent for the merger sufficient funds to pay the aggregate per share merger consideration.
Date, Time and Place (Page 28). The special meeting will be held on [ ], 2014, at [ ] local time, at [ ].
Purpose of the Special Meeting (Page 28). At the special meeting, you will be asked: (1) to consider and vote upon a proposal to approve the merger agreement, thereby approving the transactions contemplated thereby, including the merger; (2) to consider and vote upon a proposal to approve, by a non-binding advisory vote, the specified compensation arrangements disclosed in this proxy statement that may be payable to Bally's named executive officers in connection with the consummation of the merger (this proposal being referred to as the "compensation proposal" in this proxy statement); and (3) to consider and vote upon a proposal to approve the adjournment of the special meeting if necessary or appropriate in the view of the Bally board of directors, including to solicit additional proxies if there are not sufficient votes at the time of the special meeting to approve the merger agreement (this proposal being referred to as the "adjournment proposal" in this proxy statement).
Record Date and Voting Information (Page 29). Only stockholders who hold shares of our common stock at the close of business on [ ], 2014, the record date for the special meeting, will be entitled to vote at the special meeting. Each share of our common stock outstanding on the record date will be entitled to one vote on each matter submitted to stockholders for approval at the special meeting. As of the record date for the special meeting, there were [ ] shares of our common stock outstanding entitled to vote at the special meeting.
Quorum (Page 29). The presence in person or by proxy of the holders of record of a majority of the shares of our common stock entitled to vote at the meeting is necessary and sufficient to constitute
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a quorum for the transaction of any business at the special meeting. As of the record date for the special meeting, [ ] shares of our common stock will be required to obtain a quorum.
Required Vote (Page 29). Approval of the merger agreement requires the affirmative vote of the holders of a majority of the voting power of the outstanding shares of Bally common stock entitled to vote at the special meeting. A failure to vote your shares of common stock, an abstention from voting or a broker non-vote will have the same effect as a vote against the proposal to approve the merger agreement. Approval of each of the compensation proposal and the adjournment proposal requires the affirmative vote of the holders of a majority of the voting power of the shares of Bally stock that are present in person or by proxy and entitled to vote on the proposal. Abstentions and broker non-votes, if any, will have the same effect as a vote against the compensation proposal and the adjournment proposal.
Voting by Bally's Directors and Officers (Page 31). As of [ ], 2014, the record date for the special meeting, our directors and executive officers beneficially owned and are entitled to vote, in the aggregate, [ ] shares of our common stock, representing approximately [ ]% of the outstanding shares of our common stock.
Voting and Proxies (Page 30). Any Bally stockholder of record entitled to vote may submit a proxy by returning a signed proxy card by mail, through the Internet or by telephone or may vote in person by appearing at the special meeting. If you are a beneficial owner and hold your shares of Bally common stock in "street name" through a broker, bank or other nominee, you should instruct your broker, bank or other nominee on how you wish to vote your shares of Bally common stock using the instructions provided by your broker, bank or other nominee. The broker, bank or other nominee cannot vote on these proposals without your instructions. Therefore, it is important that you cast your vote or instruct your broker, bank or nominee on how you wish to vote your shares. If you are a street name holder and wish to vote in person by ballot at the special meeting, you must provide a legal proxy from your bank, broker or other nominee.
Treatment of Stock Options and Other Stock-Based Compensation (Page 85)
Options
At the effective time of the merger, each option to purchase Bally common stock that is outstanding (whether vested or unvested) immediately prior to the effective time of the merger will be canceled in exchange for the right to receive an amount in cash equal to the excess, if any, of the merger consideration over the exercise price of such option, less any applicable withholding taxes. If the exercise price of the option equals or exceeds the merger consideration, the option will be canceled without the payment of any consideration to the holder.
Holders of options to purchase Bally common stock that are intended to qualify as "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code, which we refer to as "incentive stock options" in this proxy statement, will be permitted to exercise such incentive stock options (whether vested or unvested) five business days prior to, and conditioned upon the occurrence of, the merger closing date. Incentive stock options that are not exercised in such manner and that remain outstanding immediately prior to the effective time of the merger will be cashed out in the manner described in the preceding paragraph.
Performance Units
At the effective time of the merger, each Bally equity-based unit subject to performance-based conditions, which we refer to as a "performance unit" in this proxy statement, that is outstanding (whether vested or unvested) immediately prior to the effective time of the merger will be canceled in exchange for the right to receive an amount in cash equal to the merger consideration, less any
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applicable withholding taxes. For purposes of determining the number of performance units that are outstanding immediately prior to the effective time of the merger, the applicable performance-based conditions will be considered to have been achieved at maximum levels. The only individuals who have outstanding performance units are Bally's current chief executive officer and chief financial officer.
Restricted Shares and Restricted Stock Units
At the effective time of the merger, each share of Bally restricted stock and each Bally equity-based unit subject to time-based vesting, which we refer to as a "restricted stock unit" in this proxy statement, that was granted prior to August 1, 2014, and that is outstanding (whether vested or unvested) immediately prior to the effective time of the merger, will be canceled in exchange for the right to receive an amount in cash equal to the merger consideration, less any applicable withholding taxes.
At the effective time of the merger, each share of Bally restricted stock and each Bally restricted stock unit that is granted on or after August 1, 2014, and that is outstanding immediately prior to the effective time of the merger, will not be cashed out or canceled in the merger, but instead will be converted as of the effective time of the merger into a restricted share or restricted stock unit, as applicable, with respect to the Class A common stock, par value $0.01 per share, of Scientific Games, using a customary exchange ratio based on the per share closing price of Bally common stock on the merger closing date and the per share closing price of Scientific Games Class A common stock on the merger closing date, which we refer to as the "stock award exchange ratio" in this proxy statement. The terms and conditions of these converted restricted shares and restricted stock units will generally remain unchanged, and such awards will continue to vest as scheduled based on the holder's continued employment through each applicable vesting date, provided that if the holder's employment is terminated by Scientific Games without "cause" or by the holder for "good reason" (generally, as such terms are defined in the Bally Amended and Restated 2010 Long Term Incentive Plan, which we refer to as the "2010 LTIP" in this proxy statement) within one year following the merger closing date, the holder will be given additional service credit for vesting purposes for the holder's months of service following the merger closing date, plus an additional twelve (12) months, such that the installments of the converted restricted shares and restricted stock units that were otherwise scheduled to vest within such number of months following the holder's employment termination date will immediately vest and be settled in shares of Scientific Games Class A common stock.
Treatment of the Employee Stock Purchase Plan (Page 86)
Bally's Employee Stock Purchase Plan will not accept any new participants. The current quarterly offering ended on August 31, 2014, and no new offering will commence thereafter. The Employee Stock Purchase Plan will terminate as of the merger closing date.
Delisting and Deregistration of Our Common Stock (Page 63)
Upon completion of the merger, we will remove our common stock from listing on the NYSE and price quotations in the public market will no longer be available for our common stock and the registration of our common stock under the Securities Exchange Act of 1934, as amended, which we refer to as the "Exchange Act" in this proxy statement, will be terminated.
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Determination, Approval and Recommendation of Our Board of Directors (Page 53)
The Bally board of directors, after considering all factors that the Bally board of directors deemed relevant and after consulting with independent legal and financial advisors, unanimously determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable and fair to and in the best interests of Bally and its stockholders, and unanimously adopted the merger agreement and the transactions contemplated thereby, including the merger. Certain factors considered by the Bally board of directors in reaching its decision to approve the merger agreement and the merger can be found in the section entitled "Proposal 1: Approval of the Merger AgreementReasons for the Merger" beginning on page 46 of this proxy statement.
The Bally board of directors unanimously recommends that Bally stockholders vote:
Opinion of Bally's Financial Advisor (Page 53 and Annex B)
Macquarie Capital (USA) Inc., which we refer to as "Macquarie Capital" in this proxy statement, was engaged on July 14, 2014 to act as lead financial advisor to the Bally board of directors in connection with a possible sale, transfer or other disposition, directly or indirectly, of all or a material portion of the equity securities, assets or business of Bally or its subsidiaries, including assisting in the evaluation of Bally's strategic alternatives. On July 31, 2014, Macquarie Capital rendered its oral opinion, subsequently confirmed in writing, to the Bally board of directors (in its capacity as such) to the effect that, as of such date, and based upon and subject to various factors, assumptions, qualifications and limitations on the review undertaken set forth in the written opinion, the merger consideration to be received by the holders of Bally common stock (other than holders of excluded shares) in the merger transaction was fair, from a financial point of view, to such holders of Bally common stock, in the aggregate.
The full text of the written opinion of Macquarie Capital, dated July 31, 2014, which describes, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken in connection with the opinion, is attached as Annex B to this proxy statement and is incorporated by reference herein. Holders of shares of Bally common stock are encouraged to and should read the opinion carefully and in its entirety. Macquarie Capital's opinion was provided to the Bally board of directors in connection with its evaluation of the merger consideration provided for in the merger from a financial point of view. The opinion of Macquarie Capital does not address any other aspect of the merger and does not constitute a recommendation to any holder of Bally common stock as to whether such holder should act or vote in connection with the merger or any other matter. The summary of the opinion of Macquarie Capital set forth in this proxy statement is qualified in its entirety by reference to the full text of such opinion, which is included as Annex B.
Interests of Bally's Directors and Executive Officers in the Merger (Page 65)
In considering the recommendation of the Bally board of directors to approve the merger agreement, Bally stockholders should be aware that certain directors and executive officers of Bally
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have interests in the merger that are different from, or in addition to, those of Bally stockholders generally. These interests are described in the section entitled "Proposal 1: Approval of the Merger AgreementInterests of Bally's Directors and Executive Officers in the Merger" beginning on page 65 of this proxy statement. The Bally board of directors was aware of these interests and considered them, among other matters, in evaluating the merger agreement, in reaching its decision to approve the merger agreement, and in recommending to Bally stockholders that the merger agreement be approved. These interests include the following, among others:
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join the board of directors of Scientific Games, with Mr. Haddrill anticipated to serve as vice chairman.
The merger is not conditioned on Scientific Games obtaining the proceeds of any financing, including the financing contemplated by the debt commitment letter. We anticipate that the total amount of funds necessary to complete the merger and the other transactions contemplated by the merger agreement will be approximately $5.1 billion. These funds include the funds needed to:
In connection with entering into the merger agreement, Scientific Games and Financing Sub entered into a commitment letter with Bank of America, N.A., which we refer to as "BOA" in this proxy statement, Merrill Lynch, Pierce, Fenner & Smith Incorporated, which we refer to as "BofA Merrill Lynch" in this proxy statement, JPMorgan Chase Bank, N.A., which we refer to as "J.P. Morgan" in this proxy statement, Deutsche Bank AG New York Branch, which we refer to as "Deutsche Bank" in this proxy statement, and certain of their respective affiliates as additional commitment parties (and each additional commitment party who following the date of this proxy statement becomes party to the commitment letter). Pursuant to the commitment letter, among other things, each of BOA, BofA Merrill Lynch, Deutsche Bank and J.P. Morgan and certain of their respective affiliates (which we refer to as the "commitment parties" in this proxy statement) have agreed to provide debt financing to Scientific Games. We refer to this commitment letter, as it may be amended in accordance with the merger agreement, as the "debt commitment letter" in this proxy statement. The financing contemplated under the debt commitment letter is referred to as the "debt financing" in this proxy statement. See "Terms of the Merger AgreementFinancing of the Merger" beginning on page 63 of this proxy statement for additional information with respect to the debt financing.
We believe the amounts described in the debt commitment letter, together with cash on hand at Bally and at Scientific Games, will be sufficient to complete the merger, but we cannot assure you of that. Those amounts might be insufficient if, among other things, we or Scientific Games have substantially less cash on hand or more debt or Scientific Games or Financing Sub receive substantially lower net proceeds from the debt financing than we currently expect.
No Solicitation of Acquisition Proposals (Page 96)
Subject to certain exceptions, Bally has agreed not to, and will not authorize or permit any of its subsidiaries to, and will use its reasonable best efforts to cause its and their respective representatives not to, among other things: (i) initiate, solicit or knowingly encourage, directly or indirectly, the making of any acquisition proposal or (ii) engage in negotiations or substantive discussions with, or furnish any non-public information to, any third party relating to an acquisition proposal other than informing third parties of certain provisions contained in the merger agreement.
In the event that Bally receives a written acquisition proposal that did not result from its breach of its non-solicit obligations under the merger agreement, Bally and its board of directors may, prior to obtaining Bally stockholder approval of the proposal to approve the merger agreement, engage in negotiations or substantive discussions with, or furnish any information and other access to, any third party making such acquisition proposal and its representatives or potential sources of financing if the Bally board of directors determines in good faith, after consultation with Bally's outside counsel and
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financial advisors, and based on information then available, that such acquisition proposal constitutes, or could reasonably be expected to result in, a superior proposal (as defined under the section entitled "Terms of the Merger AgreementNo Solicitation of Acquisition Proposals; Changes in Board Recommendation" beginning on page 96 of this proxy statement).
The Bally board of directors may terminate the merger agreement in response to a written acquisition proposal if the Bally board of directors has determined in good faith, after consultation with Bally's outside counsel and financial advisors, that such acquisition proposal constitutes a superior proposal after giving effect to all of the adjustments which may be offered by Scientific Games, subject to complying with certain notice and other specified conditions set forth in the merger agreement, including giving Scientific Games the opportunity to propose changes to the merger agreement in response to a superior proposal and the conditions described in the prior paragraph. If the merger agreement is terminated in such a circumstance, Bally must pay, or cause to be paid, to Scientific Games the termination fee prior to or concurrently with such termination as more fully described under the section entitled "Terms of the Merger AgreementTermination Fee; Effect of Termination" beginning on page 108 of this proxy statement.
Changes in Board Recommendation (Page 96)
Prior to obtaining stockholder approval of the proposal to approve the merger agreement, the Bally board of directors may change its recommendation that Bally stockholders approve the merger agreement if (i) the Bally board of directors determines, after consultation with its outside counsel and financial advisors, that the failure to take such action would be inconsistent with the directors' fiduciary duties to the stockholders of Bally under applicable law and (ii) Bally has provided Scientific Games, at least four business days in advance, prior written notice advising Scientific Games that it intends to effect a change in recommendation and specifying, in reasonable detail, the reasons for such action. If the Bally board of directors effects a change in recommendation under the merger agreement, Bally may terminate the merger agreement and pay, or Scientific Games may terminate the merger agreement and receive, the company termination fee as more fully described below under the section entitled "Terms of the Merger AgreementTermination Fee; Effect of Termination" beginning on page 108 of this proxy statement.
Conditions to Completion of the Merger (Page 105)
As more fully described in this proxy statement and in the merger agreement, each party's obligation to complete the merger depends on a number of conditions being satisfied or, where legally permissible, waived, including:
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prevent the entry of such law or order and to appeal as promptly as possible any judgment that has been entered;
How the Merger Agreement May Be Terminated (Page 107)
The merger agreement may be terminated at any time prior to the effective time of the merger by mutual written consent of each of Scientific Games and Bally. In addition, either Scientific Games or Bally may terminate the merger agreement before the effective time of the merger, if:
The merger agreement may also be terminated by Bally if:
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the termination date and the date that is 30 days following the receipt by Scientific Games of written notice from Bally of such breach or failure; provided that this termination right will not be available if Bally is then in material breach of any of its representations, warranties, covenants or agreements under the merger agreement;
The merger agreement may also be terminated by Scientific Games if:
See the section entitled "Terms of the Merger AgreementTermination of the Merger Agreement" beginning on page 107 of this proxy statement.
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Effects of Termination of the Merger Agreement (Page 108)
If the merger agreement is validly terminated, the merger agreement will become null and void without liability on the part of any party to the merger agreement (or any of its representatives), and, except for the confidentiality provisions, provisions relating to the effect of termination and certain other specified general provisions of the merger agreement, each of which will survive the termination of the merger agreement, all rights and obligations of any party will cease. However, the parties have agreed that if (i) any termination of the merger agreement resulted, directly or indirectly, from an intentional breach of any provision of the merger agreement or (ii) an intentional breach of any provision of the merger agreement caused the merger not to be consummated then, in either case, the breaching party shall be fully liable for any and all damages, costs, liabilities or other losses suffered by the other party as a result of such breach, including, as applicable, derivative damages, in addition to any amounts owed in connection with the company termination fee, the regulatory failure termination fee or the funding failure termination fee.
Generally, all costs and expenses incurred in connection with the merger agreement, the merger and the other transactions contemplated under the merger agreement will be paid by the party incurring those expenses. The merger agreement contains certain termination rights for Scientific Games and Bally. In connection with the termination of the merger agreement under specified circumstances set forth in the merger agreement, including upon a change in the recommendation of the Bally board of directors or termination of the merger agreement for Bally to enter into a written definitive agreement for a superior proposal, Bally may be required to pay to Scientific Games a termination fee of $80.0 million or Scientific Games may be required to pay Bally a termination fee of $105.0 million if Scientific Games is unable to obtain the regulatory approvals that are conditions to closing prior to the termination date (provided, among other conditions, that none of Bally, its subsidiaries or their respective officers, directors or employees was the primary cause of the failure of any such condition) or $105.0 million if all of the conditions to the merger have been met and there is a funding failure, in each case, subject to the circumstances of such termination as set forth in the merger agreement and, in each case, without limiting the parties' ability to seek damages for any intentional breach of the merger agreement, which damages may be recovered, to the extent proven, in excess of any applicable termination fee. See the section entitled "Terms of the Merger AgreementTermination Fee; Effect of Termination" beginning on page 108 of this proxy statement for a discussion of the circumstances under which such a termination fee will be required to be paid.
Specific Performance (Page 110)
The merger agreement generally provides that the parties will be entitled, without posting a bond or other indemnity, to an injunction, specific performance and other equitable relief to prevent breaches of the merger agreement and to enforce specifically the terms and provisions of the merger agreement, in addition to any other remedy to which they are entitled at law or in equity.
However, Bally is entitled to seek specific performance of Scientific Games' and Merger Sub's obligations to consummate the merger only in the event that each of the following conditions has been satisfied: (i) the marketing period, if applicable, has ended and all of the conditions to Scientific Games' and Merger Sub's obligations to consummate the closing have been satisfied or waived (other than those conditions that by their terms are to be satisfied or waived at the closing of the merger), (ii) Scientific Games and Merger Sub fail to complete the merger by the date on which the merger would otherwise be required to occur, (iii) the debt financing (including any alternative financing that has been obtained in accordance with, and which satisfies certain conditions set forth in, the merger agreement) has been, or will be, funded in accordance with the terms thereof at the closing assuming satisfaction by Scientific Games or Merger Sub of the conditions precedent thereto under their respective control, and (iv) Bally has confirmed in an irrevocable written notice delivered to Scientific Games that if specific performance is granted and the debt financing is funded, then Bally would take
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such actions that are within its control to cause the closing to occur. For the avoidance of doubt, Bally is not entitled to enforce or seek to enforce specifically Scientific Games' and Merger Sub's obligations to consummate the merger if the debt financing has not been funded or will not be funded at the closing. The parties to the merger agreement further agreed that while Bally may pursue both a grant of specific performance as and only to the extent expressly permitted by the merger agreement and the payment of the funding failure termination fee or any other monetary damages or other monetary remedies, to the extent proven (but only to the extent expressly permitted by the merger agreement), under no circumstances would Bally be permitted or entitled to receive both such grant of specific performance to cause the closing to occur and payment of the funding failure termination fee, or alternatively, any other monetary damages or other monetary remedies.
Material U.S. Federal Income Tax Considerations of the Merger for U.S. Holders (Page 80)
The exchange of shares of our common stock for cash pursuant to the merger will generally be a taxable transaction for U.S. federal income tax purposes. A "U.S. holder" (as defined in the section entitled "Proposal 1: Approval of the Merger AgreementMaterial U.S. Federal Income Tax Consequences of the Merger for U.S. Holders" beginning on page 80 of this proxy statement) who exchanges shares of our common stock for cash in the merger generally will recognize gain or loss in an amount equal to the difference, if any, between the amount of cash received with respect to such shares and the U.S. holder's adjusted tax basis in such shares. You should consult your tax advisor for complete analysis of the U.S. federal, state, local and/or foreign tax consequences of the merger to you. See the section entitled "Proposal 1: Approval of the Merger AgreementMaterial U.S. Federal Income Tax Consequences of the Merger for U.S. Holders" beginning on page 80 of this proxy statement.
Regulatory Approvals (Page 77)
Antitrust Filings
The merger is subject to the mandatory notification and waiting period requirements of the HSR Act, which requires that we and Scientific Games furnish certain information and materials relating to the merger to the Antitrust Division of the United States Department of Justice, which we refer to as the "Antitrust Division" in this proxy statement, and the Federal Trade Commission, which we refer to as the "FTC" in this proxy statement. Under the HSR Act, the merger may not be consummated until the applicable waiting period has expired or been terminated by the Antitrust Division or the FTC. The required notification and report forms under the HSR Act were filed with the Antitrust Division and the FTC by Bally and Scientific Games on August 6, 2014 and August 7, 2014, respectively. On August 19, 2014, Bally received notice from the FTC that early termination of the applicable waiting period had been granted; as such, the condition to the closing of the merger related to the HSR Act has been satisfied.
Required Gaming Approvals
The parties have agreed that receipt of gaming approvals from approximately 20 specified jurisdictions, which we refer to as the "required gaming approvals" in this proxy statement, is a condition to closing of the merger. See the section entitled "Terms of the Merger AgreementConsents, Approvals and Filings" beginning on page 98 of this proxy statement for a definition of "gaming approvals", as used in this proxy statement.
Scientific Games may under certain circumstances waive the condition relating to any such required gaming approval on behalf of both Scientific Games and Bally if consummation of the merger in the absence of such required gaming approval would not constitute a violation of applicable law. In addition to the jurisdictions identified by the parties as conditions to the merger, either Bally or
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Scientific Games may make further filings with gaming regulators in various jurisdictions as may be required by applicable law, but the expiration of any waiting periods, or receipt of any required approvals, in connection with such filings will not be conditions to the consummation of the merger.
Scientific Games has filed or has caused to be filed all initial applications and documents in connection with obtaining the required gaming approvals, and with respect to certain of such approvals the parties have already received confirmation that all obligations necessary to be fulfilled prior to the merger have been satisfied.
Other Matters with Respect to Regulatory Approvals
Scientific Games and Bally have generally agreed to use their reasonable best efforts to obtain such approvals but, under the terms of the merger agreement, neither Scientific Games nor Merger Sub is required to (or cause its applicable affiliates or subsidiaries to) accept, make or take any divestiture actions unless (i) such divestiture actions are conditioned on the consummation of the merger, and (ii) such divestiture actions, individually or in the aggregate, would not reasonably be expected to result in the loss of more than $85.0 million in revenues on a consolidated basis for Scientific Games and its subsidiaries (including Bally and its subsidiaries) for the most recently ended twelve month period ending as of the last day of Scientific Games' most recently completed fiscal quarter (provided that if the last day of such period is after December 31, 2014, such period will be deemed to have ended on December 31, 2014).
Although we do not expect these regulatory authorities to raise any significant concerns in connection with their review of the merger, there is no assurance that Bally and Scientific Games will obtain all required regulatory approvals or that those approvals will not include terms, conditions or restrictions that may have an adverse effect on us or, after completion of the merger, Scientific Games.
Market Price of Bally Common Stock and Dividend Information (Page 114)
Our common stock is listed on the NYSE under the trading symbol "BYI". The closing price of our common stock on the NYSE on July 31, 2014, which was the last trading day before we announced the merger, was $60.17. The merger consideration represents a premium of approximately 38.4% to the closing price of our common stock on July 31, 2014 and a premium of approximately 35.3% over the average closing price of our common stock for the 90-day period ended July 31, 2014. On September 5, 2014, the last trading day before the date of this proxy statement, the closing price of our common stock on the NYSE was $80.39.
Under the terms of the merger agreement, we may not declare, authorize, make or pay any dividend or other distribution on our common stock during the pendency of the merger.
All fees and expenses incurred in connection with the merger agreement and the transactions contemplated thereby, including the merger, will be paid by the party incurring such fees or expenses, whether or not the merger or any of the other transactions contemplated by the merger agreement are consummated, with certain exceptions expressly set forth in the merger agreement, including reimbursement for all reasonable costs and expenses (including reasonable attorney's fees) of the prevailing party in any action at law or suit in equity to enforce the merger agreement or the rights of any of the parties thereunder.
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Litigation Relating to the Merger (Page 79)
The following complaints challenging the merger have been filed in the District Court of the Eighth Judicial District, County of Clark, Nevada: (i) Shaev v. Bally Technologies, Inc., et al., No. A-14-705012-B; (ii) Crescente v. Bally Technologies, Inc., et al., No. A-14-705144-C; (iii) Lewandoski v. Bally Technologies, Inc., et al., No. A-14-705153-C; (iv) Rosenfeld v. Bally Technologies, Inc., et al., No. A-14-705162-B; (v) Stein v. Bally Technologies, et al., No. A-14-705338-B; and (vi) Hahm v. Bally Technologies, Inc., No. A-14-706234-C. Each of the actions is a putative class action filed on behalf of the public shareholders of Bally Technologies, Inc. and names as defendants Bally, its directors, Scientific Games, Merger Sub and Financing Sub. The complaints generally allege that the individual defendants breached their fiduciary duties in connection with their consideration and approval of the merger. Four of the five complaints also allege that all of the entity defendants aided and abetted the purported breaches by the individual defendants. The fifth complaint, Shaev v. Bally Technologies, Inc., et al., alleges that Scientific Games, Merger Sub and Financing Sub aided and abetted the individual defendants' purported breaches but makes no such claim against Bally. The complaints seek, among other relief, to enjoin the merger. On August 26, 2014, the Shaev, Crescente, Lewandoski and Stein actions were consolidated into a single proceeding under the caption In re Bally Technologies, Inc. Stockholders Litigation, No. A-14-705012-B.
The outcome of these lawsuits cannot be predicted with any certainty. An adverse judgment for monetary damages could have a material adverse effect on the operations and liquidity of Bally. A preliminary injunction could delay or jeopardize the completion of the merger, and an adverse judgment granting permanent injunctive relief could indefinitely enjoin completion of the merger. All of the defendants believe that the claims asserted against them in the lawsuits are without merit and are defending against them vigorously. Additional lawsuits arising out of or relating to the merger agreement or the merger may be filed in the future.
No Dissenters' Rights (Page 81)
Pursuant to the Nevada Revised Statutes (which we refer to as the "NRS" in this proxy statement) Section 92A.390, no dissenter's rights or rights of appraisal will apply in connection with the merger.
If you have any questions about the special meeting, the merger agreement or the transactions contemplated by the merger agreement, including the merger, after reading the proxy statement, you may contact Innisfree M&A Incorporated, which is assisting us in the solicitation of proxies, toll free at (888)-750-5834. Banks and brokers may call collect at (212) 750-5833.
Neither the U.S. Securities Exchange Commission, which we refer to as the "SEC" in this proxy statement, nor any state securities regulatory agency has approved or disapproved of the transactions described in this document, including the merger, or determined if the information contained in this document is accurate or adequate. Any representation to the contrary is a criminal offense.
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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER
The following questions and answers are intended to address some commonly asked questions regarding the special meeting and the merger. These questions and answers may not address all questions that may be important to you as a holder of our common stock. Please refer to the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to or incorporated by reference in this proxy statement.
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certificates for the cash payment to which they are entitled upon completion of the merger. Please do not send in your stock certificates with your proxy card.
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proposal on the golden parachute compensation that may be payable to Bally's named executive officers in connection with the merger.
The Bally board of directors unanimously recommends that you vote
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Because a beneficial owner is not the stockholder of record, you may not vote these shares at the special meeting, unless you obtain a "legal proxy" from the broker, bank or other nominee that holds your shares giving you the right to vote the shares at the special meeting. You should allow yourself enough time prior to the special meeting to obtain this proxy from your broker, bank or other nominee who is the stockholder of record.
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Although Bally offers four different voting methods, Bally encourages you to vote through the Internet, as Bally believes it is the most cost-effective method. We also recommend that you vote as soon as possible, even if you are planning to attend the special meeting, so that the vote count will not be delayed. Both the Internet and the telephone provide convenient, cost-effective alternatives to returning your proxy card by mail. If you vote your shares of Bally common stock through the Internet, you may incur costs associated with electronic access, such as usage charges from Internet access providers.
If you hold your shares in street name through a broker, bank or other nominee, please refer to the information on the voting instruction card forwarded to you by your bank, broker or other nominee to see which voting options are available to you. In many cases, you may be able to submit your voting instructions by the Internet or telephone. If you do not properly submit your voting instructions, the broker, bank or other nominee will not be able to vote on these proposals. Under applicable rules, brokers, banks and other nominees have the discretion to vote on routine matters. The proposals in this proxy statement are non-routine matters, and therefore brokers, banks and other nominees cannot vote on these proposals without your instructions. This is called a "broker non-vote". Therefore, it is important that you cast your vote by instructing your broker, bank or nominee on how you wish to vote your shares.
We believe that (i) under the NRS, broker non-votes, if any, will be counted for purposes of determining the presence or absence of a quorum at the special meeting and (ii) under the current rules of the NYSE, brokers do not have discretionary authority to vote on any of the proposals being voted upon at the special meeting. To the extent that there are any broker non-votes, a broker non-vote will have the same effect as a vote "AGAINST" the proposal to approve the merger agreement, the compensation proposal and the adjournment proposal.
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If your shares are held in street name, you must contact your bank, broker or other nominee in order to revoke your proxy or change your vote.
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the section entitled "Terms of the Merger AgreementExchange of Shares in the Merger" beginning on page 86 of this proxy statement.
You should read the section entitled "Proposal 1: Approval of the Merger AgreementMaterial U.S. Federal Income Tax Consequences of the Merger for U.S. Holders" beginning on page 80 of this proxy statement for a more complete discussion of the U.S. federal income tax consequences of the merger to you. You should also consult your tax advisor to determine the particular U.S. federal, state, local, and/or foreign tax consequences of the merger to you.
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Innisfree
M&A Incorporated
501 Madison Avenue
20th Floor
New York, NY 10022
Stockholders call toll-free: (888) 750-5834
Banks and brokers call collect: (212) 750-5834
If your broker, bank or other nominee holds your shares, you should also call your broker, bank or other nominee for additional information.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This proxy statement contains certain "forward-looking" statements as that term is defined by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. Forward-looking statements may be typically identified by such words as "may," "will," "should," "expect," "anticipate," "plan," "likely," "believe," "estimate," "project," "intend" and other similar expressions, among others. These forward-looking statements are subject to known and unknown risks and uncertainties that could cause our actual results to differ materially from the expectations expressed in the forward-looking statements. Although we believe that the expectations reflected in our forward-looking statements are reasonable, any or all of our forward-looking statements may prove to be incorrect. Consequently, no forward-looking statements may be guaranteed and there can be no assurance that the actual results or developments anticipated by such forward-looking statements will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, Bally or its business or operations. Factors that could cause our actual results to differ from those projected or contemplated in any such forward-looking statements include, but are not limited to, the following factors:
The foregoing review of important factors that could cause actual events to differ from expectations should not be construed as exhaustive and should be read in conjunction with statements that are included herein and elsewhere, including the risk factors included in Bally's most recent Annual Report on Form 10-K for the year ended June 30, 2014, and our more recent reports filed with the SEC. All subsequent written and oral forward-looking statements concerning the proposed transaction or other matters attributable to Bally or any other person acting on its behalf are expressly qualified in their entirety by the cautionary statements referenced above. None of Bally, Scientific Games or any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements speak only as of the date of the communication in which they are contained. Bally can give no assurance that the conditions to the merger will be satisfied. Except as required by applicable law, Bally undertakes no obligation to revise or update any
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forward-looking statement, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.
All information contained in this proxy statement exclusively concerning Scientific Games, Merger Sub, Financing Sub and their affiliates has been supplied by Scientific Games, Merger Sub and Financing Sub and has not been independently verified by us.
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PARTIES INVOLVED IN THE MERGER
Bally Technologies, Inc.
6601 S. Bermuda Road
Las Vegas, NV 89119
Telephone: (702) 584-7700
Bally Technologies, Inc., a Nevada corporation, is a diversified global gaming company that designs, manufactures, operates, and distributes electronic gaming machines, networked and casino-management systems, table game products and interactive applications that drive revenue and provide operating efficiencies for gaming operators. We supply innovative hardware and games, including spinning-reel and video gaming devices, specialty gaming devices, automatic card shufflers, proprietary table game content and wide-area progressive systems. Our casino-management technology solutions allow our customers to more effectively manage their operations using our wide range of marketing, data management and analysis, accounting, player tracking, security and other software applications and tools. Under our business-to-business model, we support customers that include traditional land-based, riverboat, and Native American casinos, interactive, video lottery, and central determination markets.
Bally's common stock is listed on the New York Stock Exchange (which we refer to as the "NYSE" in this proxy statement) under the symbol "BYI".
Bally's principal executive offices are located at 6601 South Bermuda Road, Las Vegas, NV 89119, its telephone number is (702) 584-7700 and its Internet website address is www.ballytech.com. The information provided on or accessible through Bally's website is not part of this proxy statement and is not incorporated in this proxy statement by this or any other reference to its website provided in this proxy statement.
Detailed descriptions about Bally's business and financial results are contained in its Annual Report on Form 10-K for the fiscal year ended June 30, 2014, and subsequent reports filed with the SEC, which are incorporated in this proxy statement by reference. See the section entitled "Where Stockholders Can Find More Information" beginning on page 120 of this proxy statement.
Scientific Games Corporation
750 Lexington Avenue
New York, NY 10022
Telephone: (212) 754-2233
Scientific Games Corporation, a Delaware corporation, is a leading diversified supplier of technology-based products and services to the gaming and lottery industries. Its portfolio includes instant and draw-based lottery games, gaming machines and game content, server-based lottery and gaming systems, sports betting technology, loyalty and rewards programs, and interactive products and services. Scientific Games generates revenue from the manufacturing and sale of instant lottery games, as well as the provision of value-added services such as game design, sales and marketing support, specialty games and promotions, inventory management and warehousing and fulfillment services.
Scientific Games' common stock is listed on the Nasdaq Stock Exchange under the symbol "SGMS".
Scientific Games' principal executive offices are located at 750 Lexington Avenue, New York, NY 10022, its telephone number is (212) 754-2233 and its Internet website address is www.scientificgames.com. The information provided on or accessible through Scientific Games' website is not part of this proxy statement and is not incorporated in this proxy statement by this or any other reference to its website provided in this proxy statement.
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Scientific Games Nevada, Inc.
750 Lexington Avenue
New York, NY 10022
Telephone: (212) 754-2233
Scientific Games Nevada, Inc., a wholly owned subsidiary of Scientific Games, is a Nevada corporation that was formed on July 25, 2014, for the sole purpose of entering into the merger agreement and completing the transactions contemplated by the merger agreement, including the merger. Upon the terms and subject to the conditions of the merger agreement, Merger Sub will be merged with and into Bally, with Bally surviving the merger as a wholly owned subsidiary of Scientific Games.
The principal executive offices of Merger Sub are located at 750 Lexington Avenue, New York, NY 10022, and its telephone number is (212) 754-2233.
Scientific Games International, Inc.
1500 Bluegrass Lakes Parkway
Alpharetta, GA 30004
Telephone: (770) 664-3700
Scientific Games International, Inc., a Delaware corporation, is a wholly owned subsidiary of Scientific Games. As set forth in the debt commitment letter, Financing Sub is expected to be the borrower of the debt financing incurred to finance the merger and the other transactions contemplated by the merger agreement.
The principal executive offices of Financing Sub are located at 1500 Bluegrass Lakes Parkway, Alpharetta, GA 30004, and its telephone number is (770) 664-3700.
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This section contains information about the special meeting of Bally stockholders that has been called to consider and vote upon a proposal to approve the merger agreement, to consider and vote upon a proposal to approve, by a non-binding advisory vote, the specified compensation arrangements disclosed in this proxy statement that may be payable to Bally's named executive officers in connection with the consummation of the merger, to consider and vote upon a proposal to approve the adjournment of the special meeting if necessary or appropriate in the view of the Bally board of directors, including to solicit additional proxies if there are not sufficient votes at the time of the special meeting to approve the merger agreement.
This proxy statement is being provided to the stockholders of Bally as part of a solicitation of proxies by the Bally board of directors for use at the special meeting to be held at the date, time and place specified below, and at any properly convened meeting following an adjournment or postponement thereof, for the purposes set forth in this proxy statement and in the accompanying notice of special meeting.
A special meeting of stockholders of Bally is scheduled to be held on [ ], 2014, at [ ] local time, at [ ], unless the special meeting is adjourned or postponed. We intend to mail this proxy statement and the accompanying proxy card on or about [ ], 2014, to all stockholders entitled to vote at the special meeting.
Purpose of the Special Meeting
At the special meeting, stockholders will be asked:
Recommendations of Our Board of Directors
The Bally board of directors, after considering all factors that the Bally board of directors deemed relevant, unanimously determined that the merger agreement and the transactions contemplated by the merger agreement, including the merger, are advisable, fair to and in the best interests of Bally and its stockholders, and unanimously adopted the merger agreement and the transactions contemplated by the merger agreement, including the merger. Certain factors considered by the Bally board of directors in reaching its decision to approve the merger agreement and the merger can be found in the section entitled "Proposal 1: Approval of the Merger AgreementReasons for the Merger" beginning on page 46 of this proxy statement.
The Bally board of directors unanimously recommends that Bally stockholders vote "FOR" the approval of the merger agreement, thereby approving the merger, "FOR" the compensation proposal and "FOR" the adjournment proposal.
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Record Date and Voting Information
Only holders of record of our common stock at the close of business on [ ], 2014, the record date for the special meeting, are entitled to notice of, and to vote at, the special meeting and any adjournments or postponements thereof. Each holder of record of our common stock on the record date will be entitled to one vote for each share held as of the record date on each matter submitted to stockholders for approval at the special meeting. If you sell or transfer your shares of our common stock after the record date but before the special meeting, you will transfer the right to receive the per share merger consideration, if the merger is completed, to the person to whom you sell or transfer your shares of our common stock, but you will retain your right to vote these shares at the special meeting.
As of the close of business on the record date, there were [ ] shares of Bally common stock, par value $0.10 per share, issued, outstanding and entitled to vote at the special meeting, which shares were held by approximately [ ] holders of record.
Brokers, banks or other nominees who hold shares in "street name" for clients typically have the authority to vote on "routine" proposals when they have not received instructions from beneficial owners. Absent specific instructions from the beneficial owner of the shares, however, brokers, banks or other nominees are not allowed to exercise their voting discretion with respect to the approval of non-routine matters, which include all of the proposals being voted on at the special meeting. Proxies submitted without a vote by brokers, banks or other nominees on these matters are referred to as "broker non-votes" and are discussed in greater detail below.
At the special meeting, the presence in person or by proxy of the holders of a majority of the voting power of the outstanding shares of stock entitled to vote at the meeting is necessary and sufficient to constitute a quorum for the transaction of any business at such meeting. When a quorum is present to organize a meeting, it is not broken by the subsequent withdrawal of any Bally stockholders. As of the record date for the special meeting, [ ] shares of Bally common stock will be required to obtain a quorum. Abstentions and broker non-votes are considered as present for the purpose of determining the presence of a quorum. In the event that a quorum is not present, or if there are insufficient votes to approve the merger agreement at the time of the special meeting, it is expected the meeting will be adjourned or postponed to solicit additional proxies.
Required Vote; Effect of Abstentions and Broker Non-Votes
Approval of the merger agreement requires the affirmative vote of a majority of the voting power of the outstanding shares of Bally common stock entitled to vote at the special meeting, as of the record date for the special meeting. A failure to vote your shares of common stock, an abstention from voting or a broker non-vote will have the same effect as a vote against the proposal to approve the merger agreement.
Approval of each of the compensation proposal and the adjournment proposal requires the affirmative vote of the holders of a majority of the voting power of the shares of Bally stock that are present in person or by proxy and entitled to vote on the proposal.
Abstentions and broker non-votes, if any, will be counted as present in determining whether the quorum requirement is satisfied. A broker non-vote occurs when a broker, bank or other nominee holding shares of a beneficial stockholder does not vote on a particular proposal because it has not received instructions from the beneficial stockholder and the broker, bank or other nominee does not have discretionary voting power for that particular item.
It is important that you vote your shares. Because, under the NRS, the approval of the merger agreement requires the affirmative vote of a majority of the voting power of the outstanding shares of
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Bally common stock, and because, under the NRS and Bally's bylaws, the approval of each of the compensation proposal and the adjournment proposal requires the affirmative vote of the holders of a majority of the voting power of the shares of Bally stock that are present in person or by proxy and entitled to vote thereon, your abstaining from voting, failure to vote, or failure to instruct your broker, bank or other nominee to vote, will have the same effect as a vote "AGAINST" approval of the merger agreement, the compensation proposal and the adjournment proposal. Shares not in attendance will have no effect on the outcome of any vote on the compensation proposal or the adjournment proposal.
If the special meeting is adjourned or postponed for any reason, and the record date remains unchanged, at any subsequent reconvening of the special meeting, all proxies will be voted in the same manner as they would have been voted at the original convening of the meeting, except for any proxies that have been revoked or withdrawn.
After carefully reading and considering the information contained in this proxy statement, each stockholder of record of Bally common stock (that is, if your shares of Bally common stock are registered in your name with Bally's transfer agent, American Stock Transfer & Trust) should vote by mail, through the Internet, by telephone or by attending the special meeting and voting by ballot, according to the instructions described below.
Voting Methods
If your shares are held in your name by Bally's transfer agent, American Stock Transfer & Trust, you can vote:
Please do not send in stock certificates or other documents representing Bally common stock at this time. If the merger is completed, holders of Bally stock certificates will receive instructions regarding the procedures for exchanging their existing Bally stock certificates for the payment of the merger consideration.
If your shares are held in "street name" through a broker, bank or other nominee, you have the right to direct your broker, bank or other nominee on how to vote your shares. Because a beneficial owner is not the stockholder of record, you may not vote these shares at the special meeting unless you obtain a "legal proxy" from the broker, bank or other nominee that holds your shares giving you the right to vote the shares at the special meeting.
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Proxies received at any time before the special meeting and not expired, revoked or superseded before being voted will be voted at the special meeting. If the proxy indicates a specification, it will be voted in accordance with the specification. If no specification is indicated, the proxy will be voted "FOR" the approval of the merger agreement, thereby voting such shares in favor of approving the merger, "FOR" the approval, by a non-binding advisory vote, of the compensation proposal, and "FOR" the approval of the adjournment proposal.
Bally stockholders of record retain the power to revoke their proxy or change their vote, even if they sign the proxy card or voting instruction card in the form accompanying this proxy statement, vote via telephone or vote via the Internet. Bally stockholders can revoke their proxy or change their vote at any time before it is exercised by giving written notice to our General Counsel at Bally Technologies, Inc., 6601 S. Bermuda Road, Las Vegas, NV 89119, Attn: General Counsel, specifying such revocation. Bally stockholders may also change their vote by timely delivery of a valid, later-dated proxy or by voting by ballot in person at the special meeting. Simply attending the special meeting will not constitute revocation of your proxy. If your shares are held in "street name" through a broker, bank or other nominee, you should follow the instructions of such broker, bank or other nominee regarding the revocation of proxies. If you have voted via the Internet or via telephone, you may change your vote by signing on to the website and following the prompts or calling the toll-free number again and following the instructions.
Voting by Bally's Directors and Executive Officers
At the close of business on the record date for the special meeting, directors and executive officers of Bally and their affiliates were entitled to vote [ ] shares of Bally common stock entitled to vote at the special meeting, or approximately [ ]% of the shares of Bally common stock outstanding on that date. We currently expect that Bally's directors and executive officers will vote their shares in favor of the proposal to approve the merger agreement, although none of them has entered into any agreement obligating them to do so.
Certain directors and executive officers of Bally have interests that are different from, or in addition to, those of other Bally stockholders generally. For more information, see the section entitled "Proposal 1: Approval of the Merger AgreementInterests of Bally's Directors and Executive Officers in the Merger" beginning on page 65 of this proxy statement.
Expenses of Proxy Solicitation
This proxy statement is being furnished in connection with the solicitation of proxies by our board of directors. Expenses incurred in connection with printing and mailing of this proxy statement and in connection with notices or other filings with any governmental entities under any laws are the responsibility of Bally. We have engaged the services of Innisfree M&A Incorporated, which we refer to as "Innisfree" in this proxy statement, to solicit proxies for the special meeting. In connection with its retention by us, Innisfree has agreed to provide consulting, analytic and proxy solicitation services in connection with the special meeting. We have agreed to pay Innisfree a fee of approximately $20,000 plus reasonable out-of-pocket expenses for its services, and Bally will indemnify Innisfree for certain losses arising out of its proxy solicitation services. Copies of solicitation materials will also be furnished to banks, brokerage houses, fiduciaries and custodians holding in their names shares of our common stock beneficially owned by others to forward to these beneficial owners. We may reimburse persons representing beneficial owners of our common stock for their costs of forwarding solicitation materials to the beneficial owners. In addition to the solicitation of proxies by mail, solicitation may be made personally, by telephone, by email and by fax, and we may pay persons holding shares for others their expenses for sending proxy materials to their principals. In addition to solicitation by the use of the
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mails, proxies may be solicited by our directors, officers and employees in person or by telephone, email or other means of communication. No additional compensation will be paid to our directors, officers or employees for their services.
The SEC has adopted rules that permit companies and intermediaries, such as brokers, to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single annual report or proxy statement, as applicable, addressed to those stockholders. This process, commonly referred to as "householding", potentially provides extra convenience for stockholders and cost savings for companies. Bally and some brokers may be householding Bally's proxy materials by delivering a single set of proxy materials to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker or Bally that your broker or Bally will be householding materials to your address, householding will continue until you are notified otherwise or until you revoke your consent. If at any time you no longer wish to participate in householding, and would prefer to receive a separate proxy statement or annual report, or if you are receiving multiple copies of either document and wish to receive only one, please notify your broker if you are a street name stockholder or Bally if you are a stockholder of record. You can notify Bally by sending a written request to our Investor Relations team at Bally Technologies, Inc., 6650 El Camino Road, Las Vegas, NV 89118. In addition, we will promptly deliver, upon written or oral request to the address or telephone number above, a separate copy of the proxy statement to a stockholder at a shared address to which a single copy of the documents was delivered.
All votes will be tabulated by a representative of Broadridge Financial Services, Inc., who will act as the inspector of election appointed for the special meeting and will separately tabulate affirmative and negative votes, abstentions and broker non-votes.
As a matter of policy, Bally keeps confidential proxies, ballots and voting tabulations that identify individual stockholders. Such documents are available for examination only by the inspector of election and certain of Bally's employees and Bally's transfer agent and proxy solicitor who are associated with processing proxy cards and tabulating the vote. The vote of any stockholder is not disclosed except (i) where disclosure is required by applicable law, (ii) where disclosure is requested by you, (iii) where Bally concludes in good faith that a bona fide dispute exists as to the authenticity of one or more proxies, ballots or votes, or as to the accuracy of any tabulation of such proxies, ballots or votes or (iv) in a contested proxy solicitation. Occasionally, stockholders provide written comments on their proxy cards. All comments received are then forwarded to Bally's General Counsel or Corporate Secretary. Bally intends to announce preliminary aggregate voting results at the special meeting and to then disclose the final aggregate voting results in a Current Report on Form 8-K of Bally following the special meeting.
Adjournments and Postponements
In addition to the proposal to approve the merger agreement and the compensation proposal, Bally stockholders are also being asked to approve a proposal that will give the Bally board of directors authority to adjourn the special meeting if necessary or appropriate in the view of the Bally board of directors, including to solicit additional proxies if there are not sufficient votes at the time of the special meeting to approve the merger agreement, to allow reasonable additional time for the filing and distribution of any supplemental or amended disclosure to be disseminated to and reviewed by Bally's
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stockholders prior to the special meeting, or otherwise with the consent of Scientific Games. In addition, the Bally board of directors could postpone the meeting before it commences, in each case in any of the circumstances described above. If the special meeting is so adjourned for the purpose of soliciting additional proxies, stockholders who have already submitted their proxies will be able to revoke them at any time prior to their use. If you return a proxy and do not indicate how you wish to vote on any proposal, or if you indicate that you wish to vote in favor of the proposal to approve the merger agreement but do not indicate a choice on the adjournment proposal, your shares will be voted in favor of the adjournment proposal. But if you indicate that you wish to vote against the proposal to approve the merger agreement, your shares will only be voted in favor of the adjournment proposal if you indicate that you wish to vote in favor of that proposal.
Any adjournment may be made without notice to another time or place if the date, time and place to which the meeting is adjourned is announced at the meeting at which the adjournment is taken. At the adjourned meeting any business may be transacted that might have been transacted on the original date of the meeting. However, if the adjournment is for more than 30 days or, if after the adjournment, the Bally board of directors fixes a new record date for the adjourned meeting, a notice of the adjourned meeting will be given to each Bally stockholder of record entitled to vote at the adjourned meeting.
Only Bally stockholders of record as of the close of business on [ ], 2014, or their duly appointed proxies, and "street name" holders (those whose shares are held through a broker, bank or other nominee) who bring evidence of beneficial ownership on the record date for the special meeting, such as a copy of your most recent account statement or similar evidence of ownership of Bally common stock as of the record date for the special meeting, may attend the special meeting. If you are a "street name" holder and you wish to vote at the special meeting, you must also bring a proxy from the record holder (your broker, bank or other nominee) of the shares of Bally common stock authorizing you to vote at the special meeting. All stockholders should bring photo identification (a driver's license or passport is preferred), as you will also be asked to provide photo identification at the registration desk on the day of the special meeting or any adjournment or postponement of the special meeting. Everyone who attends the special meeting must abide by the rules for the conduct of the meeting. These rules will be printed on the meeting agenda. Even if you plan to attend the special meeting, we encourage you to vote by telephone, Internet or mail so your vote will be counted if you later decide not to attend the special meeting. No cameras, recording equipment, other electronic devices, large bags or packages will be permitted in the special meeting. Stockholders will be admitted to the meeting room starting at [ ], local time, and admission will be on a first-come, first-served basis.
If you need assistance in completing your proxy card or have questions regarding Bally's special meeting, please contact Innisfree M&A Incorporated by mail at 501 Madison Avenue, 20th Floor, New York, NY 10022, or by telephone. Stockholders may call toll-free at (888) 750-5834 and banks and brokers may call collect at (212) 750-5834.
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PROPOSAL 1: APPROVAL OF THE MERGER AGREEMENT
Pursuant to the terms of the merger agreement, if the merger agreement is approved by Bally's stockholders and the other conditions to the closing are either satisfied or waived, at the effective time of the merger, Merger Sub will be merged with and into Bally, with Bally surviving the merger as a wholly owned subsidiary of Scientific Games. As a result of the merger, Bally will cease to be a publicly traded company. If the merger is completed, you will not own any shares of the capital stock of the surviving corporation.
At the effective time of the merger, (i) each share of Bally common stock issued and outstanding immediately prior to the effective time of the merger (other than the excluded shares, which are discussed below) will immediately be converted into the right to receive $83.30 in cash, without interest and less any applicable withholding taxes, (ii) each share of Bally common stock owned by Bally will be canceled and no payment will be made with respect to such shares, (iii) each share of Bally common stock owned by any of Bally's subsidiaries, or Scientific Games, Merger Sub, Financing Sub or any of their respective wholly owned subsidiaries will be converted into one fully paid share of common stock, par value $0.001 per share, of the surviving corporation at the consummation of the merger, and (iv) each share of common stock, par value $0.001 per share, of Merger Sub that is issued and outstanding immediately prior to the effective time of the merger will be converted into one fully paid and non-assessable share of common stock, par value $0.001 per share, of the surviving corporation at the consummation of the merger.
At the effective time of the merger, each option to purchase Bally common stock that is outstanding (whether vested or unvested) immediately prior to the effective time of the merger will be canceled in exchange for the right to receive an amount in cash equal to the excess, if any, of the merger consideration over the exercise price of such option, less any applicable withholding taxes. If the exercise price of the option equals or exceeds the merger consideration, the option will be canceled without the payment of any consideration to the holder.
Holders of incentive stock options will be permitted to exercise such incentive stock options (whether vested or unvested) five business days prior to, and conditioned upon the occurrence of, the merger closing date. Incentive stock options that are not exercised in such manner and that remain outstanding immediately prior to the effective time of the merger will be cashed out in the manner described in the preceding paragraph.
At the effective time of the merger, each Bally performance unit that is outstanding (whether vested or unvested) immediately prior to the effective time of the merger will be canceled in exchange for the right to receive an amount in cash equal to the merger consideration, less any applicable withholding taxes. For purposes of determining the number of performance units that are outstanding immediately prior to the effective time of the merger, the applicable performance-based conditions will be considered to have been achieved at maximum levels. The only individuals who have outstanding performance units are Bally's current chief executive officer and chief financial officer.
At the effective time of the merger, each share of Bally restricted stock and each Bally restricted stock unit that was granted prior to August 1, 2014, and that is outstanding (whether vested or unvested) immediately prior to the effective time of the merger, will be canceled in exchange for the right to receive an amount in cash equal to the merger consideration, less any applicable withholding taxes.
At the effective time of the merger, each share of Bally restricted stock and each Bally restricted stock unit that is granted on or after August 1, 2014, and that is outstanding immediately prior to the effective time of the merger, will not be cashed out or canceled in the merger, but instead will be converted as of the effective time of the merger into a restricted share or restricted stock unit, as
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applicable, with respect to the Class A common stock, par value $0.01 per share, of Scientific Games, using the stock award exchange ratio. The terms and conditions of these converted restricted shares and restricted stock units will generally remain unchanged, and such awards will continue to vest as scheduled based on the holder's continued employment through each applicable vesting date, provided that if the holder's employment is terminated by Scientific Games without "cause" or by the holder for "good reason" (generally, as such terms are defined in the 2010 LTIP) within one year following the merger closing date, the holder will be given additional service credit for vesting purposes for the holder's months of service following the merger closing date, plus an additional twelve (12) months, such that the installments of the converted restricted shares and restricted stock units that were otherwise scheduled to vest within such number of months following the holder's employment termination date will immediately vest and be settled in shares of Scientific Games Class A common stock.
At the effective time of the merger, the restated articles of incorporation of Bally will, by virtue of the merger, be amended in their entirety to read as set forth on Exhibit A of the merger agreement.
As part of Bally's ongoing strategic planning process, members of Bally's board of directors and certain members of Bally's senior management periodically review and assess Bally's operations, financial performance and competitive position, as well as industry trends and potential strategic initiatives. Certain members of Bally's senior management also meet periodically with members of the Bally board of directors in the ordinary course of business to discuss potential actions to maximize stockholder value, including potential business combinations and joint ventures, leveraged financing, repurchasing of the Company's common stock and other transactions that could deliver value to stockholders.
In the past few years, Bally has considered a number of potential acquisitions, including the acquisition of SHFL entertainment, Inc., which Bally completed on November 25, 2013, and the acquisition of DragonPlay Ltd., which Bally completed on July 1, 2014. In the course of considering these acquisitions and other strategic initiatives, the Bally board of directors has observed other merger activity in the gaming industry, including the acquisition of WMS Industries, Inc. by Scientific Games in October, 2013, the acquisition of Rational Group, the operator of PokerStars and FullTilt, by Amaya Gaming Group announced in June, 2014 (which was completed on August 1, 2014), the proposed acquisition of Video Gaming Technologies, Inc. by Aristocrat Leisure, Ltd. announced in July, 2014, and the proposed acquisition of International Game Technology, Inc. by GTECH S.p.A. announced in July, 2014. In addition, from time to time, certain members of Bally senior management meet with representatives of various investment banks, including representatives of Macquarie Capital and Groton Partners LLC, which we refer to as "Groton Partners" in this proxy statement, to discuss developments in the capital markets and gaming industry and the investment banks' views as to opportunities potentially available to Bally.
On July 7, 2014, Mr. Gavin Isaacs, the Chief Executive Officer of Scientific Games, telephoned Mr. Richard Haddrill, the Chief Executive Officer of Bally, to schedule a meeting with Mr. Haddrill, Mr. Isaacs, Mr. Ronald Perelman, Chairman of the board of directors of Scientific Games and Chairman and Chief Executive Officer of MacAndrews & Forbes Holdings Inc., Scientific Games' largest stockholder, and Mr. Barry Schwartz, another member of the Scientific Games board of directors and the Executive Vice Chairman of MacAndrews & Forbes Holdings Inc., to discuss a potential business matter, without indicating the specific nature of the matter.
On the morning of July 8, 2014, and in advance of the dinner meeting scheduled for later that day, Messrs. Haddrill and Isaacs met for breakfast. During the course of this breakfast, Mr. Isaacs indicated that the purpose of the upcoming dinner meeting was to discuss Scientific Games' interest in exploring
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a potential acquisition of Bally. After this breakfast meeting, Mr. Haddrill called Mr. Robbins to inform him of the discussion with Mr. Isaacs.
On the evening of July 8, 2014, Messrs. Haddrill, Isaacs, Perelman and Schwartz met for dinner in Las Vegas, Nevada, to continue the discussion between Messrs. Haddrill and Isaacs from earlier that morning. Mr. Perelman asked Mr. Haddrill if Bally would be open to discussions regarding an acquisition of Bally by Scientific Games. Mr. Haddrill replied that while he was not in a position to provide a definitive response, negotiate terms or engage in discussions regarding any potential transaction without authorization from the Bally board of directors, he would listen to any Scientific Games' proposal and would communicate the terms of such proposal to the Bally board of directors for its consideration. During the course of this dinner meeting, Mr. Perelman indicated that Scientific Games would be interested in exploring an all-cash acquisition of Bally at a price of $75.00 per share of Bally common stock, subject to, among other things, satisfactory completion of due diligence and negotiation of mutually acceptable definitive transaction documents. In addition, Mr. Perelman indicated a desire to have Mr. Haddrill join Scientific Games' board of directors as Vice Chairman if the proposed transaction were consummated. Mr. Haddrill also suggested that Mr. Perelman directly contact Mr. David Robbins, Chairman of the Bally board of directors, to communicate Scientific Games' interest in a potential transaction.
On July 9, 2014, certain members of Bally's senior management advised Bally's external legal counsel, Skadden, Arps, Slate, Meagher & Flom LLP, which we refer to as "Skadden" in this proxy statement, of the potential acquisition proposal. In addition, on July 9, 2014, Scientific Games sent Bally a draft confidentiality agreement.
Also on July 9, 2014, Mr. Perelman called Mr. Robbins, who had been briefed by Mr. Haddrill on the substance of the July 8 meetings, to discuss a proposed acquisition of Bally by Scientific Games. During the course of this call, Mr. Perelman and Mr. Robbins discussed their views of the gaming industry and the potential benefits to the stockholders of both companies of combining the two companies, including merger trends in the industry and potential complementary aspects of the gaming devices and lottery businesses. Mr. Perelman reiterated the substance of the July 8 dinner meeting and indicated that Scientific Games preferred an all-cash transaction. On the call, Mr. Robbins expressed his view that a transaction at the price proposed by Scientific Games might not be attractive to the board of directors of Bally as the basis for exploratory discussions as it was below the highest trading price for Bally shares during the most recent 52-week period. Mr. Perelman also indicated on the call a desire that Mr. Robbins and Mr. Haddrill join the Scientific Games board of directors if a potential transaction were consummated, with Mr. Haddrill serving as the Vice Chairman.
Subsequent to such discussion, at the suggestion of Mr. Perelman, Mr. Robbins met later on July 9, 2014 with Mr. Peter Cohen, a vice chairman of the Scientific Games board of directors, to continue the discussion regarding a potential acquisition of Bally by Scientific Games. Mr. Cohen and Mr. Robbins also expressed their views on industry merger trends and the benefits to the stockholders of both companies of combining the two companies. During the course of these discussions, Mr. Cohen indicated that Scientific Games would be interested in pursuing an all-cash acquisition of Bally at a price range of $75.00 to $77.00 per share of Bally common stock. Mr. Robbins again noted that the proposed range would not provide sufficient value to Bally stockholders and it was below the highest trading price for Bally shares during the most recent 52-week period and that the proposed price range might not be attractive to the board of directors of Bally as the basis for exploratory discussions. Mr. Cohen responded that Scientific Games believed that Bally's highest trading price might not be a viable indicator of value inasmuch as such high trading price was reached during a low volume trading period. Mr. Cohen also noted that Scientific Games had not yet received any confidential diligence materials from Bally, and could potentially consider increasing its contemplated price range following its review of such additional information.
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On July 10, 2014, the Bally board of directors held a telephonic special meeting, to consider the acquisition proposal received from Scientific Games. At this meeting, certain members of Bally's senior management provided the Bally board of directors with their views on the gaming industry, Bally's competitive position in the industry and strategic opportunities available to Bally to enhance stockholder value, including a potential sale of Bally. The members of Bally's senior management in attendance also discussed the ongoing integration efforts with respect to Bally's prior acquisitions of SHFL entertainment, Inc. and DragonPlay Ltd. The Bally board of directors noted that it had gained additional familiarity with dynamics in the gaming industry during the course of Bally's consideration and execution of the acquisition of SHFL entertainment, Inc., as well as through Bally's consideration of other potential acquisition targets. Representatives from Skadden were also in attendance, and discussed the fiduciary duties of the Bally board of directors in considering strategic alternatives, including whether to engage in exploratory discussions with Scientific Games. Messrs. Haddrill and Robbins described to Bally's board of directors their respective discussions with representatives of Scientific Games during the preceding days, and each disclosed that representatives of Scientific Games had discussed the possibility that Messrs. Haddrill and Robbins would be invited to join the board of Scientific Games (and, in the case of Mr. Haddrill, as Vice Chairman) if Scientific Games were to acquire Bally.
At the July 10 meeting, representatives from Skadden indicated to the Bally board of directors that Skadden represented SHFL entertainment, Inc. in its sale to Bally, along with the directors of SHFL entertainment, Inc., including Mr. Isaacs, in their capacity as such, in connection with the shareholder litigation against SHFL entertainment, Inc. and Bally related thereto. The Bally board of directors determined that these matters did not result in a disabling conflict and agreed to continue to use Skadden as its legal counsel in connection with its exploration of strategic alternatives, including a potential transaction with Scientific Games.
The Bally board of directors also discussed whether Macquarie Capital, Groton Partners or another financial advisor should be engaged by Bally in order to assist the Bally board of directors in exploring Bally's strategic alternatives, including in connection with a potential transaction with Scientific Games. Information on Macquarie Capital's and Groton Partners' respective experience in the gaming industry and qualifications was discussed by the Bally board of directors and members of Bally's senior management. The Bally board of directors also discussed the fact that Groton Partners had from time to time been previously engaged by the Bally board of directors, and that each of Macquarie Capital and Groton Partners was familiar with Bally and the industry in which it operates. The Bally board of directors then authorized certain members of Bally's senior management to negotiate with and engage each of Macquarie Capital and Groton Partners on customary terms to act as financial advisors to Bally.
After due consideration of the potential risks faced by Bally in the current challenging global economic environment, the Bally board of directors determined that, while it was not making a decision to pursue a sale of Bally at this time, and the price range previously communicated by Scientific Games was inadequate, further discussions with Scientific Games should be pursued to explore whether a transaction with Scientific Games was available on terms that maximized stockholder value. The Bally board of directors then instructed certain members of senior management and its legal advisors to finalize negotiations of, and to execute, a confidentiality and standstill agreement with Scientific Games prior to making non-public information about Bally available to Scientific Games.
Later that day, Bally and Scientific Games finalized negotiation of a confidentiality and standstill agreement, which was executed on July 10, 2014. Following execution of that agreement, Bally began providing certain non-public information about Bally to Scientific Games and representatives of each party had a telephone call in which they coordinated a plan for Scientific Games' due diligence review. Bally directed Skadden to establish an electronic data room for various confidential documents to be made available to Scientific Games in connection with its due diligence.
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During the period from July 10, 2014 until the signing of a definitive agreement, certain members of Bally's senior management provided regular informal updates to members of Bally's board of directors with respect to the progress of discussions with Scientific Games.
On July 11, 2014, Mr. Scott Schweinfurth, Chief Financial Officer of Scientific Games, and Mr. Isaacs met with Mr. Neil Davidson, Chief Financial Officer of Bally, in Las Vegas, Nevada, with Mr. Paul Savas, Chief Financial Officer of MacAndrews & Forbes Holdings Inc., joining by telephone. During the course of this meeting, Mr. Davidson provided Mr. Schweinfurth with information concerning Bally's business operations and certain non-public projected financial information, which projected financial information we define as the "July 2014 projections" and describe more fully in the section entitled "Proposal 1: Adoption of the Merger AgreementCertain Projections Prepared by the Management of Bally" beginning on page 73 of this proxy statement.
On July 14, 2014, Bally engaged Macquarie Capital as lead financial advisor to the Bally board of directors in connection with a possible sale, transfer or other disposition, directly or indirectly, of all or a material portion of the equity securities, assets or business of Bally or its subsidiaries, including assisting in the evaluation of Bally's strategic alternatives. Bally also engaged Groton Partners effective July 14, 2014, to provide additional advice and perspectives in connection with the foregoing matters.
On July 16, 2014, the Bally board of directors held a telephonic special meeting, with certain members of Bally's senior management, Macquarie Capital, Groton Partners and Skadden in attendance. Certain members of Bally's senior management updated the Bally board of directors on the status of Scientific Games' due diligence review of Bally and the nature of the information being shared. The directors of Bally and certain members of Bally's senior management discussed the July 2014 projections and the assumptions underlying the same. At the request of the Bally board of directors, Macquarie Capital delivered a presentation on the ability of Scientific Games, in the current financial market, to raise debt financing necessary to consummate the potential transaction, assuming various leverage multiples applied to the combined Bally and Scientific Games cash flows based on Wall Street projections and a range of potential synergies.
During the July 16 board meeting, Macquarie disclosed to the Bally board of directors that Macquarie Capital or one of its affiliates (i) had previously represented WMS Industries, Inc. in its sale to Scientific Games in 2013, (ii) had served as a co-manager for Scientific Games' high-yield bond offering during 2014, and established credit limits to facilitate trading by certain potential investors in debt of Scientific Games and affiliates of Scientific Games representing less than 0.01% of their total outstanding debt, (iii) had been one of four banks providing committed financing to Scientific Games in connection with Scientific Games' consideration of another potential target in the gaming industry during 2014, which commitments had previously expired and under which there were no further obligations, (iv) had previously maintained a minority position in Scientific Games' then-existing credit facility, which was refinanced as part of the financing for the acquisition of WMS Industries, Inc. by Scientific Games in October, 2013, and (v) held a non-beneficial equity position in Bally constituting less than 0.5% of the outstanding common stock of Bally.
The Bally board of directors determined that these matters did not result in a disabling conflict and reiterated its determination to have Macquarie Capital and Groton Partners serve as its financial advisors. The Bally board of directors then instructed Macquarie Capital and Groton Partners, with the assistance of certain members of senior management, to perform an analysis of strategic alternatives that would potentially give stockholders the opportunity to maximize the value of their investment in Bally. Macquarie Capital and Groton Partners were instructed by the Bally board of directors to prepare a list of third parties that Bally could potentially acquire or with which Bally could seek a significant corporate transaction. The directors also instructed Macquarie Capital to inform Scientific Games that, while its proposed $75.00 to $77.00 price per share of Bally common stock was inadequate and would need to be improved if the parties were to continue discussions regarding a potential
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transaction, Bally would permit due diligence to proceed for a limited period of time in the belief that such diligence efforts would result in a higher proposed purchase price per share.
On July 17, 2014, certain members of Bally's senior management made a management presentation in Las Vegas, Nevada, to representatives of Scientific Games, including representatives of Scientific Games' potential financing sources and MacAndrews & Forbes Holdings Inc. Representatives of Macquarie Capital and Groton Partners also attended this management presentation. Topics covered in the management presentation included growth strategies, commercial relationships, historic operating performance and the July 2014 projections.
On July 18, 2014, and at the direction of Scientific Games, representatives of BofA Merrill Lynch, lead financial advisor to Scientific Games, indicated to representatives of Macquarie Capital that Scientific Games was considering an increase in its proposed purchase price to a range of $80.00 to $82.00 per share of Bally common stock.
Also on July 18, 2014, representatives of Scientific Games provided representatives of Bally with a written due diligence request list. During the final two weeks of July 2014, certain members of Bally's senior management had a series of diligence calls with Scientific Games and its representatives, relating to various aspects of Bally's business and operations, including, among other things, its quality of earnings, existing customer base, ongoing financing arrangements and various legal matters.
On July 19, 2014, Bally provided Scientific Games and its representatives with access to an electronic data room established by Bally and managed by Intralinks, Inc. Beginning on such date and continuing through execution of the merger agreement on August 1, 2014, Bally continued to upload diligence materials to the electronic data room for review by Scientific Games and its representatives.
On July 21, 2014, the Bally board of directors held a telephonic special meeting with certain members of Bally's senior management, Macquarie Capital, Groton Partners and Skadden in attendance. During the meeting, Macquarie Capital informed the Bally board of directors that on July 18, 2014, representatives of BofA Merrill Lynch indicated on behalf of Scientific Games that Scientific Games was considering an increase in its proposed purchase price for Bally to $80.00 to $82.00 per share of Bally common stock. The Bally board of directors and certain members of senior management discussed Bally's current business plan, industry trends and the potential for increasing stockholder value through implementation of Bally's business initiatives. The Bally board of directors and certain members of Bally's senior management also discussed the potential risks that Bally faced in achieving its business plan, including competition from strategic participants in the industry and the current challenging global economic environment. Thereafter, Skadden again discussed with the Bally board of directors the fiduciary duties of directors in connection with evaluating Bally's strategic alternatives. Representatives of Macquarie Capital then discussed with the directors matters relating to, among other things, comparable trading and transaction statistics and strategic alternatives, including Macquarie's and Groton Partners' views that there was unlikely to be credible potential interest in Bally from third parties other than Scientific Games at the price range being discussed. At the direction of the Bally board of directors, Macquarie Capital and Groton Partners, as well as certain members of Bally's senior management, then discussed strategic alternatives that would potentially give Bally stockholders the opportunity to maximize the value of their investment in Bally, including discussions of the risks and opportunities for Bally pursuing its business plan on a standalone basis, discussion of potential acquisition targets, a leveraged recapitalization transaction coupled with a potential share buyback and a potential sale of Bally (to Scientific Games or another third party). Representatives of Skadden reviewed with the Bally board of directors the material terms to be included in a draft merger agreement in the event the Bally board of directors determined to continue with discussions with Scientific Games. Following the presentations made during the July 21, 2014 meeting, the Bally board of directors concluded that the price of $80.00 to $82.00 then proposed by Scientific Games was inadequate and that Scientific Games should be informed of this conclusion, but that Bally was willing
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to continue discussions with Scientific Games in order to determine whether Scientific Games could improve the terms of its proposal.
On July 23, 2014, the Bally board of directors held a telephonic special meeting to review the continuing discussions with Scientific Games, which was attended by certain members of Bally's senior management and representatives of Macquarie Capital, Groton Partners and Skadden. Members of senior management updated the Bally board of directors on the progress of Scientific Games' ongoing due diligence review. Representatives of Macquarie Capital and Groton Partners reviewed with the directors their respective views on strategic alternatives available to Bally, including pursuing its current business plan, pursuing a leveraged recapitalization coupled with a potential stock buyback, acquiring third parties in the gaming industry, pursuing a spin-off or merger focused on particular lines of Bally's business and the sale of Bally (including third parties other than Scientific Games that could potentially be interested in acquiring Bally, and Macquarie's and Groton Partners' respective views of such third parties' ability to make a superior offer for Bally). Representatives of Macquarie Capital and Groton Partners further discussed with the Bally board of directors certain considerations with respect to the potential risks and benefits of the strategic alternatives discussed. Representatives of Macquarie Capital also discussed valuation and certain valuation methodologies with the directors. Representatives of Macquarie Capital also expressed their view that, while Bally could pursue a pre-signing market check or a "go-shop" period from Scientific Games, if the transaction had a termination fee within the ranges being discussed, a pre-signing market check or "go-shop" period was not likely to meaningfully increase the probability that other potentially interested third parties would, or the ability of other potentially interested third parties to, make an acquisition proposal for Bally that would be superior to the price that they believed Scientific Games would be willing to pay in light of regulatory requirements, financing capability and previously announced merger transactions in the industry, as well as the expectation that the anticipated time period between execution of any definitive agreement and the related stockholder meeting would provide ample opportunity for other bidders to emerge. During the course of this meeting, representatives of Skadden continued their discussion with the directors regarding the material terms of a draft merger agreement, including whether to include a "go shop" period in the draft merger agreement. The Bally board of directors authorized Skadden to deliver the draft merger agreement to representatives of Scientific Games, noting in such draft that the Bally board of directors was continuing to evaluate whether it would require a "go shop" period, and instructing Macquarie Capital to communicate to representatives of Scientific Games that the Bally board of directors was not committing to a sale of Bally at this time.
On July 23, 2014, representatives of Macquarie Capital called representatives of BofA Merrill Lynch to convey that a price range of $85.00 to $86.00 per share of Bally common stock would be acceptable to Bally. At the direction of Scientific Games, representatives of BofA Merrill Lynch responded later that day to representatives of Macquarie Capital that Scientific Games was not willing to proceed with a transaction at that price range and reaffirmed Scientific Games' prior range of $80.00 to $82.00 per share of Bally common stock. Following discussion, the parties agreed to continue discussions regarding the other terms of a potential transaction while discussions regarding valuation continued.
On the morning of July 24, 2014, representatives of Skadden, on behalf of Bally, called representatives of Cravath, Swaine & Moore LLP, which we refer to as "Cravath" in this proxy statement, outside legal counsel to Scientific Games, to convey that Skadden would be distributing an initial draft merger agreement shortly and to preview certain of the terms that would be contained in such initial draft. Shortly following this call, representatives of Skadden distributed an initial draft merger agreement to representatives of Cravath. During the evening of July 24, 2014, representatives of Cravath communicated the initial response of Scientific Games on certain material terms of the merger agreement, including a proposal for an $80 million termination fee (which would represent approximately 2.6% of the aggregate equity value of the proposed transaction at the most recent price
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proposed by Scientific Games) with no "go shop" period, an $80 million reverse termination fee payable in the event the transaction did not close because the parties were unable to obtain necessary regulatory and gaming approvals despite using required efforts to do so or in the event Scientific Games failed to close the transaction due to a failure of its lending sources to fund under their commitment letters, a threshold of $80 million for divestitures if such actions were required by regulators and an outside termination date of 9 months after the date of the merger agreement. Cravath further indicated that Scientific Games was not prepared to accept a "go shop" provision in the merger agreement.
During the morning of July 25, 2014, representatives of Cravath and Skadden had further telephonic discussions regarding various issues related to the potential transaction and the terms of the then-current draft merger agreement, including the scope of, and exceptions to, the provisions restricting Bally from pursuing alternative acquisition proposals, covenants regarding antitrust and gaming approvals required for the acquisition, and covenants with respect to Bally's conduct of business between execution of any merger agreement and the closing of the potential transaction.
On the afternoon of July 25, 2014, the Bally board of directors held a special meeting in the offices of Skadden located in New York, New York with certain members of Bally's senior management, Macquarie Capital, Groton Partners and Skadden in attendance. Representatives of Macquarie Capital and Skadden provided an update on discussions with representatives of Scientific Games. Macquarie Capital also discussed the debt financing commitments that Scientific Games was planning to obtain in connection with the proposed transaction. Thereafter, Skadden described the material issues that had arisen to date in negotiations with Cravath relating to the draft merger agreement, including the outside termination date for the transaction (and the corresponding outside termination date for Scientific Games' financing commitments), the inclusion of a potential "go shop" provision and the amounts of the termination fee, reverse termination fees and applicable divestiture threshold, and again discussed with the Bally board of directors the fiduciary duties of the directors in connection with their evaluation of the acquisition proposal made by Scientific Games. During the course of this discussion, each of Mr. Haddrill and Mr. Robbins reiterated their potential roles as directors of Scientific Games following consummation of the contemplated transaction and the directors, other than Mr. Haddrill and Mr. Robbins, met in executive session to discuss the potential conflicts related thereto and the potential advantages for ensuring a continuity of interest for Bally's employees, suppliers, customers, and the interests of the Las Vegas and Nevada community and economy.
At this meeting of the Bally board of directors, the directors also received a presentation from Skadden on certain antitrust matters arising out of a business combination between Bally and Scientific Games. Also at this meeting, certain members of Bally's senior management presented their views on the state of the gaming industry and management's perspective on Bally's projected future operations, including the ongoing integration efforts with respect to the acquisitions of SHFL entertainment, Inc. and DragonPlay Ltd. The Bally board of directors, after full discussion, reaffirmed its prior position that the price range of $80.00 to $82.00 per share of Bally common stock then proposed by Scientific Games was not adequate and instructed Macquarie Capital to inform BofA Merrill Lynch that, while Bally was willing to continue discussions with Scientific Games, including with respect to finalizing due diligence and negotiating material terms of a potential merger agreement, Bally was not interested in a transaction at the price range per share then proposed by Scientific Games.
On July 26, 2014, Mr. Haddrill called Mr. Isaacs to discuss valuation matters related to the potential transaction. During this conversation, Mr. Isaacs indicated that Scientific Games was not prepared to raise its proposed purchase price of $80.00 to $82.00 per share at such time. Also on July 26, 2014, Cravath delivered a revised draft of the proposed merger agreement to Bally and its representatives, which draft reflected Scientific Games' responses to the Bally initial draft received by Scientific Games on July 24, 2014, including rejecting the potential inclusion of a "go-shop" provision.
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On the morning of July 27, 2014, Skadden provided a further revised draft of the merger agreement, accompanied by draft disclosure schedules, to Scientific Games and its representatives, which reflected the response of Bally and its advisors to the Scientific Games draft provided on July 26, 2014 including, among other items, Bally's proposals for a lower termination fee equal to 2.0% of total common merger consideration and a termination date of 12 months following the date of the merger agreement as well as Bally's rejection of Scientific Games' proposed reverse termination fee and divestiture threshold amounts.
Later during the morning of July 27, 2014, the Bally board of directors held a telephonic special meeting. The meeting was attended by certain members of Bally's senior management and representatives of Macquarie Capital, Groton Partners and Skadden, as well as a representative of Frederick W. Cook & Co., an employee compensation consultant previously retained by Bally's compensation committee, which we refer to in this proxy as "Frederick Cook". Representatives of Skadden updated the board as to the status of ongoing negotiations between the parties, with Skadden noting the material issues that remained open between the parties (other than price), including (i) the appropriate level of efforts Scientific Games would agree to undertake in connection with obtaining applicable regulatory approvals, (ii) the amount of the termination fee payable by Bally and the instances in which any such fee would be payable, (iii) the inclusion, and amount, of the reverse termination fees payable by Scientific Games and the circumstances in which any such fees would be payable, (iv) the scope of acceptable limitations on Bally's operation of its business pending consummation of the merger, (v) limitations on the ability of the Bally board of directors to change its recommendation with respect to the merger or to terminate the merger agreement in favor of a superior proposal, and (vi) employee benefit matters during the period between the signing of a definitive agreement and the consummation of the proposed transaction. Representatives of Macquarie Capital provided an update with respect to Scientific Games' proposed financing commitments and also reported that they had informed representatives of Scientific Games of the Bally board of directors' view that Bally would require a commitment from Scientific Games to increase its proposed purchase price prior to Bally proceeding with further discussions. Following these conversations, the Bally board of directors received a presentation from the representative of Frederick Cook and the directors discussed a framework for employee retention following the potential announcement of a potential sale of Bally.
During the evening of July 27, 2014, representatives of Macquarie Capital had discussions with representatives of Scientific Games during which Macquarie Capital conveyed the Bally board of directors' views regarding price, including the board's position that Scientific Games needed to improve its price in order for discussions to continue. During the course of these discussions, representatives of Scientific Games indicated that Scientific Games would be willing to consider a purchase price of $81.50 per share of Bally common stock.
During the morning of July 28, 2014, Mr. Isaacs called Macquarie Capital to communicate Scientific Games' "best and final" offer of a purchase price of $83.00 per share of Bally common stock, with a termination fee of $80 million, a reverse termination fee of $90 million (which would be Bally's exclusive remedy upon termination of the merger agreement other than in instances of an intentional breach of the merger agreement by Scientific Games), a divestiture threshold of $80 million and a termination date of nine months after the date of the merger agreement.
Later during the morning of July 28, 2014, the Bally board of directors held a telephonic special meeting to review the status of discussions with Scientific Games, which was attended by certain members of Bally's senior management and representatives of Macquarie Capital, Groton Partners, Skadden and Frederick Cook. Representatives from Macquarie Capital updated the Bally board of directors on their discussions with representatives of Scientific Games, including the proposal made by Mr. Isaacs earlier that morning, noting that it had been characterized as Scientific Games' "best and final" offer. Following this update, and following discussion among the directors and with their legal
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and financial advisors, as well as with certain members of Bally's senior management, the Bally board of directors instructed Macquarie Capital and Skadden, with the benefit of advice from certain members of senior management, to continue to negotiate material terms of the proposed merger agreement with representatives of Scientific Games, and for representatives of Macquarie Capital to seek a further improvement in Scientific Games' proposed price of $83.00 per share of Bally common stock, and noted that the Bally board of directors was not committing to a sale of Bally at such time. Following these discussions, the Bally board of directors continued its discussion with the representative of Frederick Cook with respect to a framework for a potential retention plan for Bally's employees.
On July 29, 2014, the Bally board of directors held a telephonic special meeting to review the status of discussions with Scientific Games. This meeting was attended by certain members of Bally's senior management as well as representatives of Macquarie Capital, Groton Partners and Skadden. Representatives of Skadden provided an update on continuing discussions with Cravath on the remaining open material issues in the draft merger agreement and the directors discussed with their legal and financial advisors alternative approaches to resolving the open matters, which included resolution of the purchase price, the amounts of the termination fee, reverse termination fees and divestiture threshold and limitations on Bally's ability to operate the business pending the consummation of the merger. Representatives of Macquarie Capital and Groton Partners then discussed their respective perspectives on the purchase price and terms proposed by Scientific Games, current financial market trends and further negotiations with Scientific Games.
Following the meeting of the Bally board of directors, on July 29, 2014, representatives of Bally and Scientific Games had further discussions with respect to the purchase price and the open material terms in the proposed merger agreement, including the disclosure schedules related thereto. During the course of these discussions, representatives of Bally indicated that the Bally board of directors would be prepared to proceed with a transaction at a price of $84.00 per share of Bally common stock if certain other key terms were agreed to by Scientific Games. Following further discussions, representatives of Scientific Games proposed a purchase price of $83.30 per share of Bally common stock, along with an increase in the reverse termination fee payable in the event of a financing failure or regulatory failure to $105 million, an increase in the divestiture threshold to $85 million, an outside termination date of 10 months after the date of any definitive merger agreement and a termination fee of $80 million. Representatives of Scientific Games conveyed that a price of $83.30 per share of Bally common stock was Scientific Games' "best and final" offer and that Scientific Games would not entertain any further price increases.
On July 30, 2014, Cravath provided a revised draft of the merger agreement and disclosure schedules to Bally and its representatives reflecting the terms described above, along with drafts of debt commitment papers to be provided by Scientific Games' intended financing sources.
On July 30, 2014, the Bally board of directors held a telephonic special meeting to discuss the status of discussions with Scientific Games. The meeting was attended by representatives of Macquarie Capital, Groton Partners and Skadden, as well as certain members of senior management. Representatives of Macquarie Capital reported that representatives of Scientific Games had agreed to increase the proposed purchase price to $83.30 per share of Bally common stock, and had reiterated that this price, along with the other terms included in the draft merger agreement provided by Cravath on July 30, 2014, was Scientific Games' "best and final" offer. Representatives of Skadden and Macquarie Capital described Scientific Games' improved proposal on certain material open items, including an increase in the reverse termination fee payable in the event of a financing failure or regulatory failure to $105 million, an increase in the divestiture threshold to $85 million and an outside termination date of 10 months following the date of the execution of a definitive merger agreement. The directors discussed the allocation of regulatory risks and Bally's ability to obtain recourse if Scientific Games failed to close under certain circumstances. Macquarie Capital also described the material financial terms of the draft financing commitments that had been provided by Scientific
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Games. Macquarie Capital also reported that Scientific Games had indicated its desire to move expeditiously to the execution of a definitive agreement given concerns that premature disclosure of the ongoing discussions could occur and that the debt financing commitments that had been obtained by Scientific Games were set to expire as of 11:59 p.m. (Eastern) on August 1, 2014 if they were not countersigned by Scientific Games prior to such time. Also on July 30, 2014, Mr. Isaacs called Mr. Haddrill and reaffirmed Scientific Games' desire to reach a definitive agreement with Bally and announce such transaction as soon as possible.
At the request of the Bally board of directors, representatives of each of Macquarie Capital and Groton Partners discussed their respective views with respect to the latest proposal made by Scientific Games in light of Bally's strategic alternatives. Representatives of Macquarie Capital noted that the purchase price offered by Scientific Games compared favorably with the average multiples achieved in other comparable precedent transactions. Representatives of Groton Partners concurred and stated that it was their belief that the Bally board of directors had achieved its objective of maximizing value for Bally's stockholders and had exhausted all opportunities for a further price increase from Scientific Games.
Later that same day, certain members of Bally's senior management, as well as Bally's legal and financial advisors, engaged in further discussions with representatives of Scientific Games with respect to the remaining open issues in the proposed merger agreement, including treatment of equity awards, limitations on the ability of Bally to operate in the period prior to closing and the number of jurisdictions which would constitute required gaming approvals for the proposed transaction.
During the afternoon of July 30, 2014, members of the Bally board of directors received materials that included, among other items, a then-current draft of the proposed merger agreement (including a summary of the material terms thereof), Scientific Games' proposed debt financing commitment papers (and a summary of the material legal and financial terms thereof), a draft presentation from Macquarie Capital with respect to its financial analysis of the proposed transaction, and proposed resolutions for consideration by the Bally board of directors.
During the evening of July 30, 2014, Skadden provided Scientific Games and its representatives with a further revised draft of the proposed merger agreement and disclosure schedules.
During the course of July 31, 2014, Bally and Scientific Games had a series of telephonic negotiations, in which certain members of each party's respective senior management and each party's legal and financial advisors participated, to address the remaining open issues.
During the evening of July 31, 2014, the Bally board of directors held a special meeting at the offices of Skadden in New York, New York to discuss the proposed merger transaction with Scientific Games, with representatives of Skadden and Groton Partners attending in person. Mr. Michael Klayko, a Bally director, was unable to attend the meeting in person, and was in attendance telephonically. Mr. Haddrill, as well as certain members of Bally's senior management and representatives of Macquarie Capital were also in attendance via video conference, and representatives of Brownstein Hyatt Farber Schreck, LLP (which we refer to as "BHFS" in this proxy statement), Bally's Nevada legal counsel, were also in attendance telephonically. Representatives of Macquarie Capital gave a presentation to the Bally board of directors, in which they reviewed Macquarie Capital's financial analysis of the merger consideration and the methodologies and assumptions underlying its analysis, including discussion of historical trading prices, Wall Street analyst price targets, selected public company trading comparables analysis, an analysis of selected precedent transactions and a discounted cash flow analysis. The Bally board of directors then discussed other alternatives available to Bally with certain representatives of senior management and Bally's legal and financial advisors, including discussions of the risks and opportunities for Bally pursuing its business plan on a standalone basis, discussion of potential acquisition targets, a leveraged recapitalization transaction coupled with a potential share buyback and pursuing a spin-off or merger focused on particular lines of Bally's
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business. Certain members of senior management and representatives of Macquarie Capital and Skadden summarized the history of negotiations with Scientific Games and the resulting improvement in terms and price from Scientific Games' original proposal. Skadden then reviewed in detail the terms of the proposed merger agreement and Skadden and BHFS provided a review of the fiduciary duties of the Bally board of directors in connection with evaluating Bally's strategic alternatives. Also at this meeting, Macquarie Capital rendered to the Bally board of directors an oral opinion, including a discussion with the Bally board of directors of the assumptions underlying such opinion, which was subsequently confirmed by delivery of a written opinion dated July 31, 2014, to the effect that, as of that date and based on and subject to various assumptions and limitations described in its opinion, the merger consideration to be received by the holders of Bally common stock (other than holders of excluded shares) was fair, from a financial point of view, to such holders of Bally common stock, in the aggregate. Macquarie Capital's financial analysis and written opinion is described below in "Proposal 1: Adoption of the Merger AgreementOpinion of Bally's Financial Advisor" beginning on page 53 of this proxy statement. In connection with Macquarie Capital's discussion of the fairness of the proposed transaction, the Bally board of directors also discussed the relationships that Macquarie Capital and its affiliates had with Scientific Games and its affiliates, each of which Macquarie had previously disclosed to the Bally board of directors during the July 16, 2014 board meeting, as described above, and had reiterated during the July 31, 2014 meeting.
Following these presentations and extensive discussion and deliberation, and after considering all of the factors that it deemed relevant, the Bally board of directors determined that the merger agreement and the transactions contemplated by the merger agreement, including the merger, are advisable, fair to and in the best interests of Bally and its stockholders, and approved the merger agreement and the transactions contemplated by the merger agreement, including the merger. During the course of the meeting, Mr. Klayko was disconnected from his telephonic connection to the meeting and was therefore unavailable to vote with the other directors on the proposal when it was presented. He had, however, during the course of the meeting, indicated his support of the proposed transaction and stated his intent to ratify the Board's approval of the transaction on the terms and conditions described to the Bally board of directors (which intent is treated as a vote in favor of the merger agreement pursuant to NRS 78.325). Later that night and in the early morning of August 1, 2014, certain members of senior management of each of Bally and Scientific Games, along with representatives of Skadden and Cravath, finalized the provisions of the merger agreement and related ancillary agreements, and execution versions of the transaction documents were circulated reflecting the agreements reached between the parties. Substantially concurrently with the execution of the debt financing commitment letter by the respective banks, a copy of which was provided to Bally and its financial and legal advisors, each of Bally, Scientific Games, Financing Sub and Merger Sub executed and delivered the merger agreement, effective as of August 1, 2014.
On the morning of August 1, 2014, Bally and Scientific Games issued a joint press release announcing the transaction. On August 1, 2014, each of Bally and Scientific Games filed a Current Report on Form 8-K with the SEC disclosing the execution of the merger agreement and filing the joint press release as an exhibit. On August 4, 2014, each of Bally and Scientific Games filed a Current Report on Form 8-K with the SEC summarizing the material terms of the merger agreement and filing the merger agreement (and, in the case of Scientific Games, the debt commitment letter) as an exhibit.
On the morning of August 19, 2014, Bally and Scientific Games received notice from the FTC of the early termination of the applicable HSR waiting period.
On August 19, 2014, the Bally board of directors met in Las Vegas, Nevada, and discussed, among other things, the receipt of early termination of the HSR waiting period applicable to the merger and the fact that neither Bally nor any of its representatives, including Macquarie Capital and Groton Partners, had received any inbound inquiries or alternative transaction proposals with respect to Bally following the public announcement of the execution of the merger agreement.
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The Bally board of directors evaluated, with the assistance of certain members of Bally's senior management and Bally's legal and financial advisors, the merger agreement and the transactions contemplated by the merger agreement, including the merger. In reaching its decision to approve the merger agreement and to recommend that Bally's stockholders vote for the approval of the merger agreement, the Bally board of directors considered a variety of factors, including the following, which are not intended to be exhaustive and are not presented in any relative order of importance:
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company trading comparables analysis, the selected transaction comparables precedent analysis and the discounted cash flow analysis conducted by Macquarie Capital), as well as the oral opinion and financial presentation of Macquarie Capital provided to the Bally board of directors dated on July 31, 2014 (which was subsequently confirmed in writing by delivery of Macquarie Capital's written fairness opinion dated the same date) that, based on and subject to the various considerations, limitations and other matters set forth in its opinion, the consideration to be received pursuant to the merger agreement by holders of shares of common stock is fair, from a financial point of view, to such stockholders, as more fully described in the section entitled "Proposal 1: Adoption of the Merger AgreementOpinion of Bally's Financial Advisor" beginning on page 53 of this proxy statement;
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described in the merger agreement, to terminate the merger agreement in order to enter into an agreement with respect to a superior proposal, as defined in the section entitled "The Merger AgreementNo Solicitation of Proposals for an Alternative Transaction; Changes in Board Recommendation", after giving Scientific Games an opportunity to match such offer and upon payment to Scientific Games of a termination fee of $80,000,000, as described in the section entitled "The Merger AgreementExpenses and Termination Fee; Effect of Termination", (5) the risk that disclosure of competitively sensitive confidential information to other potential acquirors could adversely affect Bally's business in the future and (6) the risk that prolonging the sale process further could have distracted senior management and prevented them from fully implementing Bally's business plan;
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paid to Scientific Games a termination fee of $80.0 million, which the Bally board of directors determined was reasonable, in light of, among other things, the benefits of the merger to Bally's stockholders, the typical size of such fees in similar transactions and the likelihood that a fee of such size would not preclude or unreasonably restrict the emergence of alternative transaction proposals as more fully described in "Terms of the Merger AgreementTermination Fee; Effect of Termination" beginning on page 108 of this proxy statement;
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The Bally board of directors also considered and balanced against the potentially positive factors enumerated above a variety of risks and other potentially negative factors, including the following:
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diversion of management and employee attention, potential employee attrition and the potential effect on customer and other business relationships;
In addition to considering the factors described above, the Bally board of directors also identified and considered a variety of other factors, including the following:
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of the stockholders in seeking to maximize the per-share merger consideration. The Bally board of directors also indicated that it did not believe that Scientific Games asking Messrs. Haddrill and Robbins to join Scientific Games' board of directors would be preclusive of the ability for other parties potentially interested in acquiring Bally to make a superior proposal for Bally following announcement of the transaction or would influence the Bally board of directors' response thereto.
After considering the foregoing potentially negative and potentially positive factors, the Bally board of directors concluded that the potentially positive factors relating to the merger agreement and the merger substantially outweighed the potentially negative factors.
The foregoing discussion of the information and factors considered by the Bally board of directors is not exhaustive but is intended to reflect the material factors considered by the Bally board of directors in its consideration of the merger. In view of the complexity, and the large number, of the factors considered, the Bally board of directors, both individually and collectively, did not consider it practical, and did not attempt, to quantify, rank or otherwise assign relative or specific weights to the specific factors it considered in reaching its decision and did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to the ultimate determination of the Bally board of directors. Rather, the Bally board of directors based its recommendation on the totality of the information available to the Bally board of directors, including discussions with, and questioning of, Bally's management and of Bally's financial and legal advisors. In addition, individual members of the Bally board of directors may have given different weights to different factors.
The foregoing discussion of the information and factors considered by the Bally board of directors is forward-looking in nature. This information should be read in light of the factors described under the section entitled "Cautionary Statement Concerning Forward-Looking Information" beginning on page 24 of this proxy statement.
Recommendation of Our Board of Directors
Our board of directors, after considering all factors that our board of directors deemed relevant, and after consultation with independent legal and financial advisors, unanimously determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable and fair to and in the best interests of Bally and its stockholders, and unanimously adopted the merger agreement and the transactions contemplated thereby, including the merger. Certain factors considered by the Bally board of directors in reaching its decision to approve the merger agreement and the merger can be found in the section entitled "Proposal 1: Approval of the Merger AgreementReasons for the Merger" beginning on page 46 of this proxy statement.
The Bally board of directors unanimously recommends that Bally stockholders vote "FOR" the approval of the merger agreement, thereby approving the merger.
Opinion of Bally's Financial Advisor
Macquarie Capital was engaged on July 14, 2014, to act as lead financial advisor to the Bally board of directors in connection with a possible sale, transfer or other disposition, directly or indirectly, of all or a material portion of the equity securities, assets or business of Bally or its subsidiaries, including assisting in the evaluation of Bally's strategic alternatives. On July 31, 2014, Macquarie Capital rendered its oral opinion, subsequently confirmed in writing, to the Bally board of directors (in its capacity as such) to the effect that, as of such date, and based upon and subject to various factors, assumptions, qualifications and limitations on the review undertaken set forth in the written opinion, the merger consideration to be received by the holders of Bally common stock (other than holders of
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excluded shares) in the merger transaction was fair, from a financial point of view, to such holders of Bally common stock, in the aggregate.
The full text of the written opinion of Macquarie Capital, dated July 31, 2014, which describes, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken in connection with the opinion, is included as Annex B to this proxy statement and is incorporated herein by reference. Holders of shares of Bally common stock are encouraged to and should read the opinion carefully and in its entirety. Macquarie Capital's opinion was provided to the Bally board of directors (in its capacity as such) in connection with its evaluation of the merger consideration provided for in the merger transaction from a financial point of view. The opinion of Macquarie Capital does not address any other aspect of the merger transaction and does not constitute a recommendation to the Bally board of directors, any holder of Bally common stock or any other person as to how to act or vote in connection with the merger transaction or any other matter. The summary of the opinion of Macquarie Capital set forth in this proxy statement is qualified in its entirety by reference to the full text of such opinion.
In connection with rendering its opinion, Macquarie Capital, among other things:
For purposes of its analysis and opinion, Macquarie Capital assumed and relied upon, without undertaking responsibility for independently verifying, and did not independently verify, the accuracy and completeness of the information reviewed by Macquarie Capital or reviewed for Macquarie Capital. With respect to the financial projections of Bally that were furnished to Macquarie Capital, Bally management advised Macquarie Capital, and Macquarie Capital assumed, that such financial
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projections were reasonably prepared by Bally on bases reflecting, as of July 31, 2014, the best currently available estimates and good faith judgments of the future competitive, operating and regulatory environments and related financial performance of Bally. Macquarie Capital expressed no view as to any such financial projections or the assumptions on which they were based. Further, Macquarie Capital relied upon and assumed, without independent verification, that there had been no change in the business, assets, liabilities, financial condition, results of operations, cash flows or prospects of Bally since the date of the most recent financial statements or other information, financial or otherwise, provided to Macquarie Capital that would be material to its analysis or opinion, and that there was no information or any facts that would make any of the information reviewed by Macquarie Capital incomplete or misleading. In connection with its opinion, Macquarie Capital did not make, nor did it assume any responsibility for making, any physical inspection, independent evaluation or appraisal of any of the assets or liabilities (contingent or otherwise) of Bally or its subsidiaries, nor had Macquarie Capital been furnished with any such evaluations or appraisals, nor had Macquarie Capital evaluated the solvency or fair value of Bally or any of its subsidiaries under any state or federal laws relating to bankruptcy, insolvency or similar matters.
For purposes of rendering its opinion, Macquarie Capital assumed, with the consent of the Bally board of directors, that the representations and warranties of each party contained in the merger agreement were true and correct, that each party will perform all of the covenants and agreements required to be performed by it under the merger agreement and that all conditions to the consummation of the merger transaction will be satisfied in a timely manner without waiver or modification thereof. Macquarie Capital further assumed, with the consent of the Bally board of directors, that all governmental, regulatory or other consents, approvals or releases necessary for the consummation of the merger transaction will be obtained without any delay, limitation, restriction or condition that would have an adverse effect on Bally or the consummation of the merger transaction, and that the merger transaction will be consummated in accordance with the terms set forth in the merger agreement without material modification, waiver or delay.
Macquarie Capital was not requested to, and did not, initiate or participate in any discussions or negotiations with, or solicit any indications of interest from, third parties with respect to (i) the merger transaction, (ii) the securities, assets, businesses or operations of Bally or any other party, or (iii) any strategic alternatives to the merger transaction. Macquarie Capital's opinion did not address the underlying business decision of Bally to effect the merger transaction, the relative merits of the merger transaction as compared to any alternative business strategies for Bally or the effect of any other transaction in which Bally might engage. Macquarie Capital's opinion is necessarily based on economic, market and other conditions as in effect on, and the information made available to Macquarie Capital as of July 31, 2014. It is understood that subsequent developments may affect Macquarie Capital's opinion, and Macquarie Capital has no obligation to update, revise, reaffirm or withdraw its opinion.
Macquarie Capital was not asked to opine upon, and expressed no opinion with respect to, any matter other than the fairness from a financial point of view, as of July 31, 2014, to the holders of Bally common stock (other than holders of excluded shares), in the aggregate, of the merger consideration to be received by such holders of Bally common stock in the proposed merger transaction. Macquarie Capital did not express any view on, and its opinion does not address, any other term or aspect of the merger agreement or merger transaction or any term or aspect of any other agreement or instrument contemplated by the merger agreement or entered into or amended in connection with the merger transaction, including, without limitation, the fairness of the merger transaction to, or any consideration received in connection therewith by, the holders of any other class of securities or options, creditors, or other constituencies of Bally; nor does it address the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of Bally, or class of such persons, in connection with the merger transaction, whether relative to the merger consideration in cash to be received by the holders of Bally common stock (other
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than holders of excluded shares) pursuant to the merger agreement or otherwise. Macquarie Capital's opinion does not address the relative merits of the merger transaction as compared to other business or financial strategies that might be available to Bally, nor does it address the underlying business decision of Bally to engage in the merger transaction. Macquarie Capital did not express any opinion as to the prices at which Bally common stock may trade at any time. Macquarie Capital is not a legal, regulatory, accounting or tax expert and has assumed the accuracy and completeness of assessments by Bally and its advisors with respect to legal, regulatory, accounting and tax matters. Macquarie Capital did not express any opinion as to the impact of the merger transaction on the solvency or viability of Bally, Scientific Games, Merger Sub or Financing Sub or the ability of Bally, Scientific Games, Merger Sub or Financing Sub to pay its obligations when they come due.
The following is a summary of the material financial analyses presented by Macquarie Capital to the Bally board of directors in connection with rendering its opinion. The following summary, however, does not purport to be a complete description of the financial analyses performed by Macquarie Capital. The order of the analyses described and the results of these analyses do not represent relative importance or weight given to these analyses by Macquarie Capital. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before July 31, 2014, and is not necessarily indicative of current market conditions.
The following summary of financial analyses includes information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Macquarie Capital's financial analyses.
Historical Stock Price Discussion
Macquarie Capital presented historical trading prices of Bally common stock over the 52-week period ending July 30, 2014, calculated the volume-weighted average daily closing prices for Bally common stock over various time periods and noted the closing stock price on selected dates prior to and including July 30, 2014, including the 52-week high and low closing stock prices. Bally's common stock price per share ranged from $56.50 on June 5, 2014 to $82.67 on January 21, 2014 over the 52-week period ending on July 30, 2014. This analysis indicated that the $83.30 per share cash consideration to be received by holders of Bally common stock represented a premium of:
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Selected Precedent Transactions Analysis
Macquarie Capital reviewed publicly available information relating to the following selected transactions within the gaming equipment industry announced since January 2001 and involving transactions with enterprise values (which we refer to as "EV" in this proxy statement) in excess of $100 million. Macquarie Capital calculated the implied Transaction Value/Adjusted EBITDA multiples of each target company for the last twelve-month ("LTM") period prior to the announcement of the relevant transaction and then calculated the mean and median for the transactions. The results of these calculations are set forth in the table below.
Date Announced
|
Acquirer | Target | Transaction Value / LTM Adjusted EBITDA | |||||
---|---|---|---|---|---|---|---|---|
July 2014 |
GTECH S.p.A. | International Game Technology | 8.6x | |||||
July 2014 |
Aristocrat Leisure Ltd. | Video Gaming Technologies, Inc. | 8.2x | |||||
September 2013 |
Apollo Management | AGS LLC | NA | |||||
July 2013 |
Bally Technologies, Inc. | SHFL entertainment, Inc. | 14.3x | |||||
January 2013 |
Scientific Games Corporation | WMS Industries, Inc. | 6.2x | |||||
September 2012 |
Amaya Gaming Group | Cadillac Jack, Inc. | 4.7x | |||||
May 2010 |
Vitruvian Partners | Inspired Gaming Group Limited | 3.7x | |||||
January 2006 |
Scientific Games Corporation | Global Draw Ltd | 5.4x | |||||
January 2006 |
Lottomatica Group S.p.A. | GTECH Holdings Corporation | 9.6x | |||||
November 2005 |
Shuffle Master, Inc. | Stargames Party Ltd | 12.4x | |||||
December 2004 |
GTECH Holdings Corporation | Atronic Americas, LLC | 8.0x | |||||
November 2003 |
GTECH Holdings Corporation | Spielo Manufacturing | 5.4x | |||||
June 2003 |
International Game Technology | Acres Gaming Incorporated | 5.5x | |||||
July 2001 |
International Game Technology | Anchor Gaming | 7.3x | |||||
January 2001 |
Aristocrat Leisure Ltd. | Casino Data Systems | 8.9x | |||||
|
Median |
7.6x |
||||||
|
Mean | 7.7x | ||||||
|
Median since 2012 |
8.2x |
||||||
|
Mean since 2012 | 8.4x |
Macquarie Capital chose the selected transactions for purposes of this analysis based on its professional judgment and experience. No transaction reviewed was directly comparable to the proposed merger transaction. Accordingly, this analysis involved complex considerations and judgments concerning differences in financial and operating characteristics of Bally relative to the targets in the selected transactions and other factors that would affect the acquisition values in the selected precedent transactions.
Based on Macquarie Capital's professional judgment taking into account the median Transaction Value/LTM Adjusted EBITDA multiple referenced above, and the differences between Bally's business and the businesses of the target companies in the selected precedent transactions, Macquarie Capital derived a range of implied equity values of Bally common stock of between $47.04 and $59.16. Macquarie Capital noted that, per the selected precedent transaction analysis, the merger consideration exceeded the resulting implied range and represented a Transaction Value/LTM Adjusted EBITDA multiple of 10.7x (based on the estimates for the LTM period ending June 30, 2014 prepared by the management of Bally, described in the section entitled "Proposal 1: Approval of the Merger AgreementCertain Projections Prepared by the Management of Bally" beginning on page 73 of this proxy statement, pro forma for Bally's acquisitions of SHFL entertainment, Inc. and DragonPlay Ltd.).
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Selected Public Company Trading Comparables Analysis
Macquarie Capital reviewed and compared the financial and operating performance of Bally with certain publicly available information of selected gaming equipment companies, as set forth below:
Ainsworth
Game Technology Ltd.
Aristocrat Leisure Ltd.
GTECH S.p.A.
Konami Corporation
Multimedia Games Holding Company, Inc.
Scientific Games Corporation
Universal Entertainment Corporation
Macquarie Capital chose the selected companies for the purposes of this analysis utilizing its professional judgment and experience, taking into account several factors, including, among other things, the size of Bally and the selected companies, the operational and financial characteristics of Bally compared with the selected companies, the competitive landscape in which Bally and the selected companies operate and the product offerings of Bally and the selected companies. Although none of the selected public companies is directly comparable to Bally, the companies included were chosen because they are publicly traded companies with operations that for purposes of analysis may be considered similar in certain respects to Bally's business.
For each selected company, using actual publicly reported results for the most recently reported LTM period and comparable company projections per Wall Street research consensus estimates and market data from Capital IQ for the years ending December 31, 2014 and 2015, Macquarie Capital calculated enterprise value to earnings before interest, taxes, depreciation and amortization, which we refer to in this proxy as "EBITDA", and such ratio, "EV/EBITDA", and the price to earnings ratio, which we refer to in this proxy as the "P/E" ratio. The results of these analyses are summarized below.
|
EV/EBITDA | P/E | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
LTM(1) | 2014E | 2015E | LTM(1) | 2014E | 2015E | |||||||||||||
Ainsworth Game Technology Ltd.(2) |
12.8x | 11.4x | 10.0x | 18.8x | 16.8x | 15.0x | |||||||||||||
Aristocrat Leisure Ltd.(2)(3) |
16.8x | 13.8x | 9.0x | 28.4x | 24.7x | 18.4x | |||||||||||||
GTECH S.p.A.(2)(4) |
5.9x | 5.6x | 5.0x | 18.1x | 12.3x | 11.3x | |||||||||||||
Konami Corporation(2)(5) |
14.2x | 10.5x | 8.8x | NM | NM | NM | |||||||||||||
Multimedia Games Holding Company, Inc.(6) |
6.2x | 5.9x | 5.1x | 18.9x | 19.6x | 15.0x | |||||||||||||
Scientific Games Corporation(7) |
7.0x | 7.2x | 6.6x | NM | NM | NM | |||||||||||||
Universal Entertainment Corporation(2) |
4.9x | NA | NA | 14.2x | 10.2x | 9.6x | |||||||||||||
Median |
7.0x |
8.9x |
7.7x |
18.8x |
16.8x |
15.0x |
|||||||||||||
Mean |
9.7x | 9.1x | 7.4x | 19.7x | 16.7x | 13.9x |
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Macquarie Capital selected a range of multiples to apply to Bally's estimates, as well as Wall Street research consensus estimates of Bally's Adjusted EBITDA and Adjusted Earnings Per Share for the twelve months ended June 30, 2014 and the calendar years ending December 31, 2014 and 2015.
The following table presents the ranges of multiples and implied values of Bally common stock calculated by Macquarie Capital based upon the trading comparables.
|
Range | |
||
---|---|---|---|---|
Selected Trading Comparables | Enterprise Value(2)/ Adjusted EBITDA |
Implied Price Per Share(1) |
||
Adjusted EBITDA
|
||||
EV / LTM Adjusted EBITDA (6/30/14)(3) |
6.5x - 7.5x | $32.49 - $44.61 | ||
EV / CY2014P Adjusted EBITDAManagement(3) |
8.4x - 9.4x | $57.16 - $69.48 | ||
EV / CY2014P Adjusted EBITDAResearch |
8.4x - 9.4x | $55.67 - $67.82 | ||
EV / CY2015P Adjusted EBITDAManagement(3) |
7.2x - 8.2x | $53.54 - $67.41 | ||
EV / CY2015P Adjusted EBITDAResearch |
7.2x - 8.2x | $49.17 - $62.43 |
Adjusted EPS
|
Price/ Adjusted EPS |
|
||
---|---|---|---|---|
Price / LTM Adjusted EPS (6/30/14) |
17.8x - 19.8x | $82.37 - $91.63 | ||
Price / CY2014P Adjusted EPSManagement |
15.8x - 17.8x | $75.49 - $85.04 | ||
Price / CY2014P Adjusted EPSResearch |
15.8x - 17.8x | $73.66 - $82.99 | ||
Price / CY2015P Adjusted EPSManagement |
14.0x - 16.0x | $82.64 - $94.44 | ||
Price / CY2015P Adjusted EPSResearch |
14.0x - 16.0x | $74.06 - $84.64 |
Note: Management projections provided by Bally management. Research estimates based on Wall Street consensus estimates from Capital IQ. CY refers to the period between January 1 and December 31.
Based upon Macquarie Capital's professional judgment and experience, and taking into account the analysis of trading comparables described above, Macquarie Capital derived a range of implied values of Bally common stock of between $63.63 and $75.05 per share. Macquarie Capital noted that the merger consideration was above the resulting implied range per the public company trading comparables analysis.
Discounted Cash Flow Analysis
Macquarie Capital performed a discounted cash flow analysis to produce a range for the implied present value per share of Bally common stock, assuming Bally continued to operate as an independent entity. The valuation range was determined by adding (i) the net present value of the unlevered free cash flows for the fiscal years ending June 30, 2015 and June 30, 2016, based on financial projections provided by Bally management in July, 2014 and (ii) the present value of the terminal value of Bally as of June 30, 2016, based on financial projections provided by Bally management in July, 2014.
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Macquarie Capital's analysis used the financial projections provided by Bally management for the fiscal years ending June 30, 2015 and June 30, 2016, which were the same projections provided to Scientific Games, as described in the section entitled "Proposal 1: Approval of the Merger AgreementCertain Projections Prepared by the Management of Bally" beginning on page 73 of this proxy statement. For purposes of Macquarie Capital's analysis, unlevered free cash flow, a non-GAAP metric used to measure operating performance, was calculated as Adjusted EBITDA, less depreciation and amortization, stock-based compensation, restructuring and acquisition-related costs and certain litigation costs to arrive at earnings before taxes ("EBT"), subtracting taxes, capital expenditures and certain changes in working capital including changes in restricted cash reserves from EBT and then adding back depreciation and amortization. The figures for unlevered free cash flow do not reflect contingent earn-out and employee retention payments related to Bally's acquisition of DragonPlay Ltd., which, if required to be paid, would reduce Bally's unlevered free cash flow.
Macquarie Capital estimated the range for the implied present value per share of Bally common stock by using the following assumptions, which Macquarie Capital selected based on its professional judgment: (i) a range of terminal multiples applied to projected FY2016 Adjusted EBITDA of 7.70x to 8.70x and (ii) a range of discount rates of 7.25% to 8.25% taking into account Bally's current cost of debt and the capital asset pricing model. Macquarie Capital also assumed the following: fully diluted shares calculated using the treasury stock method and net debt per estimates by Bally management, in each case, pro forma for certain repurchased shares and acquisitions by Bally. In order to determine the range of discount rates to use, Macquarie Capital first prepared estimates of Bally's weighted average cost of capital, which we refer to as "WACC" in this proxy statement, as summarized in the tables shown below. This calculation resulted in an estimated WACC of 7.67%, which, in the exercise of its professional judgment, Macquarie Capital used to select a range of discount rates.
The following table presents the results of these analyses in a range of implied present values:
Sensitivity AnalysisImplied Price Per Share:
|
Terminal Adjusted EBITDA Multiple | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Discount Rate
|
7.70x | 7.95x | 8.20x | 8.45x | 8.70x | ||||||||||||
7.25 | % | $ | 62.97 | $ | 66.17 | $ | 69.37 | $ | 72.57 | $ | 75.77 | ||||||
7.50 | % | $ | 62.48 | $ | 65.66 | $ | 68.85 | $ | 72.03 | $ | 75.21 | ||||||
7.75 | % | $ | 61.99 | $ | 65.15 | $ | 68.32 | $ | 71.49 | $ | 74.66 | ||||||
8.00 | % | $ | 61.50 | $ | 64.65 | $ | 67.80 | $ | 70.96 | $ | 74.11 | ||||||
8.25 | % | $ | 61.01 | $ | 64.15 | $ | 67.29 | $ | 70.43 | $ | 73.57 |
The discounted cash flow analysis resulted in a range for the implied present value per share of Bally common stock of between $61.01 and $75.77. Macquarie Capital noted that the merger consideration exceeded the resulting implied ranges per the discounted cash flow analysis.
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The following WACC table prepared by Macquarie Capital in connection with its analysis support the range of discount rates selected:
WACC Calculation
|
|
|||
---|---|---|---|---|
U.S. Risk-free Rate(1) |
2.57 | % | ||
Re-levered Beta(2) |
1.21 | |||
Equity Risk Premium(3) |
6.11 | % | ||
Beta Adjusted Market Risk Premium |
7.39 | % | ||
Size Premium(4) |
1.70 | % | ||
Estimated Cost of Equity |
11.66 | % | ||
Pre-Tax Cost of Debt |
4.36 |
% |
||
Applicable Marginal Tax Rate(5) |
36.00 | % | ||
Estimated After-Tax Cost of Debt |
2.79 | % | ||
Estimated Debt/Capitalization Ratio |
45.0 | % | ||
Estimated Equity/Capitalization Ratio |
55.0 | % | ||
Estimated WACC |
7.67 | % |
General
The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Macquarie Capital's opinion. In arriving at its fairness opinion, Macquarie Capital considered the results of all of its analyses and, except as expressly stated above, did not attribute any particular weight to any factor or analysis considered by it. Rather, Macquarie Capital made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to Bally or the merger transaction. Macquarie Capital prepared these analyses for purposes of providing its opinion to the Bally board of directors (in its capacity as such) as to the fairness from a financial point of view, to the holders of shares of Bally common stock (other than holders of excluded shares), in the aggregate, of the merger consideration to be received by such holders in the merger transaction. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of Bally, Scientific Games, Merger Sub, Macquarie Capital or any other person assumes responsibility if future results are materially different from those forecast.
The merger consideration was determined through arm's-length negotiations between Bally and Scientific Games and was approved by the Bally board of directors by unanimous vote following a
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presentation to the Bally board of directors. Macquarie Capital provided advice to the Bally board of directors during these negotiations. Macquarie Capital did not, however, recommend any specific amount of consideration to the Bally board of directors or that any specific amount of consideration constituted the only appropriate consideration for the merger transaction. As described above, Macquarie Capital's opinion to the Bally board of directors (in its capacity as such) was one of many factors taken into consideration by the Bally board of directors in making its determination to approve the merger transaction. The foregoing summary does not purport to be a complete description of the analyses performed by Macquarie Capital in connection with the fairness opinion and is qualified in its entirety by reference to the written opinion of Macquarie Capital, which is included as Annex B to this proxy statement and is incorporated herein by reference.
Macquarie Capital's opinion was approved by a fairness opinion committee of Macquarie Capital professionals in accordance with its customary practice.
Macquarie Capital and its affiliates are engaged in a broad range of securities activities and financial advisory services. Macquarie Capital and its affiliates carry on a range of businesses for their own account and for their customers, including providing stock brokerage, investment advisory, investment management, proprietary financings and custodial services. In the ordinary course of business, Macquarie Capital or its affiliates may acquire, hold, sell or trade in the bank loans or debt or equity securities, or options on securities, of (i) Bally and affiliates of Bally, including holding a non-beneficial equity ownership position in Bally common stock constituting less than 0.01% of the outstanding Bally common stock, (ii) Scientific Games and affiliates of Scientific Games and (iii) any other company that may be involved in the merger transaction, for its and their own accounts and for the accounts of its and their customers and, accordingly, may at any time hold a long or short position in such securities. In addition, Macquarie Capital and its affiliates have in the past provided, may be currently providing and in the future may provide, financial advisory and other services to Bally, affiliates of Bally, and to Scientific Games and its affiliates, other than in connection with the merger transaction, for which Macquarie Capital or such affiliates have received, and/or would expect to receive, compensation, including (x) providing financing or a commitment to provide financing to Scientific Games, including acting as a lender in Scientific Games' senior secured credit facility, participating in a notes offering by Scientific Games and establishing credit limits to facilitate trading by certain potential investors in debt of Scientific Games and affiliates of Scientific Games representing less than 0.01% of their total outstanding debt, and (y) advising or rendering opinions in connection with potential acquisitions or sales made by Bally or Scientific Games.
Macquarie Capital has acted as lead financial advisor to the Bally board of directors in connection with a possible sale, transfer or other disposition, directly or indirectly, of all or a material portion of the equity securities, assets or business of Bally or its subsidiaries, including assisting in the evaluation of Bally's strategic alternatives. The Bally board of directors selected Macquarie Capital as its lead financial advisor because it is an internationally recognized financial advisory firm that has substantial experience in the industries in which Bally operates. Macquarie Capital is expected to receive a fee of $2.5 million as a result of the delivery of its fairness opinion. If the merger transaction is consummated, Macquarie Capital will receive an additional fee of approximately $11.5 million. In addition, Bally agreed to reimburse certain of Macquarie Capital's reasonable expenses and to indemnify Macquarie Capital and certain related parties against certain liabilities arising out of its engagement. In certain circumstances, if the merger agreement is terminated or abandoned and Bally or any of its affiliates receives the funding failure termination fee and/or the regulatory termination fee, any judgment for damages or amount in settlement of any dispute as a result of such termination or any other failure to consummate the merger transaction or any profit arising from any shares (or option to acquire shares or assets) of any prospective purchaser or any of its affiliates acquired in connection with the merger transaction (in each case, as more fully described in the section entitled "Terms of the Merger AgreementTermination Fee; Effect of Termination" beginning on page 108 of this proxy statement),
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Macquarie Capital will be entitled to a portion of such funding failure termination fee, regulatory failure termination fee, judgment or amount in settlement or profit, as applicable.
Delisting and Deregistration of Our Common Stock
Bally common stock is registered as a class of equity securities under the Exchange Act and is quoted on the NYSE under the symbol "BYI". As a result of the merger, we will become a wholly owned subsidiary of Scientific Games, with no public market for our common stock. After the merger, our common stock will cease to be traded on the NYSE and price quotations with respect to sales of shares of our common stock in the public market will no longer be available. In addition, we will no longer be required to file periodic reports with the SEC after the effective time of the merger with respect to our common stock.
The merger is not conditioned on Scientific Games obtaining the proceeds of any financing, including the financing contemplated by the debt commitment letter. We anticipate that the total amount of funds necessary to complete the merger and the other transactions contemplated by the merger agreement, including the funds needed to (i) pay our stockholders (including equity award holders) the amount due under the merger agreement, (ii) refinance, repay or repurchase certain of our outstanding indebtedness, and (iii) pay customary fees and expenses in connection with the transactions contemplated by the merger agreement, will be approximately $5.1 billion.
In connection with entering into the merger agreement, Scientific Games and Financing Sub entered into a commitment letter with BOA, BofA Merrill Lynch, J.P. Morgan and Deutsche Bank and certain of their respective affiliates. Pursuant to the commitment letter, among other things, each of the initial lenders has agreed to provide debt financing to Scientific Games. See the section entitled "Terms of the Merger AgreementFinancing of the Merger" beginning on page 63 of this proxy statement for additional information with respect to the debt financing.
We believe the amounts described in the debt commitment letter, together with cash on hand at Bally and at Scientific Games, will be sufficient to complete the merger, but we cannot assure you of that. Those amounts might be insufficient if, among other things, we have substantially more debt or Scientific Games receives substantially lower net proceeds from the debt financing than we currently expect.
Pursuant to the debt commitment letter, BOA, BofA Merrill Lynch, J.P. Morgan and Deutsche Bank and/or their respective affiliates have committed on a several and not joint basis to provide, in the aggregate, 100% of the debt facilities described below, the proceeds of which are to be used to pay amounts due under the merger agreement, pay fees, costs and expenses incurred in connection with the merger and related transactions and refinance certain of Bally's outstanding indebtedness and, if necessary, amounts outstanding under Scientific Games' existing credit agreement. Any excess proceeds of the debt facilities may be used by Scientific Games and its subsidiaries for general corporate purposes.
Subject to the debt commitment letter, and subject to the term and conditions set forth therein, the commitment parties have:
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BOA will act as administrative agent and collateral agent for the bank facilities and J.P. Morgan will act as administrative agent and, if applicable, collateral agent for the bridge facilities. The debt commitment letter expires on the earliest of (i) the consummation of the merger with or without the debt financing, (ii) the termination of the merger agreement or (iii) June 1, 2015. The commitments of the commitment parties to provide the debt financing are subject to the satisfaction of a number of customary conditions, including the following:
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Interests of Bally's Directors and Executive Officers in the Merger
In considering the recommendation of the Bally board of directors with respect to the merger, Bally stockholders should be aware that the directors and executive officers of Bally have certain interests in the merger that may be different from, or in addition to, the interests of Bally stockholders generally. The Bally board of directors was aware of these interests and considered them, among other matters, in approving the merger agreement and the merger and making its recommendation that Bally stockholders approve the merger agreement and the merger. These interests are described below.
Potential Board Appointments
As more fully described in the section entitled "Proposal 1: Approval of the Merger AgreementBackground of the Merger" beginning on page 35 of this proxy statement, it is currently anticipated that, upon consummation of the merger, Mr. Haddrill and Mr. Robbins will join the board of directors of Scientific Games, with Mr. Haddrill anticipated to serve as vice chairman.
Treatment of Outstanding Equity Awards
Pursuant to the terms of the merger agreement, Bally equity awards held by the executive officers and directors of Bally that are outstanding immediately prior to the closing of the merger will be subject to the following treatment.
Options
At the effective time of the merger, each option to purchase Bally common stock held by a director or executive officer that is outstanding (whether vested or unvested) immediately prior to the effective time of the merger will be canceled in exchange for the right to receive an amount in cash equal to the excess, if any, of the merger consideration over the exercise price of such option, less any applicable withholding taxes. If the exercise price of the option equals or exceeds the merger consideration, the option will be canceled without the payment of any consideration to the holder.
Holders of incentive stock options will be permitted to exercise such incentive stock options (whether vested or unvested) five business days prior to, and conditioned upon the occurrence of, the merger closing date. Incentive stock options that are not exercised in such manner and that remain outstanding immediately prior to the effective time of the merger will be cashed out in the manner described in the preceding paragraph.
Performance Units
At the effective time of the merger, each performance unit held by an executive officer that is outstanding (whether vested or unvested) immediately prior to the effective time of the merger will be canceled in exchange for the right to receive an amount in cash equal to the merger consideration, less any applicable withholding taxes. For purposes of determining the number of performance units that are outstanding immediately prior to the effective time of the merger, the applicable performance-based conditions will be considered to have been achieved at maximum levels. The only individuals who have outstanding performance units are Bally's current chief executive officer and chief financial officer.
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Restricted Shares and Restricted Stock Units
At the effective time of the merger, each share of Bally restricted stock held by a director or executive officer, and each Bally restricted stock unit held by an executive officer, in each case that was granted prior to August 1, 2014, and that is outstanding (whether vested or unvested) immediately prior to the effective time of the merger, will be canceled in exchange for the right to receive an amount in cash equal to the merger consideration, less any applicable withholding taxes.
In addition, each share of Bally restricted stock and each Bally restricted stock unit held by an executive officer that is granted on or after August 1, 2014, will not be cashed out or canceled in the merger, but instead will be converted as of the effective time of the merger into a restricted share or restricted stock unit, as applicable, with respect to Scientific Games Class A common stock using the stock award exchange ratio. The terms and conditions of these converted restricted shares and restricted stock units will generally remain unchanged, and such awards will continue to vest as scheduled based on the executive officer's continued employment through each applicable vesting date, provided that if the executive officer's employment is terminated by Scientific Games without "cause" or by the executive officer for "good reason" (generally, as such terms are defined in the 2010 LTIP) within one year following the merger closing date, the executive officer will be given additional service credit for vesting purposes for the executive officer's months of service following the merger closing date, plus an additional twelve (12) months, such that the installments of the converted restricted shares and restricted stock units that were otherwise scheduled to vest within such number of months following the executive officer's employment termination date will immediately vest and be settled in shares of Scientific Games Class A common stock.
Summary Table
The following table shows, for each director and executive officer of Bally, as applicable, (i) the number of shares subject to vested options held by him or her, (ii) the cash consideration that he or she will receive for such vested options at the effective time of the merger, (iii) the number of shares subject to unvested options held by him or her, (iv) the cash consideration that he or she will receive for such unvested options at the effective time of the merger, (v) the number of shares subject to performance units (assuming achievement of the applicable performance-based conditions at maximum levels), the number of shares subject to restricted stock units and the number of shares of restricted stock held by him or her, which we refer to as "Other Equity Awards" in this proxy statement, (vi) the cash consideration that he or she will receive for the Other Equity Awards at the effective time of the merger, (vii) the total cash consideration he or she will receive for all unvested equity awards at the effective time of the merger and (viii) the total cash consideration he or she will receive for all outstanding equity awards at the effective time of the merger, whether vested or unvested, in each case as of an assumed merger closing date of December 31, 2014, based on applicable holdings on August 1, 2014 and assuming continued employment or service through the assumed merger closing date of December 31, 2014 (and as such without regard to any awards that may be made after the August 1, 2014). Although Ramesh Srinivasan, Bally's former chief executive officer, is considered an executive officer for purposes of the SEC's disclosure rules, Mr. Srinivasan ceased his employment with Bally effective May 23, 2014 and became entitled to the severance benefits described in his employment agreement in accordance with the terms and conditions thereof. As a result, Mr. Srinivasan has no interest in the merger (except insofar as he may be a holder of shares of Bally common stock), or any
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rights to compensation that are based on or otherwise related to the merger, and is therefore not included in the disclosure that follows.
Name
|
Number of Shares Subject to Vested Options (#) |
Cash-Out Payment for Vested Options ($) |
Number of Shares Subject to Unvested Options (#) |
Cash-Out Payment for Unvested Options ($) |
Number of Shares Subject to Unvested Other Equity Awards (#) |
Cash-Out Payment for Unvested Other Equity Awards ($) |
Total Payment for Unvested Equity Awards ($) |
Total Payment for Outstanding Equity Awards ($) |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Executive Officers |
|||||||||||||||||||||||||
Richard M. Haddrill |
| | | | 85,677 | $ | 7,136,894 | $ | 7,136,894 | $ | 7,136,894 | ||||||||||||||
Neil Davidson |
58,500 | $ | 2,822,485 | 10,000 | $ | 409,350 | 25,400 | $ | 2,115,820 | $ | 2,525,170 | $ | 5,347,655 | ||||||||||||
Kathryn S. Lever |
| | | | 5,192 | $ | 432,494 | $ | 432,494 | $ | 432,494 | ||||||||||||||
Derik Mooberry |
22,875 | $ | 1,349,545 | 2,000 | $ | 90,640 | 9,782 | $ | 814,841 | $ | 905,481 | $ | 2,255,026 | ||||||||||||
John Connelly |
7,045 | $ | 320,195 | 7,044 | $ | 320,150 | 10,580 | $ | 881,314 | $ | 1,201,464 | $ | 1,521,659 | ||||||||||||
Directors |
|||||||||||||||||||||||||
David Robbins |
53,242 | $ | 3,324,505 | | | 3,163 | $ | 263,478 | $ | 263,478 | $ | 3,587,983 | |||||||||||||
Robert Guido |
11,350 | $ | 512,711 | | | 3,163 | $ | 263,478 | $ | 263,478 | $ | 776,189 | |||||||||||||
Josephine Linden |
28,361 | $ | 1,279,081 | | | 3,163 | $ | 263,478 | $ | 263,478 | $ | 1,542,559 | |||||||||||||
W. Andrew McKenna |
28,361 | $ | 1,279,081 | | | 3,163 | $ | 263,478 | $ | 263,478 | $ | 1,542,559 | |||||||||||||
Michael Klayko |
| | | | 1,900 | $ | 158,270 | $ | 158,270 | $ | 158,270 |
November 2014 Equity Awards
Under the terms of the merger agreement, if the merger closing date has not occurred on or prior to November 15, 2014, Bally may make discretionary annual equity awards in November 2014 to Bally employees, including Bally executive officers, who would otherwise have been eligible to receive discretionary annual equity awards in December 2014 or March 2015 in the normal course, provided that: (i) such awards will generally consist solely of time-vesting restricted stock units, provided that for certain non-U.S. employees, depending on their country of residence, such awards may consist of cash equivalent awards or restricted shares, all of which will vest in four equal annual installments based on the holder's continued employment through the applicable vesting dates, (ii) the aggregate grant date fair value of such awards may not exceed $23.5 million, which amount will be reduced for awards made in connection with new hires and promotions and certain cash equivalent awards, (iii) such awards (other than any cash equivalent awards) will be converted as of the effective time of the merger into restricted shares or restricted stock units, as applicable, with respect to Scientific Games Class A common stock using the stock award exchange ratio and otherwise remain subject to the same terms and conditions that applied to such awards prior to the merger closing date (including the same vesting schedule, subject to continued employment through the applicable vesting dates), and (iv) if the holder's employment is terminated by Scientific Games without "cause" or by the holder for "good reason" within one year following the merger closing date, the holder will be given additional service credit for vesting purposes for the holder's months of service following the merger closing date, plus an additional twelve (12) months, such that the installments of the converted restricted shares and restricted stock units that were otherwise scheduled to vest within such number of months following the holder's employment termination date will immediately vest and be settled in shares of Scientific Games Class A common stock. For this purpose "cause" and "good reason" will generally have the definitions ascribed to them in the 2010 LTIP.
New Hire and Promotion Awards
Under the terms of the merger agreement, Bally may grant equity awards to new hires and promotions with values that are consistent with the values of equity awards previously granted by Bally to new hires and promotions, subject to the restrictions applicable to the November 2014 equity awards described in the preceding section.
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Calendar Year 2015 Director Equity Awards
Under the terms of the merger agreement, if the merger closing date has not occurred on or prior to January 2, 2015, non-employee directors of Bally will a receive a cash payment not to exceed $250,000 per director on such date in lieu of the award of Bally restricted shares that otherwise would have been made to non-employee directors of Bally on such date under the Bally director compensation program.
Post-Closing Equity Awards
With respect to the first annual equity grant cycle of Scientific Games following the merger closing date, Scientific Games intends to recommend to the compensation committee of its board of directors that it approve the grant of equity awards to select eligible Bally employees (which may include the executive officers of Bally) whose employment continues with Scientific Games or any of its subsidiaries following the merger closing date through the date on which Scientific Games grants equity awards under such grant cycle. Such awards will be made when Scientific Games makes its ordinary course annual equity awards to its similarly-situated employees. The size of any such awards will be determined by Scientific Games in its sole discretion, provided that for each recipient of Scientific Games awards who also receives Bally equity awards in November 2014, as described above in the section entitled "November 2014 Equity Awards" beginning on page 67 of this proxy statement, the grant date fair value of such Scientific Games awards will not be less that 50% of the grant date fair value of the November 2014 awards received by such recipient.
Retention Bonus Plan for Key Employees
In connection with the execution of the merger agreement, Bally has adopted a retention bonus plan pursuant to which it may grant retention bonus awards to key employees, including the executive officers of Bally (other than the chief executive officer). Aggregate payments to all participants in the retention bonus plan may not exceed $12.0 million. Mr. Davidson and Ms. Lever are each eligible to receive a retention bonus award under the plan equal to $1.0 million, Mr. Mooberry is eligible to receive a retention bonus award under the plan equal to $300,000 and Mr. Connelly is eligible to receive a retention bonus award under the plan equal to $400,000. Each retention bonus award will generally be paid on the six-month anniversary of the merger closing date, subject to the participant's continued employment through such date, provided that if the participant's employment is terminated without "cause" or for "good reason" prior to the six-month anniversary of the merger closing date, the retention bonus award will be paid on the participant's employment termination date. The retention bonus plan is non-terminable, except that it will expire automatically if the merger agreement is terminated prior to the merger closing date. For this purpose "cause" and "good reason" will generally have the definitions ascribed to them in the 2010 LTIP.
Annual Bonus Programs
The merger agreement permits Bally to determine the amount of the 2014 fiscal year annual cash bonuses in the ordinary course of business for participants in Bally's 2014 fiscal year annual cash bonus plans, including the executive officers of Bally, based on actual performance in accordance with the terms of Bally's 2014 fiscal year annual cash bonus plans, provided that the aggregate amount of 2014 fiscal year annual cash bonuses may not exceed $17.4 million.
Under the terms of the merger agreement, Bally may establish annual cash bonus plans for the 2015 fiscal year in the ordinary course of business for eligible employees, including the executive officers of Bally, provided that the aggregate amount of the target bonuses under the 2015 fiscal year annual cash bonus plans may not exceed $19.0 million. Pursuant to the terms of the merger agreement, the fiscal year 2015 cash bonus plans will terminate on the last day of the last full month ending on or
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prior to the merger closing date. Payment amounts will be based on actual performance and will be pro-rated based on the participant's service through the last day of the last full month ending on or prior to the merger closing date; provided that each participant will be credited with service at least through December 31, 2014, regardless of when the merger closing date occurs. Bonus payments will be made several months after the merger closing date to eligible employees who remain employed through the merger closing date, provided that if a participant's employment terminates prior to the bonus payment date for any reason (other than a termination for cause), including by reason of the participant's voluntary resignation, the bonus payment will be made earlier on the participant's employment termination date.
In addition, participants in Bally's 2015 fiscal year annual cash bonus plans, including any executive officers of Bally, whose employment continues after the merger closing date will be eligible to participate in the cash bonus plans of Scientific Games for the 2015 calendar year. If the merger closing date occurs prior to February 1, 2015, Scientific Games has agreed not to pro-rate participation or payout levels under the cash bonus plans of Scientific Games for calendar year 2015 for continuing Bally participants who remain employed from the merger closing date through the regularly scheduled payment date under the cash bonus plans of Scientific Games for the 2015 calendar year. If the merger closing date occurs on or after February 1, 2015, Scientific Games will pro-rate participation and payout levels under the cash bonus plans of Scientific Games for calendar year 2015 for continuing Bally participants based on the number of months that elapse during calendar year 2015 after the last day of the last full month ending on or prior to the merger closing date.
Executive Officer Severance and Employment Arrangements
Each of the executive officers of Bally is a party to an employment agreement with Bally that provides for severance benefits upon a termination of employment under certain circumstances and, in the case of Messrs. Haddrill and Davidson, enhanced severance benefits upon a termination following a change of control of Bally, which would include completion of the merger. The applicable severance provisions of these employment agreements are described below.
Employment Agreement with Mr. Haddrill
Pursuant to Mr. Haddrill's employment agreement with Bally, in the event of his termination of employment by Bally without "cause" (as defined in his employment agreement) or by Mr. Haddrill for "good reason" (as defined below), in each case within one year following a "change of control" (which would include completion of the merger), he is eligible to receive, subject to his execution of a general release of claims: (i) a lump sum payment, payable within thirty days, in an amount equal his base salary for twenty-four months; (ii) a lump sum payment, payable within thirty days, in an amount equal to his target annual cash bonus for the year of termination; (iii) continuation of health benefits (in the form of COBRA reimbursement paid by Bally) for Mr. Haddrill and his spouse and dependents, as applicable, for a period of eighteen months following his employment termination date (or a shorter period, to the extent he becomes eligible to receive health benefits from a subsequent employer); and (iv) acceleration in full of all equity awards previously granted to Mr. Haddrill that are outstanding on his employment termination date, in a manner consistent with the terms of such equity awards, which in the case of awards that vest based on the attainment of performance targets, will be based on actual performance through the date of the change of control (or, if applicable, the end of the most recent fiscal quarter prior to the change of control).
For purposes of Mr. Haddrill's employment agreement, "good reason" means, without his written consent: (i) a material adverse change in his authority, duties or responsibilities; (ii) he is no longer the chief executive officer of Bally, or following a change of control, the combined or surviving corporation resulting from the change of control; or (iii) a requirement that he report other than to the board of directors of Bally, or following a change of control, the board of directors of the ultimate parent
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company resulting from the transaction; provided that Bally or, following a change of control, the ultimate parent company resulting from the transaction will have, following Mr. Haddrill's written notice of the grounds for good reason, 30 days to cure.
Employment Agreement with Mr. Davidson
Pursuant to Mr. Davidson's employment agreement with Bally, in the event of his termination of employment by Bally without "cause" (as defined in his employment agreement), or if he terminates his employment as a result of a "diminution of duties" (as defined below) occurring within one year following a "change of control" (which would include completion of the merger), he is eligible to continue receiving his base salary for a period of one year following his termination of employment, subject to his execution of a general release of claims and his continuing compliance with any restrictive covenants. In addition, in the event of Mr. Davidson's termination of employment by Bally without cause or by Mr. Davidson as a result of a diminution of duties, in each case within one year following a change of control, and subject to his execution of a general release of claims, he is eligible to receive a pro-rata portion of his target annual bonus based on the number of days that he has worked during the applicable fiscal year prior to his employment termination date, payable at the time that bonuses are customarily paid to participants under Bally's annual cash bonus plan, provided that only 50% of the portion of his target annual bonus that is subject to a personal performance-based conditions shall be eligible for such pro-ration, with the remainder of the portion subject to such personal performance-based conditions automatically forfeited. For the avoidance of doubt, 100% of the portion of his target annual bonus subject to company performance-based conditions shall be eligible for such pro-ration.
For purposes of Mr. Davidson's employment agreement, "diminution of duties" means any change, following a "change of control" (which would include completion of the merger), in his title, job duties and responsibilities that results in a material diminution or reduction of his work duties and responsibilities.
Employment Agreement with Ms. Lever
Pursuant to Ms. Lever's employment agreement with Bally, in the event of her termination of employment by Bally without cause (as defined in her employment agreement) or by Ms. Lever for "good reason" (as defined below), she is eligible to receive, subject (except with respect to clause (ii) below) to her execution of a general release of claims: (i) an amount equal to six months of base salary, paid in equal installments over a twelve month period; (ii) in exchange for the restrictive covenants contained in her employment agreement, an amount equal to six months of base salary, paid in equal installments over a twelve month period, (iii) continuation of health benefits (in the form of COBRA reimbursement paid by Bally) through the earlier of (x) twelve months from her employment termination date or the maximum number of months that COBRA coverage is available by law, whichever is less, or (y) her date of employment by a subsequent employer; and (iv) continued vesting of any equity-based awards previously granted to Ms. Lever for the duration of the twelve month severance period.
For purposes of Ms. Lever's employment agreement, "good reason" means: (i) a material reduction in the nature or scope of her duties, responsibilities, authority or position; (ii) a material change in her title in a manner that indicates a reduction in responsibility or prestige; (iii) a material reduction in her base salary; (iv) a "change in control" (which would include completion of the merger) whereby there is a material reduction in the nature or scope of her duties, responsibilities, authority or position; or (v) a material breach of her employment agreement that is not cured within 30 calendar days after Bally's receipt of written notice specifying such breach.
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Employment Agreement with Mr. Mooberry
Pursuant to Mr. Mooberry' s employment agreement with Bally, in the event of his termination of employment by Bally without "cause" (as defined in his employment agreement), he is eligible to continue receiving his base salary for a period of one year following his termination of employment, subject to his execution of a general release of claims and his continuing compliance with any restrictive covenants.
Employment Agreement with Mr. Connelly
Pursuant to Mr. Connelly's employment agreement with Bally, in the event of his termination of employment by Bally for any reason other than for "cause" (as defined in his employment agreement), he is eligible to continue receiving his base salary for a period of six months following his termination of employment, subject to his execution of a general release of claims and his continuing compliance with any restrictive covenants.
Potential New Employment Arrangements
As of the date of this proxy statement, none of the executive officers of Bally has entered into any amendments or modifications to existing employment arrangements with Bally or its subsidiaries in anticipation of the merger, nor has any executive officer of Bally entered into any agreement or arrangement with Scientific Games or its affiliates regarding employment with, or the right to participate in any equity incentive compensation programs of, Scientific Games or its subsidiaries. Although no such agreement or arrangement currently exists, certain executive officers of Bally may continue to be employed by Scientific Games or its subsidiaries after the merger closing date, which means that such executive officers may, prior to the merger closing date, enter into new employment arrangements with Scientific Games or its subsidiaries regarding employment with, or the right to participate in the equity compensation programs of, Scientific Games or its subsidiaries.
Quantification of Potential Payments to Named Executive Officers in Connection with the Merger
The "named executive officers" for purposes of the disclosure in this proxy statement are: Richard Haddrill (Chief Executive Officer), Neil Davidson (Senior Vice President, Chief Financial Officer, Treasurer and Secretary), Kathryn S. Lever (Senior Vice President and General Counsel), Derik Mooberry (Senior Vice President, Games) and John Connelly (Senior Vice President, Business Development and Interactive). Although Ramesh Srinivasan, Bally's former chief executive officer, is considered a named executive officer for purposes of the SEC's disclosure rules, Mr. Srinivasan ceased his employment with Bally effective May 23, 2014 and became entitled to the severance benefits described in his employment agreement in accordance with the terms and conditions thereof. As a result, Mr. Srinivasan has no interest in the merger (except insofar as he may be a holder of shares of Bally common stock), or any rights to compensation that are based on or otherwise related to the merger, and is therefore not included in the disclosure that follows.
As required by Item 402(t) of Regulation S-K, the table below sets forth the estimated amounts of compensation that each named executive officer could receive that is based on or otherwise related to the merger. These amounts have been calculated assuming the merger is consummated on December 31, 2014, and, where applicable, assuming each named executive officer experiences a qualifying termination of employment as of the merger closing date. To the extent applicable, calculations of cash severance are based on the named executive officer's current base salary and the named executive officer's target annual bonus for fiscal year 2015. See the section entitled "Interests of Bally's Directors and Executive Officers in the Merger" beginning on page 65 of this proxy statement for further information about the compensation disclosed in the table below. The amounts set forth in the table below are the subject of a non-binding, advisory vote of Bally stockholders, as described
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below in the section entitled "Proposal 2: Advisory Vote on Merger-Related Compensation Arrangements" beginning on page 112 of this proxy statement.
The amounts indicated below are estimates of amounts that would be payable to the named executive officers and the estimates are based on multiple assumptions that may not prove correct, including assumptions described in this proxy statement. Accordingly, the actual amounts, if any, to be received by a named executive officer may differ in material respects from the amounts set forth below.
Named Executive Officer
|
Cash(1) | Equity(2) | Pension / Non-Qualified Deferred Compensation(3) |
Perquisites / Benefits(4) |
Tax Reimbursement(5) |
Other(6) | Total(7) | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Richard M. Haddrill |
$ | 3,500,000 | $ | 7,136,894 | | $ | 45,000 | | $ | 750,000 | $ | 11,431,894 | ||||||||||
Neil Davidson |
$ | 400,000 | $ | 2,525,170 | | | | $ | 1,200,000 | $ | 4,125,170 | |||||||||||
Kathryn S. Lever |
$ | 315,000 | $ | 432,494 | | $ | 30,000 | | $ | 1,094,500 | $ | 1,871,994 | ||||||||||
Derik Mooberry |
$ | 330,000 | $ | 905,481 | | | | $ | 399,000 | $ | 1,634,481 | |||||||||||
John Connelly |
$ | 212,500 | $ | 1,306,505 | | | | $ | 527,500 | $ | 2,046,505 |
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double trigger, although they would also have been paid on the six-month anniversary of the merger closing date, subject to continued employment through such date, without a qualifying termination of employment.
Other. Represents, for Mr. Haddrill and, in part, for Messrs. Davidson, Mooberry and Connelly and Ms. Lever, the pro-rata bonus amounts for fiscal year 2015 that will be paid on Scientific Games' regularly scheduled bonus payment date to eligible employees who remain employed with Bally through the merger closing date, as described in greater detail above in the section entitled "Annual Bonus Programs" beginning on page 68 of this proxy statement. Assuming that the performance-based conditions with respect to the fiscal year 2015 bonuses will be achieved at target, the estimated pro-rata bonus amounts each named executive officer would be expected to receive for fiscal year 2015 (pro-rated for service through December 31, 2014) are approximately $750,000 for Mr. Haddrill, $200,000 for Mr. Davidson, $94,500 for Ms. Lever, $99,000 for Mr. Mooberry, and $127,500 for Mr. Connelly. These amounts are double trigger, although they would also have been paid several months after the merger closing date, unless the executive officer is terminated for cause prior to the payment date.
Named Executive Officer
|
Retention Bonus Award Component |
Pro-Rata Bonus Component |
Total Other | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Richard M. Haddrill |
| $ | 750,000 | $ | 750,000 | |||||
Neil Davidson |
$ | 1,000,000 | $ | 200,000 | $ | 1,200,000 | ||||
Kathryn S. Lever |
$ | 1,000,000 | $ | 94,500 | $ | 1,094,500 | ||||
Derik Mooberry |
$ | 300,000 | $ | 99,000 | $ | 399,000 | ||||
John Connelly |
$ | 400,000 | $ | 127,500 | $ | 527,500 |
Named Executive Officer
|
Single Trigger ($) | Double Trigger ($) | |||||
---|---|---|---|---|---|---|---|
Richard M. Haddrill |
$ | 7,136,894 | $ | 4,295,000 | |||
Neil Davidson |
$ | 2,525,170 | $ | 1,600,000 | |||
Kathryn S. Lever |
$ | 432,494 | $ | 1,439,500 | |||
Derik Mooberry |
$ | 905,481 | $ | 729,000 | |||
John Connelly |
$ | 1,201,464 | $ | 845,041 |
Director and Officer Indemnification
The NRS provides for mandatory indemnification of any person, including directors and officers, made a party to a proceeding by reason of such person's former or current official capacity under certain circumstances. In addition, pursuant to the terms of the merger agreement, directors and officers of Bally have rights to indemnification and directors' and officers' liability insurance that will survive completion of the merger. For more information, see the section entitled "Terms of the Merger AgreementDirectors' and Officers' Indemnification and Insurance" beginning on page 101 of this proxy statement.
Certain Projections Prepared by the Management of Bally
Bally does not generally publish its business plans and strategies or make external disclosures of its anticipated financial position or results of operations other than for providing, from time to time, estimated ranges of certain expected financial results and operational metrics for the current year in its regular earnings press releases and other investor materials Bally is especially wary of making projections for extended earnings periods due to the unpredictability of the underlying assumptions and estimates. However, in connection with Bally's ordinary course efforts to conduct annual business planning activities, Bally's management prepared internal financial forecasts for fiscal years 2015 and
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2016 (which we refer to as the "July 2014 projections" in this proxy statement) that were not intended for public disclosure. The July 2014 projections were not prepared in connection with or in response to Scientific Games' proposal to acquire Bally.
The July 2014 projections, which are summarized below under the heading "Summary of Certain Projections" were (i) provided to Scientific Games in connection with its due diligence review of Bally, (ii) provided to Macquarie Capital for its consideration in connection with its financial analyses summarized above under "Proposal 1: Approval of the Merger AgreementOpinion of Bally's Financial Advisor" beginning on page 53 of this proxy statement and (iii) considered and reviewed by the Bally board of directors in connection with its deliberations with respect to the merger at the special meetings of the board of directors of Bally from and after July 16, 2014, as further described above under "Proposal 1: Approval of the Merger AgreementBackground of the Merger" beginning on page 35 of this proxy statement.
Bally advised the recipients of the July 2014 projections that (i) such projections did not include the pro forma impact of the acquisition of SHFL entertainment, Inc. for the period prior to its acquisition by Bally on November 25, 2013 or the pro forma impact of Bally's acquisition of DragonPlay Ltd. on July 1, 2014 and (ii) such projections are subjective in many respects. The July 2014 projections provided below reflect various assumptions and estimates of Bally's management made in good faith, including, without limitation, with respect to industry performance, general business, economic, market and financial conditions, the anticipated impact of Bally's prior acquisitions and the potential synergies expected to be achieved in connection therewith and other matters, many of which are difficult to predict and subject to significant economic and competitive uncertainties beyond Bally's control. In addition, it should be noted the July 2014 projections were prepared by Bally's management on a specific date, and that, as a result, the underlying assumptions of, and knowledge of Bally's actual results known by, Bally's management differed as it relates to the July 2014 projections relative to other dates. In particular, the July 2014 projections do not reflect revisions reflecting Bally's customary year-end closing of its financial information.
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Summary of Certain Projections
The following tables summarize the projections that were reviewed by the Bally board of directors and provided to Macquarie Capital and Scientific Games, as described above. Figures presented below may not be exactly reconcilable due to rounding.
|
Fiscal Quarter | Fiscal Year | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Ended | Ending | Ending June 30, | ||||||||||||||||||||||
($ in millions) |
6/30/14E(1) | 9/30/14P | 12/31/14P | 3/31/15P | 6/30/15P | 2014E(1) | 2015P | 2016P | |||||||||||||||||
Total Revenue |
$ | 344.9 | $ | 322.2 | $ | 328.8 | $ | 327.2 | $ | 361.8 | $ | 1,217.8 | $ | 1,340.1 | $ | 1,488.4 | |||||||||
Total Gross Profit |
$ | 217.6 | $ | 211.7 | $ | 212.8 | $ | 212.8 | $ | 236.3 | $ | 773.3 | $ | 873.6 | $ | 981.7 | |||||||||
Total Operating Income |
$ | 66.6 | $ | 72.6 | $ | 72.8 | $ | 67.7 | $ | 91.7 | $ | 234.2 | $ | 304.8 | $ | 384.4 | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net Income |
$ | 30.4 | $ | 36.0 | $ | 36.3 | $ | 33.7 | $ | 49.7 | $ | 116.8 | $ | 155.7 | $ | 208.7 | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA Calculation |
|||||||||||||||||||||||||
Net Income from Continuing Operations |
$ | 30.4 | $ | 36.0 | $ | 36.3 | $ | 33.7 | $ | 49.7 | $ | 116.8 | $ | 155.7 | $ | 208.7 | |||||||||
Acquisition Related Costs |
$ | 9.6 | $ | 1.0 | $ | 0.8 | $ | 0.5 | $ | 0.4 | $ | 50.1 | $ | 2.7 | | ||||||||||
Interest Expense (Income) |
$ | 17.7 | $ | 16.9 | $ | 16.4 | $ | 15.5 | $ | 14.7 | $ | 47.9 | $ | 63.5 | $ | 58.4 | |||||||||
Income Taxes (benefit) |
$ | 16.8 | $ | 19.8 | $ | 20.0 | $ | 18.5 | $ | 27.4 | $ | 61.3 | $ | 85.7 | $ | 117.4 | |||||||||
Depreciation and Amortization |
$ | 20.1 | $ | 20.6 | $ | 20.6 | $ | 20.9 | $ | 21.2 | $ | 57.5 | $ | 83.3 | $ | 87.4 | |||||||||
Depreciation on Leased Gaming Equipment |
$ | 20.1 | $ | 20.2 | $ | 20.8 | $ | 21.3 | $ | 20.7 | $ | 76.0 | $ | 83.1 | $ | 89.8 | |||||||||
Share Based Compensation |
$ | 3.7 | $ | 4.2 | $ | 4.2 | $ | 4.9 | $ | 4.7 | $ | 14.0 | $ | 18.0 | $ | 14.5 | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA |
$ | 118.4 | $ | 118.6 | $ | 119.1 | $ | 115.3 | $ | 138.8 | $ | 423.7 | $ | 491.9 | $ | 576.1 | |||||||||
Adjusted LTM EBITDA |
$ | 423.7 | $ | 455.6 | $ | 472.6 | $ | 471.4 | $ | 491.9 | $ | 423.7 | $ | 491.9 | $ | 576.1 |
Adjusted EBITDA and Adjusted LTM EBITDA, as presented above, are Non-Generally Accepted Accounting Principles, which we refer to as "GAAP" in this proxy statement, financial measures. Bally provided this information to Scientific Games and Macquarie Capital because it believed it could be useful in evaluating, on a prospective basis, Bally's potential operating performance and cash flow. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP. Not all companies calculate Adjusted EBITDA and/or Adjusted LTM EBITDA the same way, and Bally's presentation may be different from those presented by other companies.
Adjusted EBITDA and Adjusted LTM EBITDA reflect the inclusion of acquisition related costs, interest expense, income taxes, depreciation and amortization (including with respect to leased gaming equipment) and share based compensation.
After the July 2014 projections were initially provided to Scientific Games, management identified certain additional adjustments to Adjusted EBITDA in respect of the following non-recurring items: certain restructuring costs of approximately $2 million in FY2014E, certain litigation costs of approximately $1 million in FY2014E and certain litigation costs of $2 million in FY2015P. These amounts were provided to Scientific Games at the management presentation described in the section entitled "Proposal 1: Approval of the MergerBackground of the Merger" beginning on page 35 of this proxy statement.
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In addition, the following table shows the estimated amount of unlevered free cash flow that Macquarie Capital considered in performing its illustrative discounted cash flow analyses described above under "Proposal 1: Approval of the Merger AgreementOpinion of Bally's Financial Advisor" beginning on page 53 of this proxy statement, but such line item was not included in the projections provided to Scientific Games. These amounts were derived from the July 2014 projections and the additional adjustments to Adjusted EBITDA identified by management described in the preceding paragraph.
|
Fiscal Year | ||||||
---|---|---|---|---|---|---|---|
|
Ending June 30, | ||||||
($ in millions) |
2015P | 2016P | |||||
Adjusted EBITDA |
493 | 576 | |||||
Less: Depreciation and Amortization |
(166 | ) | (177 | ) | |||
Less: Share-Based Compensation |
(18 | ) | (15 | ) | |||
Less: Acquisition-Related Costs |
(3 | ) | | ||||
Less: Certain Litigation Costs |
(2 | ) | | ||||
Earnings Before Tax |
305 | 384 | |||||
Less Taxes |
(108 | ) | (138 | ) | |||
Plus: Depreciation and Amortization |
166 | 177 | |||||
Less: Capital Expenditures |
(104 | ) | (120 | ) | |||
Less: Changes in Working Capital(1) |
(47 | ) | (45 | ) | |||
Unlevered Free Cash Flow(2) |
212 | 258 |
The internal financial projections were not prepared with a view toward public disclosure, nor were they prepared with a view toward compliance with published guidelines of the SEC, the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial projections, or GAAP. The projected financial information included herein has been prepared by, and is the responsibility of, Bally's management. Bally cautions you that the internal financial projections are speculative in nature and based upon subjective decisions and assumptions. The summary of the financial forecasts is not included in this document in order to induce any stockholder to vote in favor of the merger proposal or any of the other proposals to be voted on at the special meeting, but because these internal financial projections were provided by Bally management to Scientific Games and Macquarie Capital in contemplation of , and used by the Bally board of directors in its consideration of, a potential transaction.
In addition, the projections were not prepared with the assistance of, or reviewed, compiled or examined by, our independent accountants. Deloitte & Touche LLP, Bally's independent registered public accounting firm, has not examined or compiled any of the accompanying projected financial information, and accordingly, Deloitte & Touche LLP does not express an opinion or any other form of assurance with respect thereto. The Deloitte & Touche LLP report incorporated by reference in this proxy statement only relates to Bally's historical consolidated financial statements and notes thereto. It does not extend to the projected financial information and it should not be read to do so.
These internal financial projections were based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of Bally's management. Important factors that may affect actual results and cause the internal financial projections not to be achieved include, but are not
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limited to, risks and uncertainties relating to Bally's business (including its ability to achieve potential strategic goals, acquisitions, objectives and targets over applicable periods, the gaming machine industry, the interactive business, the regulatory environment, general business and economic conditions and other risk factors described under the section entitled "Risk Factors" in Bally's Annual Report on Form 10-K for the year ended June 30, 2014, and more recent filings incorporated by reference in the proxy statement and "Cautionary Statement Concerning Forward-Looking Information" beginning on page 24 of this proxy statement). Because the internal financial projections cover multiple future years, such information by its nature is less reliable in predicting each successive year. The internal financial projections also do not take into account any circumstances or events occurring after the date on which they were prepared and do not give effect to the transactions contemplated by the merger agreement, including the merger. The internal financial projections also reflect assumptions as to certain business decisions that are subject to change. As a result, actual results may differ materially from those contained in these internal financial projections. Accordingly, there can be no assurance that the internal financial projections will be realized or that actual results will not be significantly higher or lower than projected.
The inclusion of these internal financial projections in this proxy statement should not be regarded as an indication that any of Bally, Scientific Games or their respective affiliates, advisors or representatives considered the internal financial projections to be predictive of actual future events, and the internal financial projections should not be relied upon as such. None of Bally, Scientific Games or their respective affiliates, advisors, officers, employees, directors or representatives can give you any assurance that actual results will not differ from these internal financial projections, and none of them undertakes any obligation to update or otherwise revise or reconcile these internal financial projections to reflect circumstances existing after the date the internal financial projections were generated or to reflect the occurrence of future events even in the event that any or all of the assumptions underlying the projections are shown to be in error. Except as may be required by applicable securities laws, Bally does not intend to make publicly available any update or other revision to these internal financial projections even in the event that any or all of the assumptions are shown to be in error. None of Bally or its affiliates, advisors, officers, employees, directors or representatives has made or makes any representation to any stockholder or other person regarding Bally's ultimate performance compared to the information contained in these internal financial projections or that projected results will be achieved. Bally has made no representation to Scientific Games, in the merger agreement or otherwise, concerning these internal financial projections.
Since the date of the projections, Bally has made publicly available its actual results of operations for the fiscal year ended June 30, 2014. You should review Bally's Annual Report on Form 10-K for the fiscal year ended June 30, 2014, filed on August 29, 2014, and Current Report on Form 8-K, filed September 2, 2014, to obtain this information.
See "Where Stockholders Can Find Additional Information" beginning on page 120 of this proxy statement.
Antitrust Filings
The HSR Act and the regulations promulgated thereunder require that we and Scientific Games file notification and report forms with respect to the merger and related transactions with the Antitrust Division and the FTC. The parties thereafter are required to observe a waiting period before completing the merger. The required notification and report forms under the HSR Act were filed with the Antitrust Division and the FTC by Bally and Scientific Games on August 6, 2014 and August 7, 2014, respectively. On August 19, 2014, Bally received notice from the FTC that early termination of
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the applicable waiting period had been granted; as such, the condition to the closing of the merger related to the HSR Act has been satisfied.
At any time before or after the completion of the merger, the Antitrust Division or the FTC or any state could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the merger, to rescind the merger or to seek divestiture of particular assets. Private parties also may seek to take legal action under the antitrust laws under certain circumstances. Although there is no assurance that they will not do so, we do not expect any regulatory authority, state or private party to take legal action under the antitrust laws.
Required Gaming Approvals
The parties have agreed that receipt of the required gaming approvals from approximately 20 jurisdictions is a condition to closing of the merger.
Scientific Games may under certain circumstances waive the condition relating to any such required gaming approval on behalf of both Scientific Games and Bally if consummation of the merger in the absence of such required gaming approval would not constitute a violation of applicable law. In addition to the jurisdictions identified by the parties as conditions to the merger, either Bally or Scientific Games may make further filings with gaming regulators in various jurisdictions as may be required by applicable law, but the expiration of any waiting periods, or receipt of any required approvals, in connection with such filings will not be conditions to the consummation of the merger.
Scientific Games has filed or has caused to be filed all initial applications and documents in connection with obtaining the required gaming approvals, and with respect to certain of such approvals the parties have already received confirmation that all obligations necessary to be fulfilled prior to the merger have been satisfied.
At any time before or after the completion of the merger, a regulator could take such action under the gaming laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the merger or to seek divestiture of particular assets.
Other Matters with Respect to Regulatory Approvals
Scientific Games has the principal responsibility, after prior, good faith consultation with Bally and after considering, in good faith, the views and comments of Bally, for devising and implementing the strategy for obtaining any of the antitrust approvals or required gaming approvals and shall take the lead in all meetings and communications with, or proceedings involving, any governmental entity in connection with obtaining the antitrust approvals and the required gaming approvals. However, the consent of each of Bally and Scientific Games is required prior to the taking of any action (including the failure to take any such action) in connection with obtaining any antitrust approvals or required gaming approvals if such action (or failure to act) would be reasonably likely to materially delay, or materially impair the likelihood of obtaining, any such approvals.
Although we do not expect these regulatory authorities to raise any significant concerns in connection with their review of the merger, there is no assurance that all applicable waiting periods will expire, that Scientific Games will obtain all required regulatory approvals or that those approvals will not include terms, conditions or restrictions that may have an adverse effect on us or, after completion of the transaction, Scientific Games.
Other than the filings described above, we are not aware of any mandatory regulatory filings to be made, approvals to be obtained or waiting periods to expire, in order to complete the merger. If any approval or action is needed, however, we may not be able to obtain it or any of the other necessary approvals. Even if we could obtain all necessary approvals, and the merger agreement is approved by
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our stockholders, conditions may be placed on the merger, our business or that of Scientific Games that could cause the parties to fail to consummate the merger.
Scientific Games and Bally have generally agreed to use their reasonable best efforts to obtain such approvals but, under the terms of the merger agreement, neither Scientific Games nor Merger Sub is required to make (or cause its applicable affiliates or subsidiaries to make) any divestiture actions unless (i) such divestiture actions are conditioned on the consummation of the merger, and (ii) such divestiture actions, individually or in the aggregate, would not reasonably be expected to result in the loss of more than $85.0 million in revenues on a consolidated basis for Scientific Games and its subsidiaries (including Bally and its subsidiaries) for the most recently ended twelve month period ending as of the last day of Scientific Games' most recently completed fiscal quarter (provided that if the last day of such period is after December 31, 2014, such period will be deemed to have ended on December 31, 2014).
As used in this proxy statement, "divestiture action" means Scientific Games or Bally or their respective subsidiaries (i) committing to or effecting, by consent decree, hold separate orders, trust, or otherwise, the sale or disposition of any assets or businesses (or agreeing to change or modify any course of conduct regarding future operations or otherwise taking actions that would limit its freedom of action with respect to, or its ability to retain, one or more of their respective businesses, product lines, divisions or assets or interests therein), (ii) terminating, relinquishing, modifying, or waiving existing relationships, ventures, contractual rights, obligations or other arrangements of Scientific Games or Bally or their respective subsidiaries and (iii) creating any relationships, ventures, contractual rights, obligations or other arrangements of Scientific Games or Bally or their respective subsidiaries (and, in each case, to enter, or offer to enter, into agreements and stipulate to the entry of an order or decree or file appropriate applications with any governmental authority in connection with any of the foregoing and in the case of actions by or with respect to Bally or its subsidiaries or its or their businesses or assets, by consenting to such action by Bally).
Litigation Relating to the Merger
The following complaints challenging the merger have been filed in the District Court of the Eighth Judicial District, County of Clark, Nevada: (i) Shaev v. Bally Technologies, Inc., et al., No. A-14-705012-B; (ii) Crescente v. Bally Technologies, Inc., et al., No. A-14-705144-C; (iii) Lewandoski v. Bally Technologies, Inc., et al., No. A-14-705153-C; (iv) Rosenfeld v. Bally Technologies, Inc., et al., No. A-14-705162-B; (v) Stein v. Bally Technologies, et al., No. A-14-705338-B; and (vi) Hahm v. Bally Technologies, Inc., No. A-14-706234-C. Each of the actions is a putative class action filed on behalf of the public shareholders of Bally Technologies, Inc. and names as defendants Bally, its directors, Scientific Games, Merger Sub and Financing Sub. The complaints generally allege that the individual defendants breached their fiduciary duties in connection with their consideration and approval of the merger. Four of the five complaints also allege that all of the entity defendants aided and abetted the purported breaches by the individual defendants. The fifth complaint, Shaev v. Bally Technologies, Inc., et al., alleges that Scientific Games, Merger Sub and Financing Sub aided and abetted the individual defendants' purported breaches but makes no such claim against Bally. The complaints seek, among other relief, to enjoin the merger. On August 26, 2014, the Shaev, Crescente, Lewandoski and Stein actions were consolidated into a single proceeding under the caption In re Bally Technologies, Inc. Shareholders Litigation, No. A-14-705012-B.
The outcome of these lawsuits cannot be predicted with any certainty. An adverse judgment for monetary damages could have a material adverse effect on the operations and liquidity of Bally. A preliminary injunction could delay or jeopardize the completion of the merger, and an adverse judgment granting permanent injunctive relief could indefinitely enjoin completion of the merger. All of the defendants believe that the claims asserted against them in the lawsuits are without merit and
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are defending against them vigorously. Additional lawsuits arising out of or relating to the merger agreement or the merger may be filed in the future.
Material U.S. Federal Income Tax Consequences of the Merger for U.S. Holders
The following is a summary of material U.S. federal income tax consequences of the merger to "U.S. holders" (as defined below) of our common stock. This summary is based on the Internal Revenue Code, the U.S. Treasury Department regulations promulgated under the Internal Revenue Code, published rulings by the Internal Revenue Service, which we refer to as the "IRS", and judicial authorities and administrative decisions, all as in effect as of the date of this proxy statement and all of which are subject to change, possibly with retroactive effect. This summary is not binding on the IRS or a court and there can be no assurance that the tax consequences described in this summary will not be challenged by the IRS or that they would be sustained by a court if so challenged. No ruling has been or will be sought from the IRS, and no opinion of counsel has been or will be rendered, as to the U.S. federal income tax consequences of the merger.
For purposes of this summary, the term "U.S. holder" means a beneficial owner of shares of our common stock that is, for U.S. federal income tax purposes:
This summary does not address or consider all of the U.S. federal income tax consequences that may be applicable to U.S. holders of our common stock in light of their particular circumstances. For example, this summary does not address the alternative minimum tax. In addition, this summary does not address the U.S. federal income tax consequences of the merger to holders who are subject to special treatment under U.S. federal income tax rules, including, for example, banks and other financial institutions; insurance companies; mutual funds; real estate investment trusts; personal holding companies; regulated investment companies; securities or currency dealers; traders in securities who elect to use the mark-to-market method of accounting; tax-exempt investors; S corporations; holders classified as or that hold their shares through partnerships or other flow-through entities under the Internal Revenue Code; holders who hold their shares of our common stock as part of a hedge, straddle, constructive sale, conversion transaction, or other integrated investment; holders whose functional currency is not the U.S. dollar; holders who acquired their shares of our common stock through the exercise of employee stock options or otherwise as compensation; tax-deferred or other retirement accounts; certain U.S. expatriates; certain former citizens or residents of the United States; and holders who do not hold their shares of our common stock as "capital assets" within the meaning of Section 1221 of the Internal Revenue Code (generally, property held for investment). In addition, this summary does not address any aspects of foreign, state, local, estate, gift, or other tax laws that may be applicable to a particular holder in connection with the merger.
The tax consequences of the merger to stockholders who hold their shares of our common stock through a partnership or other flow-through entity will generally depend on the status of the stockholder and the activities of the partnership or other flow-through entity. Partners in a partnership
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(or other flow-through entity) holding shares of our common stock should consult their tax advisors regarding the tax consequences of the merger to them.
Further, this summary does not address any tax consequences of the merger to U.S. holders of options, shares of restricted stock, restricted stock units or performance stock units whose options, shares of restricted stock, restricted stock units or performance stock units are canceled in exchange for cash or other consideration pursuant to the merger. Such option, share of restricted stock, restricted stock unit and performance unit holders should consult their tax advisors regarding the tax consequences of the merger to them.
Exchange of Common Stock for Cash
A U.S. holder's receipt of the merger consideration in exchange for shares of our common stock will generally be a taxable transaction for U.S. federal income tax purposes. In general, a U.S. holder whose shares of common stock are converted into the right to receive cash pursuant to the merger will recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received with respect to such shares and the U.S. holder's adjusted tax basis in such shares. A U.S. holder's adjusted tax basis will generally equal the price the U.S. holder paid for such shares. The amount of gain or loss must be determined separately for each block of shares (i.e., shares acquired at the same cost in a single transaction) surrendered by the U.S. holder in the merger. Such gain or loss will generally be long-term capital gain or loss if the U.S. holder's holding period for such shares is more than twelve (12) months at the effective time of the merger. Long-term capital gains recognized by individual and certain other non-corporate U.S. holders are generally taxed at preferential U.S. federal income tax rates. A U.S. holder's ability to deduct capital losses may be limited.
Backup Withholding and Information Reporting
A U.S. holder may be subject to information reporting on all cash payments to which such U.S. holder is entitled in connection with the merger and may be subject to U.S. federal backup withholding on such payments, unless the U.S. holder provides its correct taxpayer identification number and complies with applicable certification procedures or otherwise establishes an exemption from backup withholding. In addition, if the paying agent is not provided with a U.S. holder's correct taxpayer identification number or other adequate basis for exemption, the U.S. holder may be subject to certain penalties imposed by the IRS. Each U.S. holder should complete and sign the Form W-9 that will be included as part of the letter of transmittal and timely return it to the paying agent in order to avoid backup withholding. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will generally be allowable as a refund or credit against a U.S. holder's U.S. federal income tax liability, provided that certain required information is timely furnished to the IRS.
This summary is provided for general information only and is not tax advice. Holders of our common stock should consult their tax advisors regarding the application of the U.S. federal income tax laws to their particular situations, as well as any potential tax consequences of the merger arising under foreign, state, local, estate, gift, and other tax laws.
Under Nevada law, there is no right of dissent with respect to a plan of merger, conversion or exchange with respect to stockholders of any class or series which is traded in an organized market and has at least 2,000 stockholders and a market value of at least $20.0 million, exclusive of the value of such shares held by the corporation's subsidiaries, senior executives, directors and beneficial stockholders owning more than 10 percent of such shares, unless (i) the articles of the corporation issuing the shares provide otherwise or (ii) the stockholders are required to accept in exchange for their
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shares anything other than cash or shares of any class or any series of shares of any corporation, or any other proprietary interest of any other entity, which is traded in an organized market and has at least 2,000 stockholders and a market value of at least $20.0 million, exclusive of the value of such shares held by the corporation's subsidiaries, senior executives, directors and beneficial stockholders owning more than 10 percent of such shares at the time the corporate action becomes effective. Accordingly, dissenters' rights are not applicable to the merger agreement or the transactions contemplated thereby, including the merger.
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The following summary describes certain material provisions of the merger agreement and is qualified in its entirety by reference to the merger agreement, a copy of which is attached to this proxy statement as Annex A and which is incorporated by reference into this proxy statement. This summary does not purport to be complete and may not contain all of the information about the merger agreement that may be important to you. We encourage you to read the merger agreement carefully and in its entirety, as it is the legal document governing the merger.
Explanatory Note Regarding the Merger Agreement and the Summary of the Merger Agreement; Representations, Warranties and Covenants in the Merger Agreement Are Not Intended to Function or Be Relied on as Public
Disclosures
The merger agreement and the summary of terms included in this proxy statement have been prepared to provide you with information regarding its terms and are not intended to provide any factual information about Bally, Scientific Games, Merger Sub, Financing Sub or any of their respective subsidiaries or affiliates. Such information can be found elsewhere in this proxy statement or in the public filings that we or Scientific Games make with the SEC, as described in the section entitled "Where Stockholders Can Find More Information" beginning on page 120 of this proxy statement. The representations, warranties and covenants contained in the merger agreement have been made solely for the purposes of the merger agreement and as of specific dates and solely for the benefit of parties to the merger agreement and:
Accordingly, you should not rely on the representations, warranties or covenants or any descriptions thereof as characterizations of the actual state of facts or condition of Bally, Scientific Games, Merger Sub, Financing Sub or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the merger agreement, which subsequent information may or may not be fully reflected in Bally's or Scientific Games' public disclosures. Accordingly, the representations and warranties and other provisions of the merger agreement or any description of such provisions should not be read alone, but instead should be read together with the information provided elsewhere in this proxy statement and in the documents incorporated by reference into this proxy statement. See the section entitled "Where Stockholders Can Find More Information" beginning on page 120 of this proxy statement.
Terms of the Merger; Merger Consideration
The merger agreement provides that, upon the terms and subject to the conditions set forth in the merger agreement and in accordance with the NRS, at the effective time of the merger, Merger Sub
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will be merged with and into Bally, whereupon the separate existence of Merger Sub will cease, and Bally will continue as the surviving corporation and a wholly owned subsidiary of Scientific Games.
At the effective time of the merger, on the terms and subject to the conditions set forth in the merger agreement:
In the event that, from the date of the merger agreement until the effective time of the merger, the number of outstanding shares of Bally common stock is changed into a different number of shares or a different class by reason of any reclassification, recapitalization, stock split (including a reverse stock split), subdivision, combination, exchange or readjustment of shares or any stock dividend or stock distribution, merger or other similar transaction, the merger consideration will be equitably adjusted to provide holders of Bally common stock the same economic effect.
Articles of Incorporation; Bylaws; Directors and Officers
At the effective time of the merger, the articles of incorporation of Bally will be amended in its entirety to read as set forth on Exhibit A of the merger agreement and the bylaws of Bally will be amended in its entirety to be identical to the bylaws of Merger Sub as in effect immediately prior to the effective time of the merger. In addition, as of the effective time of the merger, the directors and officers of Merger Sub immediately prior to the effective time of the merger will be the directors and officers of the surviving corporation until their successors have been duly elected, designated, appointed or qualified, as the case may be, or their earlier death, incapacitation, retirement, resignation or removal in accordance with the articles of incorporation and bylaws of the surviving corporation.
The closing of the merger will take place (a) at 9:00 a.m., Las Vegas time, on the later of (i) the second business day after all conditions to the completion of the merger have been satisfied or waived (other than those conditions that can only be satisfied at such closing, but subject to the satisfaction or waiver of such conditions), and (ii) the earlier of (A) the third business day after the end of the marketing period (described below under "Terms of the Merger AgreementFinancing of the
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Merger"), and (B) a date during the marketing period specified by Scientific Games on no fewer than two business days' notice to Bally or (b) on such other date or time as the parties may mutually agree in writing.
The effective time of the merger will be at the time when the articles of merger are filed with the Secretary of State of the State of Nevada, or at such later time as the parties agree and specify in the articles of merger in accordance with the NRS. As promptly as reasonably practicable on the closing date, the parties shall cause the articles of merger to be filed.
Treatment of Stock Options and Other Stock-Based Compensation
The treatment of all Bally equity awards, including those held by Bally's directors and executive officers is summarized below.
Options
At the effective time of the merger, each option to purchase Bally common stock that is outstanding (whether vested or unvested) immediately prior to the effective time of the merger will be canceled in exchange for the right to receive an amount in cash equal to the excess, if any, of the merger consideration over the exercise price of such option, less any applicable withholding taxes. If the exercise price of the option equals or exceeds the merger consideration, the option will be canceled without the payment of any consideration to the holder.
Holders of incentive stock options will be permitted to exercise such incentive stock options (whether vested or unvested) five business days prior to, and conditioned upon the occurrence of, the merger closing date. Incentive stock options that are not exercised in such manner and that remain outstanding immediately prior to the effective time of the merger will be cashed out in the manner described in the preceding paragraph.
Performance Units
At the effective time of the merger, each Bally performance unit that is outstanding (whether vested or unvested) immediately prior to the effective time of the merger will be canceled in exchange for the right to receive an amount in cash equal to the merger consideration, less any applicable withholding taxes. For purposes of determining the number of performance units that are outstanding immediately prior to the effective time of the merger, the applicable performance-based conditions will be considered to have been achieved at maximum levels. The only individuals who have outstanding performance units are Bally's current chief executive officer and chief financial officer.
Restricted Shares and Restricted Stock Units
At the effective time of the merger, each share of Bally restricted stock and each Bally restricted stock unit that was granted prior to August 1, 2014, and that is outstanding (whether vested or unvested) immediately prior to the effective time of the merger, will be canceled in exchange for the right to receive an amount in cash equal to the merger consideration, less any applicable withholding taxes.
At the effective time of the merger, each share of Bally restricted stock and each Bally restricted stock unit that is granted on or after August 1, 2014, and that is outstanding immediately prior to the effective time of the merger, will not be cashed out or canceled in the merger, but instead will be converted as of the effective time of the merger into a restricted share or restricted stock unit, as applicable, with respect to the Class A common stock, par value $0.01 per share, of Scientific Games,
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using the stock award exchange ratio. The terms and conditions of these converted restricted shares and restricted stock units will generally remain unchanged, and such awards will continue to vest as scheduled based on the holder's continued employment through each applicable vesting date, provided that if the holder's employment is terminated by Scientific Games without "cause" or by the holder for "good reason" (generally, as such terms are defined in the 2010 LTIP) within one year following the merger closing date, the holder will be given additional service credit for vesting purposes for the holder's months of service following the merger closing date, plus an additional twelve (12) months, such that the installments of the converted restricted shares and restricted stock units that were otherwise scheduled to vest within such number of months following the holder's employment termination date will immediately vest and be settled in shares of Scientific Games Class A common stock.
Treatment of the Employee Stock Purchase Plan
The Employee Stock Purchase Plan will not accept any new participants. Current participants may continue to contribute to their accounts, but may not increase their contributions or change their current purchase elections from those that were in effect on August 1, 2014. The current quarterly offering ended on August 31, 2014, and no new offering will commence thereafter. The Employee Stock Purchase Plan will terminate as of the merger closing date.
Exchange of Shares in the Merger
Prior to the effective time of the merger, Scientific Games will designate a paying agent to handle the exchange of shares of Bally common stock for the merger consideration. At or immediately prior to the effective time of the merger, Scientific Games will deposit (or cause to be deposited) with the paying agent all of the cash sufficient to pay the aggregate merger consideration. At any time after the effective time of the merger, shares of Bally common stock, other than the excluded shares (all of which will be canceled at the consummation of the merger) and the shares of Bally restricted stock (the treatment of which is described above under "Terms of the Merger AgreementTreatment of Stock Options and Other Stock-Based Compensation" beginning on page 85 of this proxy statement), will represent only the right to receive the merger consideration.
As promptly as practicable after the effective time of the merger, the paying agent will mail to each record holder of Bally common stock certificates a letter of transmittal specifying that delivery will be effected, and risk of loss and title to any such certificates will pass, only upon delivery of such certificates to the paying agent, and providing instructions for effecting the surrender of Bally common stock certificates in exchange for the merger consideration.
Bally stockholders should not return stock certificates with the enclosed proxy card, and Bally stockholders should not forward stock certificates to the paying agent without a letter of transmittal.
As soon as reasonably practicable after the effective time of the merger, the paying agent shall deliver to each holder of record of one or more book-entry shares the amount of cash each such holder is entitled to receive, without such holder being required to deliver a stock certificate to the paying agent in order to receive the merger consideration. The amount will be deposited into the bank or brokerage account of such holder without any further action required by the holder of such book-entry shares. The book-entry shares of Bally common stock held by such holder will be canceled.
After the effective time of the merger, shares of Bally common stock will no longer be outstanding and will cease to exist, and each certificate that previously represented shares of Bally common stock will represent only the right to receive the merger consideration as described above.
Following the date that is one year after the effective time of the merger, any portion of the funds held by the paying agent that remain unclaimed by our former stockholders, including the proceeds
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from investment thereof, shall be delivered to Scientific Games. Thereafter, our former stockholders may look only to Scientific Games or the surviving corporation (subject to abandoned property, escheat or similar laws) for payment with respect to the merger consideration.
At the effective time of the merger, our stock transfer books will be closed and there will be no further registration of transfers of our common stock. If, after the effective time of the merger, certificates are presented to the surviving corporation for transfer, such certificates will be canceled and exchanged for payment of the merger consideration.
If the payment of the merger consideration is to be made to a person other than the registered holder of the certificate surrendered in exchange for the merger consideration, the certificate surrendered must be properly endorsed or otherwise be in proper form for transfer (and accompanied by all documents reasonably required by the paying agent) and the person requesting such payment must pay the paying agent any applicable stock transfer or other taxes or establish to the reasonable satisfaction of Scientific Games that such taxes have been paid or are not payable.
No interest will be paid or will accrue on any cash payable upon surrender of any Bally common stock certificate or book-entry share.
Lost, Stolen or Destroyed Certificates
If any Bally common stock certificate has been lost, stolen or destroyed, then upon the making of an affidavit of that fact by the person claiming such certificate to be lost, stolen or destroyed and, to the extent required by the surviving corporation, the posting by such person of a bond in such customary and reasonable amount as the surviving corporation may direct as indemnity against any claim that may be made against it with respect to such certificate, the paying agent will pay in exchange for such lost, stolen or destroyed certificate the merger consideration that would be payable in respect thereof pursuant to the merger agreement had such lost, stolen or destroyed certificate been surrendered as provided in the merger agreement.
Representations and Warranties
The merger agreement contains customary representations and warranties made by Bally to Scientific Games and customary representations and warranties made by Scientific Games to Bally. These representations and warranties are subject to important limitations and qualifications agreed to by the parties in connection with negotiating the terms of the merger agreement. In particular, certain of the representations and warranties that Bally made in the merger agreement are qualified by certain confidential disclosures that Bally delivered to Scientific Games concurrently with the execution of the merger agreement. In addition, certain representations and warranties were made as of a specified date, may be subject to contractual standards of materiality different from those generally applicable to public disclosures to stockholders, may be subject in some cases to other exceptions and qualifications (including exceptions that do not result in, and would not reasonably be expected to have, a "material adverse effect"), or may have been used for the purpose of allocating risk among the parties rather than establishing matters of fact. See also the definition of "material adverse effect" beginning on page 90 of this proxy statement. Investors are not third-party beneficiaries under the merger agreement and in reviewing the representations, warranties and covenants contained in the merger agreement or any descriptions thereof in this summary, it is important to bear in mind that such representations, warranties and covenants or any description thereof were not intended by the parties to the merger agreement to be characterizations of the actual state of facts or condition of Bally, Scientific Games, Merger Sub or Financing Sub, or any of their respective subsidiaries or affiliates. For the foregoing reasons, the representations and warranties given by the parties in the merger agreement or any description thereof should not be read alone and should instead be read in conjunction with the other information contained in the reports, statements and filings that Bally publicly files with the SEC.
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Bally's representations and warranties under the merger agreement relate to, among other things:
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The merger agreement also contains customary representations and warranties made by Scientific Games that are subject to specified exceptions and qualifications contained in the merger agreement and certain confidential disclosures that Scientific Games delivered to Bally concurrently with the execution of the merger agreement. The representations and warranties of Scientific Games, Merger Sub and Financing Sub to Bally under the merger agreement, relate to, among other things:
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None of the representations and warranties in the merger agreement survive the completion of the merger.
Many of the representations and warranties in the merger agreement are qualified by a "materiality" or "material adverse effect" standard (that is, they will not be deemed to be untrue or incorrect unless a materiality threshold is satisfied or their failure to be true or correct would, or would reasonably be expected to, result in a material adverse effect).
For purposes of the merger agreement, a "material adverse effect" means, with respect to Bally, any change, effect, development or circumstance which, individually or in the aggregate, has resulted or would reasonably be expected to result in a material adverse effect on the business, assets, liabilities, condition (financial or other) or results of operations of Bally and its subsidiaries, taken as a whole; except that changes, effects, developments or circumstances to the extent resulting from, directly or indirectly, the following shall be excluded:
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For purposes of the merger agreement, a "material adverse effect" means, with respect to Scientific Games, any change, effect, development or circumstance that, individually or in the aggregate, prevents or materially delays, or would reasonably be expected to prevent or materially delay, the ability of Scientific Games or Merger Sub to consummate the merger and the other transactions contemplated by the merger agreement on a timely basis.
Covenants Regarding Conduct of Business by Bally Pending the Merger
Bally has agreed to certain covenants in the merger agreement restricting the conduct of its business between the date of the merger agreement and the effective time of the merger. In general, Bally and its subsidiaries have agreed that, except as (i) may be required by applicable law, (ii) may be agreed in writing by Scientific Games, (iii) required under the merger agreement or (iv) set forth in Bally's confidential disclosure schedule delivered to Scientific Games concurrently with the execution of the merger agreement, from the date of the merger agreement until the earlier of the effective time of the merger or termination of the merger agreement, Bally will and will cause its subsidiaries to (x) carry on its business in all material respects in the ordinary course and (y) use commercially reasonable efforts to preserve substantially intact its current business organizations, to keep available the services of its current officers and employees and to preserve its relationships with material governmental authorities (including applicable gaming authorities), customers, suppliers, licensors, licensees, distributors, wholesalers, lessors and others having significant business dealings with it, and to preserve the goodwill of and maintain satisfactory relationships with those persons having business relationships with Bally or any of its subsidiaries.
Bally has also agreed that, except as (i) may be required by applicable law, (ii) may be agreed in writing by Scientific Games, (iii) required under the merger agreement or (iv) set forth in Bally's confidential disclosure schedule delivered to Scientific Games concurrently with the execution of the merger agreement, from the date of the merger agreement until the earlier of the effective time of the merger or termination of the merger agreement, Bally will not, and will not permit any of its subsidiaries to:
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warrants, convertible securities or other rights of any kind to acquire any such shares of capital stock (or other equity interests) or rights settled in cash or other property based in whole or in part on the value of such shares of capital stock (or other equity interests); provided, however, that Bally may issue shares of common stock (i) upon the exercise of any outstanding stock option or the vesting and settlement of any outstanding performance unit or restricted stock unit, in each case, issued prior to the date of the merger agreement and (ii) pursuant to employment agreements, offer letters and company benefit plans, each as in effect on August 1, 2014;
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aggregate monthly amount of $500,000 to employees other than employees who are at or above the level of senior vice president or have an annual base salary of more than $250,000;
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authority) in connection with the consummation of the merger and the transactions contemplated by the merger agreement;
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No Solicitation of Acquisition Proposals; Changes in Board Recommendation
Bally has agreed to immediately cease any discussions or negotiations with any parties that may have been ongoing with respect to an acquisition proposal (as defined below), to seek to have returned to it any confidential information that had been provided in any such discussions or negotiations and to terminate all physical and electronic data room access previously granted to any such parties.
From the date of the merger agreement until the effective time of the merger or, if earlier, the termination of the merger agreement in accordance with its terms, Bally has agreed to not, and will not authorize or permit any of its subsidiaries to, and will use its reasonable best efforts to cause its and their respective representatives not to, directly or indirectly:
However, at any time prior to obtaining stockholder approval of the proposal to approve the merger agreement, in the event that Bally receives a written acquisition proposal that did not result from its breach of its non-solicit obligations under the merger agreement, Bally and its board of directors may engage in negotiations or substantive discussions with, or furnish any information and other access to, any third party making such acquisition proposal and its representatives or potential sources of financing if the Bally board of directors determines in good faith, after consultation with Bally's outside legal and financial advisors, and based on information then available, that such acquisition proposal constitutes, or could reasonably be expected to result in, a superior proposal. Bally may not furnish non-public information to any such third party making the acquisition proposal without first entering into an acceptable confidentiality agreement with such third party that is no less restrictive of such third party than the confidentiality agreement entered into by and between Bally and Scientific Games and making available, as promptly as practicable (and in any event within 24 hours thereafter) to Scientific Games any such information made available to such third party.
The merger agreement provides that, prior to obtaining the approval of Bally stockholders of the proposal to approve the merger agreement, the Bally board of directors may terminate the merger agreement: (A) if the Bally board of directors effects a change in recommendation permitted pursuant to the merger agreement (as described in more detail below), or (B) in connection with entering into a binding definitive agreement to effect a transaction constituting a superior proposal if (in the case of this clause (B)):
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If the merger agreement is terminated in such a circumstance, Bally must pay Scientific Games the company termination fee of $80.0 million prior to, or concurrently with, such termination (as more fully described in the section entitled "Terms of the Merger AgreementTermination Fee; Effect of Termination" beginning on page 108 of this proxy statement).
Any material revision or amendment to the superior proposal will be deemed to be a new acquisition proposal for purposes of the solicitation obligations described above, and Bally shall be required to deliver a new written notice to Scientific Games and to again comply with the above requirements, except that the four business day notice period described above shall be reduced to two calendar days with respect to such revised superior proposal.
In addition to the foregoing, prior to obtaining stockholder approval, Bally and the Bally board of directors has agreed to not (w) withdraw (or qualify or modify in any manner adverse to Scientific Games), or publicly propose to withdraw (or so qualify or modify), the Bally board of directors' recommendation to Bally stockholders that they vote to approve the merger agreement, (x) take any action to make the provisions of NRS Sections 78.378 through 78.3793, inclusive, applicable to Scientific Games and its affiliates, (y) take any action or amend Bally's organizational documents to expressly elect not to be governed by the provisions of NRS Sections 78.411 through 78.444, inclusive, or (z) approve, adopt or recommend any acquisition proposal, or propose publicly to approve, adopt or recommend any acquisition proposal, which we refer to in this proxy statement as a "change in recommendation," unless:
If the Bally board of directors effects a change in recommendation under the merger agreement, Bally may terminate the merger agreement if it pays, or causes to be paid, prior to or concurrently with such termination, or Scientific Games may terminate the merger agreement and receive, the company termination fee of $80.0 million (as more fully described in the section entitled "Terms of the Merger AgreementTermination Fee; Effect of Termination" beginning on page 108 of this proxy statement).
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For the purposes of the merger agreement, the term "acquisition proposal" is defined as, other than the transactions contemplated by the merger agreement, any bona fide proposal or offer (other than a proposal or offer by Scientific Games or any of its subsidiaries) from a third party relating to (i) a merger, reorganization, sale of assets, share exchange, consolidation, business combination, recapitalization, dissolution, liquidation, joint venture or similar transaction involving Bally or any of its subsidiaries whose revenues, income, EBITDA or assets, individually or in the aggregate, constitute twenty-five percent (25%) or more of the consolidated revenues, income, EBITDA or assets of Bally and its subsidiaries (in the case of assets, based on fair market value, as determined in good faith by the Bally board of directors); (ii) the acquisition (whether by merger, consolidation, equity investment, joint venture or otherwise) by any person of twenty-five percent (25%) or more of the assets of Bally and its subsidiaries, taken as a whole (based on fair market value, as determined in good faith by the Bally board of directors); (iii) the acquisition in any manner, directly or indirectly, by any person of twenty-five percent (25%) or more of the issued and outstanding shares of Bally common stock; (iv) any purchase, acquisition, tender offer or exchange offer that, if consummated, would result in any person beneficially owning twenty-five percent (25%) or more of Bally common stock or any class of equity or voting securities of Bally (or any of its subsidiaries whose revenues, income, EBITDA or assets, individually or in the aggregate, constitute twenty-five percent (25%) or more of the consolidated revenues, income, EBITDA or assets of Bally and its subsidiaries (in the case of assets, based on fair market value)); or (v) any combination of the foregoing.
For the purposes of the merger agreement, the term "superior proposal" is defined as an acquisition proposal (the references to "twenty-five percent (25%)" in the definition of acquisition proposal shall be deemed to be references to "fifty percent (50%)") made by a third party on terms that the Bally board of directors determines in good faith, after consultation with Bally's financial advisors and outside counsel, and considering such factors as the Bally board of directors considers in good faith to be appropriate (including the conditionality, timing and likelihood of consummation of such proposal), are more favorable to the holders of Bally common stock than the transactions contemplated by the merger agreement (after giving effect to any revised terms proposed by Scientific Games).
As promptly as practicable, and in any event within ten business days following the date on which the SEC confirms it has no further comment to this proxy statement, Bally is obligated to establish a record date and give notice of a meeting of its stockholders, for the purpose of voting upon the approval of the merger agreement. Subject to Bally's right to effect a change in recommendation and/or terminate the merger agreement (as described above), Bally is obligated to include in this proxy statement the recommendation of the Bally board of directors that Bally stockholders vote in favor of the proposal to approve the merger agreement and use its reasonable best efforts to solicit from Bally stockholders proxies in favor of the approval of the merger agreement and the transactions contemplated by the merger agreement.
Consents, Approvals and Filings
Scientific Games and Bally have each agreed to use, and cause each of their applicable affiliates and subsidiaries to use, their reasonable best efforts to:
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third party necessary in connection with the consummation of the transactions contemplated by the merger agreement, and make all necessary registrations, declarations and filings with, and notices to, any governmental authorities (including pursuant to the HSR Act any other applicable antitrust law necessary to start any applicable waiting period and including under gaming laws) and take all reasonable steps as may be necessary to obtain an approval from, or to avoid a suit, action, proceeding or investigation by, any governmental authority or other persons necessary in connection with the consummation of the transactions contemplated by the merger agreement; and
The parties have agreed that in no event shall Bally be required to agree to take or enter into any action which is not conditioned upon the consummation of the Merger and, further, that Bally will not agree to any obligation or concession or other action relating to the antitrust approval or the required gaming approvals without the prior written consent of Scientific Games.
Under the terms of the merger agreement, neither Scientific Games nor Merger Sub is required to (or cause its applicable affiliates or subsidiaries to) accept, make or take any divestiture actions unless (i) such divestiture actions are conditioned on the consummation of the merger, and (ii) such divestiture actions, individually or in the aggregate, would not reasonably be expected to result in the loss of more than $85.0 million in revenues on a consolidated basis for Scientific Games and its subsidiaries (including Bally and its subsidiaries) for the most recently ended twelve month period ending as of the last day of Scientific Games' most recently completed fiscal quarter (provided that if the last day of such period is after December 31, 2014, such period will be deemed to have ended on December 31, 2014).
Bally and Scientific Games have agreed to cooperate with each other and use reasonable efforts to promptly prepare and file all necessary documentation, to effect all applications, notices, petitions and filings, to obtain as promptly as practicable all permits, consents, approvals and authorizations of all third parties and governmental entities which are necessary or advisable to consummate the transactions contemplated by the merger agreement and to comply with the terms and conditions of all such permits, consents, approvals and authorizations of all such third parties and governmental entities.
The required notification and report forms under the HSR Act were filed with the Antitrust Division and the FTC by Bally and Scientific Games on August 6, 2014 and August 7, 2014, respectively. On August 19, 2014, Bally received notice from the FTC that early termination of the applicable waiting period had been granted; as such, the condition to the closing of the merger related to the HSR Act has been satisfied.
The parties have agreed that Scientific Games will file notifications required under any gaming law with respect to the merger agreement and the transactions contemplated by the merger agreement (including all initial applications and documents in respect of officers and directors and affiliates in connection with obtaining the gaming approvals and, where appropriate, indications of further information to come by supplementary filing) as soon as reasonably practicable but, in any event, not later than August 31, 2014 with respect to the required gaming approvals (described under "Proposal 1: Approval of the Merger AgreementRegulatory Approvals" beginning on page 77 of this proxy statement). With respect to the approximately 20 required gaming approvals, the parties have filed an application for approval (or otherwise provided the required documentation or information) in each such jurisdiction or have received confirmation that receipt of such gaming approval is not required prior to the closing of the merger.
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Each of Bally and Scientific Games has agreed to use their respective reasonable best efforts to (i) cooperate in all respects with each other in connection with any filing or submission with a governmental entity in connection with the transactions contemplated by the merger agreement and in connection with any investigation or other inquiry by or before a governmental entity relating to such transactions, including any governmental inquiry, investigation or antitrust proceeding initiated by a private party, (ii) keep the other party reasonably informed of any communication received by such party from, or given by such party to, any governmental entity and of any communication received or given by a private party in connection with any governmental inquiry, investigation or proceeding, in each case regarding any of such transactions (other than to the extent relating to private or personal information pertaining to any individual which may remain confidential) and (iii) reasonably permit the other party to review any material communication given by it to, and consult with each other in advance of any meeting or conference, where reasonably practicable to do so, with any governmental entity or, in connection with any antitrust proceeding by a private party, with any other person, and to the extent permitted by such applicable governmental entity or other person, give the other party the opportunity to attend and participate in such meetings and conferences (telephonic or in person), where reasonably practicable to do so.
Scientific Games has the principal responsibility, after prior, good faith consultation with Bally and after considering, in good faith, the views and comments of Bally, for devising and implementing the strategy for obtaining any of the antitrust approvals or required gaming approvals and shall take the lead in all meetings and communications with, or proceeding involving, any governmental entity in connection with obtaining the antitrust approvals and the required gaming approvals. However, the consent of each of Bally and Scientific Games is required prior to the taking of any action (including the failure to take any such action) in connection with obtaining any antitrust approvals or required gaming approvals if such action (or failure to act) would be reasonably likely to materially delay, or materially impair the likelihood of obtaining, any such approvals.
Under the merger agreement, Scientific Games has agreed that for one year after the merger (or for as long as the employee is employed, if shorter), continuing U.S. employees will be provided with: (i) a base salary or wage rate and annual bonus at least equal to the those in effect prior to the merger; (ii) other compensation and benefits that are in the aggregate no less favorable to those in effect prior to the merger (excluding equity, equity-based and other similar long-term incentive opportunities); and (iii) severance benefits equal to those which would have been provided immediately prior to the merger.
For purposes of eligibility, vesting and benefit accrual (solely for vacation and paid time off) under the compensation and benefit plans of Scientific Games and its subsidiaries after the merger, continuing U.S. employees will be credited with their years of service before the merger closing date to the same extent that such employees were entitled to credit for such service under any similar Bally benefit plan prior to the merger closing date, except where such service would result in a duplication of benefits. Continuing U.S. employees governed by a collective bargaining agreement immediately prior to the merger closing date will continue to be governed by such agreement after the merger closing date.
For one year after the merger (or for as long as the employee is employed, if shorter), employees outside the U.S. will continue employment on terms and conditions (including compensation and benefit plans and arrangements) that are in the aggregate no less favorable than those provided prior to the merger (excluding equity, equity-based or other long-term incentive opportunities), unless otherwise required by applicable law.
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Bally will provide any broad-based communications to employees to Scientific Games, and allow Scientific Games reasonable time to review such communications prior to distribution of such communications to its employees.
Directors' and Officers' Indemnification and Insurance
Under the merger agreement, from and after the effective time of the merger, Scientific Games and the surviving corporation will (and Scientific Games will cause the surviving corporation to) indemnify, defend and hold harmless, and advance expenses to, to the fullest extent Bally would have been permitted to do so under applicable law, any present and former officer, director or employee of Bally or any of its subsidiaries, each of which we refer to as an "indemnitee" in this proxy statement, with respect to (x) all acts or omissions by them in their capacities as such at any time at or prior to the effective time of the merger or (y) any costs or expenses (including attorneys' fees), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, to the extent such claim, action, suit, proceeding or investigation arises out of or pertains to the merger, the merger agreement and any transactions contemplated thereby, in either case, to the fullest extent permitted by (i) the charter or bylaws (or such equivalent organizational or governing documents of any of Bally's subsidiaries as in effect on the date of the merger agreement), (ii) any indemnification agreement of Bally or its subsidiaries or other applicable contract as in effect on the date of the merger agreement, which provisions thereafter shall not be amended, repealed or otherwise modified in any manner that would adversely affect the rights thereunder of any indemnitees or (iii) applicable law. Scientific Games has agreed to cause the surviving corporation to honor Bally's indemnification obligations pursuant to the Agreement and Plan of Merger, dated July 15, 2013, between Bally, Manhattan Merger Corp. and SHFL entertainment, Inc. Scientific Games has further agreed to assume, be jointly and severally liable for, and honor, guaranty and stand surety for each of the covenants described in this section entitled "Terms of the Merger AgreementDirectors' and Officers' Indemnification and Insurance" of this proxy statement beginning on page 101.
The merger agreement provides that, at Bally's option, Bally will, or if Bally is unable to, Scientific Games will cause the surviving corporation to, obtain and fully pay the premium for the non-cancelable extension of the directors' and officers' liability coverage of Bally's existing directors' and officers' insurance policies and Bally's existing fiduciary liability insurance policies. If Bally or the surviving corporation fails to obtain such "tail" policies as of the effective time of the merger, (i) the surviving corporation will continue to maintain in effect, for a period of at least 6 years from and after the effective time of the merger, such insurance on terms, conditions, retentions and limits of liability that are no less favorable than the coverage provided under Bally's existing policies as of the most recent renewal date, or (ii) Scientific Games will provide, or cause the surviving corporation to provide, for a period of not less than 6 years after the effective time of the merger, the indemnitees who are insured under Bally's current policies with comparable insurance that is no less favorable than the existing Bally policy as of the most recent renewal date, provided that the annual premium for such endorsement does not exceed 250% of the annual premium currently paid by Bally. If the annual premiums of such insurance coverage exceed such amount, Scientific Games or the surviving corporation will be obligated to obtain a policy with the greatest coverage available for a cost not exceeding such amount.
Each of Scientific Games and Merger Sub is obligated to use its respective reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to arrange and obtain the proceeds of the debt financing on the terms and conditions, taken as a whole (including the flex provisions) described in the debt commitment letters, including executing and delivering all such documents and instruments as may be reasonably required thereunder and using
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(and causing their affiliates to use) their respective reasonable best efforts to: (i) comply with and maintain in effect the debt commitment letter and negotiate and enter into financing agreements with respect thereto, (ii) satisfy all conditions to the debt financing contemplated by the debt commitment letters and the financing agreements relating thereto, (iii) accept (and comply with) to the fullest extent all "market flex" contemplated by the debt commitment letters and financing agreements, (iv) enforce its rights (including through litigation, to the extent appropriate) under the debt commitment letters and financing agreements in the event of a breach (or threatened breach) by the commitment parties under the debt commitment letters and financing agreements relating thereto, including seeking specific performance of the parties thereunder and (v) subject to the satisfaction of the conditions precedent thereto, cause the financing sources to fund the debt financing at or prior to the time the closing of the merger is required to occur under the terms and conditions of the merger agreement.
Scientific Games will not agree to or permit any amendment or modification to be made to, or any waiver of any provision or remedy under, the debt financing letters if such amendment, modification or waiver would or would reasonably be expected to, among other things, (i) reduce the aggregate amount of the debt financing (including by changing the amount of the fees to be paid or original issue discount) from the amount contemplated in the debt commitment letters in a manner that would adversely impact in any material respect the ability of Scientific Games or Merger Sub to consummate the merger, (ii) impose new or additional conditions or otherwise expand, amend or modify any of the conditions to the receipt of the debt financing, in each case, in a manner that would adversely impact in any material respect the ability of Scientific Games or Merger Sub to obtain the funding of the debt financing, (iii) make it less likely that the debt financing would be funded or otherwise prevent or delay or impair in any material respect the ability or likelihood of Scientific Games or Merger Sub to timely consummate the merger and the other transactions contemplated by the merger agreement, (iv) adversely impact the ability of Scientific Games or Merger Sub to enforce its rights against the other parties to the committed financing or (v) otherwise contravene certain limitations Scientific Games and Merger Sub agreed to in their efforts to obtain the debt financing.
If all or any portion of the debt financing becomes or would reasonably be expected to become unavailable on the terms and conditions (including any "flex" provisions) or from the sources contemplated in the debt commitment letters or the financing agreements for any reason or any of the debt commitment letters or the financing agreements shall be withdrawn, repudiated, terminated or rescinded for any reason, (i) Scientific Games is obligated to promptly so notify Bally and (ii) Scientific Games and Merger Sub have agreed to use their respective reasonable best efforts to arrange and obtain, as promptly as practicable following the occurrence of such event (and in any event no later than the closing date of the merger), and to negotiate and enter into definitive agreements with respect to, alternative financing from the same or alternative sources, on terms not less favorable, in any material respect, with respect to conditionality and enforceability, when taken as a whole, than those contained in the debt commitment letters to Scientific Games, Merger Sub and Bally, in an amount sufficient to consummate the transactions contemplated by the merger agreement, and to obtain a new financing commitment letter (including any associated engagement letter and related fee letter) with respect to such alternative financing, copies of which will be promptly provided to Bally (with customary redactions with respect to the fee letter). We refer to the commitment parties and any parties providing alternative financing collectively as "debt financing sources" in this proxy statement.
Scientific Games, Financing Sub and Merger Sub each acknowledge in the merger agreement that the obtaining of the proceeds of the debt financing is not a condition to the closing of the merger, such that if any financing (or any alternative financing) has not been obtained, each of Scientific Games, Financing Sub and Merger Sub will continue to be obligated, subject to the satisfaction or waiver of the conditions to the closing of the merger, as well as certain termination rights, specified in the merger agreement, to consummate the merger.
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Bally has agreed to reasonably cooperate, at the reasonable request of Scientific Games and at Scientific Games' sole expense, in connection with Scientific Games' arrangement of the debt financing, including by:
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Scientific Games has agreed to promptly reimburse Bally for any reasonable out-of-pocket expenses and costs (including reasonable attorneys' fees) incurred by Bally, its subsidiaries and their respective representatives in connection with any cooperation it provides in obtaining the debt financing. Scientific Games and Merger Sub have further agreed to indemnify and hold harmless each of Bally, its affiliates and their respective representatives against any and all liabilities incurred, directly or indirectly, in connection with the arrangement of the debt financing, alternative financing or any other refinancing of indebtedness contemplated by the merger agreement, including any such liabilities incurred with respect to the use of Bally's information in connection such debt financing, alternative financing or other refinancing or Bally's cooperation with respect thereto.
The "marketing period" referred to in the merger agreement and this proxy statement is the first period of 23 consecutive days after the date of the merger agreement throughout which: (a) Scientific Games has the "required financial information" described below; and (b) the conditions to Scientific Games and Merger Sub's obligation to consummate the merger have been satisfied (other than those conditions that by their nature can only be satisfied at the closing of the merger, provided that such conditions are reasonably capable of being satisfied) and nothing has occurred and no condition exists that would cause any of these conditions to fail to be satisfied assuming the closing of the merger was to be scheduled for any time during such 23-consecutive-day period. Such 23-consecutive-day period shall not be required to be consecutive to the extent it would include November 27, 2014 or November 28, 2014 (which dates shall not count for purposes of the 23-consecutive-day period); if such 23-consecutive-day period has not ended prior to December 19, 2014, then it will not commence until after January 5, 2015; and if such 23-consecutive-day period has not ended prior to February 13, 2015, then it will not commence until after Scientific Games files its annual report in respect of Scientific Games' fiscal year ended December 31, 2014; provided, that the marketing period shall be deemed satisfied upon the consummation of the debt financing.
The marketing period will not be deemed to commence if, prior to the completion of the marketing period, (x) our auditors have withdrawn their audit opinion with respect to any year-end audited financial statements set forth in Bally's filings with the SEC, (y) we issue a public statement indicating our intent to restate any historical financial statements or that any such restatement is under consideration, in which case the marketing period shall not commence unless and until such restatement has been completed or we have announced that we have concluded that no restatement is required or (z) we have been delinquent in filing any annual, quarterly or periodic report with the SEC that would have been required to be filed by it with the SEC, in which case the marketing period shall not commence until such delinquencies have been cured.
The "required financial information" consists of all financial statements and financial data regarding Bally of the type required by Regulation S-X and Regulation S-K under the Securities Act of the type and form customarily included in offering memoranda for private placements under Rule 144A of the Securities Act (with customary exceptions), and in form and substance reasonably necessary to obtain customary accountants' comfort letters, to consummate the offerings of any debt securities contemplated by the debt commitment letter, and of the type customary for one or more confidential information memoranda to be used in connection with the arrangement of the financing for the merger, including (i) audited consolidated balance sheets and the related statements of income, changes in equity and cash flows of Bally, for each of the three most recently completed fiscal years ended at least 90 days before the merger closing and (ii) unaudited consolidated balance sheets and the related statements of income, changes in equity and cash flows as of the end of any quarterly period ending after the period of the audited financial statements described in clause (i) and ended at least 45 days before the merger closing (other than any fiscal fourth quarter); provided that Scientific Games is solely responsible for the preparation of pro forma financial information to be included in any such confidential information memoranda.
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Bally has agreed to give Scientific Games reasonable opportunity to participate, subject to a customary joint defense agreement, in the defense or settlement of any stockholder litigation against Bally and/or its directors relating to the transactions contemplated by the merger agreement, and Bally has agreed to not settle any such litigation without the prior written consent of Scientific Games (such consent not to be unreasonably withheld, conditioned or delayed).
Other Covenants and Agreements
The merger agreement contains certain other covenants and agreements, including covenants relating to:
Conditions to Completion of the Merger
The obligations of Scientific Games, Merger Sub and Bally to effect the merger shall be subject to the satisfaction or waiver (to the extent permitted by applicable law) by such party at or prior to the effective time of the merger of the following conditions:
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Scientific Games may, in its sole discretion, waive as a condition to the consummation of the merger any required gaming approval on behalf of itself and Bally if the consummation of the merger in the absence of such required gaming approval would not constitute a violation of applicable law so long as (i) prior to any such waiver, Scientific Games has confirmed to Bally in an irrevocable written notice that all of the other conditions to its obligations to close have been previously satisfied or waived and (ii) the merger is then consummated immediately following the delivery of such waiver.
The respective obligations of Scientific Games and Merger Sub to consummate the merger are subject to the satisfaction or waiver (to the extent permitted by applicable law) by Scientific Games at or prior to the closing date of the merger of the following further conditions:
Bally's obligations to consummate the merger are subject to the satisfaction or waiver (to the extent permitted by applicable law) by Bally at or prior to the closing date of the merger of the following further conditions:
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adverse effect" or other similar qualifications, being true and correct at and as of the date of the merger agreement and the date of closing of the merger (except to the extent expressly made as of an earlier date, in which case as of such date), except for such failures to be true and correct as would not, individually or in the aggregate, prevent or materially delay Scientific Games' ability to consummate the merger;
Termination of the Merger Agreement
The merger agreement may be terminated at any time prior to the effective time of the merger by mutual written consent of each of Scientific Games and Bally. In addition, either Scientific Games or Bally may terminate the merger agreement prior to the effective time of the merger, if:
The merger agreement may also be terminated by Bally if:
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The merger agreement may also be terminated by Scientific Games if:
Termination Fee; Effect of Termination
Under the merger agreement, Bally will be required to pay Scientific Games a termination fee equal to $80.0 million (or approximately 2.5% of the equity value of the transaction), which we refer to as the "company termination fee" in this proxy statement, if the merger agreement is terminated:
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consummate an acquisition proposal or an acquisition proposal is consummated by Bally (in this context involving an acquisition of shares or assets of Bally at the 50% level);
Under the merger agreement, Scientific Games will be required to pay Bally a termination fee equal to $105.0 million, which we refer to as the "funding failure termination fee" in this proxy statement, if the merger agreement is terminated because there has been a funding failure, in addition to any and all damages, costs, expenses, liabilities or other losses of any kind incurred or suffered as a result of any intentional breach of the merger agreement by Scientific Games, which damages may be recovered, to the extent proven, in excess of any applicable termination fee, as described above under "Terms of the Merger AgreementTermination of the Merger Agreement" beginning on page 107 of this proxy statement.
Under the merger agreement, Scientific Games will be required to pay Bally a termination fee equal to $105.0 million, which we refer to as the "regulatory failure termination fee" in this proxy statement, if the merger agreement is terminated:
If the merger agreement is validly terminated, the merger agreement will become null and void without liability on the part of any party to the merger agreement (or any of its representatives), and, except for the confidentiality provisions, provisions relating to the effect of termination and certain general provisions of the merger agreement, each of which will survive the termination of the merger
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agreement, all rights and obligations of any party will cease. However, the parties have agreed that if (i) any termination of the merger agreement resulted, directly or indirectly, from an intentional breach of any provision of the merger agreement or (ii) an intentional breach of any provision of the merger agreement caused the merger not to be consummated then, in either case, the breaching party shall be fully liable for any and all damages, costs, liabilities or other losses suffered by the other party as a result of such breach, including, as applicable, derivative damages, in addition to any amounts owed in connection with the company termination fee, the regulatory failure termination fee or the funding failure termination fee.
For purposes of the merger agreement, "intentional breach" means, with respect to any representation, warranty, agreement or covenant of a party to the merger agreement, an action or omission taken or omitted to be taken by such party in material breach of such representation, warranty, agreement or covenant that the breaching party intentionally takes (or fails to take) and with the actual knowledge that such action or omission would, or would reasonably be expected to, cause such material breach of such representation, warranty, agreement or covenant.
The parties have agreed that, other than with respect to claims for intentional breach of any representation, warranty, covenant or other agreement set forth in the merger agreement, (i) if any termination fee is paid to a party, such payment will be the sole and exclusive monetary remedy of such party, its subsidiaries, stockholders, affiliates, officers, directors, employees and representatives against the other party or any of its representatives or affiliates for and (ii) in no event will the party being paid any termination fee or any other such person seek to recover any other money damages or seek any other monetary remedy based on a claim in law or equity with respect to, any liability or obligation relating to or arising out of the merger agreement or the transactions contemplated by the merger agreement (as reduced by any funding failure termination fee or regulatory failure termination fee paid by Scientific Games).
All fees and expenses incurred in connection with the merger agreement, the merger and the other transactions contemplated by the merger agreement will be paid by the party incurring such fees or expenses, whether or not the merger or any of the other transactions contemplated by the merger agreement are consummated, with certain exceptions expressly set forth in the merger agreement, including reimbursement for all reasonable costs and expenses (including reasonably attorney's fees) of the prevailing party in any action at law or suit in equity to enforce the merger agreement or the rights of any of the parties thereunder.
The merger agreement generally provides that the parties will be entitled, without posting a bond or other indemnity, to an injunction, specific performance and other equitable relief to prevent breaches of the merger agreement and to enforce specifically the terms and provisions of the merger agreement, in addition to any other remedy to which they are entitled at law or in equity.
However, Bally is entitled to seek specific performance of Scientific Games' and Merger Sub's obligations to consummate the merger only in the event that each of the following conditions has been satisfied: (i) the marketing period, if applicable, has ended and all of the conditions to Scientific Games' and Merger Sub's obligations to consummate the closing have been satisfied or waived (other than those conditions that by their terms are to be satisfied or waived at the closing of the merger), (ii) Scientific Games and Merger Sub fail to complete the merger by the date on which the merger would otherwise be required to occur, (iii) the debt financing (including any alternative financing that has been obtained in accordance with, and which satisfies certain conditions set forth in, the merger agreement) has been, or will be, funded in accordance with the terms thereof at the closing assuming
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satisfaction by Scientific Games or Merger Sub of the conditions precedent thereto under their respective control, and (iv) Bally has confirmed in an irrevocable written notice delivered to Scientific Games that if specific performance is granted and the debt financing is funded, then Bally would take such actions that are within its control to cause the closing to occur. For the avoidance of doubt, Bally is not entitled to enforce or seek to enforce specifically Scientific Games' and Merger Sub's obligations to consummate the merger if the debt financing has not been funded or will not be funded at the closing. The parties to the merger agreement further agreed that while Bally may pursue both a grant of specific performance as and only to the extent expressly permitted by the merger agreement and the payment of the funding failure termination fee or any other monetary damages or other monetary remedies, to the extent proven (but only to the extent expressly permitted by the merger agreement), under no circumstances would Bally be permitted or entitled to receive both such grant of specific performance to cause the closing to occur and payment of the funding failure termination fee, or alternatively, any other monetary damages or other monetary remedies.
The merger agreement provides that it will be binding upon, inure to the benefit of and be enforceable by Bally, Scientific Games and Merger Sub and their respective permitted successors and permitted assigns. The merger agreement is not intended to and will not confer any rights or remedies upon any person other than Bally, Scientific Games and Merger Sub and their respective successors and permitted assigns, except for certain exceptions, including: (i) equity and equity award holders' right to receive payment under the terms and conditions of the merger agreement, (ii) Bally's right, on behalf of the holders of Bally equity and equity award holders, to pursue damages (including damages for such holders' loss of economic benefits from the transactions contemplated by the merger agreement) in the event of fraud or breach of the merger agreement by Scientific Games, Merger Sub or Financing Sub and (iii) certain provisions with respect to indemnitees and financing sources.
Subject to compliance with applicable law, the merger agreement may be amended by Bally, Scientific Games and Merger Sub at any time before or after approval by Bally stockholders of the matters presented in connection with the merger by an instrument in writing signed by each of the parties to the merger agreement. However, amendments that by law require approval by stockholders must be further approved by Bally stockholders if Bally stockholders have already approved the matters presented in connection with the merger, and certain sections may not be amended in a matter that is adverse to the financing sources without the prior written consent of the financing sources.
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PROPOSAL 2: ADVISORY VOTE ON MERGER-RELATED COMPENSATION ARRANGEMENTS
Item 402(t) of Regulation S-K promulgated under Section 14A of the Exchange Act, which was enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, requires that we provide our stockholders with the opportunity to vote to approve, on a non-binding, advisory basis, the compensation arrangements for our named executive officers disclosed in the section of this proxy statement entitled "Proposal 1: Approval of the Merger AgreementQuantification of Potential Payments to Named Executive Officers in Connection with the Merger" beginning on page 71 of this proxy statement.
The payments summarized there in the table entitled "Golden Parachute Compensation" and as further described in the accompanying footnotes and the associated narrative discussion represent all the compensation known at this time that may be paid or become payable to Bally named executive officers that is based on or otherwise related to the merger.
The Bally board of directors encourages you to review carefully the named executive officer merger-related compensation information disclosed in this proxy statement.
The Bally board of directors unanimously recommends that the stockholders of Bally approve the following resolution:
"RESOLVED, that the stockholders of Bally approve, on a non-binding, advisory basis, the compensation that will or may become payable to the named executive officers that is based on or otherwise related to the merger as disclosed pursuant to Item 402(t) of Regulation S-K in the Golden Parachute Compensation table and the related narrative disclosures".
The vote on the compensation proposal is a vote separate and apart from the vote on the proposal to approve the merger agreement. Accordingly, you may vote to approve the proposal to approve the merger agreement and vote not to approve the compensation proposal and vice versa. Under our amended and restated bylaws, the compensation proposal requires the affirmative vote of the holders of a majority of the voting power of the shares of Bally stock that are present in person or by proxy and entitled to vote on the proposal. Abstentions and broker non-votes, if any, will have the same effect as a vote "AGAINST" approval of the compensation proposal, while shares not in attendance will have no effect on the outcome of any vote on the compensation proposal.
Because the vote on the compensation proposal is advisory only, it will not be binding on either Bally or Scientific Games. Accordingly, if the merger agreement is approved and the merger is completed, the compensation will be payable, subject only to the conditions applicable thereto, regardless of the outcome of the non-binding, advisory vote of Bally stockholders.
The Bally board of directors unanimously recommends that Bally stockholders vote "FOR" the compensation proposal.
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PROPOSAL 3: APPROVAL OF ADJOURNMENT OF SPECIAL MEETING
Bally stockholders are being asked to approve a proposal, which we refer to as the "adjournment proposal" in this proxy statement, providing for the adjournment of the special meeting if necessary or appropriate in the view of the Bally board of directors to solicit additional proxies if there are not sufficient votes at the time of the special meeting to approve the merger agreement, to allow reasonable additional time for the filing and distribution of any supplemental or amended disclosure to be disseminated to and reviewed by Bally's stockholders prior to the special meeting, or otherwise with the consent of Bally.
In this proposal, we are asking you to authorize the holder of any proxy solicited by our board of directors to vote in favor of adjourning the special meeting, and any later adjournments, to another time and place. If Bally stockholders approve the adjournment proposal, we could adjourn the special meeting in any of the circumstances described above, and any adjourned session of the special meeting, to a later date and use the additional time to, among other things, solicit additional proxies in favor of the merger proposal, including the solicitation of proxies from holders of Bally common stock that have previously voted against the merger proposal. Among other things, approval of the adjournment proposal could mean that, even if we had received proxies representing a sufficient number of votes against the merger proposal, we could adjourn the special meeting without a vote on the merger proposal and seek to convince the holders of those shares to change their votes to votes in favor of the approval of the merger agreement.
The Bally board of directors believes that if the number of shares of Bally common stock present in person or represented at the special meeting and voting in favor of the merger proposal is not sufficient to approve the merger agreement, it is in the best interests of the holders of Bally common stock to enable the board to continue to seek to obtain a sufficient number of additional votes to approve the merger agreement.
The vote on the adjournment proposal is a vote separate and apart from the vote on the proposal to approve the merger agreement. Accordingly, you may vote to approve the proposal to approve the merger agreement and vote not to approve the adjournment proposal and vice versa. Under our amended and restated bylaws, the adjournment proposal requires the affirmative vote of the holders of a majority of the voting power of the shares of Bally stock that are present in person or by proxy and entitled to vote on the proposal. Abstentions and broker non-votes, if any, will have the same effect as a vote "AGAINST" approval of the adjournment proposal, while shares not in attendance will have no effect on the outcome of any vote on the adjournment proposal.
If the special meeting is adjourned for the purpose of soliciting additional proxies, stockholders who have already submitted their proxies will be able to revoke them at any time prior to their use.
The Bally board of directors unanimously recommends that Bally stockholders vote "FOR" the adjournment proposal.
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MARKET PRICE OF BALLY COMMON STOCK AND DIVIDEND INFORMATION
Our common stock trades on the NYSE under the symbol "BYI". As of the record date for the special meeting, Bally had [ ] shares of Bally common stock issued and outstanding and Bally had approximately [ ] holders of record.
The following table sets forth the high and low reported sale prices for our common stock for the periods shown as reported on the NYSE and the dividends declared per share in the periods shown.
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|
|
Dividends Declared | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Common Stock | ||||||||||||
|
Regular Dividends |
Special Dividends |
|||||||||||
|
High | Low | |||||||||||
Fiscal Year Ending June 30, 2015 |
|||||||||||||
First Quarter (as of September 2, 2014) |
$ | 84.66 | $ | 58.57 | | | |||||||
Fiscal Year Ended June 30, 2014 |
|||||||||||||
First Quarter |
$ | 76.30 | $ | 56.52 | | | |||||||
Second Quarter |
$ | 78.60 | $ | 66.78 | | | |||||||
Third Quarter |
$ | 82.67 | $ | 61.34 | | | |||||||
Fourth Quarter |
$ | 67.21 | $ | 56.50 | | | |||||||
Fiscal Year Ended June 30, 2013 |
|||||||||||||
First Quarter |
$ | 49.39 | $ | 41.89 | | | |||||||
Second Quarter |
$ | 50.48 | $ | 43.85 | | | |||||||
Third Quarter |
$ | 52.45 | $ | 45.36 | | | |||||||
Fourth Quarter |
$ | 57.30 | $ | 47.33 | | | |||||||
Fiscal Year Ended June 30, 2012 |
|||||||||||||
First Quarter |
$ | 41.44 | $ | 26.98 | | | |||||||
Second Quarter |
$ | 39.56 | $ | 25.15 | | | |||||||
Third Quarter |
$ | 47.18 | $ | 39.37 | | | |||||||
Fourth Quarter |
$ | 48.55 | $ | 44.27 | | |
On July 31, 2014, the last trading day before we publicly announced the execution of the merger agreement, the high and low sale prices for our common stock as reported on the NYSE were $60.71 and $59.86 per share, respectively, and the closing sale price on that date was $60.17 compared to which the merger consideration represents a premium of approximately 38.4%. On September 5, 2014, the last trading day before the date of this proxy statement, the high and low sale prices for our common stock as reported on the NYSE were $80.80 and $80.25 per share, respectively, and the closing price on that date was $80.39.
No cash dividends were paid on our common stock during this current 2015 fiscal year or in any of fiscal years 2014, 2013 or 2012. Furthermore, under the terms of the merger agreement, Bally is generally prohibited from declaring, authorizing, making or paying any dividend or distribution during the pendency of the merger. We do not expect to pay cash dividends in the foreseeable future.
STOCKHOLDERS SHOULD OBTAIN A CURRENT MARKET QUOTATION FOR OUR COMMON STOCK BEFORE MAKING ANY DECISION WITH RESPECT TO THE MERGER.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of September 2, 2014, concerning "beneficial" ownership of our common stock, as that term is defined in the rules and regulations of the SEC, by: (i) each director, (ii) each "named executive officer", as that term is defined in Item 402(a)(3) of SEC Regulation S-K and (iii) all executive officers and directors as a group. Beneficial ownership is determined in accordance with the rules of the SEC, which generally attribute beneficial ownership of securities to persons who possess sole or shared voting or investment power with respect to those securities, including shares of common stock issuable upon the exercise of vested options that are immediately exercisable or exercisable within 60 days, restricted stock units and restricted shares. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to applicable community property laws.
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Shares of Common Stock | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name of Beneficial Owner(1)
|
Owned(2) | Options Exercisable and Restricted Stock Units Vesting Within 60 Days(3) |
Total Beneficially Owned(4) |
Percent of Class(5) |
|||||||||
Richard M. Haddrill |
206,817 | | 206,817 | * | |||||||||
Ramesh Srinivasan(6) |
100,543 | | 100,543 | * | |||||||||
Neil Davidson |
34,021 | 51,000 | 85,021 | * | |||||||||
Kathryn S. Lever |
6,922 | | 6,922 | * | |||||||||
Derik Mooberry |
30,615 | 21,875 | 52,490 | * | |||||||||
John Connelly |
17,478 | 7,045 | 24,523 | * | |||||||||
David Robbins |
309,285 | 53,242 | 362,527 | * | |||||||||
Robert Guido |
8,674 | 11,350 | 20,024 | * | |||||||||
Josephine Linden |
19,936 | 28,361 | 48,297 | * | |||||||||
W. Andrew McKenna |
15,006 | 28,361 | 43,367 | * | |||||||||
Michael Klayko |
1,900 | | 1,900 | * | |||||||||
All directors and executive officers as a group (11 persons)(7) |
751,197 | 201,234 | 952,431 | 2.49 | % |
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and restricted stock units, however, are not considered outstanding when computing the percentage ownership of any other person.
The following table sets forth information regarding ownership of outstanding shares of Bally's common stock by those individuals or groups who have advised Bally, or regarding whom Bally has obtained information as of September 2, 2014, that they own more than five percent (5%) of all outstanding shares.
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Shares Beneficially Owned |
||||||
---|---|---|---|---|---|---|---|
Name and Address of Beneficial Owner
|
Number | Percent(1) | |||||
Columbia Wanger Asset Management, LLC(2) |
3,929,700 | 10.26 | % | ||||
227 West Monroe Street, Suite 3000 |
|||||||
Chicago, IL 60606 |
|||||||
Neuberger Berman LLC(3) |
3,055,498 | 7.97 | % | ||||
605 Third Avenue |
|||||||
New York, NY 10158 |
|||||||
Eagle Asset Management, Inc.(4) |
2,737,974 | 7.15 | % | ||||
880 Carillon Parkway |
|||||||
St. Petersburg, Florida 33716 |
|||||||
BlackRock, Inc.(5) |
2,462,800 | 6.43 | % | ||||
40 East 52nd Street |
|||||||
New York, New York 10022 |
|||||||
The Vanguard Group, Inc.(6) |
2,387,612 | 6.23 | % | ||||
100 Vanguard Boulevard |
|||||||
Malvern, Pennsylvania 19355 |
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As of the date of this proxy statement, the Bally board of directors has not received notice of any stockholder proposals and does not intend to propose any other matters for stockholder action at the special meeting other than as described in this proxy statement.
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If the merger is completed, we will not have public stockholders and there will be no public participation in any future stockholder meetings. If the merger is not completed, however, stockholders will continue to be entitled to attend and participate in meetings of stockholders. If the merger is not completed and the 2014 annual meeting is held, stockholder proposals will be eligible for consideration for inclusion in the proxy statement and form of proxy for our 2014 annual meeting of stockholders in accordance with Rule 14a-8 under the Exchange Act and our amended and restated bylaws, as described below.
Any proposal that a stockholders wishes to include in proxy materials for our 2014 annual meeting pursuant to Rule 14a-8 under the Exchange Act must have been received on or before June 30, 2014, in order to consider including them in our proxy materials for that meeting. Except as otherwise permitted under Rule 14a-8, in order for a matter to be acted upon at an annual meeting, notice of stockholder proposals and other nominations must be delivered to us, in accordance with the provisions of Article II, Section 7 of our amended and restated bylaws, not less than 60 days nor more than 120 days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the annual meeting is called for a date that is more than 30 days before or 70 days after such anniversary date, notice by the stockholder in order to be timely must be so received not earlier than the close of business 120 days prior to such annual meeting and not later than the close of business on the later of (x) the 60th day prior to such annual meeting or (y) the 10th day following the day on which the date of the annual meeting is first publicly announced by Bally. All notices must be delivered to our Secretary at 6601 S. Bermuda Rd., Las Vegas, NV 89119. Provided we do not change our meeting date, the submission period for notices of stockholder proposals (other than stockholder proposals submitted pursuant to Rule 14a-8) and director nominations will extend from Thursday, August 7, 2014 to Monday, October 6, 2014. As of the date of this proxy statement, the Bally board of directors has not received notice of any stockholder proposals for the 2014 annual meeting.
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WHERE STOCKHOLDERS CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other documents with the SEC under the Exchange Act. These reports, proxy statements and other documents contain additional information about us and will be made available for inspection and copying at our executive offices during regular business hours by any stockholder or a representative of a stockholder as so designated in writing.
Stockholders may read and copy any reports, statements or other information filed by us at the SEC's public reference room at Station Place, 100 F Street, N.E., Washington, D.C. 20549. You may also obtain copies of this information by mail from the public reference section of the SEC at Station Place, 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room. Our SEC filings made electronically through the SEC's EDGAR system are available to the public at the SEC's website located at www.sec.gov. In addition, stockholders may obtain free copies of the documents filed with the SEC by Bally through the Investor Relations section of our website, and the "Financial Reports and Filings" tab therein. The website address is http://investor.ballytech.com. The information on our website is not, and shall not be deemed to be, a part hereof or incorporated into this or any other filings with the SEC. You may also send a written request to our Investor Relations team at Bally Technologies, Inc., Attn: Investor Relations, 6650 S. El Camino Road, Las Vegas, Nevada 89118.
The SEC allows us to "incorporate by reference" information that we file with the SEC in other documents into this proxy statement. This means that we may disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be part of this proxy statement. This proxy statement and the information that we file later with the SEC may update and supersede the information incorporated by reference. Similarly, the information that we later file with the SEC may update and supersede the information in this proxy statement. Such updated and superseded information will not, except as so modified or superseded, constitute part of this proxy statement.
We incorporate by reference each document we file under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of the initial filing of this proxy statement and before the special meeting (other than current reports on Form 8-K furnished pursuant to Item 2.02 or Item 7.01 of Form 8-K, including any exhibits included with such information, unless otherwise indicated therein). We also incorporate by reference in this proxy statement the following documents filed by us with the SEC under the Exchange Act:
We undertake to provide without charge to each person to whom a copy of this proxy statement has been delivered, upon request, by first class mail or other equally prompt means, within one business day of receipt of such request, a copy of any or all of the documents incorporated by reference in this proxy statement, other than the exhibits to these documents, unless the exhibits are specifically incorporated by reference into the information that this proxy statement incorporates. You may obtain documents incorporated by reference by requesting them in writing or by telephone at the following address and telephone number:
Bally Technologies, Inc.
Attention: Investor Relations
6650 S. El Camino Road
Las Vegas, NV 89118
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You may also obtain documents incorporated by reference by requesting them by telephone from Innisfree M&A Incorporated, our proxy solicitor, toll free at (888)-750-5834. Banks and brokers may call collect at (212) 750-5833. Documents should be requested by [ ], 2014 in order to receive them before the special meeting. You should be sure to include your complete name and address in your request.
This proxy statement does not constitute the solicitation of a proxy in any jurisdiction to or from any person to whom it is not lawful to make any solicitation in that jurisdiction. The delivery of this proxy statement should not create an implication that there has been no change in the affairs of Bally since the date of this proxy statement or that the information herein is correct as of any later date.
Scientific Games, Merger Sub and Financing Sub have supplied, and we have not independently verified, the information in this proxy statement exclusively concerning Scientific Games, Merger Sub and Financing Sub.
Stockholders should not rely on information other than that contained or incorporated by reference in this proxy statement. We have not authorized anyone to provide information that is different from that contained in this proxy statement. This proxy statement is dated [ ], 2014. No assumption should be made that the information contained in this proxy statement is accurate as of any date other than that date, and the mailing of this proxy statement will not create any implication to the contrary. Notwithstanding the foregoing, if there is any material change in any of the information previously disclosed, we will, where relevant and to the extent required by applicable law, update such information through a supplement to this proxy statement.
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AGREEMENT AND PLAN OF MERGER
By and Among
SCIENTIFIC GAMES CORPORATION,
SCIENTIFIC GAMES NEVADA, INC.,
SCIENTIFIC GAMES INTERNATIONAL, INC.
and
BALLY TECHNOLOGIES, INC.
Dated as of August 1, 2014
A-i