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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

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SCHEDULE 14A

 

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Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934
 

 

 

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October 20, 2017

Dear Stockholder:

On September 18, 2017, we entered into an Agreement and Plan of Merger (as it may be amended from time to time, the “reincorporation merger agreement”) with SG Nevada Merger Company, a Nevada corporation and our wholly owned subsidiary (“NewCo”), providing for the merger of the Company with and into NewCo with NewCo surviving the merger, for the sole purpose of changing the Company’s state of incorporation from Delaware to Nevada, including to approve the Articles of Incorporation (“New Charter”) and Bylaws (“New Bylaws”) of the surviving corporation (the “reincorporation merger”). At the special meeting, we will be conducting a vote to adopt the reincorporation merger agreement.

The proxy statement accompanying this letter (the “Proxy Statement”) provides you with more specific information concerning the special meeting, the reincorporation merger agreement, the reincorporation merger and the other transactions contemplated by the reincorporation merger agreement.  We encourage you to carefully read the accompanying Proxy Statement and the copy of the reincorporation merger agreement attached as Annex A thereto.

Even if you plan to attend the special meeting in person, we encourage you to vote your shares right away using one of the advance voting methods described in the accompanying materials.

We look forward to seeing you at the special meeting.

The accompanying Proxy Statement is dated October 20, 2017, and is first being mailed to our stockholders on or about October 20, 2017.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE REINCORPORATION MERGER, PASSED UPON THE MERITS OR FAIRNESS OF THE REINCORPORATION MERGER AGREEMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE REINCORPORATION MERGER, OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT OR THE ACCOMPANYING PROXY STATEMENT.  ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

SCIENTIFIC GAMES CORPORATION

6601 Bermuda Road

Las Vegas, NV 89119

NOTICE OF SPECIAL MEETING

OF STOCKHOLDERS

1.

To consider and vote on a proposal to adopt the Agreement and Plan of Merger dated as of September 18, 2017 (as it may be amended from time to time, the “reincorporation merger agreement”), between the Company and SG Nevada Merger Company, a Nevada corporation and our wholly owned subsidiary (“NewCo”), providing for the merger of the Company with and into NewCo with NewCo surviving the merger, for the sole purpose of changing the Company’s state of incorporation from Delaware to Nevada, including to approve the Amended and Restated Articles of Incorporation and Amended and Restated Bylaws of the surviving corporation (collectively, the “reincorporation merger”).  A copy of the reincorporation merger agreement is attached as Annex A to the accompanying Proxy Statement.

2.

To consider and vote on a proposal to adjourn the special meeting, if necessary or appropriate, including to solicit additional proxies if there are insufficient votes at the time of the special meeting to establish a quorum or adopt the reincorporation merger agreement.

After due and careful discussion and consideration, our Board of Directors has unanimously determined that the reincorporation merger agreement  and the reincorporation merger are advisable, fair to and in the best interests of our stockholders, and directed that the adoption of the reincorporation merger agreement be submitted for a vote at a meeting of stockholders.  Accordingly, our Board of Directors has unanimously approved the reincorporation merger agreement and the reincorporation merger, and unanimously recommends that you vote “FOR” the proposal to adopt the reincorporation merger agreement and “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, including to solicit additional proxies if there are insufficient votes at the time of the special meeting to establish a quorum or adopt the reincorporation merger agreement.

Only stockholders of record at the close of business on October 17, 2017 are entitled to receive notice of and will be entitled to vote at the special meeting and any adjournment thereof. A list of the holders will be open to the examination of stockholders for ten days prior to the date of the meeting, between the hours of 9:00 a.m. and 5:00 p.m., at the office of the Corporate Secretary of the Company at 6601 Bermuda Road, Las Vegas, NV 89119 and will be available for inspection at the meeting itself.

The proposal to adopt of the reincorporation merger agreement requires the affirmative vote of stockholders holding at least a majority of the outstanding shares of our common stock at the close of business on the record date.  The proposal to adjourn the special meeting, if necessary or appropriate, including to solicit additional proxies if there are insufficient votes at the time of the special meeting to establish a quorum or adopt the reincorporation merger agreement requires the affirmative vote of the holders of at least a majority of the shares of our common stock present and entitled to vote at the special meeting as of the record date, whether or not a quorum is present.

Regardless of the number of shares of our common stock you own, your vote is important. The failure to vote will have the same effect as a vote against the proposal to adopt the reincorporation merger agreement.  Whether or not you plan to attend the special meeting, please take the time to submit a proxy by following the instructions on your proxy card as soon as possible.  If your shares of our common stock are held in an account at a broker, dealer, commercial bank, trust company or other nominee, you should instruct your broker, dealer, commercial bank, trust company or other nominee how to vote in accordance with the voting instruction form furnished by your broker, dealer, commercial bank, trust company or other nominee. If you attend the special meeting and vote in person, your vote by ballot will revoke any proxy previously submitted.

 

If you plan to attend the special meeting, please note that you may be asked to present valid photo identification, such as a driver’s license or passport.  If you wish to attend the special meeting and your shares of our common stock are held in an account at a broker, dealer, commercial bank, trust company or other nominee (i.e., in “street name”), you will need to bring a copy of your voting instruction card or statement reflecting your share ownership as of the record date.

To obtain directions to attend the meeting and vote in person, please telephone the Company at (702) 532-7663.

Whether you plan to be personally present at the meeting or not, we encourage you to submit your vote by proxy as soon as possible using one of the advance voting methods (see page 1 for additional details).

Important Notice Regarding the Availability of Proxy Materials for the

The Proxy Statement will be available

on or about October 20, 2017 through the Investors link on our website at

                                                                                                                                                                                                      

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TABLE OF CONTENTS

 

 

 

 

SCIENTIFIC GAMES CORPORATION

6601 Bermuda Road

Las Vegas, NV  89119

PROXY STATEMENT

GENERAL INFORMATION

This Proxy Statement and Notice of Special Meeting of Stockholders is furnished in connection with the Agreement and Plan of Merger, dated as of September 18, 2017 (the “reincorporation merger agreement”), among SG Nevada Merger Company, a Nevada corporation (“NewCo”) and the Company. The reincorporation merger agreement contemplates that the Company will merge with and into NewCo, with NewCo being the surviving entity (the “reincorporation merger”).

Access to Proxy Materials

Stockholders Entitled to Vote

All stockholders of record at the close of business on October 17, 2017 are entitled to vote at the special meeting. At the close of business on October 17, 2017, 89,636,895 shares of common stock were outstanding. Each share is entitled to one vote on all matters that properly come before the meeting.

Stock Ownership and Interests of Certain Persons

As of October 17, 2017, the record date for the special meeting, our directors and current executive officers directly or indirectly owned, in the aggregate, 36,210,260 shares of our common stock, or collectively approximately 40.40% of the outstanding shares of our common stock.  Our directors and current executive officers have informed us that they intend, as of the date hereof, to vote all of their shares of our common stock in favor of the adoption of the reincorporation merger agreement.

Certain members of our management and the Board have interests that may be different from, or in addition to, those of our stockholders generally. Such interests are related to differences in the substantive rights and protections available under Delaware and Nevada law, and corresponding provisions in the New Charter and New Bylaws that conform to Nevada law.  For more information, please read “The Reincorporation Merger—Interests of the Company’s Directors and Executive Officers in the Reincorporation Merger” beginning on page 5.

Voting Procedures

You may vote your shares by proxy without attending the meeting. You may vote your shares by proxy over the Internet or by mail or telephone pursuant to instructions provided on the proxy card. If you are voting over the Internet or by telephone, you will need to provide the control number that is printed on the proxy card that you receive.

If you are the record holder of your shares, you may also vote your shares in person at the meeting. If you are not the record holder of your shares (i.e., they are held in “street” name by a broker, bank or other nominee), you must first obtain a proxy issued in your name from the record holder giving you the right to vote the shares at the meeting.

 

 

Voting Matters

Stockholders are being asked to vote on the following matters at the special meeting:

All valid proxies received prior to the meeting will be voted in accordance with the instructions specified by the stockholder. If a proxy card is returned without instructions, the persons named as proxy holders on your proxy card will vote in accordance with the above recommendations of the Board.

With respect to any other matter that properly comes before the meeting, the proxy holders will vote as recommended by the Board or, if no recommendation is given, in their own discretion.

Changing Your Vote

A stockholder may revoke a proxy at any time prior to its being voted by delivering written notice to the Corporate Secretary of the Company, by delivering a properly executed later‑dated proxy (including over the Internet or by telephone), or by voting in person at the meeting.

Quorum

The presence, in person or by proxy, of the holders of a majority of the shares entitled to vote at the meeting constitutes a quorum for the transaction of business.

Vote Required

Assuming a quorum is present, the proposal to adopt the reincorporation merger agreement requires the affirmative vote of stockholders holding at least a majority of the outstanding shares of our common stock at the close of business on the record date. The proposal to adjourn the special meeting, if necessary or appropriate, including to solicit additional proxies if there are insufficient votes at the time of the special meeting to establish a quorum or adopt the reincorporation merger agreement requires the affirmative vote of the holders of at least a majority of the shares of our common stock present and entitled to vote at the special meeting as of the record date, whether or not a quorum is present.

Effect of Abstentions

If you vote “ABSTAIN” (rather than vote “FOR” or “AGAINST”), your shares will count as present for purposes of determining whether a quorum is present and will have the effect of a negative vote on the proposal. If no instructions are indicated on your signed proxy card, all of your shares of our common stock will be voted “FOR” the adoption of the reincorporation merger agreement and approval to adjourn the special meeting, if necessary or appropriate, including to solicit additional proxies if there are insufficient votes at the time of the special meeting to establish a quorum or adopt the reincorporation merger agreement.

Effect of Broker Non‑Votes

A broker “non‑vote” occurs when a broker or nominee holding shares for a beneficial owner does not vote on a particular proposal because the broker or nominee does not have discretionary voting power on that item and has not received specific instructions from the owner. If any broker “non‑votes” occur at the meeting, the broker “non‑votes” will count for purposes of determining whether a quorum is present but will not have an effect on any proposals presented for your vote. A broker or other nominee holding shares for a beneficial owner may not vote these shares with respect to the adoption of the reincorporation merger agreement (Proposal 1) or the proposal to adjourn the special meeting, if necessary or appropriate (Proposal 2), without specific instructions from the beneficial owner as to how to vote with respect to such proposals.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

In this Proxy Statement, we make “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements describe future expectations, plans, results or strategies and can often be identified by the use of terminology such as “may”, “will”, “estimate”, “intend”, “continue”, “believe”, “expect”, “anticipate”, “should”, “could”, “potential”, “opportunity”, “goal” or similar terminology. These statements are based upon management’s current expectations, assumptions and estimates and are not guarantees of timing, future results or performance. Actual results may differ materially from those contemplated in these statements due to a variety of risks and uncertainties and other factors, including, among other things: our inability to complete the reincorporation merger due to the failure to obtain the required approvals, including adoption of the reincorporation merger agreement by our stockholders, or otherwise; potential litigation relating to the reincorporation merger; disruption of our current plans and operations in connection with the reincorporation merger, including departure of key personnel or inability to recruit additional qualified personnel or maintain relationships with customers, suppliers or other third parties; and costs, charges and expenses relating to the reincorporation merger. Additional information regarding risks, uncertainties and other factors that could cause actual results to differ materially from those contemplated in forward-looking statements is included from time to time in our filings with the Securities and Exchange Commission (the “SEC”), including under the heading “Risk Factors” in our most recent Annual Report on Form 10-K and in our subsequent periodic reports. Forward-looking statements speak only as of the date they are made and, except for our ongoing obligations under the U.S. federal securities laws, we undertake no obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise.

We believe these forward-looking statements are reasonable; however, you should not place undue reliance on forward-looking statements, which are based on current expectations.  Any or all of our forward-looking statements may turn out to be wrong.  They can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and other factors, many of which are beyond our control.

All of the materials related to the reincorporation merger will be available at no charge from the SEC through its website at www.sec.gov.  Investors and security holders may also obtain free copies of the documents we filed with the SEC by contacting Scientific Games Corporation, 6601 Bermuda Road, Las Vegas, NV 89119, Attention: Corporate Secretary, telephone number (702) 532-7663.  For a more detailed description of the additional information available, please see “Where You Can Find More Information” beginning on page 22.

 

 

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MATTERS TO COME BEFORE THE SPECIAL MEETING

PROPOSAL 1

ADOPTION OF THE REINCORPORATION MERGER AGREEMENT

THE REINCORPORATION MERGER

The following is a description of the material aspects of the reincorporation merger.  While we believe that the following description covers the material terms of the reincorporation merger, the description may not contain all of the information that is important to you.  We encourage you to read carefully this entire document, including the Agreement and Plan of Merger attached to this Proxy Statement as Annex A for a more complete understanding of the reincorporation merger.  The following description is subject to, and is qualified in its entirety by reference to, the reincorporation merger agreement.

 

 

We have entered into an Agreement and Plan of Merger with NewCo, a Nevada corporation and our wholly owned subsidiary, providing for the merger of the Company with and into NewCo with NewCo surviving the merger (the “Surviving Corporation”), for the sole purpose of changing the Company’s state of incorporation from Delaware to Nevada, including to approve the New Charter and New Bylaws.  The reincorporation merger agreement and the reincorporation merger were approved by our Board on September 17, 2017.  The reincorporation merger is subject to the approval of stockholders owning a majority of the outstanding shares of our common stock at the special meeting.

The Parties

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 Corporation 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.

The Company’s common stock is listed on the NASDAQ Stock Exchange (the “NASDAQ”) under the symbol “SGMS”.

The Company’s principal executive offices are located 6601 Bermuda Road, Las Vegas, NV 89119, its telephone number is (702) 532-7663 and its Internet website address is www.scientificgames.com.  The information provided on or accessible through the Company’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.

NewCo, a wholly owned subsidiary of the Company, is a Nevada corporation that was formed on September 18, 2017, for the sole purpose of entering into the reincorporation merger agreement and completing the transactions contemplated by the reincorporation merger agreement, including the reincorporation merger.  Upon the terms and subject to the conditions of the reincorporation merger agreement, the Company will merge with and into NewCo, with NewCo surviving the merger.

The principal executive offices of NewCo are located at 6601 Bermuda Road, Las Vegas, NV 89119, and its telephone number is (702) 532-7663.

Reasons for the Reincorporation Merger

Primarily, the reincorporation merger will allow us to better align our legal domicile with our global corporate headquarters and our primary U.S. manufacturing operations. Following the reincorporation merger, we will benefit from having our operational center, legal domicile and corporate office in Nevada, the gaming capital of the world, where we have strong roots and an extensive and growing employee base. The reincorporation merger will also allow us to stay closely connected to our base of gaming, lottery and interactive customers, many of whom are located in Nevada.

The reincorporation merger will also eliminate our obligation to pay the annual Delaware franchise tax which we expect will result in substantial savings to us over the long term.  For tax year 2016, we paid $180,000 in Delaware franchise taxes.  If we reincorporate in the State of Nevada, our current annual fees will consist of an annual business license fee of $500 and an annual filing fee of $300.

In addition, the reincorporation in Nevada may help us attract and retain qualified management by reducing the risk of lawsuits being filed against the Company and its directors and officers.  We believe that for the reasons described below, in general, Nevada law provides greater protection to our directors, officers and the Company than Delaware law.  The increasing frequency of claims and litigation directed towards directors and officers has greatly expanded the risks facing directors and officers in general of public companies in exercising their duties. The amount of time and money required to respond to these claims and to defend this type of litigation can be substantial.  Delaware law provides that every person becoming a director of a Delaware corporation consents to the personal jurisdiction of the Delaware courts in connection with any action concerning the corporation.  Accordingly, a director can be personally sued in Delaware, even though the director has no other contacts with the state.  Similarly, Nevada law provides that every person who accepts election or appointment, including reelection or reappointment, as a director or officer of a Nevada corporation consents to the personal jurisdiction of the Nevada courts in connection with all civil actions or proceedings brought in Nevada by, on behalf of or against the entity in which the director or officer is a necessary or proper party, or in any action or proceeding against the director or officer for a violation of a duty in such capacity, whether or not the person continues to serve as a director or officer at the time the action or proceeding is commenced. We believe that the advantage of Nevada is that, unlike Delaware corporate law, much of which consists of judicial decisions that migrate and develop over time, Nevada has pursued a statute-focused approach that does not depend upon constant judicial supplementation and revision, and is intended to be stable, predictable and more efficient.

 

 

Also, reincorporation in Nevada will provide potentially greater protection for directors of the Company and, unlike Delaware, for officers as well.  Delaware law permits a corporation to adopt provisions limiting or eliminating the liability of a director to a company and its stockholders for monetary damages for breach of fiduciary duty as a director, provided that the liability does not arise from certain proscribed conduct, including breach of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law.  By contrast, Nevada law permits a broader exclusion of liability of both officers and directors to the Company and its stockholders, providing for an exclusion of all monetary damages for breach of fiduciary duty unless they arise from acts or omissions which involve intentional misconduct, fraud or a knowing violation of law.  The reincorporation will result in the elimination of any liability of an officer or director for a breach of the duty of loyalty unless arising from intentional misconduct, fraud or a knowing violation of law.  There is currently no known pending claim or litigation against any of our directors or officers for breach of fiduciary duty related to their service as directors or officers of the Company. The directors have an interest in the reincorporation to the extent that they will be entitled to such limitation of liability.

The reincorporation merger is not being effected to prevent a change in control, nor is it in response to any present attempt known to our Board to acquire control of the Company or obtain representation on our Board.  Nevertheless, certain effects of the proposed reincorporation may be considered to have anti-takeover implications by virtue of being subject to Nevada law.  For a discussion of differences between the laws of Delaware and Nevada, including differences that may have anti-takeover implications, please see “Comparative Rights of Stockholders Before and After the Reincorporation Merger” beginning on page 6.

Board of Directors and Management of the Surviving Corporation

The board of directors of the Surviving Corporation will, from and after the effective time, consist of the directors of the Company until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal.  The officers of the Surviving Corporation will, from and after the effective time, be the officers of the Company until their successors have been duly elected or appointed and qualified.

Interests of the Company’s Directors and Executive Officers in the Reincorporation Merger

Details of the beneficial ownership of the Company’s directors and executive officers of our common stock are set out in the section titled “Security Ownership of Certain Beneficial Owners and Management” beginning on page 20. In considering the recommendation of the Board with respect to the reincorporation merger agreement, you should be aware that certain of the Company’s directors and executive officers have interests in the reincorporation merger that may be different from, or in addition to, the interests of our stockholders generally. The Board was aware of these interests and considered them, among other matters, in reaching the decision to approve the reincorporation merger agreement and recommend that the Company’s stockholders vote in favor of adopting the reincorporation merger agreement.

These interests are related to differences between the laws of Delaware and Nevada.  Delaware law does not afford the same substantive rights and protections available under Nevada law. Accordingly, the New Charter and New Bylaws, which are governed by Nevada law, differ in certain respects from the Company’s Restated Certificate of Incorporation (the “Current Charter”) and Amended and Restated Bylaws (the “Current Bylaws”), which are governed by Delaware law.  For example, the directors have an interest in the reincorporation to the extent that they will be entitled to limitation of personal liability, as discussed above under “—Reasons for the Reincorporation Merger”. For a comparison of stockholders’ rights and the powers of our management and Board before and after the reincorporation merger, please see “—Comparative Rights of Stockholders Before and After the Reincorporation Merger” beginning on page 6.

All of the Company’s rights and obligations under employment agreements with our executive officers will be assumed by the Surviving Corporation as a result of it being a successor to the Company.  The reincorporation merger will not be treated as a change in control under any such employment agreement or any of the Company’s equity compensation arrangements.

 

 

The Company is not aware of any other direct or indirect interests of our current directors or executive officers in the reincorporation merger as a result of reincorporation.

Consequences of the Reincorporation Merger

The reincorporation merger will effect a change in the legal domicile of the Company from Delaware to Nevada and changes by virtue of the Company being subject to Nevada law, the most significant of which are described below under “—Comparative Rights of Stockholders Before and After the Reincorporation Merger” beginning on page 6.  However, the reincorporation merger will not result in any change in headquarters, business, management, location of our offices, assets, liabilities or net worth, other than as a result of the costs incident to the reincorporation merger.  Our management, including all directors and officers, immediately prior to the reincorporation merger will remain the same in connection with the reincorporation merger and will assume identical positions with the Surviving Corporation.

Operating as a Nevada corporation will not interfere with, or differ substantially from, our present corporate activities.  As a Nevada corporation, we will be governed by Nevada corporate law, while the Company is currently governed by Delaware corporate law.  Nevada law may constitute a comprehensive, flexible legal structure under which to operate.  However, because of differences in the laws of these states, your rights as stockholders will change in several material respects as a result of the reincorporation.  These matters are discussed in greater detail below under “The Reincorporation Merger—Comparative Rights of Stockholders Before and After the Reincorporation Merger” beginning on page 6.

Holders of Surviving Corporation common stock will be entitled to equal voting rights, consisting of one vote per share on all matters submitted to a stockholder vote.  The presence, in person or by proxy, of the holders of a majority of the outstanding shares of the Surviving Corporation entitled to vote will be required to constitute a quorum at any meeting of the Surviving Corporation.  A vote by the holders of a majority of the outstanding shares of the Surviving Corporation common stock will be required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to the New Charter.  In the event of liquidation, dissolution or winding up of our company, either voluntarily or involuntarily, each outstanding share of the Surviving Corporation common stock will be entitled to share equally in the assets of the Surviving Corporation.  Holders of the Surviving Corporation common stock will not have pre-emptive rights or conversion rights and there will be no redemption provisions applicable to Surviving Corporation common stock.

Potential Disadvantages of Reincorporation

A potential disadvantage of reincorporating from Delaware to Nevada is that Delaware for many years has followed a policy of encouraging incorporation in that state and, in furtherance of that policy, has adopted comprehensive, modern and flexible corporate laws that Delaware periodically updates and revises to meet changing business needs.  Because of Delaware’s prominence as a state of incorporation for many large corporations, the Delaware courts have developed considerable expertise in dealing with corporate issues and a substantial body of case law has developed construing Delaware law and establishing public policies with respect to Delaware corporations.  While Nevada also has encouraged incorporation in that state and adopted comprehensive, modern and flexible statutes that it periodically updates and revises to meet changing business needs, because Nevada case law concerning the effects of its statutes and regulations is more limited, the Company and its stockholders may experience less predictability with respect to legality of corporate affairs and transactions and stockholders’ rights to challenge them.  In addition, Nevada corporate law cases are heard in Nevada state district courts.  Unlike in Delaware, Nevada does not have a separate court with specific jurisdiction over corporate cases, but cases may be transferred to a judge with a “business court” designation.  While judges in Delaware’s Court of Chancery are appointed to 12-year terms by the Governor of the State of Delaware, the district court judges in Nevada are elected to six-year terms in mandatorily nonpartisan elections.  Note also that jury trials are available in corporate law cases in Nevada while in Delaware they are not.

Comparative Rights of Stockholders Before and After the Reincorporation Merger

Upon consummation of the reincorporation merger, the outstanding shares of our common stock will be converted into shares of Surviving Corporation common stock.  Consequently, our stockholders, whose rights as stockholders are currently governed by the Delaware General Corporation Law (the “DGCL”) and the Current Charter and Current Bylaws, will become stockholders of the Surviving Corporation whose rights will be governed by the Nevada Revised Statutes (the “NRS”) and the New Charter and New Bylaws.

 

Key Changes in the Company’s Charter and Bylaws to be Implemented by the Reincorporation Merger

The New Charter and New Bylaws, attached hereto as Annex B and Annex C, respectively, differ in a number of respects from the Current Charter and Current Bylaws, respectively, copies of which have been filed with the SEC and are also available for inspection by our stockholders upon reasonable notice during regular business hours, at our principal executive offices at 6601 Bermuda Road, Las Vegas, NV 89119, Attention: Corporate Secretary.  The Current Charter and Current Bylaws are also available on the Investors link of our corporate website at www.scientificgames.com.

There are certain differences that may affect your rights as a stockholder, as well as the corporate governance of the Surviving Corporation.  The following are summaries of some of the more significant differences between the Current Charter and Current Bylaws of the Company, on the one hand, and the New Charter and New Bylaws of the Surviving Corporation, on the other.  Except as described in this section, the rights of stockholders under the New Charter and New Bylaws are substantially the same as under the Company’s Current Charter and Bylaws.

The following discussion is a brief summary.  It does not provide a complete description of the differences that may affect you.  This summary is qualified in its entirety by reference to the Current Charter and Current Bylaws of the Company, and the New Charter and New Bylaws of the Surviving Corporation.

 

 

Comparative Rights of Stockholders under Delaware and Nevada Law

The statutory corporate laws of the State of Nevada, as governed by the NRS, are similar in many respects to those of Delaware, as governed by the DGCL.  However, there are certain differences that may affect your rights as a stockholder, as well as the corporate governance of the Surviving Corporation.  The following are summaries of material differences between the current rights of stockholders of the Company and the rights of stockholders of the Surviving Corporation following the consummation of the reincorporation merger.

The following discussion is a brief summary.  It does not provide a complete description of the differences that may affect you.  This summary is qualified in its entirety by reference to the NRS and DGCL, as well as the forms of the New Charter and New Bylaws, which are attached as Appendices B and C, respectively, to this Proxy Statement, and which will come into effect concurrently with the consummation of the reincorporation merger.

Increasing or Decreasing Authorized Capital Stock.  The NRS allows the board of directors of a corporation, unless restricted by the articles of incorporation, to increase or decrease the number of authorized shares in a class or series of the corporation’s shares and correspondingly effect a forward or reverse split of any class or series of the corporation’s shares (and change the par value thereof) without a vote of the stockholders, so long as the action taken does not adversely change or alter any right or preference of the stockholders and does not include any provision or provisions pursuant to which only money will be paid or scrip issued to stockholders who hold 10% or more of the outstanding shares of the affected class and series, and who would otherwise be entitled to receive fractions of shares in exchange for the cancellation of all of their outstanding shares.  Delaware law has no similar provision.

Classified Board of Directors.  The DGCL permits any Delaware corporation to classify its board of directors into as many as three classes with staggered terms of office.  If this were done, the stockholders would elect only one class each year and each class would have a term of office of three years.  The Current Charter and Current Bylaws do not provide for a classified board of directors, and thus all directors are elected each year for one-year terms.

 

The NRS also permits any Nevada corporations to classify its board of directors into as many as four classes with staggered terms of office, where at least one-fourth of the directors must be elected annually.  The New Charter and New Bylaws also do not provide for a classified board of directors, and thus all directors will be elected each year for one-year terms following the consummation of the reincorporation merger.

Cumulative Voting.  Cumulative voting for directors entitles each stockholder to cast a number of votes that is equal to the number of voting shares held by such stockholder multiplied by the number of directors to be elected and to cast all such votes for one nominee or distribute such votes among up to as many candidates as there are positions to be filled.  Cumulative voting may enable a minority stockholder or group of stockholders to elect at least one representative to the board of directors where such stockholders would not be able to elect any directors without cumulative voting.

Although the DGCL does not generally grant stockholders cumulative voting rights, a Delaware corporation may provide in the corporation’s certificate of incorporation for cumulative voting in the election of directors. The NRS also permits any Nevada corporation to provide in its articles of incorporation the right to cumulative voting in the election of directors as long as certain procedures are followed.

The Current Charter does not provide for cumulative voting in the election of directors.  Similarly, the New Charter does not provide for cumulative voting.

Vacancies.  Under both the DGCL and the NRS, vacancies on the board of directors during the year may be filled by the affirmative vote of a majority of the remaining directors then in office, even if less than a quorum.  Any director so appointed will hold office for the remainder of the term of the director no longer on the board.

Removal of Directors.  Under the DGCL, the holders of a majority of shares of each class entitled to vote at an election of directors may vote to remove any director or the entire board without cause unless (i) the board is a classified board, in which case directors may be removed only for cause, or (ii) the corporation has cumulative voting, in which case, if less than the entire board is to be removed, no director may be removed without cause if the votes cast against his or her removal would be sufficient to elect him.  Thus, under the DGCL, a director of a corporation that does not have a classified board or permit cumulative voting, such as the Company, may be removed, without cause, by the affirmative vote of a majority of the outstanding shares entitled to vote at an election of directors.

The NRS requires the vote of the holders of at least two-thirds of the shares or class or series of shares of the issued and outstanding stock entitled to vote at an election of directors in order to remove a director or all of the directors.  Furthermore, the NRS does not make a distinction between removals for cause and removals without cause.  The articles of incorporation may provide for a higher voting threshold but not a lower one.

Fiduciary Duty and Business Judgment.  Nevada, like most jurisdictions, requires that directors and officers of Nevada corporations exercise their powers in good faith and with a view to the interests of the corporation but, unlike other jurisdictions, fiduciary duties of directors and officers are codified in the NRS.  As a matter of law, directors and officers are presumed to act in good faith, on an informed basis and with a view to the interests of the corporation in making business decisions.  In performing such duties, directors and officers may exercise their business judgment through reliance on information, opinions, reports, financial statements and other financial data prepared or presented by corporate directors, officers or employees who are reasonably believed to be reliable and competent.  Professional reliance may also be extended to legal counsel, public accountants, advisers, bankers or other persons reasonably believed to be competent, and to the work of a committee (on which the particular director or officer does not serve) if the committee was established and empowered by the corporation’s board of directors, and if the committee’s work was within its designated authority and was about matters on which the committee was reasonably believed to merit confidence.  However, directors and officers may not rely on such information, opinions, reports, books of account or similar statements if they have knowledge concerning the matter in question that would make such reliance unwarranted.

Under Delaware law, members of the board of directors or any committee designated by the board of directors are similarly entitled to rely in good faith upon the records of the corporation and upon such information, opinions, reports and statements presented to the corporation by corporate officers, employees, committees of the board of directors or other persons as to matters such member reasonably believes are within such other person’s professional or expert competence, provided that such other person has been selected with reasonable care by or on behalf of the corporation.  Such appropriate reliance on records and other information protects directors from liability related to decisions made based on such records and other information. Unlike Delaware law, Nevada law extends the statutory protection for reliance on such persons to corporate officers.

 

Flexibility for Decisions, including Takeovers.  Nevada provides directors with more discretion than Delaware in making corporate decisions, including decisions made in takeover situations.  Under Nevada law, director and officer actions taken in response to a change or potential change in control are granted the benefits of the business judgment rule.  However, in the case of an action that impedes the rights of stockholders to vote for or remove directors, directors will only be given the advantage of the business judgment rule if the directors have reasonable grounds to believe a threat to corporate policy and effectiveness exists and the action taken that impedes the exercise of the stockholders’ rights is reasonable in relation to such threat.

In exercising their powers, including in response to a change or potential change of control, directors and officers of Nevada corporations may consider the effect of the decision on several corporate constituencies in addition to the stockholders, including the corporation’s employees, suppliers, creditors, customers, the economy of the state and nation, the interests of the community and society in general, and the long-term as well as short-term interests of the corporation and its stockholders, including the possibility that these interests may be best served by the continued independence of the corporation.  To underscore the discretion of directors and officers of Nevada corporations, the NRS specifically states that such directors and officers are not required to consider the effect of a proposed corporate action upon any constituent as a dominant factor.

The DGCL does not provide a similar list of statutory factors that corporate directors and officers may consider in making decisions.  In a number of cases, Delaware law has been interpreted to provide that fiduciary duties require directors to accept an offer from the highest bidder regardless of the effect of such sale on the corporate constituencies other than the stockholders.  Thus, the flexibility granted to directors of Nevada corporations when making business decisions, including in the context of a hostile takeover, are greater than those granted to directors of Delaware corporations.

Limitation on Personal Liability of Directors and Officers.  The NRS and the DGCL each permit corporations to adopt provisions in their charter documents that eliminate or limit the personal liability of directors to the corporation or their stockholders for monetary damages for breach of a director’s fiduciary duty, subject to the differences discussed below.

Both jurisdictions preclude liability limitation for acts or omissions not in good faith or involving intentional misconduct and for paying dividends or repurchasing stock out of other than lawfully available funds.  Unlike the DGCL, however, the NRS does not expressly preclude a corporation from limiting liability for a director’s breach of the duty of loyalty or for any transaction from which a director derives an improper personal benefit.  Alternatively, the NRS permits a corporation to renounce in its articles of incorporation any interest or expectancy to participate in specific or specified classes or categories of business opportunities.  In addition, the NRS provision permitting limitation of liability applies to both directors and officers and expressly applies to liabilities owed to creditors of the corporation.  Furthermore, under the NRS, it is not necessary to adopt provisions in the articles of incorporation limiting personal liability of directors as this limitation is provided by statute.

Finally, in Nevada, in order for a director or officer to be individually liable to the corporation or its stockholders or creditors for damages as a result of any act or failure to act, it must be proven that the directors’ or officers’ act or failure to act constituted a breach of his or her fiduciary duties as a director or officer and that the breach of those duties involved intentional misconduct, fraud or a knowing violation of law.

Thus, the NRS provides broader protection from personal liability for directors and officers than the DGCL.

Indemnification.  The NRS and the DGCL each permit corporations to indemnify directors, officers, employees and agents in similar circumstances, subject to the differences discussed below.

In suits that are not brought by or in the right of the corporation, both jurisdictions permit a corporation to indemnify current and former directors, officers, employees and agents for attorneys’ fees and other expenses, judgments and amounts paid in settlement that the person actually and reasonably incurred in connection with the action, suit or proceeding.  The person seeking indemnity may recover as long as he or she acted in good faith and believed his or her actions were either in the best interests of or not opposed to the best interests of the corporation.  Under the NRS, the person seeking indemnity may also be indemnified if he or she is not liable for breach of his or her fiduciary duties.  Similarly, with respect to a criminal proceeding, the person seeking indemnification must not have had any reasonable cause to believe his or her conduct was unlawful.

In derivative suits, a corporation in either jurisdiction may indemnify its directors, officers, employees or agents for expenses that the person actually and reasonably incurred.  A corporation may not indemnify a person if the person was adjudged to be liable to the corporation unless a court otherwise orders.

 

 

No corporation may indemnify a party unless it makes a determination that indemnification is proper.  Under the DGCL, the corporation through its stockholders, directors or independent legal counsel will determine that the conduct of the person seeking indemnity conformed with the statutory provisions governing indemnity.  Under the NRS, the corporation through its stockholders, directors or independent counsel must only determine that the indemnification is proper.

Advancement of Expenses.  Although the DGCL and NRS have substantially similar provisions regarding indemnification by a corporation of its officers, directors, employees and agents, the NRS provides broader indemnification in connection with stockholder derivative lawsuits, in particular with respect to advancement of expenses incurred by an officer or director in defending a civil or criminal action, suit or other proceeding.

The DGCL provides that expenses incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay the amount if it is ultimately determined that he is not entitled to be indemnified by the corporation.  A Delaware corporation has the discretion to decide whether or not to advance expenses, unless its certificate of incorporation or bylaws provide for mandatory advancement.

In contrast, under the NRS, the articles of incorporation, the bylaws or an agreement made by the corporation may provide that the corporation must pay advancements of expenses in advance of the final disposition of the action, suit or proceedings upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined that he is not entitled to be indemnified by the corporation.

Action by Written Consent of Directors.  Both the DGCL and NRS provide that, unless the articles or certificate of incorporation or the bylaws provide otherwise, any action required or permitted to be taken at a meeting of the directors or a committee thereof may be taken without a meeting if all members of the board or committee, as the case may be, consent to the action in writing.

Actions by Written Consent of Stockholders.  Both the DGCL and NRS provide that, unless the articles or certificate of incorporation provides otherwise, any action required or permitted to be taken at a meeting of the stockholders may be taken without a meeting if the holders of outstanding stock having at least the minimum number of votes that would be necessary to authorize or take the action at a meeting of stockholders consent to the action in writing.  In addition, the DGCL requires the corporation to give prompt notice of the taking of corporate action without a meeting by less than unanimous written consent to those stockholders who did not consent in writing.  There is no equivalent requirement under the NRS.

The NRS also permits a corporation to prohibit stockholder action by written consent in lieu of a meeting of stockholders by including such prohibition in its bylaws.

The Current Bylaws provide that any stockholders may act by written consent if such consent is signed by holders of not less than the minimum number of votes that would be required to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.  The New Bylaws contain a substantially similar provision.

Dividends and Distributions.  Delaware law is more restrictive than Nevada law with respect to dividend payments.  Unless further restricted in the certificate of incorporation, the DGCL permits a corporation to declare and pay dividends out of either (i) surplus, or (ii) if no surplus exists, out of net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year (provided that the amount of capital of the corporation is not less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets).  The DGCL defines surplus as the excess, at any time, of the net assets of a corporation over its stated capital.  In addition, the DGCL provides that a corporation may redeem or repurchase its shares only when the capital of the corporation is not impaired and only if such redemption or repurchase would not cause any impairment of the capital of the corporation.

The NRS provides that no distribution (including dividends on, or redemption or repurchases of, shares of capital stock) may be made if, after giving effect to such distribution, (i) the corporation would not be able to pay its debts as they become due in the usual course of business, or, (ii) except as otherwise specifically permitted by the articles of incorporation, the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed at the time of a dissolution to satisfy the preferential rights of preferred stockholders (the condition in this clause (ii), the “Balance Sheet Test”).  Directors may consider financial statements prepared on the basis of accounting practices that are reasonable in the circumstances, a fair valuation, including but not limited to unrealized appreciation and depreciation, and any other method that is reasonable in the circumstances. Pursuant to NRS 78.288(2)(b), in the New Charter, the Surviving Corporation is specifically allowed to make any distribution that otherwise would be prohibited by the Balance Sheet Test.

 

 

To date, the Company has not paid dividends on its shares of common stock.  The payment of dividends following the consummation of the reincorporation merger, if any, will be within the discretion of the board of directors of the Surviving Corporation.  Our Board (which will be the board of directors of the Surviving Corporation immediately following the reincorporation merger) does not anticipate that the Surviving Corporation will pay dividends in the foreseeable future.

Restrictions on Business Combinations.  Both Delaware and Nevada law provide certain protections to stockholders in connection with certain business combinations.  These protections can be found in NRS 78.411 to 78.444, inclusive, and Section 203 of the DGCL.

Under Section 203 of the DGCL, certain “business combinations” with “interested stockholders” of the Company are subject to a three-year moratorium unless specified conditions are met.  For purposes of Section 203, the term “business combination” is defined broadly to include (i) mergers with or caused by the interested stockholder; (ii) sales or other dispositions to the interested stockholder (except proportionately with the corporation’s other stockholders) of assets of the corporation or a subsidiary equal to 10% or more of the aggregate market value of either the corporation’s consolidated assets or its outstanding stock; (iii) the issuance or transfer by the corporation or a subsidiary of stock of the corporation or such subsidiary to the interested stockholder (except for transfers in a conversion or exchange or a pro rata distribution or certain other transactions, none of which increase the interested stockholder’s proportionate ownership of any class or series of the corporation’s or such subsidiary’s stock); or (iv) receipt by the interested stockholder (except proportionately as a stockholder), directly or indirectly, of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation or a subsidiary.

The three-year moratorium imposed on business combinations by Section 203 of the DGCL does not apply if: (i) prior to the time on which such stockholder becomes an interested stockholder the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested stockholder; (ii) the interested stockholder owns 85% of the corporation’s voting stock upon consummation of the transaction that made him or her an interested stockholder (excluding from the 85% calculation shares owned by directors who are also officers of the target corporation and shares held by employee stock plans that do not permit employees to decide confidentially whether to accept a tender or exchange offer); or (iii) at or after the time on which such stockholder becomes an interested stockholder, the board approves the business combination and it is also approved at a stockholder meeting by at least two-thirds (66-2/3%) of the outstanding voting stock not owned by the interested stockholder.

In contrast, the NRS imposes a maximum moratorium of two years versus Delaware’s three-year moratorium on business combinations.  However, NRS 78.411 to 78.444, inclusive, regulate combinations more stringently.  First, an interested stockholder is defined as a beneficial owner of 10% or more of the voting power.  Second, the two-year moratorium can be lifted only by advance approval by a corporation’s board of directors, as opposed to Delaware’s provision that allows interested stockholder combinations with stockholder approval at the time of such combination.  Finally, after the two-year period, combinations remain prohibited unless (i) they are approved by the board of directors, the disinterested stockholders or 60% of the outstanding voting power not beneficially owned by the interested party and its affiliates and associates or (ii) the interested stockholders satisfy certain fair value requirements.  But note that these statutes do not apply to any combination of a corporation and an interested stockholder after the expiration of four years after the person first became an interested stockholder.

Companies are entitled to opt out of the business combination provisions of the DGCL and NRS.  The Company has not opted out of the business combination provisions of Section 203 of the DGCL.  In the New Charter, the Surviving Corporation does not opt out of the business combination provisions of NRS 78.411 to 78.444, inclusive.

Acquisition of Controlling Interests.  In addition to the restrictions on business combinations with interested stockholders, Nevada law also protects the corporation and its stockholders from persons acquiring a “controlling interest” in a corporation.  The provisions can be found in NRS 78.378 to 78.3793, inclusive.  Delaware law does not have similar provisions.

Pursuant to NRS 78.379, any person who acquires a controlling interest in a corporation may not exercise voting rights on any control shares unless such voting rights are conferred by a majority vote of the disinterested stockholders of the issuing corporation at a special meeting of such stockholders held upon the request and at the expense of the acquiring person.  NRS 78.3785 provides that a “controlling interest” means the ownership of outstanding voting shares of an issuing corporation sufficient to enable the acquiring person, individually or in association with others, directly or indirectly, to exercise (i) one fifth or more but less than one third, (ii) one third or more but less than a majority or (iii) a majority or more of the voting power of the issuing corporation in the election of directors, and voting rights must be conferred by a majority of the disinterested stockholders as each threshold is reached and/or exceeded.  In the event that the control shares are accorded full voting rights and the acquiring person acquires control shares with a majority or more of all the voting power, any stockholder, other than the acquiring person, who does not vote in favor of authorizing voting rights for the control shares is entitled to demand payment for the fair value of such person’s shares, and the corporation must comply with the demand.

 

 

NRS 78.378(1) provides that the control share statutes of the NRS do not apply to any acquisition of a controlling interest in an issuing corporation if the articles of incorporation or bylaws of the corporation in effect on the 10th day following the acquisition of a controlling interest by the acquiring person provide that the provisions of those sections do not apply to the corporation or to an acquisition of a controlling interest specifically by types of existing or future stockholders, whether or not identified.  In addition, NRS 78.3788 provides that the control share statutes of the NRS apply only to a corporation that has 200 or more stockholders, at least 100 of whom are stockholders of record and residents of Nevada, and which does business directly or indirectly in Nevada.  NRS 78.378(2) provides that the corporation may impose stricter requirements if it so desires.

Stockholder Vote for Mergers and Other Corporate Reorganizations.  Under the DGCL, unless the certificate or articles of incorporation specifies a higher percentage, the stockholders of a corporation that is being acquired in a merger or selling substantially all of its assets must authorize such merger or sale of assets by vote of an absolute majority of outstanding shares entitled to vote.  The corporation’s board of directors must also approve such transaction.

Similarly, under the NRS, a merger or sale of all assets requires authorization by stockholders of the corporation being acquired or selling its assets by an absolute majority of outstanding shares entitled to vote, as well as approval of such corporation’s board of directors.  However it is not entirely clear under Nevada law if stockholder authorization is required for the sale of less than all of the assets of a corporation.  Although a substantial body of case law has been developed in Delaware as to what constitutes the “sale of substantially all of the assets” of a corporation, it is difficult to determine the point at which a sale of virtually all, but less than all, of a corporation’s assets would be considered a “sale of all of the assets” of the corporation for purposes of Nevada law.  It is likely that many sales of less than all of the assets of a corporation requiring stockholder authorization under Delaware law would not require stockholder authorization under Nevada law.

The DGCL and NRS have substantially similar provisions with respect to approval by stockholders of a surviving corporation in a merger.  The DGCL does not require a stockholder vote of a constituent corporation in a merger (unless the corporation provides otherwise in its certificate of incorporation) if (i) the plan of merger does not amend the existing certificate of incorporation, (ii) each share of stock of such constituent corporation outstanding immediately before the effective date of the merger is an identical outstanding share after the effective date of merger and (iii) either no shares of the common stock of the surviving corporation and no shares, securities or obligations convertible into such stock are to be issued or delivered under the plan of merger, or the authorized unissued shares or treasury shares of the common stock of the surviving corporation to be issued or delivered under the plan of merger plus those initially issuable upon conversion of any other shares, securities or obligations to be issued or delivered under such plan do not exceed 20% of the shares of common stock of such constituent corporation outstanding immediately prior to the effective date of the merger.  The NRS does not require a stockholder vote of the surviving corporation in a merger under substantially similar circumstances.

The Current Charter does not require a higher percentage to vote to approve certain corporate transactions.  The New Charter also does not specify a higher percentage.

Appraisal or Dissenter’s Rights.  In both jurisdictions, dissenting stockholders of a corporation engaged in certain major corporate transactions are entitled to appraisal rights.  Appraisal rights permit a stockholder to receive cash equal to the fair market value of the stockholder’s shares (as determined by agreement of the parties or by a court) in lieu of the consideration such stockholder would otherwise receive in any such transaction.

Under Section 262 of the DGCL, appraisal rights are generally available for the shares of any class or series of stock of a Delaware corporation in a merger or consolidation, provided that no appraisal rights are available with respect to shares of any class or series of stock if, at the record date for the meeting held to approve such transaction, such shares of stock, or depositary receipts in respect thereof, are either (i) listed on a national securities exchange or (ii) held of record by more than 2,000 holders, unless the stockholders receive in exchange for their shares anything other than shares of stock of the surviving or resulting corporation (or depositary receipts in respect thereof), or of any other corporation that is listed on a national securities exchange or held by more than 2,000 holders of record, cash in lieu of fractional shares or fractional depositary receipts described above or any combination of the foregoing.

 

 

In addition, Section 262 of the DGCL allows beneficial owners of shares to file a petition for appraisal without the need to name a nominee holding such shares on behalf of such owner as a nominal plaintiff and makes it easier than under Nevada law to withdraw from the appraisal process and accept the terms offered in the merger or consolidation.  Under the DGCL, no appraisal rights are available to stockholders of the surviving or resulting corporation if the merger did not require their approval.

The Current Charter and Current Bylaws do not provide for appraisal rights in addition to those provided by the DGCL.  Therefore, because our common stock is listed on The NASDAQ Stock Market, and holders of our common stock will receive in the reincorporation merger only shares of Surviving Corporation common stock, which will be listed on The NASDAQ Stock Market, holders of our common stock will not be entitled to appraisal rights in the reincorporation merger with respect to their shares of our common stock.

Under the NRS, a stockholder is entitled to dissent from, and obtain payment for, the fair value of his or her shares in the event of (i) certain acquisitions of a controlling interest in the corporation, (ii) consummation of a plan of merger, if approval by the stockholders is required and the stockholder is entitled to vote on the merger or if the domestic corporation is a subsidiary and is merged with its parent, (iii) a plan of exchange in which the corporation is a party or (iv) any corporate action taken pursuant to a vote of the stockholders, if the articles of incorporation, bylaws or a resolution of the board of directors provides that voting or nonvoting stockholders are entitled to dissent and obtain payment for their shares.

Holders of securities that are listed on a national securities exchange or traded in an organized market and held by at least 2,000 stockholders of record with a market value of at least $20,000,000 are generally not entitled to dissenter’s rights.  However, this exception is not available if (i) the articles of incorporation of the corporation issuing the shares provide that such exception is not available, (ii) the resolution of the board of directors approving the plan of merger, conversion or exchange expressly provide otherwise or (iii) the holders of the class or series of stock are required under the plan of merger or exchange to accept for the shares anything except cash, shares of stock as described in NRS 92A.390(3) or a combination thereof.  The NRS prohibits a dissenting stockholder from voting his or her shares or receiving certain dividends or distributions after his or her dissent.  Like the Current Charter and Current Bylaws, the New Charter and New Bylaws do not provide for dissenter’s rights in addition to those provided by the NRS.

The mechanics and timing procedures vary somewhat between Delaware and Nevada but both require technical compliance with specific notice and payment protocols.

Special Meetings of the Stockholders.  The DGCL permits special meetings of stockholders to be called by the board of directors or by any other person authorized in the certificate of incorporation or bylaws to call a special stockholder meeting.

In contrast, the NRS permits special meetings of stockholders to be called by the entire board of directors, any two directors or the President, unless the articles of incorporation or bylaws provide otherwise.

Under the Current Bylaws, a special meeting of stockholders may be called by the Secretary of the Company at the written request of the majority of our Board, by the Chairman of our Board, by the President of the Company or by the stockholders owning a majority of the shares outstanding and entitled to vote.  The New Bylaws contain a substantially similar provision.

Special Meetings Pursuant to Petition of Stockholders.  The DGCL provides that a director or a stockholder of a corporation may apply to the Court of Chancery of the State of Delaware if the corporation fails to hold an annual meeting for the election of directors or there is no written consent to elect directors in lieu of an annual meeting for a period of 30 days after the date designated for the annual meeting or, if there is no date designated, within 13 months after the last annual meeting.

Nevada law is more restrictive.  Under the NRS, stockholders having not less than 15% of the voting interest may petition the district court to order a meeting for the election of directors if a corporation fails to call a meeting for that purpose within 18 months after the last meeting at which directors were elected.

Adjournment of Stockholder Special Meetings.  Under the DGCL, if a meeting of stockholders is adjourned due to lack of a quorum and the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting must be given to each stockholder of record entitled to vote at the meeting.  At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting.

 

 

In contrast, under the NRS, a corporation is not required to give any notice of an adjourned meeting or of the business to be transacted at an adjourned meeting, other than by announcement at the meeting at which the adjournment is taken, unless the board fixes a new record date for the adjourned meeting or the meeting date is adjourned to a date more than 60 days later than the date set for the original meeting, in which case a new record date must be fixed and notice given.

Duration of Proxies.  Under the DGCL, a proxy executed by a stockholder will remain valid for a period of three years, unless the proxy provides for a longer period.

Under the NRS, a proxy is effective only for a period of six months, unless it is coupled with an interest or unless otherwise provided in the proxy, which duration may not exceed seven years.  The NRS also provides for irrevocable proxies, without limitation on duration, in limited circumstances.

Stockholder Inspection Rights.  The DGCL grants any stockholder or beneficial owner of shares the right, upon written demand under oath stating the proper purpose thereof, either in person or by attorney or other agent, to inspect and make copies and extracts from a corporation’s stock ledger, list of stockholders and its other books and records for any proper purpose.  A proper purpose is one reasonably related to such person’s interest as a stockholder.

Inspection rights under Nevada law are more limited.  The NRS grants any person who has been a stockholder of record of a corporation for at least six months immediately preceding the demand, or any person holding, or thereunto authorized in writing by the holders of, at least 5 % of all of its outstanding shares, upon at least five days’ written demand the right to inspect in person or by agent or attorney, during usual business hours (i) the articles of incorporation, and all amendments thereto, (ii) the  bylaws and all amendments thereto and (iii) a stock ledger or a duplicate stock ledger, revised annually, containing the names, alphabetically arranged, of all persons who are stockholders of the corporation, showing their places of residence, if known, and the number of shares held by them respectively. A Nevada corporation may require a stockholder to furnish the corporation with an affidavit that such inspection is for a proper purpose related to his or her interest as a stockholder of the corporation.

In addition, the NRS grants certain stockholders the right to inspect the books of account and records of a corporation for any proper purpose. The right to inspect the books of account and all financial records of a corporation, to make copies of records and to conduct an audit of such records is granted only to a stockholder who owns at least 15% of the issued and outstanding shares of a Nevada corporation, or who has been authorized in writing by the holders of at least 15% of such shares.  However, these requirements do not apply to any corporation that furnishes to its stockholders a detailed, annual financial statement or any corporation that has filed during the preceding 12 months all reports required to be filed pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934.

Regulatory Matters

The receipt of approvals from regulatory authorities relating to the manufacture, operation or distribution of gaming equipment, systems, services or products or the conduct of other gaming activities of the Company is a condition to completion of the reincorporation merger (the “Gaming Approvals”). We intend to file any notification or application required as soon as reasonably practicable following the date of the reincorporation merger agreement.  Although we do not expect these regulatory authorities to raise any significant concerns in connection with their review of the reincorporation merger, there is no assurance that we will obtain all required Gaming Approvals, or that the Gaming Approvals will not include terms, conditions or restrictions that may have an adverse effect on the Company or, after completion of the reincorporation merger, the Surviving Corporation.

While we believe that we will receive the requisite Gaming Approvals for the reincorporation merger, there can be no assurances regarding the timing of the Gaming Approvals, our ability to obtain the Gaming Approvals on satisfactory terms or the absence of litigation challenging these Gaming Approvals.

Material U.S. Federal Income Tax Consequences of the Reincorporation

We intend the reincorporation merger to be a tax-free reorganization under the Internal Revenue Code of 1986, as amended.  Assuming the reincorporation merger qualifies as a tax-free reorganization, the holders of our common stock will not recognize any gain or loss under the U.S. federal income tax laws as a result of the consummation of the reincorporation merger, and neither will the Company nor the Surviving Corporation.  Each stockholder will have the same basis in Surviving Corporation common stock received as a result of the reincorporation as that holder has in our common stock held at the time the reincorporation merger is consummated.  Each holder’s holding period in Surviving Corporation common stock received as a result of the reincorporation merger will include the period during which such holder held our common stock at the time the reincorporation merger is consummated, provided the latter was held by such holder as a capital asset at the time of consummation of the reincorporation merger.

 

This Proxy Statement only discusses U.S. federal income tax consequences and has done so only for general information.  It does not address all of the U.S. federal income tax consequences that may be relevant to particular stockholders based upon individual circumstances or to stockholders who are subject to special rules, such as financial institutions, tax-exempt organizations, insurance companies, dealers in securities, foreign holders or holders who acquired their shares as compensation, whether through employee stock options or otherwise.  This Proxy Statement does not address the tax consequences under state, local or foreign laws.

This discussion is based on the Internal Revenue Code, laws, regulations, rulings and decisions in effect as of the date of this Proxy Statement, all of which are subject to differing interpretations and change, possibly with retroactive effect.  The Company has neither requested nor received a tax opinion from legal counsel or rulings from the Internal Revenue Service regarding the consequences of reincorporation.  There can be no assurance that future legislation, regulations, administrative rulings or court decisions would not alter the consequences discussed above.

You should consult your own tax advisor to determine the particular tax consequences to you of the reincorporation merger, including the applicability and effect of U.S. federal, state, local, foreign and other tax laws.

Securities Act Consequences

The shares of Surviving Corporation common stock to be issued in exchange for shares of our common stock are not being registered under the Securities Act of 1933, as amended (the “Securities Act”).  In that respect, the Surviving Corporation is relying on Rule 145(a)(2) under the Securities Act, which provides that a merger that has as its sole purpose a change in a corporation’s domicile does not involve the sale of securities for purposes of the Securities Act.  After the reincorporation merger, the Surviving Corporation will be a publicly held company, and it will file with the SEC and provide to its stockholders the same type of information that we have previously filed and provided.  Stockholders, whose shares of our common stock are freely tradable before the reincorporation merger, will continue to have freely tradable shares of Surviving Corporation common stock.  Stockholders holding restricted shares of Surviving Corporation common stock will be subject to the same restrictions on transfer as those to which their present shares of our common stock are subject.  In summary, the Surviving Corporation and its stockholders will be in the same respective positions under the federal securities laws after the reincorporation merger as the Company and our stockholders prior to the reincorporation merger.

No Exchange of Stock Certificates Required

Stockholders are not required to exchange their stock certificates for new certificates representing shares of Surviving Corporation common stock.  New stock certificates representing shares of Surviving Corporation common stock will not be issued to a stockholder until such stockholder submits one or more existing certificates for transfer, whether pursuant to sale or other disposition.  However, stockholders (at their option and at their expense) may exchange their stock certificates for new certificates representing shares of Surviving Corporation common stock following the effective time of the reincorporation merger.

Accounting Treatment of the Reincorporation Merger

The reincorporation merger will be accounted for as a reverse merger whereby, for accounting purposes, the Company will be considered the accounting acquiror and the Surviving Corporation will be treated as the successor to the historical operations of the Company.  Accordingly, the historical financial statements of the Company, which previously have been reported to the SEC on Forms 10-K and 10-Q, among others, as of and for all periods through the date of this Proxy Statement, will be treated as the financial statements of the Surviving Corporation.

THE REINCORPORATION MERGER AGREEMENT

The following is a summary of the material terms of the reincorporation merger agreement.  The description in this section and elsewhere in this Proxy Statement is qualified in its entirety by reference to the complete text of the Agreement and Plan of Merger attached to this Proxy Statement as Annex A and 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 reincorporation merger agreement that is important to you.  We encourage you to read the reincorporation merger agreement carefully and in its entirety because it is the legal document that governs the reincorporation merger.

 

 

Overview of Reincorporation Merger Agreement

The reincorporation merger agreement provides that we will merge with and into NewCo, with NewCo surviving the merger.  Pursuant to the reincorporation merger agreement, the Surviving Corporation will assume all assets and liabilities of the Company, including obligations under our outstanding indebtedness and contracts.  Our existing Board and officers will be the board of directors and officers of the Surviving Corporation for identical terms of office.

At the effective time of the reincorporation merger, each outstanding share of our common stock will automatically be converted into one share of Surviving Corporation common stock.  You will not have to exchange your existing stock certificates of the Company for stock certificates of the Surviving Corporation.  However, after consummation of the reincorporation merger, any stockholder desiring a new form of stock certificate (at their option and at their expense) may submit the existing stock certificate to the Surviving Corporation’s transfer agent for cancellation and obtain a new Nevada form of certificate.

The reincorporation merger agreement was unanimously approved and adopted by our Board, the board of NewCo and by the Company as the sole stockholder of NewCo.  The reincorporation merger agreement and the reincorporation merger are subject to approval by the affirmative vote of holders of a majority of the outstanding shares of our common stock at the special meeting and the reincorporation merger cannot be effectuated until we have received all prior approvals required under gaming laws and regulations.

Termination; Effects on the Company if Reincorporation Merger Is Not Completed

The reincorporation merger agreement may be terminated and abandoned by action of our Board at any time prior to the effective time of the reincorporation merger, if our Board determines for any reason, in its sole judgment and discretion, that the consummation of the reincorporation merger would be inadvisable or not in the best interests of the Company and our stockholders.

 

If our stockholders do not adopt the reincorporation merger agreement or if the reincorporation merger agreement is terminated by the Company in accordance with its terms, the shares and other securities of our stockholders will not be converted to shares or other securities of the Surviving Corporation.  Instead, we will remain a Delaware corporation, and our stockholders will continue to be subject to the same rights as they currently are with respect to their ownership of our common stock under the DGCL and the Current Charter and Current Bylaws.

 

Conversion of Common Stock and Other Securities

At the date and time that the reincorporation merger becomes effective (the “effective time”), holders of our common stock, options and other securities immediately prior to the effective time will be entitled to the same number of shares of common stock, options and other securities of the Surviving Corporation as they held of the Company immediately prior to the effective time.  The reincorporation merger agreement provides that, at the effective time,

 

 

Following the consummation of the reincorporation merger, the authorized capital stock of the Surviving Corporation will consist of 200,000,000 shares of Common Stock, par value $.001 and 2,000,000 shares of preferred stock, par value $.001.  Our authorized capital stock currently consists of 199,300,000 shares of Class A Common Stock, par value $.01 per share; 700,000 shares of Class B Nonvoting Common Stock, par value $0.01; and 2,000,000 shares of preferred stock, par value $1.00 per share.  No shares of preferred stock or Class B Nonvoting Common Stock are currently outstanding.

Conditions to the Reincorporation Merger

The respective obligation of the Company and NewCo to effectuate the reincorporation merger is subject to satisfaction of the following conditions:

We, as the sole stockholder of NewCo, have approved the reincorporation merger agreement.  As a result, no further stockholder approval is required from NewCo.

Effective Time

It is anticipated that the reincorporation merger, and consequently our reincorporation from Delaware to Nevada, will become effective at the date and time specified in each of (i) the Articles of Merger to be executed and filed with the office of the Nevada Secretary of State in accordance with NRS 92A.200 and (ii) the Certificate of Merger to be executed and filed with the Office of the Secretary of State of Delaware in accordance with Section 252 of the DGCL.

NO APPRAISAL RIGHTS

Appraisal rights are statutory rights that, if applicable under law, enable stockholders to dissent from an extraordinary transaction, such as a merger, and to demand that the corporation pay the fair value for their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to stockholders in connection with the extraordinary transaction.  Appraisal rights are not available in all circumstances, and exceptions to these rights are provided under the DGCL.

Section 262 of the DGCL provides that stockholders have the right, in some circumstances, to dissent from certain corporate actions and to instead demand payment of the fair value of their shares.  Stockholders do not have appraisal rights with respect to shares of any class or series of stock if, at the record date for the meeting held to approve such transaction, such shares of stock, or depositary receipts in respect thereof, are either (i) listed on a national securities exchange or (ii) held of record by more than 2,000 holders, unless the stockholders receive in exchange for their shares anything other than shares of stock of the surviving or resulting corporation (or depositary receipts in respect thereof), or of any other corporation that is listed on a national securities exchange or held by more than 2,000 holders of record, cash in lieu of fractional shares or fractional depositary receipts described above or any combination of the foregoing.  In addition, neither the Current Charter nor the Current Bylaws contain any additional provisions relating to dissenters’ rights of appraisal.  Therefore, because our common stock is listed on The NASDAQ Stock Market, and holders of our common stock will receive in the reincorporation merger only shares of Surviving Corporation common stock, which will be listed on The NASDAQ Stock Market, holders of our common stock will not be entitled to appraisal rights in the reincorporation merger with respect to their shares of our common stock.

 

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR”

THE ADOPTION OF THE REINCORPORATION MERGER AGREEMENT

PROPOSAL 2

AUTHORITY TO ADJOURN THE SPECIAL MEETING

If, at the special meeting of stockholders, our Board determines it is necessary or appropriate to adjourn the special meeting, we intend to move to adjourn the special meeting.  For example, our Board may make such a determination if the number of shares of our common stock represented and voting in favor of the proposal to adopt the reincorporation merger agreement at the special meeting is insufficient to adopt that proposal under the DGCL, in order to enable our Board to solicit additional votes in respect of such proposal.  If our Board determines that it is necessary or appropriate, we will ask our stockholders to vote only upon the proposal to adjourn the special meeting, and not the proposal to adopt the reincorporation merger agreement.

In this proposal, we are asking you to authorize our Board to adjourn the special meeting to another place, date or time if our Board believes adjournment is necessary or appropriate.  If the stockholders approve the proposal to adjourn the special meeting, we could adjourn the special meeting and use the additional time to solicit additional votes, including the solicitation of votes from stockholders that have previously voted.  Among other things, approval of the proposal to adjourn the special meeting could mean that, even if we had received proxies representing a sufficient number of votes against the proposal to adopt the reincorporation merger agreement to defeat that proposal, we could adjourn the special meeting without a vote on the proposal to adopt the reincorporation merger agreement and seek to convince the holders of those shares to change their votes to votes in favor of the proposal to adopt the reincorporation merger agreement.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR”

THE AUTHORITY TO ADJOURN THE SPECIAL MEETING

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as to the security ownership of each person known to us to be the beneficial owner of more than 5% of the outstanding shares of our common stock, each of our directors, our director nominee, each of our named executive officers, and all of our directors and executive officers as a group. The number of shares and the percentages of beneficial ownership set forth below are calculated as of October 17, 2017 based on outstanding shares of 89,636,895. Except as otherwise indicated, the stockholders listed in the table below have sole voting and investment power with respect to the shares indicated.

 

---

* Represents less than 1% of the outstanding shares of common stock.

 

 

 

 

(6)	Based on an amendment to Schedule 13G filed with the SEC on January 27, 2017 by BlackRock, Inc., reporting beneficial ownership as of December 31, 2016. The Schedule 13G states that BlackRock, Inc. has sole voting power with respect to 5,681,995 shares and sole dispositive power with respect to 5,799,787 shares.
(7)	Based on an amendment to Schedule 13G filed with the SEC on February 14, 2017 by Nantahala Capital Management, LLC, Mr. Wilmot B. Harkey and Mr. Daniel Mack, reporting beneficial ownership as of December 31, 2016. The amendment to Schedule 13G states that each such person has shared voting and dispositive power with respect to 5,784,889 shares.
(8)	Based on a Schedule 13G filed with the SEC on February 13, 2017 by The Vanguard Group, reporting beneficial ownership as of December 31, 2016. The Schedule 13G states that The Vanguard Group has sole voting power with respect to 102,154 shares, shared voting power with respect to 4,800 shares, sole dispositive power with respect to 4,532,742 shares and shared dispositive power with respect to 104,654 shares.
(9)	Includes the 34,575,736 shares reported in footnote 2 above, which may be deemed to be beneficially owned by Mr. Perelman, the Chairman, Chief Executive Officer and sole stockholder of MacAndrews & Forbes Incorporated. Mr. Perelman’s address is 35 East 62nd Street, New York, New York 10065.
(10)	Includes 269,845 shares issuable upon exercise of stock options and 58,665 shares issuable upon vesting of RSUs as to which the equivalent number of underlying shares may be acquired through exercise or conversion within 60 days of October 17, 2017.

OTHER MATTERS

We are not aware of any matter other than those described in this Proxy Statement that will be acted upon at the special meeting. In the event that any other matter properly comes before the meeting for a vote of stockholders, the persons named as proxies in the enclosed form of proxy will vote in accordance with their best judgment on such other matter.

We will pay the costs of proxy solicitation. Proxies are being solicited primarily by mail, but, in addition, our officers and employees may solicit proxies in person, by telephone or electronically.

STOCKHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING

Pursuant to Rule 14a‑8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), if a stockholder wants to submit a proposal for inclusion in our proxy materials for the next annual meeting of stockholders, it must be received at our principal executive offices, 6601 Bermuda Road, Las Vegas, NV 89119, Attention: Corporate Secretary, not later than January 1, 2018. In order to avoid controversy, stockholders should submit proposals by such means, including electronic means, which permit them to prove the date of delivery.

If a stockholder intends to present a proposal for consideration at the next annual meeting outside of the processes of Rule 14a-8 under the Exchange Act, we must receive notice of such proposal at the address given above by March 17, 2018, or such notice will be considered untimely under Rule 14a-4(c)(1) under the Exchange Act, and our proxies will have discretionary voting authority with respect to such proposal, if presented at the annual meeting, without including information regarding such proposal in our proxy materials.

The deadlines described above are calculated by reference to the mailing date of the proxy materials for this year’s annual meeting. If the Board changes the date of next year’s annual meeting by more than 30 days, the Board will, in a timely manner, inform stockholders of such change and the effect of such change on the deadlines given above by including a notice in our Annual Report on Form 10-K, our quarterly reports on Form 10-Q, a current report on Form 8-K or by any other means reasonably calculated to inform the stockholders.

Your cooperation in giving this matter your immediate attention and in returning your proxy promptly will be appreciated.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and current reports, proxy statements and other information with the SEC.  You may read and copy any document we file at the SEC public reference room located at 100 F Street, N.E., Washington, D.C. 20549.  Please call the SEC at 1-800-SEC-0330 for further information on the public reference room.  Our SEC filings are also available to the public at the SEC website at www.sec.gov. You also may obtain free copies of the documents we file with the SEC, including this Proxy Statement, by going to the Investors link of our corporate website at www.scientificgames.com.  Our website address is provided as an inactive textual reference only.  The information provided on our website, other than copies of the documents listed below that have been filed with the SEC, is not part of this Proxy Statement, and therefore is not incorporated herein by reference.

Statements contained in this Proxy Statement, or in any document incorporated by reference in this Proxy Statement regarding the contents of any contract or other document, are not necessarily complete and each such statement is qualified in its entirety by reference to that contract or other document filed as an exhibit with the SEC.  The SEC allows us to “incorporate by reference” into this Proxy Statement documents we file with the SEC.  This means that we can disclose important information to you by referring you to those documents.  The information incorporated by reference is considered to be a part of this Proxy Statement, and later information that we file with the SEC will update and supersede that information.  We incorporate by reference the documents listed below and any documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy Statement and before the date of the special meeting.

Notwithstanding the foregoing, information furnished under Items 2.02 and 7.01 of any Current Report on Form 8-K, including the related exhibits, is not incorporated by reference into this Proxy Statement.

THIS PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH PROXY SOLICITATION IN THAT JURISDICTION.  YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT TO VOTE YOUR SHARES OF OUR COMMON STOCK AT THE SPECIAL MEETING.  WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT.  THIS PROXY STATEMENT IS DATED OCTOBER 20, 2017.  YOU SHOULD NOT ASSUME 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 TO STOCKHOLDERS DOES NOT CREATE ANY IMPLICATION TO THE CONTRARY.

ANNEX A

This AGREEMENT AND PLAN OF MERGER (this “Agreement”), dated as of September 18, 2017, is entered into between Scientific Games Corporation, a Delaware corporation (the “Company”), and SG Nevada Merger Company, a Nevada corporation and a wholly owned subsidiary of the Company (“NewCo”).

WHEREAS, the Company, whose shares of common stock are registered pursuant to Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), desires to reincorporate as a Nevada corporation and has formed NewCo in order to effectuate the reincorporation.

WHEREAS, the board of directors of each of the Company and NewCo deems it advisable, fair to and in the best interests of such corporations and their respective stockholders that the Company be merged with and into NewCo, upon the terms and subject to the conditions herein stated, and that NewCo be the surviving corporation (the “Reincorporation Merger”).

NOW, THEREFORE, in consideration of the premises and the agreements of the parties hereto contained herein, intending to be legally bound, the parties hereto agree as follows:

ARTICLE I

SECTION 1.1.  The Reincorporation Merger.  Upon the terms and subject to the conditions set forth in this Agreement, at the Effective Time (as defined in Section 1.2), the Company shall be merged with and into NewCo whereupon the separate existence of the Company shall cease.  NewCo shall be the surviving corporation (the “Surviving Corporation”) in the Reincorporation Merger and shall continue to be a corporation formed under the laws of the State of Nevada.  The Reincorporation Merger shall have the effects specified in the General Corporation Law of the State of Delaware, as amended (the “DGCL”) and the Nevada Revised Statutes, as amended (the “NRS”), and the Surviving Corporation shall succeed, without other transfer, to all of the assets and property (whether real, personal or mixed), rights, privileges, franchises, immunities and powers of the Company, and shall assume and be subject to all of the liabilities, obligations and restrictions of every kind and description of the Company, including, without limitation, all outstanding indebtedness of the Company.

SECTION 1.2.  Effective Time.  Unless this Agreement is terminated or abandoned in accordance with its terms, as soon as practicable following the satisfaction of the conditions set forth in Article V in accordance with the terms of this Agreement, the Company and NewCo shall cause Articles of Merger to be executed and filed with the Office of the Secretary of State of Nevada (the “Nevada Articles of Merger”) and a Certificate of Merger to be executed and filed with the Office of the Secretary of State of Delaware (the “Delaware Certificate of Merger”).  The Reincorporation Merger shall become effective upon the date and time specified in the Nevada Articles of Merger and the Delaware Certificate of Merger (the “Effective Time”).

ARTICLE II

SECTION 2.1.  The Articles of Incorporation.  The articles of incorporation of NewCo in effect at the Effective Time shall be amended and restated as set forth on Exhibit A hereto, including to change the name of the Surviving Corporation to “Scientific Games Corporation”, and such amended and restated articles shall be the articles of incorporation of the Surviving Corporation (such articles of incorporation, as so amended and restated, the “Articles of Incorporation”), until thereafter amended in accordance with the provisions provided therein or applicable law.  Following the amendment and restatement of the Articles of Incorporation, the Certificate of Designation of Series A Junior Participating Preferred Stock in the form attached as Exhibit B hereto (the “Certificate of Designation”) shall be filed with the Office of the Secretary of State of Nevada.

SECTION 2.2.  The Bylaws.  Subject to the provisions of applicable laws, the bylaws of NewCo in effect at the Effective Time shall be the bylaws of the Surviving Corporation (the “Bylaws”), until thereafter amended in accordance with the provisions provided therein or applicable law.

ARTICLE III

SECTION 3.1.  Officers.  The officers of the Company at the Effective Time shall, from and after the Effective Time, become the officers of the Surviving Corporation, until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Articles of Incorporation and the Bylaws.

SECTION 3.2.  Directors.  The board of directors of the Surviving Corporation effective as of, and immediately following, the Effective Time shall consist of all of the directors of the Company immediately prior to the Effective Time, each to serve in such capacity until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Articles of Incorporation and the Bylaws.

SECTION 3.3.  Committees.  Each committee of the board of directors of the Company existing immediately prior to the Effective time shall, effective as of, and immediately following, the Effective Time, become a committee of the board of directors of the Surviving Corporation, consisting of the members of such committee of the Company immediately prior to the Effective Time and governed by the charter of such committee of the Company in existence immediately prior to the Effective Time, which charter shall, at the Effective Time, become the charter of such committee of the Surviving Corporation except that the governing law thereof shall be, from and after the Effective Time, the law of Nevada.  Each member of a committee of the board of directors of the Surviving Corporation shall serve in such capacity until his or her successor has been duly elected or appointed and qualified or until his or her earlier death, resignation or removal in accordance with the applicable committee charter and the Bylaws.

SECTION 3.4.  Corporate Policies. The corporate policies of the Surviving Corporation, including, without limitation, its code of business conduct, corporate governance guidelines, conflict policies and director independence guidelines, effective as of, and immediately following, the Effective Time shall consist of the corporate policies, including, without limitation, the code of business conduct, corporate governance guidelines, conflict policies and director independence guidelines, of the Company immediately prior to the Effective Time.

ARTICLE IV

SECTION 4.1.  Effect of Merger on Capital Stock.  At the Effective Time, as a result of the Reincorporation Merger and without any action on the part of the Company, NewCo or the stockholders of the Company:

SECTION 4.2.  Certificates.  At and after the Effective Time, all of the outstanding certificates which immediately prior thereto represented shares of Company Common Stock (other than shares canceled pursuant to Section 4.1(d) of this Agreement), or options, warrants or other securities of the Company shall be deemed for all purposes to evidence ownership of and to represent a number of shares of Surviving Corporation Common Stock equal to the number of shares of Company Common Stock represented thereby or that were acquirable pursuant to such options, warrants or other securities of the Surviving Corporation, as the case may be, into which the shares of Company Common Stock, or options, warrants or other securities of the Company represented by such certificates shall have been converted as herein provided and shall be so registered on the books and records of the Surviving Corporation or its transfer agent.  The registered owner of any such outstanding certificate shall, until such certificate shall have been surrendered for transfer or otherwise accounted for to the Surviving Corporation or its transfer agent, have and be entitled to exercise any voting and other rights with respect to, and to receive any dividends and other distributions upon, the shares of Surviving Corporation Common Stock or options, warrants or other securities of the Surviving Corporation, as the case may be, evidenced by such outstanding certificate, as above provided.

ARTICLE V

SECTION 5.1.  Conditions to the Obligations of Each Party.  The respective obligation of each party hereto to effectuate the Reincorporation Merger is subject to satisfaction of the following conditions:

ARTICLE VI

SECTION 6.1.  Termination.  This Agreement may be terminated and the Reincorporation Merger may be abandoned at any time prior to the Effective Time, whether before or after the adoption of this Agreement by the holders of Company Common Stock referred to in Section 5.1, if the board of directors of the Company determines for any reason that the consummation of the Reincorporation Merger would be inadvisable or not in the best interests of the Company and its stockholders.  In the event of the termination and abandonment of this Agreement, this Agreement shall become null and void and have no effect, without any liability on the part of either the Company or NewCo, or any of their respective stockholders, directors or officers.

ARTICLE VII

SECTION 7.1.  Modification or Amendment.  Subject to the provisions of applicable laws, at any time prior to the Effective Time, the parties hereto may modify or amend this Agreement; provided, however, that an amendment made subsequent to the adoption of this Agreement by the holders of Company Common Stock shall not (a) alter or change the amount or kind of shares and/or rights to be received in exchange for or on conversion of all or any of the shares of the Company, (b) alter or change any provision of the Articles of Incorporation or the bylaws of the Surviving Corporation that will become effective immediately following the Reincorporation Merger other than as provided herein or (c) alter or change any of the terms or conditions of this Agreement if such alteration or change would adversely affect the holders of capital stock of either of the parties hereto.

SECTION 7.2.  Counterparts.  This Agreement may be executed in any number of counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement.

SECTION 7.3.  Governing Law.  This Agreement shall be deemed to be made in and in all respects shall be interpreted, construed and governed by and in accordance with the laws of the State of Nevada, without regard to the conflicts of law principles thereof to the extent that such principles would direct a matter to another jurisdiction.

SECTION 7.4.  Entire Agreement.  This Agreement constitutes the entire agreement and supersedes all other prior agreements, understandings, representations and warranties both written and oral, among the parties, with respect to the subject matter hereof.

SECTION 7.5.  No Third Party Beneficiaries.  This Agreement is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder.

SECTION 7.6.  Severability.  The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.  If any provision of this Agreement, or the application thereof to any person or any circumstance, is determined by any court or other authority of competent jurisdiction to be invalid or unenforceable, (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.

SECTION 7.7.  Headings.  The headings herein are for convenience of reference only, do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof.

[Signature page follows]

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officers of the parties hereto as of the date first written above.

 

 

 

 

 

 

 

 

 

 

 

 

[Signature Page to Agreement and Plan of Merger]

 

 

 

 

CERTIFICATE OF

AMENDED AND RESTATED ARTICLES OF INCORPORATION

OF

SG NEVADA MERGER COMPANY

Pursuant to the provisions of Nevada Revised Statutes 78.390 and 78.403, the undersigned officer of SG Nevada Merger Company, a Nevada corporation, does hereby certify as follows:

AMENDED AND RESTATED ARTICLES OF INCORPORATION

OF SCIENTIFIC GAMES CORPORATION

The name of the corporation is Scientific Games Corporation (the “Corporation”).

The Corporation may, from time to time, in the manner provided by law, change the registered agent and registered office within the State of Nevada.  The Corporation may also maintain an office or offices for the conduct of its business, either within or without the State of Nevada.

The Corporation is formed for the purpose of engaging in any lawful activity for which corporations may be organized under the laws of the State of Nevada.

 

 

 

 

In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to adopt, amend or repeal the bylaws of the Corporation (as amended from time to time, the “Bylaws”).  Elections of directors need not be by written ballot unless the Bylaws shall so provide.  Meetings of stockholders may be held within or without the State of Nevada, as the Bylaws provide.  The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Nevada at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws.

 

 

 

The Corporation reserves the right to amend, alter, change or repeal any provision contained in these Articles of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.

To enable the Corporation or any Affiliate (as such term is hereinafter defined) thereof to secure and maintain in good standing all licenses, contracts, franchises, permits,  registrations, findings of suitability, exemptions, waivers and other regulatory approvals related to the ownership, control, conduct or operation of gaming and related activities now or hereafter engaged in by the Corporation or any Affiliate thereof within or without the United States of America (collectively, “Gaming Licenses”), the following provisions shall apply:

 

 

 

 

 

 

Notwithstanding anything to the contrary in these Articles of Incorporation or the Bylaws, the Corporation is hereby specifically allowed to make any distribution that otherwise would be prohibited by NRS 78.288(2)(b).

 

IN WITNESS WHEREOF, the undersigned officer has executed this Certificate of Amended and Restated Articles of Incorporation of Scientific Games Corporation as of ___________, 20__.

 

 

CERTIFICATE OF DESIGNATION

of

SERIES A JUNIOR PARTICIPATING PREFERRED STOCK

of

SCIENTIFIC GAMES CORPORATION

(Pursuant to Section 78.1955 of the Nevada Revised Statutes)

Scientific Games Corporation, a corporation organized and existing under the laws of the State of Nevada (the “Corporation”), in accordance with the provisions of Nevada Revised Statutes (“NRS”) 78.195 and 78.1955, DOES HEREBY CERTIFY:

That pursuant to the authority vested in the Board of Directors of the Corporation (the “Board of Directors”) in accordance with the provisions of the Amended and Restated Articles of Incorporation of the Corporation, as filed with the Secretary of State of the State of Nevada on _______, 201_ (as heretofore amended and as may be amended and/or restated from time to time, the “Articles of Incorporation”), the Board of Directors adopted the following resolution creating a series of 20,000 shares of preferred stock of the Corporation designated as “Series A Junior Participating Preferred Stock”:

RESOLVED, that pursuant to the authority vested in the Board of Directors by the Articles of Incorporation and by the provisions of NRS 78.195 and 78.1955, the Board of Directors hereby establishes a series of preferred stock, par value $1.00 per share, of the Corporation and hereby sets forth the powers, designations, preferences and relative, participating, optional and other special rights, and the qualifications, limitations and restrictions thereof, of such series of preferred stock and the number of shares of such series (in addition to any provisions set forth in the Articles of Incorporation applicable to the preferred stock of all series), as set forth as follows:

(i)  Subject to the prior and superior rights of the holders of any shares of any class or series of stock of the Corporation ranking prior and superior to the shares of Series A Junior Participating Preferred Stock with respect to dividends, the holders of shares of Series A Junior Participating Preferred Stock, in preference to the holders of shares of any class or series of stock of the Corporation ranking junior to the Series A Junior Participating Preferred Stock in respect thereof, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the last day of March, June, September and December in each year (each such date being referred to herein as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Junior Participating Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $10.00 and (b) the sum of (1) the Adjustment Number (as defined below) times the aggregate per share amount of all cash dividends plus (2) the Adjustment Number times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock, par value $0.001 per share, of the Corporation (the “Common Stock”), or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), in each case declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Junior Participating Preferred Stock.  The “Adjustment Number” shall initially be 10,000.  In the event the Corporation shall at any time after _______, 201_ (i) declare and pay any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

 

(ii)  The Corporation shall declare a dividend or distribution on the Series A Junior Participating Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock).

(iii)  Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Junior Participating Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Junior Participating Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date; in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date.  Accrued but unpaid dividends shall not bear interest.  Dividends paid on the shares of Series A Junior Participating Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding.  The Board of Directors may fix a record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than sixty (60) days prior to the date fixed for the payment thereof.

(i)  Each share of Series A Junior Participating Preferred Stock shall entitle the holder thereof to a number of votes equal to the Adjustment Number on all matters submitted to a vote of the stockholders of the Corporation.  Except as otherwise provided herein, in another certificate of designation authorizing a series of preferred stock, par value $1.00 per share, of the Corporation or as required by law, the holders of shares of Series A Junior Participating Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of the stockholders of the Corporation.

(ii)  Except as required by law, by the Articles of Incorporation and by Section 10 hereof, holders of Series A Junior Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action.

(i)  declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock other than (A) such redemptions or purchases that may be deemed to occur upon the exercise of stock options, warrants or similar rights or grant, vesting or lapse of restrictions on the grant of any other performance shares, restricted stock, restricted stock units or other equity awards to the extent that such shares represent all or a portion of (x) the exercise or purchase price of such options, warrants or similar rights or other equity awards and (y) the amount of withholding taxes owed by the recipient of such award in respect of such grant, exercise, vesting or lapse of restrictions; (B) the repurchase, redemption, or other acquisition or retirement for value of any such shares from employees, former employees, directors, former directors, consultants or former consultants of the Corporation or their respective estate, spouse, former spouse or family member, pursuant to the terms of the agreements pursuant to which such shares were acquired;

 

(ii)  declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock, except dividends paid ratably on the Series A Junior Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; or

(iii)  purchase or otherwise acquire for consideration any shares of Series A Junior Participating Preferred Stock, or any shares of stock ranking on a parity with the Series A Junior Participating Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of Series A Junior Participating Preferred Stock, or to such holders and holders of any such shares ranking on a parity therewith, upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine will result in fair and equitable treatment among the respective series or classes.

(iv)  The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner.

(i)  In the event, however, that there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other classes and series of stock of the Corporation, if any, that rank on a parity with the Series A Junior Participating Preferred Stock in respect thereof, then the assets available for such distribution shall be distributed ratably to the holders of the Series A Junior Participating Preferred Stock and the holders of such parity shares in proportion to their respective liquidation preferences.

(ii)  Neither the merger or consolidation of the Corporation into or with another entity nor the merger or consolidation of any other entity into or with the Corporation shall be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this Section 6.

 

 

IN WITNESS WHEREOF, the undersigned has executed this Certificate of Designation this ___ day of ___________, 201_.

 

 

 

	SCIENTIFIC GAMES CORPORATION
	By:
		Name:
		Title:

 

 

ANNEX B

CERTIFICATE OF

AMENDED AND RESTATED ARTICLES OF INCORPORATION

OF

SG NEVADA MERGER COMPANY

Pursuant to the provisions of Nevada Revised Statutes 78.390 and 78.403, the undersigned officer of SG Nevada Merger Company, a Nevada corporation, does hereby certify as follows:

AMENDED AND RESTATED ARTICLES OF INCORPORATION

OF SCIENTIFIC GAMES CORPORATION

The name of the corporation is Scientific Games Corporation (the “Corporation”).

The Corporation may, from time to time, in the manner provided by law, change the registered agent and registered office within the State of Nevada.  The Corporation may also maintain an office or offices for the conduct of its business, either within or without the State of Nevada.

The Corporation is formed for the purpose of engaging in any lawful activity for which corporations may be organized under the laws of the State of Nevada.

 

 

 

In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to adopt, amend or repeal the bylaws of the Corporation (as amended from time to time, the “Bylaws”).  Elections of directors need not be by written ballot unless the Bylaws shall so provide.  Meetings of stockholders may be held within or without the State of Nevada, as the Bylaws provide.  The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Nevada at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws.

The Corporation reserves the right to amend, alter, change or repeal any provision contained in these Articles of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.

To enable the Corporation or any Affiliate (as such term is hereinafter defined) thereof to secure and maintain in good standing all licenses, contracts, franchises, permits,  registrations, findings of suitability, exemptions, waivers and other regulatory approvals related to the ownership, control, conduct or operation of gaming and related activities now or hereafter engaged in by the Corporation or any Affiliate thereof within or without the United States of America (collectively, “Gaming Licenses”), the following provisions shall apply:

(A)               All Securities (as hereinafter defined) shall be held subject to all applicable Gaming Laws (as hereinafter defined) and the suitability standards, qualifications and requirements of the Gaming Authorities (as hereinafter defined) that regulate the operation and conduct of the businesses of the Corporation or any Affiliate thereof and in accordance with the requirements of all applicable Gaming Laws. Any person (as hereinafter defined) owning or controlling Securities shall comply with all applicable Gaming Laws.  If any person that holds Securities of the Corporation is determined to be a Disqualified Holder (as hereinafter defined), then, if the Corporation so elects in its sole discretion (unless otherwise required by any Gaming Law or Gaming Authority):

 

 

 

Notwithstanding anything to the contrary in these Articles of Incorporation or the Bylaws, the Corporation is hereby specifically allowed to make any distribution that otherwise would be prohibited by NRS 78.288(2)(b).

IN WITNESS WHEREOF, the undersigned officer has executed this Certificate of Amended and Restated Articles of Incorporation of Scientific Games Corporation as of ___________, 20__.

 

 

ANNEX C

AMENDED AND RESTATED BYLAWS

OF

SCIENTIFIC GAMES CORPORATION

ARTICLE I

Offices, Corporate Seal