Swap Agreement-Re: Convertible Bond Hedge Transaction

 

 

Exhibit 10.7

Opening Transaction

Dear Sir(s):

The purpose of this communication (this “ Confirmation ”) is to set forth the terms and conditions of the above-referenced transaction entered into on the Trade Date specified below (the “ Transaction ”) between The Royal Bank of Scotland plc acting through RBS Securities Inc., as its agent (“ Dealer ”) and International Game Technology (“ Counterparty ”).  This communication constitutes a “Confirmation” as referred to in the ISDA Master Agreement specified below.

1.

This Confirmation is subject to, and incorporates, the definitions and provisions of the 2006 ISDA Definitions (the “ 2006 Definitions ”) and the definitions and provisions of the 2002 ISDA Equity Derivatives Definitions (the “ Equity Definitions ”, and together with the 2006 Definitions, the “ Definitions ”), in each case as published by the International Swaps and Derivatives Association, Inc. (“ ISDA ”).  In the event of any inconsistency between the 2006 Definitions and the Equity Definitions, the Equity Definitions will govern.  Certain defined terms used herein have the meanings assigned to them in the Offering Circular dated May 5, 2009 (the “ Offering Circular ”) and the Indenture to be dated as of the closing date of the initial issuance of the convertible securities described below between Counterparty and Wells Fargo, National Association, as trustee (the “ Indenture ”), each relating to the USD725,000,000 principal amount of 3.25% convertible notes due May 1, 2014 (the “ Convertible Securities ”).  In the event of any inconsistency between the terms defined in the Indenture or defined in the Offering Circular and this Confirmation, this Confirmation shall govern.  For the avoidance of doubt, references herein to sections of the Indenture are based on the description of the Convertible Securities set forth in the Offering Circular.  If any relevant provisions of the Indenture differ in any material respect from those described in the Offering Circular, the parties will, if appropriate, amend this Confirmation in good faith to preserve the economic intent of the parties.  The parties further acknowledge that references to the Indenture herein are references to the Indenture as in effect on the date of its execution and if the Indenture is amended, modified or supplemented following its execution, any such amendment, modification or supplement will be disregarded for purposes of this Confirmation (other than Section 8(b)(ii) below) unless the parties agree otherwise in writing.  The Transaction is subject to early unwind if the closing of the Convertible Securities is not consummated for any reason, as set forth below in Section 8(k).

Each party is hereby advised, and each such party acknowledges, that the other party has engaged in, or refrained from engaging in, substantial financial transactions and has taken other material actions in

 

 

 

 

 

reliance upon the parties’ entry into the Transaction to which this Confirmation relates on the terms and conditions set forth below.

This Confirmation evidences a complete and binding agreement between Dealer and Counterparty as to the terms of the Transaction to which this Confirmation relates.  This Confirmation shall be subject to an agreement (the “ Agreement ”) in the form of the 1992 ISDA Master Agreement (Multicurrency—Cross Border) as if Dealer and Counterparty had executed an agreement in such form on the date hereof (but without any Schedule except for (i) the election of Loss and Second Method and US Dollars (“ USD ”) as the Termination Currency, (ii) the replacement of the word “third” in the last line of Section 5(a)(i) of the Agreement with the word “first”, (iii) the election that the “Cross Default” provisions of Section 5(a)(vi) of the Agreement shall apply to Counterparty with a “Threshold Amount” equal to USD25 million and to Dealer with a “Threshold Amount” equal to USD50 million; provided that Section 5(a)(vi)(1) of the Agreement is amended by deleting the phrase “, or becoming capable at such time of being declared,” and (iv) such other elections as set forth in this Confirmation).

All provisions contained in, or incorporated by reference to, the Agreement will govern this Confirmation except as expressly modified herein.  In the event of any inconsistency between this Confirmation and either the Definitions or the Agreement, this Confirmation shall govern.

The Transaction hereunder shall be the sole Transaction under the Agreement.  If there exists any ISDA Master Agreement between Dealer and Counterparty or any confirmation or other agreement between Dealer and Counterparty pursuant to which an ISDA Master Agreement is deemed to exist between Dealer and Counterparty, then notwithstanding anything to the contrary in such ISDA Master Agreement, such confirmation or agreement or any other agreement to which Dealer and Counterparty are parties, the Transaction shall not be considered a Transaction under, or otherwise governed by, such existing or deemed ISDA Master Agreement.

2.

The Transaction constitutes a Share Option Transaction for purposes of the Equity Definitions.  The terms of the particular Transaction to which this Confirmation relates are as follows:

General Terms:

Trade Date:

May 5, 2009

Effective Date:

The closing date of the initial issuance of the Convertible Securities.

Option Style:

Modified American, as described under “Procedures for Exercise” below.

Option Type:

Call

Seller:

Dealer

Buyer:

Counterparty

Shares:

The Common Stock of Counterparty, par value USD0.00015625 (Ticker Symbol: “IGT”).

Number of Options:

The number of Convertible Securities in denominations of USD1,000 principal amount, other than any Additional Convertible Securities (as defined below), issued by Counterparty on the closing date for the initial issuance of the Convertible Securities (such Convertible Securities, the “ Initial Convertible Securities ”); provided that the Number of Options shall be automatically increased as of the date of exercise by Goldman, Sachs & Co., as representative of the Purchasers (as defined in the

 

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Purchase Agreement), of the option pursuant to Section 2 of the Purchase Agreement dated May 5, 2009 between Counterparty and Goldman, Sachs & Co. as representative of the Purchasers party thereto (the “ Purchase Agreement ”) by the number of Convertible Securities in denominations of USD1,000 principal amount issued pursuant to such exercise (such Convertible Securities, the “ Additional Convertible Securities ”).

Applicable Percentage:

127/725 (the “ Specified Percentage ”); provided that if the Number of Options is increased pursuant to the proviso to the definition of “Number of Options” above, the Applicable Percentage shall thereafter equal the Specified Percentage multiplied by a fraction the numerator of which is the number of Initial Convertible Securities and the denominator of which is the sum of the number of Initial Convertible Securities and the number of Additional Convertible Securities.

Option Entitlement:

As of any date, a number of Shares per Option equal to the “Conversion Rate” (as defined in the Indenture as described in the Offering Circular under “Description of Notes — General”), but without regard to any adjustments to the Conversion Rate as set forth in the section of the Indenture containing the provision described in the Offering Circular under “Description of Notes — Make Whole upon Certain Transactions” (a “ Fundamental Change Adjustment ”) or a discretionary adjustment as set forth in the section of the Indenture containing the provisions described in the seventh to last paragraph in the Offering Circular under “Description of Notes — Conversion Rate Adjustments” ( i.e. , the paragraph beginning “We may also (but are not required to) increase…”)   (a “ Discretionary Adjustment ”).

Strike Price:

As of any date, an amount in USD, rounded to the nearest cent (with 0.5 cents being rounded upwards), equal to USD1,000 divided by the Option Entitlement as of such date.  

Number of Shares:

The product of the Number of Options, the Option Entitlement and the Applicable Percentage.

Premium:

USD26,497,178.38

Premium Payment Date:

The Effective Date

Exchange:

New York Stock Exchange

Related Exchange:

All Exchanges

Procedures for Exercise:

Exercise Date:

Each Conversion Date.

Conversion Date:

Each “Conversion Date” (as defined in the Indenture as described in the Offering Circular under “Description of Notes — Conversion Rate and

 

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Conversion Procedures”) occurring during the Exercise Period for Convertible Securities each in denominations of USD1,000 principal amount (such Convertible Securities, the “ Relevant Convertible Securities ” for such Conversion Date).

Exercise Period:

The period from and excluding the Effective Date to and including the Expiration Date.

Expiration Date:

The earlier of (i) the last day on which any Convertible Securities remain outstanding and (ii) the second “Scheduled Trading Day” (as defined in the Indenture as described in the Offering Circular under “Description of Notes — Settlement Upon Conversion”) immediately preceding the “Maturity Date” (as defined in the Indenture as described in the Offering Circular under “Description of Notes — General”).

Automatic Exercise on

Conversion Dates:

Applicable; and means that on each Conversion Date, a number of Options equal to the number of Relevant Convertible Securities for such Conversion Date in denominations of USD1,000 principal amount shall be automatically exercised, subject to “Notice of Exercise” below.

Notice Deadline:

In respect of any exercise of Options hereunder on any Conversion Date, 12:00 P.M., New York City time, on the Scheduled Trading Day immediately preceding the first “Scheduled Trading Day” (as defined in the Indenture as described in the Offering Circular under “Description of Notes — Settlement upon Conversion”) of the “Applicable Conversion Reference Period” (as defined in the Indenture as described in the Offering Circular under “Description of Notes — Settlement upon Conversion”); provided that in the case of any exercise of Options hereunder in connection with the conversion of any Relevant Convertible Securities for any Conversion Date occurring during the period from and including the 30 ^th “Scheduled Trading Day” (as defined in the Indenture as described in the Offering Circular under “Description of Notes — Settlement upon Conversion”) prior to the Maturity Date to and including the Expiration Date (such period, the “ Final Conversion Period ”), the Notice Deadline shall be 12:00 P.M., New York City time, on the “Scheduled Trading Day” (as defined in the Indenture as described in the Offering Circular under “Description of Notes — Settlement upon Conversion”) immediately following the relevant Exercise Date.

Notice of Exercise:

Notwithstanding anything to the contrary in the Equity Definitions, Dealer shall have no obligation to make any payment or delivery in respect of any

 

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exercise of Options hereunder and such obligation in respect of such exercise shall be permanently extinguished unless Counterparty notifies Dealer in writing prior to 12:00 P.M., New York City time, on the Notice Deadline in respect of such exercise of (i) the number of Relevant Convertible Securities being converted on the related Conversion Date, (ii) the scheduled settlement date under the Indenture for the Relevant Convertible Securities for such Conversion Date and (iii) the first “Scheduled Trading Day” of the “Applicable Conversion Reference Period” (each, as defined in the Indenture as described in the Offering Circular under “Description of Notes — Settlement upon Conversion”); provided that in the case of any exercise of Options in connection with the conversion of any Relevant Convertible Securities for any Conversion Date occurring during the Final Conversion Period, the contents of such notice shall be as set forth in clauses (i) and (ii) above.  For the avoidance of doubt, if Counterparty fails to give such notice when due in respect of any exercise of Options hereunder, Dealer’s obligation to make any payment or delivery in respect of such exercise shall be permanently extinguished, and late notice shall not cure such failure.

Dealer’s Telephone Number

and Telex and/or Facsimile Number

and Contact Details for purpose of

Giving Notice:

As specified in Section 6(b) below.

 

Settlement Terms:

Settlement Date:

For any Exercise Date, the settlement date for the Shares to be delivered in respect of the Relevant Convertible Securities for the relevant Conversion Date pursuant to the section of the Indenture containing the provisions described in the Offering Circular under “Description of Notes — Settlement upon Conversion”); provided that the Settlement Date shall not be prior to the Exchange Business Day immediately following the date Counterparty provides the Notice of Delivery Obligation prior to 12:00 P.M., New York City time.

Delivery Obligation:

In lieu of the obligations set forth in Sections 8.1 and 9.1 of the Equity Definitions, and subject to “Notice of Exercise” above, in respect of an Exercise Date, Dealer will deliver to Counterparty, on the related Settlement Date (the “ Delivery Obligation ”), a number of Shares equal to the product of (i) the Applicable Percentage and (ii) the aggregate number of Shares, if any, that Counterparty would be obligated to deliver to the holder(s) of the Relevant Convertible Securities for such Conversion Date (the “ Deliverable Shares ”) pursuant to the section of the Indenture described in the Offering Circular under

 

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“Description of Notes — Settlement upon Conversion” (except that such number of Deliverable Shares shall be determined without taking into consideration any rounding pursuant to the section of the Indenture described in the Offering Circular under “Description of Notes — Settlement upon Conversion” and shall be rounded down to the nearest whole number) and cash in lieu of fractional shares, if any, resulting from such rounding (collectively, the “ Convertible Obligation ”); provided that the Delivery Obligation shall be determined excluding any Shares (and cash in lieu of fractional Shares, if any) that Counterparty is obligated to deliver to holder(s) of the Relevant Convertible Securities as a direct or indirect result of any adjustments to the Conversion Rate pursuant to a Fundamental Change Adjustment or a Discretionary Adjustment and any interest payment that Counterparty is (or would have been) obligated to deliver to holder(s) of the Relevant Convertible Securities for such Conversion Date.  For the avoidance of doubt, if the “Daily Conversion Value” (as defined in the Indenture as described in the Offering Circular under “Description of Notes — Settlement upon Conversion”) for each of the “Trading Days” (as defined in the Indenture as described in the Offering Circular under “Description of Notes — Settlement upon Conversion”) occurring in the Applicable Conversion Reference Period is less than or equal to USD40, Dealer will have no delivery obligation hereunder in respect of the related Exercise Date.

Settlement Currency:

USD

Notice of Delivery Obligation:

No later than the Exchange Business Day immediately following the last day of the Applicable Conversion Reference Period, Counterparty shall give Dealer notice of the final number of Shares (and cash in lieu of fractional Shares, if any) comprising the relevant Convertible Obligation; provided that, with respect to any Exercise Date occurring during the Final Conversion Period, Counterparty may provide Dealer with a single notice of the aggregate number of Shares (and cash in lieu of fractional Shares) comprising the Convertible Obligations for all Exercise Dates occurring during such period (it being understood, for the avoidance of doubt, that the requirement of Counterparty to deliver such notice shall not limit Counterparty’s obligations with respect to Notice of Exercise, as set forth above, in any way).

Other Applicable Provisions:

To the extent Dealer is obligated to deliver Shares hereunder, the provisions of Sections 9.1(c), 9.8, 9.9, 9.10 and 9.11 of the Equity Definitions will be

 

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applicable as if “Physical Settlement” applied to the Transaction; provided that the Representation and Agreement contained in Section 9.11 of the Equity Definitions shall be modified by excluding any representations therein relating to restrictions, obligations, limitations or requirements under applicable securities laws that exist as a result of the fact that Counterparty is the issuer of the Shares.  

Restricted Certificated Shares:

Notwithstanding anything to the contrary in the Equity Definitions, Dealer may, in whole or in part, deliver Shares required to be delivered to Counterparty hereunder in certificated form in lieu of delivery through the Clearance System.  

Adjustments:

Method of Adjustment:

Notwithstanding Section 11.2 of the Equity Definitions, upon the occurrence of any event or condition set forth in the sections of the Indenture containing the provisions described in the Offering Circular under “Description of Notes — Conversion Rate Adjustments” other than any event or condition that would result in a Fundamental Change Adjustment or a Discretionary Adjustment or a Merger Event (as defined below) (each, an “ Adjustment Event ”), the Calculation Agent shall make the corresponding adjustment in respect of any one or more of the Number of Options, the Option Entitlement and any other variable relevant to the exercise, settlement,  payment or other terms of the Transaction, to the extent an analogous adjustment is made under the Indenture.  Immediately upon the occurrence of any Adjustment Event, Counterparty shall notify the Calculation Agent of such Adjustment Event; and once the adjustments to be made to the terms of the Indenture and the Convertible Securities in respect of such Adjustment Event have been determined, Counterparty shall immediately notify the Calculation Agent in writing of the details of such adjustments.

Dividends:

If at any time during the period from and including the Trade Date, to but excluding the Expiration Date, (i) an ex-dividend date for a regular quarterly cash dividend occurs with respect to the Shares (an “ Ex-Dividend Date ”), and that dividend is less than the Regular Dividend on a per Share basis or (ii) if no Ex-Dividend Date for a regular quarterly cash dividend occurs with respect to the Shares in any quarterly dividend period of Counterparty, then the Calculation Agent will make a corresponding adjustment to any one or more of the Strike Price, Number of Options, Option Entitlement and/or any other variable relevant to the exercise, settlement, payment or other terms of the Transaction to preserve the fair value of the Options to Dealer after taking into account such dividend or lack thereof.  “ Regular

 

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Dividend ” shall mean USD0.06 per Share per quarter.

Extraordinary Events:

Merger Events:

Notwithstanding Section 12.1(b) of the Equity Definitions, a “Merger Event” means the occurrence of any event or condition set forth in the section of the Indenture containing the provisions described in the third to last paragraph in the Offering Circular under “Description of Notes — Conversion Rate Adjustments” (i.e. the paragraph commencing with “In the event of: any reclassification…”).

Consequences of Merger Events:

Notwithstanding Section 12.2 of the Equity Definitions, upon the occurrence of a Merger Event, the Calculation Agent shall make the corresponding adjustment in respect of any adjustment under the Indenture to any one or more of the nature of the Shares, the Number of Options, the Option Entitlement and any other variable relevant to the exercise, settlement, payment or other terms of the Transaction, to the extent an analogous adjustment is made under the Indenture in respect of such Merger Event ; provided that no such adjustment shall be made to give effect to any adjustment to the Conversion Rate pursuant to a Fundamental Change Adjustment or a Discretionary Adjustment.

Notice of Merger Consideration and

Consequences:

Upon the occurrence of a Merger Event that causes the Shares to be converted into the right to receive more than a single type of consideration (determined based in part upon any form of stockholder election), Counterparty shall reasonably promptly (but in any event prior to the Merger Date) notify the Calculation Agent of (i) the type and amount of consideration that a holder of Shares would have been entitled to in the case of reclassifications, consolidations, mergers, sales or transfers of assets or other transactions that cause Shares to be converted into the right to receive more than a single type of consideration, (ii) the weighted average of the types and amounts of consideration to be received by the holders of Shares that affirmatively make such an election (or if no holders of Shares affirmatively make such an election, the types and amount of consideration actually received by such holders), and (iii) the details of the adjustment to be made under the Indenture in respect of such Merger Event.

Nationalization, Insolvency

or Delisting:

Cancellation and Payment (Calculation Agent Determination); provided that in addition to the provisions of Section 12.6(a)(iii) of the Equity Definitions, it will also constitute a Delisting if the Exchange is located in the United States and the Shares are not immediately re-listed, re-traded or re-

 

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quoted on any of the New York Stock Exchange, The NASDAQ Global Select Market or The NASDAQ Global Market (or their respective successors); if the Shares are immediately re-listed, re-traded or re-quoted on any such exchange or quotation system, such exchange or quotation system shall thereafter be deemed to be the Exchange.

Additional Termination Event(s):

Notwithstanding anything to the contrary in the Equity Definitions, if, as a result of an Extraordinary Event, any Transaction would be cancelled or terminated (whether in whole or in part) pursuant to Article 12 of the Equity Definitions, an Additional Termination Event (with such terminated Transaction(s) (or portions thereof) being the Affected Transaction(s) and Counterparty being the sole Affected Party) shall be deemed to occur, and, in lieu of Sections 12.7, 12.8 and 12.9 of the Equity Definitions, Section 6 of the Agreement shall apply to such Affected Transaction(s).

Additional Disruption Events:  

(a)

Change in Law:

Applicable; provided that (i) clause (Y) of Section 12.9(a)(ii) of the Equity Definitions shall not be applicable only to the extent as any event described therein results in an increased cost to Dealer of hedging the Transaction which increased cost would be included under “Increased Cost of Hedging” and (ii) in the event a Change in Law occurs in respect of Dealer pursuant to clause (Y) of Section 12.9(a)(ii) of the Equity Definitions (taking into account clause (i) of this proviso) and Dealer provides a notice of termination to Counterparty pursuant to Section 12.9(b)(i) of the Equity Definitions, Counterparty shall have the right to request, upon written notice delivered to Dealer prior to 5:00 P.M., New York City time, on the Scheduled Trading Day immediately prior to the date of termination specified in such notice, that Dealer propose an adjustment to the terms of the Transaction to account for the effect of such Change in Law on Dealer.  If Counterparty accepts Dealer’s proposed adjustment prior to 5:00 P.M., New York City time, on the second Scheduled Trading Day following the date such proposed adjustment is delivered, Dealer shall so adjust the Transaction and such event shall not constitute a Change in Law. However, if (x) Counterparty does not accept such proposed adjustment prior to such time or (y) Dealer determines, in its sole discretion, that no adjustment that it could make would produce a commercially reasonable result, then such event shall constitute a Change in Law and, in each case, Dealer shall have the right to specify a date of termination in accordance with Section 12.9(b)(i); provided that such date of termination may be any date on or after the later to occur of (A) the date of

 

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termination specified in the original notice delivered to Counterparty and (B) the date either of the events in clause (x) or (y) occurs.  

(b)

Failure to Deliver:

Applicable

(c)

Insolvency Filing:

Applicable

(d)

Hedging Disruption:

Applicable

(e)

Increased Cost of Hedging:

Applicable

Hedging Party:

Dealer for all applicable Additional Disruption Events.

Determining Party:

Dealer for all applicable Additional Disruption Events; provided that the Determining Party shall deliver, within five Exchange Business Days of a written request by the other party, a written explanation of any calculation made by it, and including, where applicable, the methodology and data applied, it being understood that the Determining Party shall not be obligated to disclose any proprietary models used by it for such calculation.

Non-Reliance:

Applicable

Agreements and Acknowledgments

Regarding Hedging Activities:

Applicable

Additional Acknowledgments:

Applicable

3.

Calculation Agent:

Dealer.  All calculations and determinations by the Calculation Agent shall be made in good faith and in a commercially reasonable manner.  The Calculation Agent shall deliver, within five Exchange Business Days of a written request by Counterparty, a written explanation of any calculation made by it, and including, where applicable, the methodology and data applied, it being understood that the Calculation Agent shall not be obligated to disclose any proprietary models used by it for such calculation.  

4.

Account Details :

Dealer Payment Instructions:

 

ABA

A/C Name:

Account:

 

RBS Securities then pays USD to RBS plc:

 

Swift

Correspondant Bank:

A/C NUMBER:

 

Counterparty Payment Instructions:

 

Bank ABA number:

Account name:

Account number:

 

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5.

Offices :

The Office of Dealer for the Transaction is:

600 Steamboat Road, Greenwich, CT 06830

 

The Office of Counterparty for the Transaction is:

9295 Prototype Drive, Reno, Nevada 89521

 

6.

Notices : For purposes of this Confirmation:

(a)

Address for notices or communications to Counterparty:

To:

International Game Technology

Attn:

Patrick W. Cavanaugh

Executive Vice President and Chief Financial Officer

9295 Prototype Drive

Reno, Nevada 89521

Telephone:

(775) 448-7778

Facsimile:

(775) 448-1488

 

(b)

Address for notices or communications to Dealer:

Address:

RBS Securities Inc.

600 Steamboat Road

Greenwich, CT 06830

Attention:

Legal Department (Tam Beattie)

Phone:

(203) 618-6086

Fax:

(203) 422-4571

Email:

Tamerlaine.Beattie @rbs.com

 

With a copy to:

 

The Royal Bank of Scotland plc

c/o RBS Global Banking & Markets

280 Bishopsgate

London EC2M 4RB

Attention: Swap Administration

Fax: +44 (0) 20 7085 5050

 

7.

Representations, Warranties and Agreements :

(a)

In addition to the representations and warranties in the Agreement and those contained elsewhere herein, Counterparty represents and warrants to and for the benefit of, and agrees with, Dealer in the manner and to the effect as follows:

(i)

On the Trade Date, as of the date of any amendment or adjustment to the Transaction pursuant to “Change in Law”