| Item 1.01 | Entry into a Material Definitive Agreement |
On August 17, 2020, Take-Two Interactive Software, Inc., a Delaware corporation (the “Company”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Playdots, Inc., a Delaware corporation (“Playdots”), Dash MS, LLC, a Delaware limited liability company (“Merger Sub”), Dash MS II, LLC, a Delaware limited liability company (“Merger Sub II”), and Shareholder Representative Services LLC, as Stockholder Representative.
On the terms and subject to the conditions set forth in the Merger Agreement, (i) Merger Sub will merge with and into Playdots (the “First Merger”), with Playdots surviving the First Merger as a direct wholly-owned subsidiary of the Company, and (ii) immediately following the effective time of the First Merger, Playdots will merge with and into Merger Sub II (the “Second Merger” and, together with the First Merger, the “Mergers”), with Merger Sub II surviving the Second Merger as a direct wholly-owned subsidiary of the Company. It is expected that the Mergers will be treated as a tax-free reorganization for U.S. federal income tax purposes.
Merger Consideration
The base purchase price for Playdots’ outstanding equity interests, excluding unvested equity awards, is $192 million, consisting of a combination of $90 million in cash and $102 million in shares of common stock, par value $0.01 per share (“Common Stock”), of the Company, valued based on the average closing price per share of the Common Stock on the Nasdaq Global Select Market during a specified period preceding the closing date, subject to a post-closing working capital adjustment. In addition, at the effective time of the First Merger, Playdots’ unvested equity awards will be converted into corresponding unvested equity awards with respect to shares of the Common Stock (the “Converted Awards”) pursuant to an exchange ratio that is designed to maintain the intrinsic value of the award immediately prior to the effective time of the First Merger. Following the effective time of the Mergers, the Converted Awards will vest based on continued service and will continue to be governed by substantially the same terms and conditions as were applicable to the corresponding Playdots equity awards prior to the effective time of the First Merger.
Conditions to the Mergers
The closing of the Mergers is subject to the satisfaction or waiver of customary closing conditions for both parties, including (i) the adoption of the Merger Agreement by the requisite approval of the stockholders of Playdots, (ii) the expiration or termination of applicable waiting periods, including any extension thereof, under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended, to the extent the parties mutual agree that such approval is required under applicable law, (iii) the absence of any law or order by any governmental authority that enjoins or otherwise prohibits the consummation of the Mergers and (iv) the absence of any legal challenge instituted by any governmental authority which seeks to enjoin or otherwise prohibit, or which questions the validity or legality of, the consummation of the Mergers. In addition, the obligation of each of the Company and Playdots to consummate the Mergers is conditioned on the accuracy of the representations and warranties made by the other party on the Closing Date (as defined in the Merger Agreement) or, if applicable, an earlier date (subject to certain “materiality” and “material adverse effect” qualifications set forth in the Merger Agreement with respect to such representations and warranties), and the performance by the other party in all material respects of its obligations under the Merger Agreement.
Certain Other Terms of the Merger Agreement
The Merger Agreement provides for certain termination rights for both the Company and Playdots, including, among other things, (i) by mutual consent of the parties, (ii) by either party if the Mergers are not consummated on or before November 30, 2020 (the “Outside Date”), (iii) by either party in the event that any governmental authority shall have issued a final and non-appealable order enjoining or otherwise prohibiting the consummation of the Mergers, (iv) by either party in the case of certain breaches of the other party’s representations and warranties that would result in the failure of a closing condition and such breach is not cured within a specified period or is not capable of cure sufficient to allow satisfaction of the closing conditions prior to the Outside Date and (v) by the Company if the requisite Playdots stockholder approval is not received.
The Merger Agreement contains customary representations and warranties made by each of the Company and Playdots, and also contains customary pre-closing covenants applicable to the conduct of business of Playdots, including to operate its business in the ordinary course consistent with past practice in all material respects and to refrain from taking certain action without the Company’s prior consent. In addition, in the Merger Agreement, the Company has agreed to file, on the Closing Date, a registration statement on Form S-3 with the Securities and Exchange Commission, registering the resale from time to time of the shares of the Common Stock to be issued to the Playdots stockholders at the consummation of the First Merger.
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