FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required)
For the Fiscal Year Ended September 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from.............to................
Commission File Number 001-10684
INTERNATIONAL GAME TECHNOLOGY
(Exact name of registrant as specified in its charter)
Nevada 88-0173041
(State of Incorporation) (I.R.S. Employer Identification No.)
5270 Neil Road, Reno, Nevada 89502
(Address of principal executive offices)
Registrant's telephone number, including area code: (702) 686-1200
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Common Stock, Par Value $.000625 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of November 30, 1994: $2,139,355,000
The number of shares outstanding of each of the registrant's classes
of common stock, as of November 30, 1994: 132,376,728 shares of Common
Stock, $.000625 Par Value.
Part III incorporates information by reference from the Registrant's
definitive Proxy Statement to be filed with the Commission within 120 days
after the close of the Registrant's fiscal year.
<PAGE>
TABLE OF CONTENTS
PART I
Page
ITEM 1. Business. . . . . . . . . . . . . . . . . . . . . . 3
ITEM 2. Properties. . . . . . . . . . . . . . . . . . . . . 28
ITEM 3. Legal Proceedings . . . . . . . . . . . . . . . . . 29
ITEM 4. Submission of Matters to a Vote of
Security Holders. . . . . . . . . . . . . . . . . . 29
PART II
ITEM 5. Market for Registrant's Common Stock and
Related Stockholder Matters . . . . . . . . . . . . 30
ITEM 6. Selected Financial Data . . . . . . . . . . . . . . 31
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . 32
ITEM 8. Consolidated Financial Statements and
Supplementary Data. . . . . . . . . . . . . . . . . 41
ITEM 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure. . . . . . . 76
PART III
ITEM 10. Directors and Executive Officers of the Registrant . . 76
ITEM 11.
Executive Compensation . . . . . . . . . . . . . . 76
ITEM 12.
Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . 76
ITEM 13.
Certain Relationships and Related Transactions . . 76
PART IV
ITEM 14.
Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . 77
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 79
<PAGE>
PART I
ITEM 1. BUSINESS
General
International Game Technology (the "Company") was incorporated in
December 1980 to acquire the gaming licensee and operating entity, IGT
(renamed IGT-North America), and facilitate the Company's initial public
offering. In addition to its 100% ownership of IGT-North America, each of
the following corporations is a direct or indirect wholly-owned subsidiary
of the Company: IGT-International ("IGT-International"); IGT-Australia,
Pty. Ltd. ("IGT-Australia"); IGT-Europe b.v. ("IGT-Europe"); IGT-Iceland
Ltd. ("IGT-Iceland"); and IGT-Japan k.k. ("IGT-Japan"). In December 1992,
the Company sold its interest in its riverboat partnerships and on
September 30, 1993 sold its interest in CMS-International ("CMS"). See
"Discontinued Operations."
IGT-North America is the largest manufacturer of computerized casino
gaming products and proprietary systems in the world. The Company believes
it manufactures the broadest range of microprocessor-based gaming machines
available. The Company also develops and manufactures "SMART" systems
which monitor slot machine play and track player activity. In addition to
gaming product sales and leases, the Company has developed and sells
computerized linked proprietary systems to monitor video gaming terminals
and has developed specialized video gaming terminals for lotteries and
other applications. IGT-North America also develops and operates
proprietary software linked progressive systems. The Company derives
revenues related to the operations of these systems as well as collects
license and franchise fees for the use of the systems.
IGT-International was established in September 1993 to oversee all
operations outside of North America by the Company's foreign subsidiaries.
IGT-Australia, located in Sydney, Australia, manufactures
microprocessor-based gaming products and proprietary systems, and performs
engineering, manufacturing, sales and marketing and distribution operations
for the Australian markets as well as other gaming jurisdictions in the
Southern Hemisphere and Pacific Rim.
IGT-Europe was established in The Netherlands in February 1992 to
distribute and market gaming products in Eastern and Western Europe and
Africa. Prior to providing direct sales, the Company sold its products in
these markets through a distributor.
IGT-Iceland was established in September 1993 to provide system
software, machines, equipment and technical assistance to support Iceland's
video lottery operations.
<PAGE>
ITEM 1. BUSINESS (continued)
IGT-Japan was established in July 1990, and in November 1992 opened an
office in Tokyo, Japan. On April 16, 1993, IGT-Japan was approved to
supply Pachisuro gaming machines to the Japanese market. No sales were
made to this market in fiscal 1994.
Unless the context indicates otherwise, references to "International
Game Technology", "IGT" or the "Company" include International Game
Technology and its wholly-owned subsidiaries and their subsidiaries. The
principal executive offices of the Company are located at 5270 Neil Road,
Reno, Nevada 89502; its telephone number is (702) 686-1200.
Discontinued Operations
During fiscal 1993, the Company divested its investments in casino
operations through the sale of its interest in the President Riverboat
Casinos, Inc. ("PRC") and CMS. These dispositions were made as part of the
Company's strategy to focus on its core businesses of manufacturing
machines and the development of proprietary systems software.
Iowa Riverboat Corporation ("IRC"), a wholly-owned subsidiary of the
Company, established in March 1990, was a 40% partner in an Iowa
partnership that owned and operated the President riverboat casino and the
Blackhawk Hotel in Davenport, Iowa. International Acceptance Corporation
("IAC"), also a wholly-owned subsidiary of the Company, owned 45% of a
riverboat excursion operation and the permanently docked Admiral riverboat
in St. Louis, Missouri. In December 1992, the Company contributed the
assets of IRC and IAC to PRC in exchange for 1,671,429 shares of PRC common
stock. These shares were subsequently sold to the public as part of an
initial public offering of PRC common stock on December 17, 1992 (see Note
12 of Notes to the Consolidated Financial Statements).
CMS, established in August 1988, operated casinos and hotel/casinos
for the Company including the Silver Club hotel and casino and The Treasury
Club casino in Sparks, Nevada, the El Capitan Club in Hawthorne, Nevada and
the King's Casino on the island of Antigua in the Caribbean. Effective
September 30, 1993, the Company sold its ownership interest in CMS.
The following table shows the revenues, operating results and
identifiable assets for the continuing operations of the Company's two
principal lines of business.
<PAGE>
ITEM 1. BUSINESS (continued)
<TABLE>
<CAPTION>
Years Ended
September 30,
1994 1993 1992
(Amounts in thousands)
Manufacture of Gaming Products:
<S> <C> <C> <C>
Revenues . . . . . . . . . . $514,121 $335,641 $ 236,372
Operating Profit . . . . . . 246,502 175,888 115,705
Identifiable Assets. . . . . 364,368 262,454 188,852
Gaming Operations:
Revenues . . . . . . . . . . $160,340 $142,389 $ 127,222
Operating Profit . . . . . . 76,181 62,391 59,381
Identifiable Assets:
Discontinued Casino
Operations . . . . . . . . - - 30,737
Gaming Operations. . . . . 215,746 151,234 117,595
Geographic Area Data:
United States:
Revenues:
Unaffiliated Customers . $608,847 $ 413,121 $326,136
Inter-area Transfers . . 13,169 14,576 6,163
Operating Profit . . . . . 303,897 224,152 163,597
Identifiable Assets. . . . 806,861 600,472 460,686
Australia:
Revenues . . . . . . . . . $ 42,270 $ 39,681 $ 34,580
Operating Profit . . . . . 15,052 15,269 13,671
Identifiable Assets. . . . 44,759 27,067 24,465
Europe:
Revenues . . . . . . . . . $ 10,969 $ 11,485 $ 2,878
Operating Profit . . . . . 5,088 1,025 513
Identifiable Assets. . . . 10,753 11,007 4,822
Canada:
Revenues . . . . . . . . . $ 12,375 $ 13,743 $ -
Operating Profit . . . . . 2,819 4,241 -
Identifiable Assets. . . . 5,635 8,047 -
</TABLE>
See also Note 2 of Notes to Consolidated Financial Statements.
<PAGE>
ITEM 1. BUSINESS (continued)
Gaming Products
Products
The Company develops its gaming products for both domestic and
international markets. In domestic markets, the Company targets the
traditional casino gaming market and the government sponsored video gaming
terminal market. In international markets, the Company targets both
casino-style and gaming-hall markets.
Over the past decade, advancements in gaming machine technology have
attracted a greater number of North American players to slot and video
machines due primarily to higher jackpots and enhanced player appeal.
These improvements have significantly influenced casino gaming revenues.
Generally, annual slot and video revenues of domestic casinos exceed
revenues from table games.
The Company was the first to develop computerized video gaming, and today
under the Players Edge Plus trademark, the Company sells a variety of
different games. The games include video poker and "blackjack" products in
the upright, slant-top and drop-in bar models. The Players Edge Plus line
is also available in slant-top keno, dual screen keno, bingo and large
screen video poker and video slots. Players Edge Plus machines offer
player appeal and security including multilevel progressives, embedded and
side-mount bill acceptors, enhanced sound packages, embedded progressive
meters and data communication devices.
The Company also offers a complete line of spinning reel slot machines
sold under the trademark S-Plus. The S-Plus series slot machines use an
advanced microprocessor system that accommodates several progressive link
configurations, enhanced audit trail functions, selection of game software
and optional side-mount or embedded bill acceptors. S-Plus machines run
existing S-slot programs or the latest partitioned software which
facilitates program updates. A game change can occur quickly by selecting
a new program chip from IGT's extensive game library and by changing the
glass and reel strips. The S-Plus machines are manufactured in various
sizes and colors and are offered in several designs including upright,
slant top and drop-in-bar.
The Company manufactures and markets video gaming terminals ("VGTs") for
government sponsored gaming programs. The VGTs are similar to the
Company's video gaming machines, although the wagering and payment of
jackpots differ. After inserting money in a VGT, the player is issued
credit and plays the machine like a traditional video machine. Player
losses are deducted from the credit and winnings are added, instead of
coins being dropped into a tray. Upon completion of play, the VGT prints
<PAGE>
ITEM 1. BUSINESS (continued)
out a ticket showing the remaining amount of credit, and the ticket is
redeemable for cash. Unlike traditional gaming machines, VGTs are
typically linked to a central computer for accounting and security
purposes, which is monitored by the state lotteries or other government
agencies.
The Company introduced a new multigame video product, Winners Choice, in
September 1994 at the World Gaming Congress held in Las Vegas, Nevada. The
Company intends to sell the product in both casino and video lottery
jurisdictions worldwide subject to obtaining any required regulatory
approval. The Winners Choice video product is currently the only gaming
machine available with a RISC processor using the Intel 80960
microprocessor. The RISC processor simplifies the internal operation of
the machine and offers improved upgradability and software compatibility to
allow for future enhancements. The Winners Choice has the capability for up
to one hundred combinations of game types and paytable variations. IGT's
modular game software architecture with high level interface permits quick
response for new development. The Winners Choice also offers improved
security features including silicon signature chips in all PC boards,
enhanced door monitoring and extensive event log with time and date stamp
available. The Company has initiated the regulatory approval process to
license Winners Choice in Connecticut, Iowa, Louisiana, Mississippi, New
Jersey and Nevada.
IGT-North America also develops, manufactures and markets microprocessor
based Slot Marketing and Revenue Tracking "SMART" systems. The SMART
computer system identifies frequent players, records playing history,
provides direct marketing information, automates slot accounting and
provides additional security to casino customers. IGT provides SMART
system 24-hour technical support and a software maintenance agreement for
on-site service by specially trained system engineers.
The Company's innovations in slot and video technology have increased the
machines' earning potential by improving the ease and speed of play, and by
decreasing down-time through improved reliability and added service
features. All new gaming machines offer a wide variety of games,
innovative designs, sophisticated security features, self-diagnostic
capabilities, and various accounting and data retention functions. The
Company's engineering and design staff continually provide technological
improvements and ongoing game development. The Company has obtained
numerous patents on various aspects of the video and reel-type gaming
machines and systems. The visual aspects of the product are upgraded and
customized by the Company's graphic design and silkscreen departments.
<PAGE>
ITEM 1. BUSINESS (continued)
The following schedule illustrates revenues derived from the sale of
gaming:
<TABLE>
<CAPTION>
Fiscal Years Ended September 30,
1994 1993 1992
(Amounts in Thousands)
<S> <C> <C> <C>
Reel-Type Slot Machines $308,898 $194,126 $105,818
Video Products 162,092 75,506 62,338
Video Gaming Terminals 10,830 15,100 22,172
</TABLE>
Markets
The Company has benefited in the past few years from the significant
expansion of legalized gaming primarily in the Midwestern market, Native
American gaming and Canadian government sponsored casino gaming market.
The Company believes that new markets for its products will continue to
open but at the same time, the pace and timing of such growth is uncertain.
During fiscal 1994, the gaming industry in the United States was influenced
by public opinion, the legal and electoral process, and the threat of a
federal gaming tax. Many of these same or similar factors are also present
in developing international markets. These factors are outside the control
of the Company in both domestic and international markets. As a result,
the Company cannot predict the rate at which domestic and foreign markets
will develop and any slow down or delays in the growth of new markets will
adversely affect the Company's future results.
The Company markets its gaming products in North America and in other
jurisdictions throughout the world. The most established North American
markets are Nevada and Atlantic City. The Company manufactured
approximately 12,000 of the estimated 27,000 gaming machines currently in
place in Atlantic City. Nevada is both the oldest and largest market for
the Company's products with an installed base of approximately 170,000
machines of which the Company manufactured approximately 116,000.
Within Nevada, there has been increased demand for the Company's
products attributable to the construction of new casinos and the expansion
and refurbishment of existing casinos. The increased demand began with the
opening of the Mirage hotel and casino in 1989 and the Excalibur hotel and
casino in 1990. In fiscal 1991 and fiscal 1992, the Company's sales volume
in Nevada increased due to additional casino expansions and the replacement
of older machines with new games, designs and technological advancements.
The opening of three "mega-resorts," the Luxor, MGM Grand and Treasure
Island, significantly increased demand for the Company products in fiscal
1993 and early fiscal 1994. These three hotel casinos increased the
<PAGE>
Item 1. BUSINESS (continued)
installed base of gaming machines in Nevada by over 8,000 machines while
adding approximately 10,000 hotel rooms in Las Vegas, Nevada. The market
for the Company's products in Nevada continued to grow during fiscal 1994
due to new casino openings at Boomtown, Boulder Station and Buffalo Bills
which increased the installed base in Nevada by over 4,800 machines.
Several expansions also occurred in fiscal 1994 at Arizona Charlies, Casino
Royale, Rio Suites, Sams Town and Virgin River. Demand for the Company's
products in fiscal 1994 also grew because existing casinos replaced greater
number of older gaming machines. In particular, strong demand for the
Company's embedded bill-acceptor product accelerated the replacement of
existing machines. During fiscal 1994 significant product replacements
occurred at properties owned by Circus Circus, Golden Nugget, Harrahs,
Mirage and Palace Station. Gaming machines have a mechanical life of
approximately 10 years, although in established markets, such as Nevada,
they are replaced on average between five to seven years. Replacement
occurs as a result of technological advances, new designs, improvements in
the visual characteristics, and the development of new games.
The Company is aware of two large casinos projected to operate over
1,000 gaming machines each that will open during fiscal 1995. The Silver
Legacy in Reno, Nevada and The Texas Gambling Hall in Las Vegas, Nevada are
both under construction and expected to open in the Summer of 1995. The
Company also expects there to be number of smaller properties that expand
or remodel. The Company also anticipates continued demand for its embedded
bill acceptor product but the level of demand cannot be predicted. Demand
for the product is dependent, in part, on the competitiveness of casinos
and the willingness of casinos to incur the costs associated with replacing
existing gaming machines with new machines.
Riverboat gaming began in Iowa during 1991 and as of September 30,
1994 was operating in five states: Iowa, Illinois, Louisiana, Mississippi
and Missouri. Riverboat gaming is also legal in Indiana but was not
operational at the end of fiscal 1994. At the end of fiscal 1994, the
riverboat installed base was estimated at 50,000 gaming machines operating
on over 50 riverboats in five states and IGT manufactured approximately
40,000 of these machines.
While gaming was recently legalized in Missouri and Indiana, court
challenges regarding the constitutionality of gaming significantly delayed
the development of these markets. Riverboat gaming was initially approved
by the voters in Missouri in November, 1992, and by the Indiana legislature
in June, 1993. The Missouri Supreme Court in January, 1994 ruled that slot
machines were defined as games of chance and therefore prohibited by the
Missouri constitution. On April 5, 1994, a Missouri referendum to approve
games of chance was narrowly defeated. The third referendum regarding the
legalization of gaming was held on November 8, 1994 and the people of
<PAGE>
ITEM 1. BUSINESS (continued)
Missouri voted in favor of an amendment to the state's constitution
allowing slot machine gaming. At the end of fiscal 1994, five riverboats
operated (without slot machines) in Missouri and 17 applications for
riverboat casino licenses were pending before the Missouri Gaming
Commission. In May, 1994, a Porter County, Indiana judge ruled that the
Indiana gaming law violated the state's constitution based on special
legislation favoring a particular community. On November 21, 1994, the
Indiana Supreme Court ruled that the Indiana gaming law was in fact in
agreement with the states constitution. The Indiana gaming regulations
limit the number of riverboat casino licenses to 11.
Several states may introduce riverboat gaming legislation during 1995
legislature sessions including Illinois, Massachusetts, Ohio, Pennsylvania,
and South Carolina. The further expansion of riverboat gaming in these and
in any other potential jurisdictions will be the subject of public debate,
and legalization typically requiring a public referendum or other
legislative action. In addition, any favorable public referendum or
legislative action may be the subject of legal challenges. These factors
have and will continue to influence the timing and opening of riverboat
gaming in new markets.
Casino-style gaming expanded on Native American lands in fiscal 1994.
Native American gaming is regulated under the Indian Gaming Regulatory Act
of 1988 which permits specific types of gaming. Pursuant to these
regulations, permissible gaming devices are denoted as "Class III Gaming"
which requires, as a condition to implementation, that the Native American
tribe and the state government in which the Native American lands are
located enter into a compact governing the terms of the proposed gaming.
IGT machines are placed only with Native American gaming operators who have
negotiated a compact with the state and received approval by the U. S.
Department of the Interior. The Company, through its distributor Sodak
Gaming, Inc., began selling machines to authorized Native American casinos
in 1990. The Company has either directly or through its distributor sold
machines in the following 13 states: Arizona, Colorado, Connecticut, Iowa,
Louisiana, Michigan, Minnesota, Mississippi, Montana, North Dakota, Oregon,
South Dakota and Wisconsin. There are 11 tribes in 5 of the above states
that have approved compacts but have not commenced gaming operations in
fiscal 1994. Compacts have also been approved by the U.S. Department of
the Interior in North Carolina and Rhode Island although no deliveries were
made into these jurisdictions during fiscal 1994. In addition to the
approved states, Class III compacts are under consideration in several
states including Alabama, Massachusetts, and New Mexico. Several other
<PAGE>
ITEM 1. BUSINESS (continued)
states including California, Florida, Kansas, Oklahoma and Washington have
been in the compacting process for several years due to ongoing litigation
between Native American and state governments. The installed base of
Indian gaming machines at September 30, 1994 was approximately 40,000
units, and the Company estimates it manufactured 30,000 of these machines.
Government-sponsored gaming in North America is a market for the
Company's video and slot products. Video gaming terminals are currently
operational in Louisiana, Montana, Oregon, Rhode Island, South Carolina,
South Dakota, West Virginia and the Canadian Provinces of Alberta,
Manitoba, New Brunswick, Newfoundland, Nova Scotia, Prince Edward Island,
Saskatchewan and Quebec. The Company supplied the central computer systems
for government sponsored gaming in Manitoba, Oregon and Louisiana and
manufactured approximately 21,000 of the 92,000 total video gaming
terminals installed in North America.
In addition to video terminal gaming, various Canadian governments
have approved casino gaming. The Province of Manitoba opened two casino
style entertainment centers during September 1993 with approximately 600
slot machines of which the Company supplied 540. The Province of Quebec
began casino-style gaming in Montreal during October 1993, and the Company
supplied 480 of the 1,200 units initially installed. A second casino
opened just north of Quebec City in July 1994. The Company manufactured
approximately 150 of the 230 total machines at this casino. In May 1994,
the Province of Ontario opened its first casino in Windsor. The Company
supplied approximately 1,100 of the 1,700 total machines at the Windsor
casino. Two additional casinos are planned for Ontario, and according to
industry publications, Niagara Falls, Ottawa and Toronto are targeted
locations. In April 1994, the government of Nova Scotia indicated it will
license two casinos, one in Halifax and one in Cape Breton. The casinos
will be provincially owned and one operator will finance, construct and run
both casinos. It is anticipated that the government of Nova Scotia will
choose one of three potential operators early in 1995.
In addition to the traditional and emerging U.S. markets, gaming is
expanding in international markets. Gaming in international markets
includes both western casino-style gaming, private clubs, and in some
countries, smaller scale gaming-halls . The casino-style gaming is
similar to North American gaming because the properties are larger-scale
and the casino themes and games are westernized. International casinos
commonly target the tourist population and they are usually located in
large urban areas or designated tourist locations. The number of large
<PAGE>
ITEM 1. BUSINESS (continued)
scale casinos per jurisdiction may be limited by the government. The
casinos are privately owned, government owned, or a joint venture between
the state and a private operator. Frequently the investment in these
facilities is significant and therefore they are at times managed by major
world-wide casino operators.
The number of machines within gaming halls is usually fewer than what
is found in casinos, but it is common to find numerous halls located
throughout a jurisdiction. The types of games within the halls can include
amusement as well as gaming machines. In some foreign jurisdictions, the
machines pay out tickets or tokens rather than coins. These gaming
establishments are usually privately owned. Due to the smaller size of the
locations, and because they house fewer machines, the investment required
is significantly less than that for casino developments.
The Australian market is the most established international
jurisdiction for the Company's products outside of North America. The
State of New South Wales is the second largest market in the world for the
Company's gaming machines with an estimated total of 72,000 machines in
2,100 pubs and 1,500 not-for-profit clubs. The Company began selling
machines in Australia in 1986 and has supplied approximately 18,000 of the
machines in New South Wales. The average life of a gaming machine in the
New South Wales market is between 7 and 10 years. In 1991, the State of
Queensland legalized the operation of gaming machines in private pubs and
clubs. The State of Queensland awarded the Company a contract to provide
the central computer system linking the machines for accounting and
security purposes. The central computer system was installed and accepted
in October 1991 and gaming commenced in February 1992. The Company
supplied approximately 6,000 machines of the 15,000 estimated total
machines. Gaming began in the State of Victoria during July 1992 using two
separate central systems. Approximately 7,000 machines are operated by
competing agencies that are each allowed to place up to 20,000 machines.
To date, the Company has had minimal sales into the Victorian market.
South Australia legalized gaming in September of 1992, and gaming
operations began in July, 1994. The Company supplied approximately 1,500
of the estimated 4,000 machines currently in place. Other Australian
jurisdictions are considering the legalization or expansion of gaming
operations. The Government of Tasmania, for example, has signalled its
intention to expand gaming into clubs and hotels in the next several years.
Pub and club gaming also exists in New Zealand and the Company supplied
approximately 3,800 of the 7,700 total machines used in these facilities.
<PAGE>
ITEM 1. BUSINESS (continued)
In addition to the above mentioned pub and club markets, casino-style
gaming has existed in Australia since 1973. Currently, a total of ten
casinos operate in Australia within the States of Queensland, the Northern
Territory, Western Australia, South Australia, Victoria, Tasmania, and the
Australian Capital Territory. Also, one casino recently began operations
in New Zealand. Casino-style gaming expanded during calendar 1994 with the
Crown Casino of Melbourne, Victoria opening in July, 1994, and the Casino
in Christ Church, New Zealand opening in November, 1994. Casino
developments continue to expand in Australia with the opening of the
Brisbane, Queensland casino scheduled for April, 1995. An operator was
also selected for the Sydney Harbour, New South Wales planned casino. One
additional casino is approved for the state of New South Wales and further
expansions are either proposed or approved in Cairns, Queensland and in
Auckland, New Zealand.
The European and African markets are serviced by the Company's sales
and distribution center located in The Netherlands. The Company has had a
direct sales presence in Europe since February 1992. Since that time,
increasing customer awareness of product availability, combined with
service and training assistance, has contributed to improved market share.
Sales during fiscal 1994 were primarily to casinos in France, Turkey, The
Netherlands, South Africa and Slovenia.
During fiscal 1993 the Company completed an agreement with the
University of Iceland Lottery, ("UIL") to supply video lottery terminals
and a central system linking the video lottery terminals. The central
system incorporates a progressive jackpot feature. The Iceland system,
managed by the UIL, began operating in December 1993 with 350 video lottery
terminals manufactured by the Company.
Although recent developments indicate gaming may soon expand within
Greece, Sweden, and South Africa, the rate of growth of the European market
for the Company's gaming products, and the degree to which the Company will
successfully penetrate this market, is uncertain.
In Greece, the ministry of tourism is planning to license 12 casinos
within the national territory. Casino gaming will include various forms of
live gaming and slot machines. The development of casino gaming in Greece
recently stalled because the current socialist government canceled the
prior government's bidding process. The new casino license bill requires
potential operators to make additional investments and pay greater taxes
than the previous legislation. The current casino bill in Greece resulted
<PAGE>
ITEM 1. BUSINESS (continued)
in some casino operators pulling out of the bidding process which makes it
difficult to predict the timing of development within this market.
In South Africa, the Lotteries and Gambling Board issued an interim
report in October 1994 to the minister of Justice recommending the
legalization of some form of lotteries and gambling. The Board also
recommended that the proceeds be used to aid the government's
reconstruction and development program. Current gaming regulations within
South Africa prohibit all forms of gambling except for betting on horse
racing and casino gaming in the what were previously known as the
independent homeland countries. In response to these developments, the
Company established IGT-Africa with a sales and service office in Sandown,
a suburb of Johannesburg, South Africa.
In Sweden the parliament recently put into effect regulations allowing
the use of video gaming devices starting in early 1995. Regulations state
that only games yielding prizes other than cash will be allowed, and that
the operation and gaming proceeds will come under the control of charitable
organizations. The Company intends to participate in this market, yet
there can be no assurances since the Swedish government has neither
selected vendors nor the operator of the central system.
The Company has identified several important international markets
where it has, or is seeking to establish, a local presence, including
Japan, China and Latin America. The Japan market consists of over
3,600,000 Pachinko machines and 730,000 Pachisuro machines which operate in
parlors throughout the country. The Company designed a Pachisuro
(Japanese-style slot machine) for this market which was approved in April
1993 by the Japanese technical testing laboratory (Security Electronics and
Communications Technology Association). IGT is the first U.S. company
authorized to supply Pachisuro machines and will compete with approximately
20 Japan-based companies that currently supply this market. Japan remains
a developing market for the Company and during fiscal 1994 the Company
increased its investment in design, sales and support staff and continues
to pursue what is the largest regulated machine market in the world. The
sales within this market have been minimal to date.
The Company targets China as a potential future market for its
products, it may however, take several years for a fully regulated and
developed gaming market to evolve. While gambling is illegal in China,
video game arcades housing amusement with prize machines are allowed under
the current central government policies. China's high growth rates and
<PAGE>
ITEM 1. BUSINESS (continued)
rising levels of disposable income have contributed to significant growth
in the country's video game arcade industry. The Company established IGT
(Asia) Company, Limited during fiscal 1994 with a central office in Hong
Kong. The Company is also in the process of applying for a representative
office in Shanghai, and is developing a customized product with several
game variations for the Chinese and other Asian markets.
The Company targets Latin America as a potential market for its
products realizing that the pace and timing of developments within the
region is very difficult to predict. Casino gaming is currently legal in
Argentina, Chili, Colombia, Costa Rica, Ecuador, Paraguay, Peru and
Uruguay. Recent developments indicate a possible expansion in the gaming
industry including casino privatization efforts and the establishment of
new and/or more definitive gaming regulations. Privatization efforts are
expected in Argentina and Uruguay where the governments currently own
approximately 60 and 10 casinos, respectively. Brazil outlawed gaming in
1946, but the government recently legalized live bingo and may also
consider the legalization of casino gaming. In Venezuela, Paraguay and
Bolivia the governments are reviewing and updating current regulations
governing a wide array of gaming. The Company established IGT-Argentina, a
sales and service office located in Buenos Aires during fiscal 1994. The
Company also established IGT-Brazil, a sales and service office located in
Sao Paulo during fiscal 1994. The Company has customized existing products
for the Latin American market by translating over 25 games into Spanish and
Portuguese and by adapting graphics and language to local cultures.
Gaming Operations
Proprietary Systems
The Company developed and introduced the world's first electronically-
linked, inter-casino proprietary gaming machine system in 1986. These
systems link gaming machines in various casinos to a central computer. The
systems build a large "progressive" jackpot which increases with every
wager made throughout the system. The systems are designed to increase
gaming machine play for participating casinos by giving players the
opportunity to win jackpots substantially larger than those available from
gaming machines which are not linked to a progressive system. The
following are linked progressive systems developed by the Company:
In Nevada, seven systems developed by the Company are operated under
the names Megabucks, Quartermania, Nevada Nickels, Fabulous Fifties, High
<PAGE>
ITEM 1. BUSINESS (continued)
Rollers, Quarters Deluxe and Dollars Deluxe. Of the total 4,200 gaming
machines linked to these systems, 2,250 are owned by the Company and 1,950
are owned by casinos.
In Atlantic City, New Jersey, six systems developed by the Company
operate under the names Megabucks, Quartermania, Fabulous Fifties, High
Rollers, Megapoker and Pokermania. These systems are operated by a trust
managed by representatives from participating casinos. The Company owns
all of the approximately 1,100 machines linked to these progressive
systems.
In Mississippi, six systems developed by the Company are operated
under the names Megabucks, Quartermania, Fabulous Fifties, Mississippi
Nickels, Pokermania and High Rollers. Of the total 1,200 gaming machines
linked to these systems, 300 are owned by the Company and 900 are owned by
casinos.
In Colorado, two systems developed by the Company are operated under
the names Megabucks and Quartermania. Approximately 300 casino owned
machines are operated on these systems.
In Louisiana, five systems developed by the Company began operating in
August, 1994 under the names Megabucks, Quartermania, Louisiana Nickels,
Fabulous Fifties, and High Rollers. Of the total 90 gaming machines, 60
are owned by the Company and 30 are casino owned.
In Native American casinos, two systems developed by the Company are
operated under the names Megabucks and Quartermania. Approximately 100
machines operate on these systems in casinos in the states of North Dakota,
South Dakota, Iowa and Michigan. The systems in Native American casinos
began operating in August 1994 and represent the first interstate operation
of the Company's proprietary systems.
Other systems include a Megabucks system in Macau which consists of
approximately 180 machines owned by the casinos and a Deadwood, South
Dakota Quartermania system which includes approximately 50 casino owned
machines. The Company has also initiated the regulatory approval process
to operate its proprietary systems on the five riverboats operating in
Missouri.
The operation of linked progressive systems varies between
jurisdictions as a result of different gaming regulations. In Nevada,
<PAGE>
ITEM 1. BUSINESS (continued)
Mississippi, Louisiana, South Dakota and Native American locations, the
casinos retain the net win, less a percentage paid to the Company to fund
the progressive jackpots. These jackpots are paid out in equal
installments over a ten to twenty year period. The Company also earns
interest on these funds until jackpots are paid. In Atlantic City, the
casinos retain the net win, less a percentage paid to a trust managed by
representatives of the participating casinos to fund the jackpots and pay
other system expenses. The trust records a liability to the Company for an
annual casino licensing fee as well as an annual machine rental fee for
each machine. In Colorado, the casinos retain the net win less a
percentage paid to a separate fund managed by the Company which pays the
jackpots. Progressive system lease fees are paid to the Company from this
fund.
The Company also offers a "leased" link progressive system which links
gaming machines within a single casino or multiple casinos of common
ownership. Currently three major hotel casinos operate such systems, with
from three to seven hotel casinos linked per system. Approximately 300
gaming machines are linked between all such systems as of October 31, 1994.
In September 1992, Rhode Island began operating a video lottery system
linking approximately 850 video lottery terminals at two pari-mutuel
facilities. As of September 30, 1994, an estimated 1,300 terminals were
operating on the system. IGT, one of four manufacturers providing
terminals, supplied approximately 325 terminals installed on this system
and receives a percentage of the net win from its terminals.
Video gaming in Oregon commenced in March of 1992, and IGT was awarded
the contract to supply the central computer system that currently links
approximately 6,600 terminals. The Company currently leases approximately
2,000 machines to the Oregon State Lottery.
Route and Lease Operations
Until August 1992, the Company operated one of Nevada's largest route
operations, consisting of machines located in bars and taverns with the
Company responsible for the operation, servicing and collection of the
monies from these machines. The location either shared the net win from
the gaming machines on a percentage basis or received a fee for rental of
space. In August 1992, the Company sold all of its route equipment and
operating contracts which included approximately 1,380 gaming machines at
approximately 160 locations.
<PAGE>
ITEM 1. BUSINESS (continued)
On November 23, 1992, the Company sold all of the equipment and
operating contracts of the Megapoker route (a linked progressive system for
video poker machines located throughout the state of Nevada) as well as
licensing the purchaser to use, in Nevada, all Megapoker software,
trademarks and trade names. This transaction included approximately 280
gaming machines owned and operated by the Company at 62 locations.
The Company leases gaming equipment to its customers and at September
30, 1994 leased approximately 5,900 gaming machines primarily in the
Midwestern riverboat, Colorado and Nevada markets. The Company also
operates approximately 1,000 machines under participation and rental
agreements primarily in the Nevada casino market.
In January 1993, the Company began operating approximately 180 gaming
machines at the Reno/Tahoe International Airport under a contract with the
Airport Authority. The Airport Authority shares in the net win of the
machines with a minimum annual guaranteed amount.
Marketing and Sales
The Company markets gaming products and proprietary systems through
its internal sales staff, agents and distributors. The Company employs
more than 285 sales personnel in offices in several United States locations
as well as Canada, Australia, Europe, South Africa and South America.
The Company uses distributors for sales to specific markets including
Louisiana, Native American reservations, New Jersey, South Carolina, a
Canadian maritime province, the Caribbean, and France. The Company's
agreements with distributors do not specify minimum purchases but provide
that the Company may terminate the distribution agreement if certain
performance standards are not met.
The Company considers its customer service department an important
aspect of the overall marketing strategy. The Company typically provides a
90 day service and parts warranty for its gaming machines and charges on a
time and material basis thereafter. The Company currently has more than
260 trained service personnel and maintains service offices in Colorado,
Florida, Mississippi, Missouri, Montana, Nevada, New Jersey, Argentina,
Australia, Brazil, Canada, Japan, New Zealand, South Africa and The
Netherlands. The Company also maintains a customer hot-line available 24-
hours a day, seven days a week to respond to customer questions.
<PAGE>
ITEM 1. BUSINESS (continued)
During fiscal 1994, the Company's worldwide sales and service
organization increased by approximately 100 employees to a total of over
500.
The Company's marketing strategy is to offer its customers not only
the broadest product line but also ongoing game development. IGT's game
library contains numerous game variations. Reprogramming machines for the
newest games and changing the glass design can be accomplished quickly.
In international markets the Company's strategy is to respond to developing
markets with local presence, customized games, new product introductions
and local production.
In addition to offering an expansive product line, the Company
provides customized services in response to specific casino requests.
These services include high quality silkscreen printing of gaming machine
glass, video graphics, customized game development and interior design
services. IGT developed more than 30 new games which included a variety of
custom artwork for casinos that opened, renovated or expanded in fiscal
1994. The Company also offers customized design services that utilize
computer aided design and three-dimensional studio software programs. The
Company's design department generates a casino floor layout and can create
a proposed casino slot mix for its customers. The final design
incorporates casino colors, themes, signage, custom glass and includes
either an overhead floor plan layout, viewable from any angle, or a three-
dimensional moving walk-through of the casino.
Customers
The Company's products and services are sold to licensed gaming
operators in jurisdictions where gaming is legal. Its products and
services are also sold to government jurisdictions which conduct gaming
operations. At the end of fiscal 1994, the Company believes there were
approximately 400 gaming operators in North America where most of its
products are sold. During fiscal 1994, the Company's ten largest customers
accounted for 27% of its gaming product sales. Sodak Gaming, the Company's
principal distributor of gaming products to Native American reservations,
was the largest purchaser of the Company's products, accounting for 9.7% of
total product sales. The Company believes the loss of this customer would
not have a long term material adverse effect on product sales of the
Company as other means of distribution to this market are available. The
nature of the Company's business encompasses large initial orders of gaming
products upon the opening, expansion or renovation of a casino as well as
<PAGE>
ITEM 1. BUSINESS (continued)
for the start-up of government sponsored video gaming operations.
Subsequent orders from established customers result from remodeling or
expansion of existing facilities as well as replacement of machines due to
technological advancements, new designs and upgrades. Sales of the
Company's products can fluctuate from quarter to quarter as new
jurisdictions throughout the world legalize gaming and new casinos in
established gaming markets are opened. The Company believes that its
revenues from gaming product sales would not be materially affected by the
loss of any single customer.
Competition
Product Sales
The Company competes with substantial U.S. and foreign manufacturers.
In the casino style gaming machine market, the primary competitors are
Bally Gaming International, Inc. ("Bally"), Sigma Game, Inc. ("Sigma"), and
Universal Distributing of Nevada, Inc. ("Universal"). Bally is a Nevada
company while Sigma and Universal are Japanese companies. In addition, two
manufacturers, WMS Industries, Inc. and Video Lottery Consultants, Inc.
recently developed casino products and are either authorized to sell their
products, or they are in the licensing process in many U.S. gaming
jurisdictions. In the slot management and revenue tracking market, the
Company competes with Casino Data Systems. Competitors in the video gaming
terminal market include three large domestic lottery suppliers, G-Tech,
WMS Industries, Inc. and Video Lottery Consultants, Inc. G-Tech, WMS
Industries, Inc. and Video Lottery Consultants, Inc. have an established
presence in the lottery market, substantial resources, and specialize in
the development and marketing of gaming terminals to governments.
Gaming Operations
Competition in the progressive systems business is currently limited
but could increase in the future.
Manufacturing and Suppliers
The Company's manufacturing operations primarily involve assembly of
electronic and computer components, including chips, video monitors and
prefabricated parts purchased from outside sources. The Company does
however, operate metal fabricating, custom wood cabinet manufacturing and
silkscreen facilities. The Company is not dependent upon any one supplier
<PAGE>
ITEM 1. BUSINESS (continued)
for any raw material. The Company purchases certain components from
subcontractors and believes that alternative sources of these components
are available. The Company believes its relations with its vendors are
good. The Company uses technical staff to assure quality control.
The Company generally carries a significant amount of inventory due to
the broad range of products it manufactures and to facilitate its capacity
to fill customer orders on a timely basis.
Patents, Copyrights and Trade Secrets
The Company's computer programs and technical know-how are its main
trade secrets, and management believes that they can best be protected by
using technical devices to protect the computer programs and by enforcing
contracts with certain employees and others with respect to the use of
proprietary information, trade secrets and covenants not to compete. The
Company has obtained patents and copyrights with respect to aspects of its
games, and has patent applications on file for protection of certain
developments it has created. No assurance can be given that the pending
applications will be granted. These patents range in subject matter from
coin-handling apparatus, fiber-optic light pens, coin-escalator mechanisms
through optical door interlock and other aspects of video and mechanical
slot machines and systems. There can be no assurance that the patents will
not be infringed or that others will not develop technology that does not
violate the patents.
Employees
As of September 30, 1994, the Company, including all subsidiaries,
employed approximately 2,790 persons, including 330 in administrative
positions, 285 in sales and 405 in engineering. Of the total employees,
International Game Technology accounted for 415; IGT-North America, 2000;
IGT-International, 60; IGT-Australia, 280; IGT-Europe, 30; and IGT-Japan,
5. The total number of employees increased in fiscal 1994 by approximately
690 as compared with the number of employees at September 30, 1993. This
increase reflects additions to the administrative, engineering and
manufacturing staffs of the Company. These increases were to improve the
administrative systems, develop new markets, support revenue growth and
develop new products. The Company added approximately 500 assembly
employees to its Reno operation during the period December 1993 through May
1994 in order to meet product demand resulting from the opening of
riverboat casinos and gaming expansion in Nevada. During the fourth
<PAGE>
ITEM 1. BUSINESS (continued)
quarter of fiscal 1994, 160 Reno assembly employees were laid off after
completion of the above sales orders. None of the Company's employees is a
member of a collective bargaining unit.
Government Regulation
Nevada Regulation
The manufacture, sale and distribution of gaming devices in Nevada are
subject to extensive state laws, regulations of the Nevada Gaming
Commission and State Gaming Control Board (the "Nevada Commission"), and
various county and municipal ordinances. These laws, regulations and
ordinances primarily concern the responsibility, financial stability and
character of gaming equipment manufacturers, distributors and operators, as
well as persons financially interested or involved in gaming operations.
The manufacture, distribution and operation of gaming devices require
separate licenses. The laws, regulations and supervisory procedures of the
Nevada Commission seek to (i) prevent unsavory or unsuitable persons from
having a direct or indirect involvement with gaming at any time or in any
capacity, (ii) establish and maintain responsible accounting practices and
procedures, (iii) maintain effective control over the financial practices
of licensees, including establishing minimum procedures for internal fiscal
affairs and the safeguarding of assets and revenues, providing reliable
record keeping and requiring the filing of periodic reports with the Nevada
Commission, (iv) prevent cheating and fraudulent practices, and (v) provide
a source of state and local revenues through taxation and licensing fees.
Changes in such laws, regulations and procedures could have an adverse
effect on the Company's operations.
A Nevada gaming licensee is subject to numerous restrictions.
Licenses must be renewed periodically and licensing authorities have broad
discretion with regard to such renewals. Licenses are not transferable.
Each type of machine sold by the Company in Nevada must first be approved
by the Nevada Commission, which may require subsequent machine
modification. Substantially all material loans, leases, sales of
securities and similar financing transactions must be reported to or
approved by the Nevada Commission. Changes in legislation or in judicial
or regulatory interpretations could occur which could adversely affect the
Company.
A publicly traded corporation must be registered and found suitable to
hold an interest in a corporate subsidiary which holds a gaming license.
<PAGE>
ITEM 1. BUSINESS (continued)
International Game Technology has been registered by the Nevada Commission
as a publicly traded holding company and was permitted to acquire IGT-North
America as its wholly-owned subsidiary. As a registered holding company,
it is required periodically to submit detailed financial and operating
reports to such Commission and furnish any other information which the
Commission may require. No person may become a stockholder of, or receive
any percentage of profits from, a licensed subsidiary without first
obtaining licenses and approvals from the Nevada Commission. Officers,
directors and key employees of a licensed subsidiary and of the Company who
are actively engaged in the administration or supervision of gaming must be
found suitable. No proceeds from any public sale of securities of a
registered holding corporation may be used for gaming operations in Nevada
or to acquire a gaming property without the prior approval of the Nevada
Commission. The Company believes it has all required licenses to carry on
its business in Nevada.
Officers, directors, and certain key employees of the Company who are
actively and directly involved in gaming activities of the Company's
licensed gaming subsidiary may be required to be licensed or found
suitable. Officers, directors, and certain key employees of the Company's
licensed gaming subsidiary must file applications with the Nevada
Commission and may be required to be licensed or found suitable. Employees
associated with gaming must obtain work permits which are subject to
immediate suspension under certain circumstances. In addition, anyone
having a material relationship or involvement with the Company may be
required to be found suitable or licensed, in which case those persons
would be required to pay the costs and fees of the State Gaming Control
Board (the "Control Board") in connection with the investigation. An
application for licensure or finding of suitability may be denied for any
cause deemed reasonable by the Nevada Commission. A finding of suitability
is comparable to licensing and both require submission of detailed personal
and financial information followed by a thorough investigation. Changes in
licensed positions must be reported to the Nevada Commission. In addition
to its authority to deny an application for a license or finding of
suitability, the Nevada Commission has jurisdiction to disapprove a change
in position by such officer, director, or key employee. The Nevada
Commission has the power to require the Company and its licensed gaming
subsidiary to suspend or dismiss officers, directors or other key employees
and to sever relationships with other persons who refuse to file
appropriate applications or whom the authorities find unsuitable to act in
such capacities. Determinations of suitability or of questions pertaining
to licensing are not subject to judicial review in Nevada.
<PAGE>
ITEM 1. BUSINESS (continued)
The Company and its licensed gaming subsidiary are required to submit
detailed financial and operating reports to the Nevada Commission. If it
were determined that gaming laws were violated by a licensee, the gaming
licenses it holds could be limited, conditioned, suspended or revoked
subject to compliance with certain statutory and regulatory procedures. In
addition to the licensee, the Company and the persons involved could be
subject to substantial fines for each separate violation of the gaming laws
at the discretion of the Nevada Commission. In addition, a supervisor
could be appointed by the Nevada Commission to operate the Company's gaming
property and, under certain circumstances, earnings generated during the
supervisor's appointment could be forfeited to the State of Nevada. The
limitation, conditioning or suspension of any gaming license or the
appointment of a supervisor could (and revocation of the gaming license
would) materially and adversely affect the Company's operations.
The Nevada Commission may also require any beneficial holder of the
Company's voting securities, regardless of the number of shares owned, to
file an application, be investigated, and be found suitable, in which case
the applicant would be required to pay the costs and fees of the Control
Board investigation. If the beneficial holder of voting securities who
must be found suitable is a corporation, partnership, or trust, it must
submit detailed business and financial information including a list of
beneficial owners. Any person who acquires 5% or more of the Company's
voting securities must report the acquisition to the Nevada Commission; any
person who becomes a beneficial owner of 10% or more of the Company's
voting securities must apply for a finding of suitability within 30 days
after the Chairman of the Nevada Board mails the written notice requiring
such finding.
Under certain circumstances, an Institutional Investor, as such term
is defined in the Nevada Regulations, which acquires more than 10%, but not
more than 15%, of the Company's voting securities may apply to the Nevada
Commission for a waiver of such finding of suitability requirements,
provided the institutional investor holds the voting securities for
investment purposes only. An institutional investor will not be deemed to
hold voting securities for investment purposes unless the voting securities
were acquired and are held in the ordinary course of business as an
institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the board of directors of the
Company, any change in the Company's corporate charter, bylaws, management,
policies or operations of the Company, or any of its gaming affiliates, or
any other action which the Nevada Commission finds to be inconsistent with
<PAGE>
ITEM 1. BUSINESS (continued)
holding the Company's voting securities for investment purposes only.
Activities which are not deemed to be inconsistent with holding voting
securities for investment purposes only include: (i) voting on all matters
voted on by stockholders; (ii) making financial and other inquiries of
management of the type normally made by securities analysts for
informational purposes and not to cause a change in its management,
policies or operations; and (iii) such other activities as the Nevada
Commission may determine to be consistent with such investment intent.
The Nevada Commission has the power to investigate any debt or equity
security holder of the Company. The Clark County Liquor and Gaming
Licensing Board, which has jurisdiction over gaming in the Las Vegas area,
may similarly require a finding of suitability for a security holder. The
applicant stockholder is required to pay all costs of such investigation.
The bylaws of the Company provide for the Company to pay such costs as to
its officers, directors or employees.
Any person who fails or refuses to apply for a finding of suitability
or a license within 30 days after being ordered to do so by the Nevada
Commission or Chairman of the Nevada Board may be found unsuitable. The
same restrictions apply to a record owner if the record owner, after
request, fails to identify the beneficial owner. Any stockholder found
unsuitable and who holds, directly or indirectly, any beneficial ownership
of the Common Stock beyond such period of time as may be prescribed by the
Nevada Commission may be guilty of a criminal offense. The Company is
subject to disciplinary action, and possible loss of its approvals, if,
after it receives notice that a person is unsuitable to be a stockholder or
to have any other relationship with the Company, the Company (i) pays that
person any dividend or interest upon voting securities of the Company, (ii)
allows that person to exercise, directly or indirectly, any voting right
conferred through securities held by that person, (iii) gives remuneration
in any form to that person, for services rendered or otherwise, or (iv)
fails to pursue all lawful efforts to require such unsuitable person to
relinquish his voting securities for cash at fair market value.
Additionally the Clark County authorities have taken the position that they
have the authority to approve all persons owning or controlling the stock
of any corporation controlling a gaming license.
The Nevada Commission may, in its discretion, require the holder of
any debt security of the Company to file applications, be investigated and
be found suitable to own the debt security of the Company. If the Nevada
Commission determines that a person is unsuitable to own such security,
<PAGE>
ITEM 1. BUSINESS (continued)
then pursuant to the Nevada Act, the Company can be sanctioned, including
the loss of its approvals, if without the prior approval of the Nevada
Commission, it: (i) pays to the unsuitable person any dividend, interest,
or any distribution whatsoever; (ii) recognizes any voting right by such
unsuitable person in connection with such securities; (iii) pays the
unsuitable person remuneration in any form; or (iv) makes any payment to
the unsuitable person by way of principal, redemption, conversion,
exchange, liquidation, or similar transaction.
The Company is required to maintain a current stock ledger in Nevada
which may be examined by the Nevada Commission at any time. If any
securities are held in trust by an agent or by a nominee, the record holder
may be required to disclose the identity of the beneficial owner to the
Nevada Commission. A failure to make such disclosure may be grounds for
finding the record holder unsuitable. The Company is also required to
render maximum assistance in determining the identity of the beneficial
owner. The Nevada Commission has the power at any time to require the
Company's stock certificates to bear a legend indicating that the
securities are subject to the Nevada Gaming Control Act ("the "Nevada Act")
and the regulations of the Nevada Commission. To date, the Nevada
Commission has not imposed such a requirement.
The Company may not make a public offering of its securities without
the prior approval of the Nevada Commission if the securities or proceeds
therefrom are intended to be used to construct, acquire or finance gaming
facilities in Nevada, or retire or extend obligations incurred for such
purposes. Such approval, if given, does not constitute a finding,
recommendation, or approval by the Nevada Commission or the Nevada Board as
to the accuracy or adequacy of the prospectus or investment merits of the
securities. Any representation to the contrary is unlawful. Changes in
control of the Company through merger, consolidation, acquisition of
assets, management or consulting agreements or any form of takeover cannot
occur without the prior investigation of the Control Board and approval of
the Nevada Commission. Entities seeking to acquire control of the Company
must satisfy the Nevada Board and Nevada Commission in a variety of
stringent standards prior to assuming control of the Company. The Nevada
Commission may also require controlling stockholders, officers, directors
and other persons having a material relationship or involvement with the
entity proposing to acquire control, to be investigated and licensed as
part of the approval process relating to the transaction.
<PAGE>
ITEM 1. BUSINESS (continued)
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and other corporate
defense tactics that affect corporate gaming licensees in Nevada, and
corporations whose stock is publicly-traded that are affiliated with those
operations, may be injurious to stable and productive corporate gaming.
The Nevada Commission has established a regulatory scheme to ameliorate the
potentially adverse effects of these business practices upon Nevada's
gaming industry and to further Nevada's policy to (i) assure the financial
stability of corporate gaming operators and their affiliates; (ii) preserve
the beneficial aspects of conducting business in the corporate form; and
(iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Company can make exceptional repurchases of voting
securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. Nevada's gaming laws
and regulations also require prior approval by the Nevada Commission if the
Company were to adopt a plan of recapitalization proposed by the Company's
Board of Directors in opposition to a tender offer made directly to its
stockholders for the purpose of acquiring control of the Company.
Any person who is licensed, required to be licensed, registered,
required to be registered, or is under common control with such persons
(collectively, "Licensees"), and who proposes to become involved in a
gaming venture outside of Nevada is required to deposit with the Control
Board, and thereafter maintain, a revolving fund in the amount of $10,000
to pay the expenses of investigation by the Control Board of the licensee's
participation in foreign gaming. The revolving fund is subject to increase
or decrease at the discretion of the Nevada Commission. Thereafter,
Licensees are required to comply with certain reporting requirements
imposed by the Nevada Act. A licensee is also subject to disciplinary
action by the Nevada Commission if it knowingly violates any laws of the
foreign jurisdiction pertaining to the foreign gaming operation, fails to
conduct the foreign gaming operation in accordance with the standards of
honesty and integrity required of Nevada gaming operations, engages in
activities that are harmful to the State of Nevada or its ability to
collect gaming taxes and fees, or employs a person in the foreign operation
who has been denied a license or finding of suitability in Nevada on the
grounds of personal unsuitability.
<PAGE>
ITEM 1. BUSINESS (continued)
Other Jurisdictions
Many other jurisdictions in which the Company does business require
various licenses, permits, and approvals in connection with the manufacture
and/or the distribution of gaming devices, and operation of progressive
systems, typically involving restrictions similar in most respects to those
of Nevada.
Thus far the Company has never been denied any such necessary
governmental licenses, permits or approvals. No assurances, however, can
be given that such required licenses, permits or approvals will be given or
renewed in the future.
ITEM 2. PROPERTIES
The Company owns two adjoining 46,000 square foot office buildings in
Reno, Nevada for use as its corporate offices.
IGT-North America leases approximately 712,300 square feet of office,
warehouse and production facility space in Reno, Nevada and approximately
194,650 square feet of office and warehouse space in Las Vegas, Nevada.
Additionally, IGT-North America leases approximately 81,900 square feet of
office and warehouse space in various states where it conducts business
including Montana, Mississippi, New Jersey, Florida, Colorado and
Louisiana. IGT-International utilizes a portion of the owned office
buildings in Reno, Nevada and a portion of the facilities leased by IGT-
North America in Las Vegas, Nevada.
IGT-Europe leases approximately 10,800 square feet of office and
warehouse space in Hoofddorp, Holland, The Netherlands.
IGT-Australia purchased a 303,800 square foot office production and
warehouse facility in Sydney, New South Wales, Australia in August 1994.
Currently IGT-Australia utilizes 231,200 square feet of this space and
subleases the remainder of the facility. Additionally, IGT-Australia
leases approximately 76,900 square feet of office and warehouse space in
various locations throughout New South Wales.
In May 1994, the Company purchased approximately 78 acres in Reno
Nevada and is in the process of designing a 1,000,000 square foot office,
manufacturing and warehousing facility. The Company anticipates that the
<PAGE>
ITEM 2. PROPERTIES, (continued)
new manufacturing and warehousing facility will be completed in late
calendar 1995, and that the office facility will be completed in late
calendar 1996, absent unexpected delays. The Company's current Reno,
Nevada operations exist in 16 leased buildings and two company owned
buildings, totaling approximately 800,000 square feet. The currently
leased facilities have various lease expiration dates through the year
2001. It is currently anticipated that the Company will be able to sub-
lease these facilities to a third party.
ITEM 3. LEGAL PROCEEDINGS
The Company has been named in and has brought lawsuits in the normal
course of business. Management does not expect the outcome of these suits
to have a material adverse effect on the Company's financial position or
results of future operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is listed on the New York Stock Exchange
under the symbol "IGT". Two-for-one stock splits of the Company's common
stock were effected on July 16, 1990, August 23, 1991, March 24, 1992 and
March 17, 1993. The following table sets forth the high and low sales
prices of the common stock (adjusted to reflect the above mentioned stock
splits) on the NYSE composite tape:
<TABLE>
<CAPTION>
High Low
Fiscal 1993
<S> <C> <C>
First Quarter. . . . . . . . . . $ 26-3/8 $ 17-7/8
Second Quarter . . . . . . . . . 33 23-3/4
Third Quarter. . . . . . . . . . 39-3/4 28-1/2
Fourth Quarter . . . . . . . . . 41-3/8 32-1/8
Fiscal 1994
First Quarter. . . . . . . . . . $ 41-1/4 $ 28-1/4
Second Quarter . . . . . . . . . 33-1/2 26-1/8
Third Quarter. . . . . . . . . . 28-1/4 17-1/4
Fourth Quarter . . . . . . . . . 24-3/4 18-1/2
</TABLE>
As of December 2, 1994 there were approximately 8,757 record holders
of the Company's common stock which had a closing price of $16-5/8 on the
same date.
On April 7, 1993 the Company declared its first quarterly dividend of
$.03 per share, payable on June 1, 1993. The Company declared two
additional quarterly dividends of $.03 per share in fiscal 1993 and four
quarterly dividends of $.03 per share in fiscal 1994. It is anticipated
that comparable cash dividends will continue to be paid in the future.
The Company's transfer agent and registrar is Continental Stock
Transfer & Trust Company, 2 Broadway, New York, NY 10004, (212) 509-4000.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following information has been derived from the Company's
consolidated financial statements:
<TABLE>
<CAPTION>
(Amounts in thousands, Years Ended
except per share data) September 30,
1994 1993 1992 1991 1990
Selected Income Statement Data:
<S> <C> <C> <C> <C> <C>
Total revenues. . . . $674,461 $478,030 $363,594 $233,002 $204,807
Income from continuing
operations . . . . $140,447 $105,578 $ 63,284 $ 29,780 $ 19,674
Income from
discontinued
operations1. . . . $ - $ 13,447 $ 1,500 $ 450 $ 329
Net income. . . . . . $140,447 $119,025 $ 64,784 $ 30,230 $ 20,003
Income per primary
share from continuing
operations2. . . . $ 1.07 $ 0.85 $ 0.53 $ 0.26 $ 0.17
Net income per primary
share2 . . . . . . $ 1.07 $ 0.96 $ 0.54 $ 0.26 $ 0.17
Net income per fully
diluted share2 . . $ 1.05 $ 0.90 $ 0.52 $ 0.26 $ 0.17
Cash dividends declared
per common share . $ 0.12 $ 0.09 $ - $ - $ -
Average primary common
and common equivalent
shares outstanding2. 131,380 123,618 120,081 116,818 117,135
Average common and common
equivalent shares
outstanding assuming
full dilution2 . . 135,858 136,611 135,448 117,491 117,135
Selected Balance Sheet Data:
Working capital . . . $480,698 $379,680 $257,063 $184,092 $ 80,474
Total assets. . . . . $868,008 $646,593 $489,973 $345,605 $208,523
Convertible Subordinated
Notes Payable. . . $ - $ 59,998 $ 93,999 $ 92,536 $ -
Long-term notes payable
and capital lease
obligations. . . . $111,468 $ 617 $ 19,965 $ 20,767 $ 27,584
Stockholders' Equity. $520,868 $378,549 $214,062 $123,747 $ 92,697
<FN>
1 Discontinued operations consist of casino operations which the Company
sold during fiscal 1993. See Note 12 to the Consolidated Financial
Statements for further discussion.
2 Restated to give retroactive effect for two-for-one stock splits in 1990,
1991, 1992 and 1993.
</FN>
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Fiscal 1994 Compared to Fiscal 1993
Net income from continuing operations for fiscal 1994 was $140.4
million (or $1.05 per fully diluted share), an increase of $34.9 million or
33% over fiscal 1993. Total revenues in fiscal 1994 were $674.5 million,
an increase of 41% over the $478.0 million of the prior year. The growth
in revenues and net income from continuing operations resulted from
increases in product sales and game operations revenues.
Revenues and Cost of Sales
The 41% increase in revenues included an increase in product sales
revenues of 53% or $178.5 million and an increase in gaming operations
revenue of 13% or $18.0 million. Gaming machine shipments totaled 95,000
units in fiscal 1994 compared to 69,000 units in fiscal 1993. This growth
resulted from increased product demand in the mid-western riverboat and
Nevada markets. Large sales were made to new riverboat casino properties
opening in Mississippi, Louisiana and Missouri. In Southern Nevada, sales
increased due to the opening of new casino properties and the replacement
of older machines at existing properties. During fiscal 1994, no sales
were made to the Japanese market.
The Company believes that gaming markets will continue to expand as
gaming is legalized in new domestic and foreign jurisdictions. For
example, in November 1994, the Missouri electorate approved the use of
gaming devices on riverboats in Missouri and the Indiana Supreme Court
denied a constitutional challenge to riverboat gaming in that state. At
the same time, however, the gaming industry and the pace of its growth
domestically has been and continues to be influenced by public opinion, the
legal and electoral processes and, in fiscal 1994, the threat of a United
States federal gaming tax. Similar factors are present in many of the
international jurisdictions in which the Company is doing business or
expects new markets to develop. These factors are outside the control of
the Company. As a result, the Company cannot predict the rate at which
domestic and international markets will develop and any slow down or delay
in the growth of new markets will adversely affect the Company's future
results.
The increase in gaming operations revenues resulted from an 18%
improvement in proprietary systems revenue due primarily to the expansion
of the Mississippi and Colorado systems. Offsetting this increase, lease
revenues declined 25% as lessees exercised options to purchase gaming
equipment, the closure of certain casinos in Colorado and the Company's
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
sale of its Nevada route operation in November 1992.
The gross margin on product sales declined to 47.2% in fiscal 1994
compared to 50.2% in fiscal 1993. This decline resulted primarily from
increased sales of gaming machines with embedded bill validators, which
have lower gross profit margins, an increase in inventory obsolescence
expense resulting from the introduction of new product lines in fiscal
1994, and to a lesser extent, an increase in large sales where the Company
grants larger discounts.
Expenses
Gaming operations expenses increased 13% or $8.0 million to $70.7
million in fiscal 1994 compared to the prior year. This increase was due
to a 16% increase in proprietary systems costs primarily reflecting the
growth in jackpot expense associated with the 18% increase in systems
revenue. In addition, the development and start up costs of new systems
and the upgrading of existing systems games contributed to this expense
increase in fiscal 1994. Gaming operations expenses will continue to
increase as revenues increase and new systems are installed.
Selling general and administrative expense increased 46% or $26.3
million to $83.9 million in fiscal 1994 compared to the prior year. This
increase primarily reflects additional employees hired during the year in
staff positions to improve the Company's administrative systems, to support
the Company's higher level of revenues, develop new markets and expand the
Company into a multinational corporation. Additionally, outside
professional services costs increased in fiscal 1994 primarily as a result
of increased legal fees in commencing operations in new countries and
protecting patents. The Company believes that its expanded staff and
increased outside professional fees will need to be maintained to support
the Company's operations and continuing efforts to identify and take
advantage of new markets.
Depreciation and amortization expense decreased 1% in fiscal 1994 with
increased proprietary systems, manufacturing and administration equipment
depreciation offset by reduced depreciation of leased gaming machines (see
above description of the decline in lease revenues).
Research and development expense increased 41% or $6.8 million to
$23.3 million in fiscal 1994, due to the addition of engineering personnel
to support the development of new gaming products and systems to meet the
needs of developing gaming markets. In fiscal 1994, the Company
introduced the "Winners Choice" product line for both the casino and video
lottery markets. The development of new gaming products and systems has
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
been and remains an important part of the Company's long-term strategic
plan and the Company expects to continue to devote substantial resources to
research and development.
The provision for bad debts increased 89% or $3.8 million to $7.2
million in fiscal 1994 reflecting a 44% increase in receivables and
increased sales to developing markets.
Other income and expense
Interest income increased 12% or $3.2 million to $29.5 million in
fiscal 1994. This increase is primarily attributable to the above
mentioned increase in systems play resulting in increased income producing
investments to fund future jackpot payments. In addition, increased
interest income was earned on the Company's increased balance of notes and
contracts receivable. Partially offsetting these increases, interest
income on investments declined with the use of funds to repurchase shares
of Company common stock. (See Liquidity and Capital Resources).
Interest expense declined 7% or $1.0 million to $11.8 million during
fiscal 1994 compared to the prior year as a result of the conversion from
October 1993 through May 1994 of all then outstanding Convertible
Subordinated Notes into Common Stock of the Company. This decline was
partially offset by the increase in systems play and associated growth in
proprietary systems jackpots. Interest expense increases as the level of
jackpot liabilities increases.
In fiscal 1993, the Company recorded a gain of $10.1 million on the
sale of securities held by the Company and, to a lesser extent, the sale of
the Megapoker route (see Note 14 of the Notes to the Consolidated Financial
Statements). In fiscal 1994, gains on the sale of securities held by the
Company were offset by unrealized losses on other securities.
Fiscal 1993 Compared to Fiscal 1992
Net income for fiscal 1993 increased 84% to $119,025,000 or $.96 ($.90
fully diluted) per share compared to net income of $64,784,000 or $.54 per
share (adjusted to reflect a two-for-one stock split effective March 17,
1993) for fiscal 1992. Net income in both years included income from
discontinued casino and riverboat operations of $13,447,000 in fiscal 1993
and $1,500,000 in fiscal 1992. Income from continuing operations increased
67% to $105,578,000 or $.85 per share compared to $63,284,000 or $.53 per
share in fiscal 1992. This increase in income from continuing operations
resulted primarily from a 42% increase in product sales and a 17% increase
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
in revenues from the Company's linked progressive systems business.
Revenues and Cost of Sales
Total revenues for fiscal 1993 increased 31% to $478.0 million. This
increase included a 42% or $99.3 million increase in product sales and a
12% or $15.2 million increase in gaming operations revenues. In fiscal
1993 gaming machine shipments grew to 68,900 (compared to 46,100 in fiscal
1992) primarily as a result of increased product demand in the North
American riverboat and Indian casino markets and the Southern Nevada casino
market. The riverboat sales occurred primarily in the states of
Mississippi, Illinois and Iowa. Currently six states have approved
riverboat gaming and seven states either have bills in legislation or are
considered likely to introduce or re-introduce riverboat legislation.
The Company sells machines to casino operations on Indian lands
through an independent distributor. In fiscal 1993, sales to this
distributor totaled $40.2 million compared to $27.1 million in fiscal 1992.
The Las Vegas, Nevada market continued to expand with the opening of
the Luxor and Treasure Island hotel casinos in late fiscal 1993, and the
MGM Grand Hotel in early fiscal 1994. In addition, product sales continued
to increase in Canada, Europe and Australia as the Company increased its
efforts in these international markets.
Gaming operations revenue increased $15.2 million or 12% to $142.4
million in fiscal 1993 as a result of a higher volume of play on the Nevada
progressive systems, the introduction of new systems in Mississippi and
Rhode Island and growth in the number of units leased to the Oregon state
lottery and North American riverboat markets. These increases were
partially offset by the sale of the Company's Nevada route operations and
the Megapoker systems route in August and November 1992, respectively.
IGT-International recently signed a contract with the University of
Iceland Lottery to supply the video lottery terminals and a central system
with a progressive jackpot feature. This system began operating in
December 1993 with 350 video lottery terminals.
The gross margin on product sales increased to 50.2% in fiscal 1993
compared to 48.3% in fiscal 1992, reflecting improved production
efficiencies at both the IGT-North America and IGT-Australia manufacturing
facilities.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Expenses
Gaming operations expense increased $8.0 million or 14.7% primarily as
a result of the growth in jackpot expenses associated with the Company's
linked progressive systems. This increase in jackpot expense reflects
increases in play on the Nevada systems and the introduction of new
systems. Also contributing to this increase were the expenses associated
with the operation of approximately 180 gaming machines at the Reno/Tahoe
International Airport under an agreement which began in January 1993.
Offsetting these expense increases was the Company's sale of its Nevada
route operations and the Megapoker route to Jackpot Enterprises.
Selling, general and administrative expenses increased $4.9 million or
9.3% due to growth in the number of employees, incentive and benefit plan
cost increases, the February 1992 opening and 1993 expansion of a sales and
distribution facility in Amsterdam, The Netherlands, and the establishment
of a manufacturing facility in Manitoba, Canada in late fiscal 1992.
Depreciation and amortization expense increased $3.4 million or 20% as a
result of increased lease financing, wherein the Company retains ownership
of and depreciates the machines in the Colorado and Riverboat markets and
expansion of the proprietary systems business.
The growth in research and development expense from $11.8 million to
$16.5 million resulted from the addition of engineering personnel,
increased consulting services expense, and increased incentive compensation
and benefit costs. The provision for bad debts declined to $3.8 million
for fiscal 1993 compared to $4.6 million in the prior year.
Other Income and Expense
As a result of the sales growth and the Company's ability to finance
customer sales, notes and contracts receivable increased $36.8 million or
52%, causing interest income to increase in fiscal 1993. Also contributing
to the $7.9 million increase in interest income in fiscal 1993 was
increased income on the Company's investment of excess cash and the growth
in the systems business in which income is recognized on the Company's cash
investments used to pay progressive system jackpot winners. Interest
expense increased $2.0 million to $12.7 million in fiscal 1993 due to
additional interest recorded on the liabilities to the progressive systems
jackpot winners. This was partially offset by a reduction in interest
expense from the conversion of approximately $42.7 million of the Company's
convertible subordinated notes to common stock. The growth of the
Company's progressive systems increases both interest income and interest
expense. The Company records interest income on funds invested to secure
jackpot payments and records commensurate interest expense on the
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
outstanding liabilities to jackpot winners.
During fiscal 1993 the Company recorded a gain of $10.1 million on the
sale of assets primarily consisting of gains on the sale of certain
securities held in the Company's investment portfolio, and to a lesser
extent a gain on the sale of the Megapoker route (see Note 14 of the Notes
to the Consolidated Financial Statements).
Discontinued Operations
During fiscal 1993, the Company divested its investments in casino
operations through the sale of its interest in the President Riverboat
Casinos, Inc. ("PRC") and the sale of CMS. The sale was part of the
Company's strategy to focus on its core businesses of manufacturing
machines and the development of proprietary systems software.
In December 1992 the Company sold its interest in PRC for $28.7
million, recognizing a gain of $23.6 million. The net gain on the
discontinued riverboat operation after including fiscal 1993 income from
operations and after deducting the effective income taxes was $14.3
million.
In September 1993 the Company sold its ownership interest in CMS for
$3.0 million recognizing a pre-tax loss of $2.0 million. The net loss on
the discontinued CMS operation after including fiscal 1993 income from
operations and after adding back the effective income tax benefit was
$811,000.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
Working capital increased $101.0 million during fiscal 1994 to $480.7
million at September 30, 1994. This increase was primarily the result of a
$57.4 million increase in cash and cash equivalents, a $48.8 million
increase in accounts receivable, a $16.2 million increase in the current
maturities of note and contracts receivable, a $28.9 million increase in
inventories, and a $11.6 million reduction in accrued income taxes payable.
The above increases in working capital were partially offset by a $71.7
million decline in short term investments, the proceeds of which were used
to fund stock repurchases made in fiscal 1994. The increase in cash and
cash equivalents resulted from the investment of the proceeds received from
the sale of Senior Notes issued in September 1994 (see Note 11 to the
Consolidated Financial Statements). These proceeds are primarily being
used to fund the construction of the new Reno, Nevada manufacturing
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
facility and for general corporate purposes, (See "Properties"). The 60%
increase in accounts receivable and the 25% increase in the current
maturities of notes and contracts receivable reflect the overall increase
in product sales of 53% in fiscal 1994 over the prior fiscal year.
The growth in inventories resulted from a $19.3 million increase in
raw materials and a $11.1 million increase in finished goods inventory.
During fiscal 1994, the Company increased it's raw materials inventory to
support a significant sales increase of gaming machines with the embedded
dollar bill acceptor feature, improve the turnaround time in providing
customers with spare parts and support a growing customer base. The
increase in finished goods was the result of an increase in completed
machines held by the Company, awaiting shipment. At September, 30, 1993,
accrued income taxes were $11.6 million and represented United States and
Canadian income taxes payable, which were subsequently paid in fiscal 1994.
Cash Flow
During fiscal 1994 the Company's cash and cash equivalents increased
$57.4 million to $142.7 million. Cash provided by operating activities for
the years ended September 30, 1994, 1993 and 1992 totaled $14.8 million,
$56.1 million and $38.6 million, respectively. Cash provided by operating
activities was reduced by increases in receivables and inventories during
fiscal 1992, 1993 and 1994, and in 1994 by a reduction in accrued income
taxes. The larger inventories and increased receivables have been required
to support the sales growth.
The primary source of cash from financing activities included $62.8
million, $48.0 million and $33.5 million in proceeds from systems to fund
liabilities to jackpot winners for the years ended September 30, 1994, 1993
and 1992, respectively, and in fiscal 1994, $113.6 million in proceeds
received from long-term debt borrowings. The long-term debt proceeds
included a $100.0 million private placement of Senior Notes (see Note 11 to
the Consolidated Financial Statements) and proceeds from bank borrowings of
$13.0 million ($18.0 million Australian). Financing activities offsetting
these increases were the repurchase of $57.1 million of the Company's
common stock and the payment of cash dividends. Cash dividends were paid in
1994 and 1993 totaling $15.5 million and $7.4 million, respectively.
The Company's primary investing activities included the purchase of
investments to fund liabilities to Jackpot winners and the purchase of
property plant and equipment. Purchases of property plant and equipment
totaled $73.2 million, $46.0 million and $32.5 million in fiscal 1994, 1993
and 1992 respectively. These purchases consisted primarily of the
capitalization of gaming machines and equipment leased in certain gaming
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
jurisdictions along with purchases of office furniture and computer
equipment to support the Company's expansion. In addition, in fiscal 1994,
the Company purchased a manufacturing and office facility in Sydney
Australia for approximately $13.0 million ($18.0 million Australian) and a
78 acre site in Reno, Nevada for the Company's future facilities expansion
for approximately $6.0 million. In fiscal 1993, the Company acquired two
office buildings for $5.2 million and a $10.0 million aircraft for regional
and international travel needs. The Company is currently designing a
headquarters and manufacturing facility on the above mentioned 78 acre site
with an estimated construction cost of $75.0 million (see note 16 to the
Consolidated Financial Statements). The facility is expected to be
completed in late 1996. The funds for the construction of this future
facility as well as the other capital expenditures anticipated during
fiscal 1995 will be derived from the Company`s existing cash flow and the
proceeds received from the September 1994 private placement of Senior
Notes.
During December 1992, the Company received $44.7 million in proceeds
from the initial public offering of the Company's ownership of certain
riverboat operations. These proceeds consisted of $16.2 million as payment
for outstanding loans including interest from the riverboat operations and
$28.5 million as proceeds from the sale of 100% of its equity in the
riverboat operations. The Company also received $1,000,000 as cash
proceeds from the sale of its ownership in CMS International. See Note 12
to the Consolidated Financial Statements for discussion of Discontinued
Operations.
Stock Repurchase Plan
On October 3, 1989, the Board of Directors authorized the repurchase
of up to 10% of the Company's then outstanding shares. Pursuant to such
Board action a total of 8,338,904 shares (as adjusted for the two-for- one
stock splits effective July 16, 1990, August 23, 1991, March 24, 1992, and
March 17, 1993) had been repurchased as of September 30, 1990. On October
4, 1990, the Board reaffirmed this authorization and authorized a further
repurchase of 12.0 million shares to a total of 23.6 million shares.
During the three years ended September 30, 1993, the Company repurchased an
additional 2,768,876 shares for an aggregate purchase price of $8,895,000.
On February 22, 1994, the Board again reaffirmed the repurchase of up to
10% of the Company's then outstanding shares and during the fiscal year
ended September 30, 1994, the Company repurchased an additional 2,941,400
shares for an aggregate purchase price of $57,100,000.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Recently Issued Accounting Standards to be Adopted
The Financial Accounting Standards Board issued in May 1993 SFAS No.
115 "Accounting for Certain Investments in Debt and Equity Securities."
This statement, effective for the Company's fiscal year ending September
30, 1995, will require that unrealized gains and losses on securities
defined as "trading securities" be included in income and that unrealized
gains and losses on securities defined as "available-for-sale" will be
excluded from income and reported in a separate component of stockholders'
equity. During the fiscal year ended September 30, 1994, the Company
accounted for it's investments under FASB 12, and accordingly recorded an
unrealized loss in income of $998,000. If SFAS No. 115 had been
adopted at September 30, 1994, it would have increased income from
continuing operations, before income taxes by $998,000 and had no effect on
stockholders' equity.
Lines of Credit
As of September 30, 1994, the Company had a $50.0 million unsecured
bank line of credit with various interest rate options available to the
Company. The line of credit is used for the purpose of funding operations
and to facilitate standby letters of credit. The Company is charged a
nominal fee on amounts used against the line as security for letters of
credit. Funds available under this line are reduced by any amounts used as
security for letters of credit. At September 30, 1994, $46.0 million was
available under this line of credit.
IGT-Australia had a $440,000 (Australian) bank line of credit
available as of September 30, 1994. Interest is paid at the lender's
reference rate plus 1%. This line is secured by equitable mortgages, and
has a provision for review and renewal annually in May. At September 30,
1994, no funds were drawn under this line.
The Company is required to comply, and is in compliance, with certain
covenants contained in these line of credit agreements and its Senior Notes
which, among other things, limit financial commitments the Company may make
without the written consent of the lender and require the maintenance of
certain financial ratios, minimum working capital and net worth of the
Company.
IMPACT OF INFLATION
Inflation has not had a significant effect on the Company's operations
during the three fiscal years ended September 30, 1994.
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements Page
Independent Auditors' Report . . . . . . . . . . . . . . . . . 42
Consolidated Statements of Income for the
years ended September 30, 1994, 1993 and 1992. . . . . . . . . 43
Consolidated Balance Sheets, September 30, 1994
and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Consolidated Statements of Cash Flows for the
years ended September 30, 1994, 1993 and 1992. . . . . . . . . 47
Consolidated Statements of Changes in Stockholders'
Equity for the years ended September 30,
1994, 1993 and 1992. . . . . . . . . . . . . . . . . . . . . . 49
Notes to Consolidated Financial Statements . . . . . . . . . . 50
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
of International Game Technology:
We have audited the accompanying consolidated balance sheets of
International Game Technology and Subsidiaries as of September 30, 1994 and
1993, and the related consolidated statements of income, cash flows and
changes in stockholders' equity for each of the three years in the period
ended September 30, 1994. Our audits also included the consolidated
financial statement schedule listed in the Index at Item 14(a)(2). These
financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of International Game
Technology and Subsidiaries as of September 30, 1994 and 1993, and the
results of their operations and their cash flows for each of the three
years in the period ended September 30, 1994 in conformity with generally
accepted accounting principles. Also, in our opinion, such consolidated
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Reno, Nevada
November 4, 1994
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Dollars in thousands except per share amounts)
Years Ended September 30,
REVENUES: 1994 1993 1992
<S> <C> <C> <C>
Product sales. . . . . . . $ 514,121 $ 335,641 $236,372
Gaming operations. . . . . 160,340 142,389 127,222
Total revenues (including
related party transactions
of $36,845, $15,589,
and $11,775). . . . . . 674,461 478,030 363,594
COSTS AND EXPENSES:
Cost of product sales. . . 271,374 167,017 122,125
Gaming operations. . . . . 70,692 62,715 54,680
Selling, general and
administrative . . . . . 83,871 57,526 52,646
Depreciation and
amortization . . . . . . 20,074 20,196 16,826
Research and development . 23,345 16,523 11,807
Provision for bad debts. . 7,199 3,815 4,608
Total costs and expenses . . 476,555 327,792 262,692
INCOME FROM OPERATIONS . . . 197,906 150,238 100,902
OTHER INCOME (EXPENSE):
Interest income. . . . . . 29,531 26,283 18,409
Interest expense . . . . . ( 11,794) ( 12,749) ( 10,790)
Gain (loss) on the sale of
assets . . . . . . . . 138 10,090 ( 1,049)
Other. . . . . . . . . . . ( 1,021) 282 ( 2,785)
Other income, net. . . . 16,854 23,906 3,785
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES. . . . 214,760 174,144 104,687
PROVISION FOR INCOME TAXES . 74,313 68,566 41,403
INCOME FROM CONTINUING
OPERATIONS . . . . . . . . 140,447 105,578 63,284
DISCONTINUED OPERATIONS:
Income from operations, net
of taxes of $257 and $893 - 705 1,500
Gain on disposition, net
of taxes of $8,888 . . . - 12,742 -
Income from discontinued
operations . . . . . . . - 13,447 1,500
NET INCOME . . . . . . . . . $140,447 $119,025 $ 64,784
</TABLE>
(continued)
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(continued from previous page)
<TABLE>
<CAPTION>
(Dollars in thousands except per share amounts)
Years Ended September 30,
1994 1993 1992
PRIMARY EARNINGS PER SHARE:
<S> <C> <C> <C>
Income from continuing
operations . . . . . . . . $ 1.07 $ 0.85 $ 0.53
Income from discontinued
operations . . . . . . . . - 0.11 0.01
Net Income . . . . . . . . . $ 1.07 $ 0.96 $ 0.54
FULLY DILUTED EARNINGS PER SHARE:
Income from continuing
operations . . . . . . . . $ 1.05 $ 0.80 $ 0.51
Income from discontinued
operations . . . . . . . . - 0.10 0.01
Net Income . . . . . . . . . $ 1.05 $ 0.90 $ 0.52
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING. . . . . . . . . 131,380,236 123,617,815 120,081,086
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ASSUMING FULL
DILUTION . . . . . . . . . . 135,857,506 136,610,507 135,448,282
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30,
(Dollars in thousands) 1994 1993
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents. . . . . . . . $142,730 $ 85,346
Short-term investments, lower of
cost or market . . . . . . . . . . . . 60,320 131,994
Accounts receivable (including $5,557 and
$1,262 due from related parties), net
of allowances for doubtful accounts
of $3,956 and $6,974 . . . . . . . . . 129,796 81,042
Current maturities of long-term notes
and contracts receivable (including
$5,244 and $175 due from related
parties), net of allowances. . . . . . 81,007 64,782
Inventories, net of allowances for
obsolescence of $13,864 and $7,116:
Raw materials . . . . . . . . . . . . 59,498 40,225
Work-in-process . . . . . . . . . . . 3,604 4,998
Finished goods. . . . . . . . . . . . 40,908 29,855
Total inventories . . . . . . . . . . 104,010 75,078
Deferred income taxes. . . . . . . . . . 19,615 10,932
Prepaid expenses and other . . . . . . . 21,612 14,255
Total current assets. . . . . . . . . 559,090 463,429
LONG-TERM NOTES AND CONTRACTS RECEIVABLE
(including $9 and $651 due from
related parties), net of allowances
and current maturities . . . . . . . . . 61,212 43,614
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land . . . . . . . . . . . . . . . . . . 13,691 989
Buildings. . . . . . . . . . . . . . . . 13,344 4,213
Gaming operations equipment. . . . . . . 60,785 39,375
Manufacturing machinery and equipment. . 59,227 43,456
Leasehold improvements . . . . . . . . . 9,393 5,529
Total. . . . . . . . . . . . . . . . . . 156,440 93,562
Less accumulated depreciation and
amortization . . . . . . . . . . . . . ( 59,195) ( 42,689)
Property, plant and equipment, net . . . 97,245 50,873
INVESTMENTS TO FUND LIABILITIES
TO JACKPOT WINNERS . . . . . . . . . . . 131,036 82,266
OTHER ASSETS . . . . . . . . . . . . . . . 19,425 6,411
Total Assets . . . . . . . . . . . . . $868,008 $646,593
</TABLE>
(continued)
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued from previous page)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Dollars in thousands) September 30,
1994 1993
CURRENT LIABILITIES:
<S> <C> <C>
Current maturities of long-term notes
payable and capital lease obligations. . . $ 2,613 $ 462
Accounts payable . . . . . . . . . . . . . . 20,890 22,620
Jackpot liabilities. . . . . . . . . . . . . 18,562 11,882
Accrued employee benefit plan
liabilities. . . . . . . . . . . . . . . . 17,509 19,651
Accrued dividends payable. . . . . . . . . . 3,971 3,746
Accrued vacation liability . . . . . . . . . 4,542 3,771
Accrued income taxes . . . . . . . . . . . . - 11,649
Other accrued liabilities. . . . . . . . . . 10,305 9,968
Total current liabilities. . . . . . . . . 78,392 83,749
LONG-TERM NOTES PAYABLE AND CAPITAL
LEASE OBLIGATIONS, NET OF CURRENT
MATURITIES . . . . . . . . . . . . . . . . . 111,468 617
CONVERTIBLE SUBORDINATED NOTES
PAYABLE. . . . . . . . . . . . . . . . . . . - 59,998
LONG-TERM JACKPOT LIABILITIES. . . . . . . . . 146,640 106,476
DEFERRED INCOME TAXES. . . . . . . . . . . . . 10,618 17,187
OTHER LIABILITIES. . . . . . . . . . . . . . . 22 17
Total liabilities. . . . . . . . . . . . . 347,140 268,044
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.000625 par value;
320,000,000 shares authorized;
149,465,774 and 138,938,605 shares
issued . . . . . . . . . . . . . . . . . . 93 87
Additional paid-in capital . . . . . . . . . 226,712 146,869
Retained earnings. . . . . . . . . . . . . . 385,511 259,125
Treasury stock; 17,098,646 and
14,071,460 shares, at cost . . . . . . . .( 87,160 ) ( 27,532)
Unrealized loss on investment. . . . . . . .( 4,288 ) -
Total stockholders' equity . . . . . . . . 520,868 378,549
Total liabilities and
stockholders' equity. . . . . . . . . . . $868,008 $646,593
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Dollars in thousands)
Years Ended September 30,
1994 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income . . . . . . . . . . . . $ 140,447 $ 119,025 $ 64,784
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization. . 20,074 20,196 16,826
Amortization of long-term debt
discount and offering costs. . 545 1,517 1,724
Provision for bad debts. . . . . 7,199 3,815 4,608
Provision for inventory
obsolescence . . . . . . . . . 8,668 981 6,030
(Gain) loss on sale of assets. . ( 138) ( 10,090 ) 1,049
Gain on sale of discontinued
operations . . . . . . . . . . - ( 12,742 ) -
Donated common stock . . . . . . 500 250 1,060
(Increase) decrease in assets:
Receivables. . . . . . . . . . ( 89,776) ( 64,763 ) ( 66,176)
Inventories. . . . . . . . . . ( 37,600) ( 13,847 ) ( 31,807)
Prepaid expenses and other . . ( 2,033) ( 12,440 ) ( 864)
Other assets . . . . . . . . . ( 8,545) 4,110 ( 45)
Increase (decrease) in liabilities:
Accounts payable and accrued
liabilities . . . . . . . . . ( 2,765) 7,520 18,817
Accrued and deferred income taxes
payable, net of tax benefit
of stock option and purchase
plans . . . . . . . . . . . . ( 21,770) 12,583 22,963
Other . ( 30) ( 22) ( 402)
Total adjustments. . . . . . . ( 125,671) ( 62,932) ( 26,217)
Net cash provided by operating
activities. . . . . . . . . . 14,776 56,093 38,567
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property,
plant and equipment. . . . . . ( 73,182) ( 46,064) ( 32,487)
Proceeds from sale of property,
plant and equipment. . . . . . 6,071 9,408 6,524
Purchase of short-term investments ( 114,265) ( 154,515) ( 132,127)
</TABLE>
(continued)
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued from previous page)
<TABLE>
<CAPTION>
(Dollars in thousands) Years Ended
September 30,
1994 1993 1992
<S> <C> <C> <C>
Proceeds from sale of short
term investments . . . . . . . 186,868 110,460 120,217
Proceeds from investments to fund
liabilities to jackpot winners . 15,932 11,139 6,754
Purchase of investments to fund
liabilities to jackpot winners . ( 70,025 ) ( 46,262) ( 20,763 )
Investment in and advances to
unconsolidated affiliates. . . - 29,749 -
Net cash used in investing
activities. . . . . . . . . . ( 48,601 ) ( 86,085) ( 51,882 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt . . . ( 563 ) ( 870) ( 1,331 )
Payments on liabilities to jackpot
winners. . . . . . . . . . . . ( 15,932 ) ( 11,139) ( 6,754 )
Collections from systems to fund
liabilities to jackpot winners . 62,776 48,003 33,546
Proceeds from stock options
exercised. . . . . . . . . . . 1,261 3,514 1,138
Proceeds from employee stock
purchases. . . . . . . . . . . 1,035 869 563
Payments for purchase of treasury
stock. . . . . . . . . . . . . ( 57,097 ) - -
Payments of cash dividends . . . ( 15,495 ) ( 7,350) -
Proceeds from long-term debt . . 113,565 - -
Foreign currency exchange gain
(loss) . . . . . . . . . . . . 1,659 ( 726) ( 1,737 )
Net cash provided by financing
activities. . . . . . . . . . 91,209 32,300 25,425
NET CASH PROVIDED BY CONTINUING
OPERATIONS . . . . . . . . . . . 57,384 2,308 12,110
NET CASH PROVIDED BY (USED IN)
DISCONTINUED OPERATIONS. . . . . - 13,879 ( 887 )
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR. . . . . . . . 85,346 69,159 57,936
CASH AND CASH EQUIVALENTS AT
END OF YEAR. . . . . . . . . . . $142,730 $ 85,346 $ 69,159
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years Ended
(Amounts in thousands) September 30,
1994 1993 1992
COMMON STOCK
<S> <C> <C> <C>
Balance at beginning of year
Shares: 126,260 in 1992, 130,602
in 1993, and 138,939 in 1994. . . . $ 87 $ 82 $ 79
Stock options exercised
Shares: 3,155 in 1992, 2,731 in
1993, and 758 in 1994 . . . . . . . - 2 3
Conversion of subordinated notes
Shares: 11 in 1992, 5,527 in 1993,
and 9,339 in 1994 . . . . . . . . . 6 3 -
Other transactions
Shares: 1,176 in 1992, 79 in 1993
and 430 in 1994 . . . . . . . . . . - - -
Balance at end of year
Shares: 149,466 in 1994 . . . . . . $ 93 $ 87 $ 82
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year . . . . . $146,869 $ 85,584 $ 57,866
Stock options exercised. . . . . . . . 4,826 8,387 3,365
Tax benefit of stock options . . . . . 5,131 18,137 12,358
Donated stock. . . . . . . . . . . . . 500 250 1,060
Conversion of subordinated notes . . . 59,136 34,511 85
Purchase of Radica interest. . . . . . 10,250 - -
EDT share exchange . . . . . . . . . . - - 10,850
Balance at end of year . . . . . . . . $226,712 $146,869 $ 85,584
RETAINED EARNINGS
Balance at beginning of year . . . . . $259,125 $151,922 $ 87,659
Currency translation adjustments . . . 1,659 ( 727) ( 1,737)
EDT share exchange . . . . . . . . . . - - 1,216
Dividends declared . . . . . . . . . . ( 15,720) ( 11,095) -
Net income . . . . . . . . . . . . . . 140,447 119,025 64,784
Balance at end of year . . . . . . . . $385,511 $259,125 $151,922
TREASURY STOCK
Balance at beginning of year . . . . . ( $ 27,532) ( $ 23,526) ($ 21,857)
Purchase of treasury stock . . . . . . ( 59,628) ( 4,006) ( 1,669)
Balance at end of year . . . . . . . . ( $ 87,160) ( $ 27,532) ($ 23,526)
UNREALIZED LOSS ON NON-CURRENT INVESTMENT
Balance at beginning of year . . . . . - - -
Unrealized loss on investment. . . . . ( $ 4,288) - -
Balance at end of year . . . . . . . . ( $ 4,288) - -
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Organization - International Game Technology (the "Company") was
incorporated in December 1980 to acquire the gaming licensee and operating
entity, IGT-North America, and facilitate the Company's initial public
offering. In addition to its 100% ownership of IGT-North America, each of
the following corporations is a direct or indirect wholly-owned subsidiary
of the Company: IGT-International ("IGT-International"); IGT-Australia,
Pty. Ltd. ("IGT-Australia"); IGT-Europe b.v. ("IGT-Europe"); IGT-Iceland
Ltd. ("IGT-Iceland"); and IGT-Japan k.k. ("IGT-Japan"). In December 1992
the Company sold its interest in its riverboat partnerships, and
additionally, on September 30, 1993 sold its interest in CMS-International
("CMS").
IGT-North America is the largest manufacturer of computerized casino
gaming products and proprietary systems in the world. IGT-North America
believes it manufactures the broadest range of microprocessor-based gaming
machines available. The Company also develops and manufactures "SMART"
systems which monitor slot machine play and track player activity. In
addition to gaming product sales and leases, IGT-North America has
developed and sells computerized linked proprietary systems to monitor
video gaming terminals and has developed specialized video gaming terminals
for lotteries and other applications. IGT-North America also develops and
operates proprietary software linked progressive systems. The Company
derives revenues related to the operations of these systems as well as
collects license and franchise fees for the use of the systems.
IGT-International was established in September 1993 to oversee all
sales of gaming products outside of North America by the Company's foreign
subsidiaries.
IGT-Australia, located in Sydney, Australia, manufactures
microprocessor-based gaming products and proprietary systems, and performs
engineering, manufacturing, sales, marketing and distribution operations
for the Australian markets as well as other gaming jurisdictions in the
Southern Hemisphere and Pacific Rim.
IGT-Europe was established in The Netherlands in February 1992 to
distribute and market gaming products in Eastern and Western Europe and
Africa. Prior to providing direct sales, the Company sold its products in
these markets through a distributor.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
(continued)
IGT-Iceland was established in September 1993 to provide video lottery
system software, machines, equipment and technical assistance to support
Iceland's video lottery operations.
IGT-Japan was established in July 1990, and in November 1992 opened an
office in Tokyo, Japan. On April 16, 1993, IGT-Japan was approved to
supply Pachisuro gaming machines to the Japanese market. No sales were
made to this market in fiscal 1994.
Discontinued Operations - Iowa Riverboat Corporation ("IRC"), a
wholly-owned subsidiary of the Company, established in March 1990, was a
40% partner in an Iowa partnership that owned and operated the President
riverboat casino and the Blackhawk Hotel in Davenport, Iowa. International
Acceptance Corporation ("IAC"), also a wholly-owned subsidiary of the
Company, owned 45% of a riverboat excursion operation and the permanently
docked Admiral riverboat in St. Louis, Missouri. In December 1992, the
Company contributed the assets of IRC and IAC to President Riverboat
Casinos ("PRC") in exchange for 1,671,429 shares of PRC common stock.
These shares were subsequently sold to the public as part of an initial
public offering of PRC common stock on December 17, 1992 (see Note 12).
CMS, established in August 1988, operated casinos and hotel/casinos
for the Company including the Silver Club hotel and casino and The Treasury
Club casino in Sparks, Nevada, the El Capitan Club in Hawthorne, Nevada and
the King's Casino on the island of Antigua in the Caribbean. Effective
September 30, 1993 the Company sold its ownership interest in CMS to Summit
Casinos Nevada, Inc. (see Note 12).
The consolidated financial statements include the accounts of the
Company and its majority owned subsidiaries. All material intercompany
accounts and transactions have been eliminated. The disposal of interests
in riverboat partnerships and CMS (collectively, "casino operations") has
been accounted for as discontinued operations. Accordingly, operating
results and cash flows of casino operations are segregated and reported as
discontinued operations in the accompanying consolidated statements of
income and cash flows.
Common Stock Split - On March 17, 1993, the Company effected a two-
for-one split of its common stock and a corresponding reduction in the par
value of its common stock from $.00125 to $.000625 per share. Prior years'
shares outstanding and per share amounts have been restated to reflect the
stock split.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
(continued)
Product Sales - The Company makes product sales for cash, on normal
credit terms (90 days or less), over longer term installments, and through
participation in the net winnings of the machines until the purchase price
is paid. Generally, sales are recorded when title passes to the customer.
Gaming Operations - Gaming operations revenues consist of revenues
relating to the operations of the proprietary systems division, a share of
the net gaming winnings from the operation of machines at customer
locations, and the lease and rental of gaming and video lottery machines.
Revenue from systems products installed in New Jersey casinos is not
recognized until receipt is assured.
The Company's proprietary systems are primarily operated in Nevada,
Atlantic City, New Jersey and approved gaming jurisdictions in Mississippi,
Deadwood, South Dakota, Colorado, Louisiana and in Native American casinos.
In Atlantic City, each system is operated by an independent trust managed
by representatives from the participating casinos. The trust records a
liability to the Company for annual casino fees as well as machine rental
fees. In Nevada, Mississippi, South Dakota, Louisiana and the Native
American casinos, the systems are operated by the Company and the casinos
retain the net win, less a percentage of the amounts played which is paid
to the Company to fund the progressive jackpots. The Company earns
interest on these funds until jackpots are paid. These jackpots are paid
out in equal installments without interest over a ten to twenty year
period. The Company records the percentage or fee received as revenue and
records as expense all costs associated with its obligation to fund the
jackpot liabilities. In Colorado, the Company operates the systems and
charges the casinos a machine rental and service fee.
The following table shows the revenues recorded from gaming
operations.
<TABLE>
<CAPTION>
Years Ended
(Dollars in thousands) September 30,
1994 1993 1992
<S> <C> <C> <C>
Proprietary Systems. . . . $146,800 $124,275 $106,639
Lease Operations . . . . . 13,540 18,114 20,583
Total. . . . . . . . . . . $160,340 $142,389 $127,222
</TABLE>
At September 30, 1994 and 1993, the Company had accrued approximately
$165.2 million and $118.4 million, respectively, for outstanding
progressive jackpot liabilities. This liability includes the amount
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
(continued)
required to provide for payments to systems jackpot winners. The Company
is required to maintain cash and investments relating to systems
liabilities in separate accounts.
Cash and Cash Equivalents - This includes cash required for funding
current systems jackpot payments as well as purchasing investments to meet
obligations for making payments to jackpot winners. Cash in excess of
daily requirements is generally invested in various marketable securities.
If these securities have original maturities of three months or less they
are considered cash equivalents. Such investments are stated at cost,
which approximates market, and are deemed to be cash equivalents for
purposes of the consolidated statements of cash flows.
Short-Term Investments - This represents a portfolio of marketable
securities consisting primarily of U.S. government securities, corporate
bonds with original maturities beyond three months and common and preferred
stocks. Similar items with original maturities of three months or less at
the date of purchase are considered to be cash equivalents. Marketable
securities are carried at the lower of their aggregate cost or market
value. At September 30, 1994, short term investments had a cost basis of
$61,318,000 and a market value of $60,320,000. At September 30, 1993,
short term investment had a cost basis of $131,994,000 and a market value
of $147,123,000.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out method) or market.
Depreciation and Amortization - Depreciation and amortization are
provided on the straight-line method over the following useful lives:
<TABLE>
<S> <C>
Gaming operations equipment . . 1 to 5 years
Manufacturing machinery and equipment . . 3 to 5 years
Buildings . . . . . . . . . 40 years
Leasehold improvements. . . Term of Lease
Building under capital lease. . Term of Lease
</TABLE>
Maintenance and repairs are expensed as incurred. The costs of
improvements are capitalized. Gains or losses on the disposition of assets
are included in income.
Investments to Fund Liabilities to Jackpot Winners - These
investments represent discounted U.S. Treasury Securities purchased to meet
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
(continued)
obligations for making payments to linked progressive systems winners.
Such investments are stated at cost. The gaming regulations of certain
states provide how these funds are to be maintained.
Other Assets - Other assets include the Company's investment in Radica
Games Limited ("Radica"), a manufacturer of non-gambling casino theme
games, debt issue and placement costs, deposits, patents, goodwill, gaming
rights and certain investments. Debt issue costs are amortized as a
component of interest expense over the term of the related debt (see Note
11). The cost of gaming rights is amortized on a straight-line basis over
the terms of the agreements. Patents and goodwill are amortized over
periods of seven years and five years, respectively. The Company accounts
for its non-current investment in Radica at the lower of cost or market,
based on quoted market prices. At September 30, 1994, the Company recorded
an unrealized loss on this investment of $4,288,000 as a separate component
of stockholders' equity.
Earnings Per Share - Earnings per share is computed based upon the
weighted average number of common and common equivalent shares outstanding.
Prior period weighted average shares outstanding and earnings per share
have been restated to reflect the effects of the Company's 1993 stock
split.
Foreign Currency Translation - The financial statements of foreign
subsidiaries have been translated into U.S. dollars for consolidated
reporting purposes in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 52. All asset and liability accounts have been
translated using the current exchange rate at the balance sheet date.
Income statement amounts have been translated using the average exchange
rate for the year. The gains and losses resulting
from the translation adjustments have been accumulated as a component of
stockholders' equity, being netted against retained earnings due to the
immateriality of the amounts. The effect on the consolidated statements of
operations of translation gains and losses is insignificant for all years
presented.
Recently Issued Accounting Standards to be Adopted - The Financial
Accounting Standards Board issued in May 1993 SFAS No. 115 "Accounting for
Certain Investments in Debt and Equity Securities." This statement,
effective for the Company's fiscal year ending September 30, 1995, will
require that unrealized gains and losses on securities defined as "trading
securities" be included in income and that unrealized gains and losses on
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
(continued)
securities defined as "available-for-sale" will be excluded from income and
reported in a separate component of stockholders' equity. During the
fiscal year ended September 30, 1994, the Company accounted for it's
investments under FASB 12, and accordingly recorded an unrealized loss in
income of $998,000. If SFAS No. 115 had been adopted for the year ended
September 30, 1994, income from continuing operations before income taxes
would have increased by $998,000, with no effect on stockholders' equity.
Reclassification - Certain amounts in the 1993 and 1992 consolidated
financial statements have been reclassified to be consistent with the
presentation used in fiscal year 1994.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Business Segments
The Company operates principally in two lines of business: the
manufacture of gaming products and gaming operations. The table below
presents information as to the Company's operations in different
industries.
<TABLE>
<CAPTION>
Years Ended
(Dollars in thousands) September 30,
1994 1993 1992
REVENUES:
<S> <C> <C> <C>
Manufacture of Gaming Products. $514,121 $335,641 $236,372
Gaming Operations . . . . . . . 160,340 142,389 127,222
Total. . . . . . . . . . . . $674,461 $478,030 $ 363,594
OPERATING PROFIT:
Manufacture of Gaming Products. $246,502 $175,888 $115,705
Gaming Operations . . . . . . . 76,181 62,391 59,381
Total. . . . . . . . . . . . 322,683 238,279 175,086
OTHER EXPENSES, INCLUDING
INTEREST EXPENSE. . . . . . . . 107,923 64,135 70,399
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES . . . . . . $214,760 $174,144 $104,687
CAPITAL EXPENDITURES:
Manufacture of Gaming
Products . . . . . . . . . . $ 17,854 $ 8,499 $ 3,560
Casino Operations . . . . . . . - - 1,182
Gaming Operations . . . . . . . 29,488 20,269 22,808
Corporate . . . . . . . . . . . 25,840 17,345 7,587
Total. . . . . . . . . . . . $ 73,182 $ 46,113 $ 35,137
DEPRECIATION AND AMORTIZATION:
Manufacture of Gaming Products. $ 2,610 $ 1,740 $ 1,655
Gaming Operations . . . . . . . 11,526 14,699 11,860
Corporate . . . . . . . . . . . 5,938 3,757 3,311
Total. . . . . . . . . . . . $ 20,074 $ 20,196 $ 16,826
IDENTIFIABLE ASSETS:
Manufacture of Gaming Products. $364,368 $262,454 $188,852
Casino Operations . . . . . . . - - 30,737
Gaming Operations . . . . . . . 215,746 151,234 117,595
Corporate . . . . . . . . . . . 287,894 232,905 152,789
Total. . . . . . . . . . . . $868,008 $646,593 $489,973
</TABLE>
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Business Segments (continued)
The Company has operations based in the United States, Canada,
Australia and Europe. The table below presents information as to the
Company's operations by geographic region.
<TABLE>
<CAPTION>
(Dollars in thousands) Years Ended
September 30,
1994 1993 1992
REVENUES:
<S> <C> <C> <C>
United States. . . . . . . $622,016 $427,697 $332,299
Canada . . . . . . . . . . 12,375 13,743 -
Australia. . . . . . . . . 42,270 39,681 34,580
Europe . . . . . . . . . . 10,969 11,485 2,878
Eliminations . . . . . . . ( 13,169) ( 14,576) ( 6,163 )
Total. . . . . . . . . . $674,461 $478,030 $363,594
OPERATING PROFIT:
United States. . . . . . . $303,897 $224,152 $163,597
Canada . . . . . . . . . . 2,819 4,241 -
Australia. . . . . . . . . 15,052 15,269 13,671
Europe . . . . . . . . . . 5,088 1,025 513
Eliminations . . . . . . . ( 4,173) ( 6,408) ( 2,695 )
Total. . . . . . . . . . 322,683 238,279 175,086
OTHER EXPENSES, INCLUDING
INTEREST EXPENSE . . . . . 107,923 64,135 70,399
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES. . . . $214,760 $174,144 $104,687
IDENTIFIABLE ASSETS:
United States. . . . . . . $806,861 $600,472 $460,686
Canada . . . . . . . . . . 5,635 8,047 -
Australia. . . . . . . . . 44,759 27,067 24,465
Europe . . . . . . . . . . 10,753 11,007 4,822
Total. . . . . . . . . . $868,008 $646,593 $489,973
</TABLE>
On a consolidated basis the Company does not recognize intersegment
revenues or expenses upon the transfer of gaming products between segments.
Operating profit is revenue and interest income less cost of sales and
operating expenses, including related operating depreciation and
amortization, and provisions for bad debts. Other expenses include
selling, general and administrative expense, interest expense, interest
income and research and development expense.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Business Segments (continued)
During the fiscal years ended September 30, 1994, 1993 and 1992, the
Company made net sales of $49.9 million, $40.2 million and 27.1 million
respectively, to Sodak Gaming, the Company's principal distributor of
gaming products to Native American Indian reservations in Wisconsin,
Minnesota and to other areas in the Midwest and western United States.
These sales aggregated approximately 9.7%, 12.0% and 11.5% of the Company's
total product sales for the fiscal years 1994, 1993 and 1992, respectively.
The Company believes the loss of this customer would not have a long term
material adverse effect on product sales as other means of distribution to
this market are available.
The Company had total export sales from the United States of
approximately $13,190,000, $13,522,000 and $29,006,000 during the fiscal
years ended September 30, 1994, 1993 and 1992, respectively.
3. Notes and Contracts Receivable
The Company grants customers extended payment terms under contracts of
sale. These contracts are generally for terms of one to five years, with
interest recognized at prevailing rates, and are secured by the related
equipment sold.
The Company has provided loans, principally for financial assistance,
to several customers. At September 30, 1994 and 1993, the balance of such
loans totaled $1,002,000 and $994,000, respectively, net of the related
allowance for doubtful accounts of $25,000 as of September 30, 1994 and
1993. These loans are generally for terms of one to five years with
interest at prevailing rates.
The following table represents, at September 30, 1994, the estimated
future collections of notes and contracts receivable (net of allowances):
<TABLE>
<CAPTION>
Years Ending September 30, Estimated Receipts
(Dollars in thousands)
<S> <C>
1995 . . . $ 81,007
1996 . . . 33,723
1997 . . . 14,017
1998 . . . 5,011
1999 . . . 2,513
2000 and after . . . . . . . . . . . . . . . . 5,948
$142,219
</TABLE>
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Notes and Contracts Receivable (continued)
At September 30, 1994 and 1993, the following allowances for doubtful
notes and contracts were netted against current and long-term maturities:
<TABLE>
<CAPTION>
(Dollars in thousands) September 30,
1994 1993
<S> <C> <C>
Current. . . . . . . . . . . . $ 3,729 $ 1,478
Long-term. . . . . . . . . . . 9,707 6,657
$13,436 $ 8,135
</TABLE>
4. Lines of Credit
As of September 30, 1994, the Company had a $50.0 million unsecured bank
line of credit with various interest rate options available to the Company.
The line of credit is used for the purpose of funding operations and to
facilitate standby letters of credit. The Company is charged a nominal fee
on amounts used against the line as security for letters of credit. Funds
available under this line are reduced by any amounts used as security for
letters of credit. At September 30, 1994 $46.0 million was available
under this line of credit.
IGT-Australia had a $440,000 (Australian) bank line of credit available
as of September 30, 1994. Interest is paid at the lender's reference rate
plus 1%. This line is secured by equitable mortgages, and has a provision
for review and renewal annually in May. At September 30, 1994, no funds
were drawn under this line.
The Company is required to comply, and is in compliance, with certain
covenants contained in these line of credit agreements which, among other
things, limit financial commitments the Company may make without written
consent of the lender and require the maintenance of certain financial
ratios, minimum working capital and net worth of the Company.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Notes Payable, Capital Lease Obligations and Liabilities to Jackpot
Winners
Notes payable and capital lease obligations consist of the following
as of:
<TABLE>
<CAPTION>
(Dollars in thousands) September 30,
1994 1993
<S> <C> <C>
Senior notes (see Note 11) . . . . . . . . . . . $100,000 $ -
Australian cash advance facility (see Note 11) . 13,212 -
Capital lease obligations (see Note 8) . . . . . 632 1,079
Other notes payable . . . . . . . . . . . . . . 237 -
Total . 114,081 1,079
Less current maturities. . . . . . . . . . . . . ( 2,613) ( 462)
Long-term notes payable and capital lease
obligations, net of current maturities . . . . $111,468 $ 617
</TABLE>
Future fiscal year principal payments of these notes and capital lease
obligations at September 30, 1994, are as follows:
(Dollars in thousands)
2000 and
1995 1996 1997 1998 1999 Later
$ 2,613 $4,709 $4,556 $16,503 $14,300 $71,400
In Nevada, Mississippi, Louisiana, South Dakota and the Native
American systems, the Company receives a percentage of the amount played
from the linked progressive systems to fund the related jackpot payments.
The jackpots are paid off in equal annual installments without interest
over either a ten or twenty year period. The following schedule sets forth
the future fiscal year principal payments for the jackpot winners under
these systems at September 30, 1994:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
1995 . . . . . . . . . . . . . . $ 15,334
1996 . . . . . . . . . . . . . . 14,175
1997 . . . . . . . . . . . . . . 12,696
1998 . . . . . . . . . . . . . . 11,221
1999 . . . . . . . . . . . . . . 10,373
2000 and after . . . . . . . . . 83,354
Liabilities to jackpot
winners. . . . . . . . . . . . $ 147,153
</TABLE>
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Income Taxes
The effective income tax rates on income attributable to continuing
operations differ from the statutory U.S. federal income tax rates as
follows:
<TABLE>
<CAPTION>
(Dollars in thousands) Years Ended September 30,
1994 1993 1992
Amount Rate Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C>
Taxes at federal
statutory rate . . . . $75,166 35.0% $60,602 34.8% $35,594 34.0%
Acquisition goodwill and
minority interest-EDT. 88 0.0 455 0.3 2,300 2.2
Foreign subsidiaries
tax. . . . . . . . . . 342 0.2 2,402 1.4 1,295 1.2
State income tax, net. . 2,096 1.0 2,273 1.3 563 0.5
Foreign sales
corporation. . . . . . ( 1,171) ( 0.5) ( 1,280 )( .7) ( 740)( 0.7)
Other, net . . . . . . . ( 2,208) ( 1.1) 4,114 2.3 2,391 2.3
Actual provision
for income taxes . . . $74,313 34.6% $68,566 39.4% $41,403 39.5%
</TABLE>
Total fiscal 1994 pre-tax income consists of $209,208,000 subject to
U.S. taxation and $5,552,000 of foreign taxable income. Total fiscal 1993
pre-tax income consists of $164,625,000 subject to U.S. taxation and
$9,519,000 of foreign taxable income. Total fiscal 1992 pre-tax income
consists of $98,434,000 subject to U.S. taxation and $6,253,000 of foreign
taxable income.
Components of the provision for income taxes on income from continuing
operations were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) Years Ended September 30,
1994 1993 1992
Current:
<S> <C> <C> <C>
Federal. . . . . . . . . . $86,112 $78,544 $33,997
State . . . . 4,143 3,497 659
Foreign. . . . . . . . . . 1,115 5,111 1,392
Total current. . . . . . . 91,370 87,152 36,048
Deferred (primarily federal) ( 17,057) ( 18,586 ) 5,355
Total provision from continuing
operations . . . . . . . . $74,313 $68,566 $41,403
</TABLE>
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Income Taxes (continued)
The deferred tax provisions (benefits) are attributable to the following:
<TABLE>
<CAPTION>
Years Ended
(Dollars in thousands) September 30,
1994 1993 1992
<S> <C> <C> <C>
Excess of accelerated depreciation
over straight-line depreciation . $ 1,397 ($ 1,017) ($ 268)
Provisions for bad debts and
receivables deductible
when written off. . . . . . . . . ( 870) ( 792) ( 1,519)
Provisions for inventory and fixed
asset valuation adjustments
deductible for taxes when realized ( 2,394) ( 226) ( 1,092)
Book provisions for accrued gaming
activities reported differently
for tax purposes. . . . . . . . . ( 14,815) ( 18,975) 9,151
Other, net . . . . . . . . . . . . ( 375) 2,424 ( 917)
($17,057) ($18,586) $5,355
</TABLE>
During 1993, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 109 "Accounting for Income Taxes." The impact of
adopting this new standard was not material to any of the consolidated
financial statements of the Company for 1993. Prior to 1993, the Company
accounted for income taxes under SFAS No. 96.
Statement 109 requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have
been included in the financial statements or tax returns. Deferred income
taxes reflect the net tax effects of (a) temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes, and (b) operating loss and
tax credit carryforwards.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Income Taxes (continued)
The tax items comprising the Company's net deferred tax asset and
liability are as follows:
<TABLE>
<CAPTION>
Years Ended
(Dollars in thousands) September 30,
1994 1993
<S> <C> <C>
Deferred tax liabilities:
Reserve differential for gaming
activities . . . . . . . . . . . . ($10,161) ($22,326)
Other . . . . . . . . . . . . . . . ( 2,258) ( 1,450)
( 12,419) ( 23,776)
Deferred tax assets:
Receivable reserve . . . . . . . . . 5,291 5,023
Reserves not currently deductible. . 6,438 3,722
Reserve differential for
gaming activities. . . . . . . . . 6,280 5,765
Difference between book and tax
basis of property. . . . . . . . . 814 2,154
Operating loss carryforwards . . . . - 263
Foreign subsidiaries . . . . . . . . 3,137 -
Other . 1,261 594
23,221 17,521
Valuation allowance. . . . . . . . . - -
Net deferred tax asset(liability). . $10,802 ($ 6,255)
</TABLE>
7. Employee Benefit Plans
Employee Profit Sharing Plans
In 1980, the Company adopted a qualified profit sharing retirement
plan for its employees working in the United States. Company contributions
to the plan are at the sole discretion of the Company's Board of Directors.
Benefits vest over a seven-year period of employment. Under a
discretionary program effective January 1, 1986, and reviewable by the
Board annually, contributions are based on 5% of annual consolidated pre-
tax operating profits (excluding IGT-Australia) above a set minimum.
Effective for 1994, 1993 and 1992, the minimum pre-tax operating profits
were $78,700,000, $44,000,000 and $28,000,000 respectively, before any
allocation to the Plan.
Additionally, a cash sharing plan was adopted effective January 1,
1986, in which 5% of annual consolidated pre-tax operating profits
(excluding IGT-Australia) in excess of $78,700,000, $44,000,000 and
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Employee Benefit Plans (continued)
$28,000,000 for 1994, 1993 and 1992, respectively, are distributed to
United States and Europe employees on a semiannual basis. Contributions to
the plan are reviewed annually by the Board.
The Company's other foreign subsidiaries have similar retirement and
cash sharing plans with one of the plans designed as a superannuation
program. Total consolidated profit sharing and cash sharing expense was
$13,239,000, $12,564,000 and $9,893,000 for the fiscal years ended
September 30, 1994, 1993 and 1992, respectively.
The Company maintains a discretionary management bonus plan and IGT-
North America maintains a marketing management bonus plan in which key
employees participate. Effective January 1, 1986, 5% of IGT's annual
consolidated pre-tax operating profits (in excess of $78,700,000,
$44,000,000 and $28,000,000 for 1994, 1993 and 1992, respectively) are
distributed under the management bonus plan. Bonuses for the IGT-North
America marketing management are computed in part by using a formula based
on product sales levels and gross profit margins achieved. Total
consolidated expense under these plans was $7,496,000, $8,435,000 and
$5,598,000 for the fiscal years ended September 30, 1994, 1993 and 1992,
respectively.
Stock Option Plans
In 1981, the Company adopted a Stock Option Plan under which
nonqualified and incentive stock options to purchase up to 27,104,000
shares may be granted and, in 1993, the Company adopted a Stock Option Plan
under which nonqualified and incentive stock options to purchase up to
3,000,000 shares may be granted to employees and up to 250,000 nonqualified
stock options may be granted to non-employee directors of the Company.
Options granted have been granted at fair market value on the date of grant
and, except for non-employee director options, typically become exercisable
in five annual installments although a shorter period may be provided. At
September 30, 1994, options to purchase 3,144,000 shares were available for
grant under the plans.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Employee Benefit Plans (continued)
<TABLE>
<CAPTION>
Number Option Price
of Shares Per Share
<S> <C> <C> <C>
Outstanding at
September 30, 1993 . 3,392,472 $ .51 - $38.63
Granted. . . . . . . . 974,076 $18.50 - $40.50
Cancelled. . . . . . . ( 106,847) $22.25 - $34.75
Exercised. . . . . . . ( 739,946) $ .51 - $25.44
Outstanding at
September 30, 1994 . 3,519,755 $ .51 - $40.50
Exercisable at
September 30, 1994 . 1,419,938 $ .51 - $38.63
Employee Stock Purchase Plan
Effective February 26, 1987, the Company adopted a Qualified Employee
Stock Purchase Plan. Under this Plan, each eligible employee may be
granted an option to purchase a specific number of shares of the Company's
common stock. The term of each option is twelve months, and the exercise
date is the last day of the option period. Eligible employees include only
those employees who have completed twelve months of continuous service with
the Company. The Plan excludes employees who are officers, 5% or more
shareholders, employees receiving more than $64,245 in annual compensation
and employees of certain subsidiaries.
An aggregate of 2,400,000 shares may be made available under this
plan. Employees may participate in this plan only through payroll
deductions up to a maximum of 10% of their base pay. The option price is
equal to the lesser of 85% of the fair market value of the common stock on
the date of grant or on the date of exercise. At September 30, 1994,
1,058,000 shares were available under this plan.
401(k) Matching Program
Effective January 1, 1993, the Company offered a 401(k) retirement
plan contribution matching program. Under the plan agreement, the Company
matches 100% of employee contributions up to $500 and an additional 50% of
the next $500 contributed by the employee. This allows for maximum annual
Company contributions of $750 to each employee's 401(k) account. The
employees will be 100% vested in Company contributions at the date the
contribution is made. In fiscal 1994 and 1993 the Company contributed
$824,000 and $512,000, respectively, under this plan.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Commitments
The Company leases certain of its facilities and equipment under
various agreements for periods through the year 2001. The following table
shows the future minimum rental payments required under these operating and
capital leases which have initial or remaining non-cancelable lease terms
in excess of one year as of September 30, 1994.
</TABLE>
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C> <C> <C>
Years Ending Operating Capital
September 30, Leases Leases Total
1995 . . $ 5,356 $ 412 $ 5,768
1996 . . 4,409 238 4,647
1997 . . 2,915 60 2,975
1998 . . 2,125 - 2,125
1999 . . 1,988 - 1,988
2000 and after . . . . 4,029 - 4,029
Total minimum
payments . . . . . . $ 20,822 710 $ 21,532
Amount representing interest ( 78)
Capital lease obligations 632
Less current portion ( 358)
Long-term capital lease
obligations $ 274
The cost and related accumulated depreciation of equipment under
capital leases as of September 30, 1994 was $1,560,000 and $927,000,
respectively, and at September 30, 1993, was $2,010,000 and $1,309,000,
respectively.
Certain of the leases provide that the Company pay utilities,
maintenance, property taxes, and certain other operating expenses
applicable to the leased property, including liability and property damage
insurance. The lease for the Company's existing manufacturing facility in
Reno extends through 2001. The lease provides for periodic rental
increases.
The total rental expense for the fiscal years ended September 30,
1994, 1993 and 1992 was approximately $5,576,000, $4,753,000 and
$5,746,000, respectively.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Contingencies
The Company has been named in and brought lawsuits in the normal
course of its business. Management does not expect the outcome of these
suits to have a material adverse effect on the Company's financial position
or results of future operations.
10. Related Party Transactions
Members of the Company's Board of Directors
A member of the Company's Board of Directors is an officer of, and has
an equity interest in, a Nevada gaming business from which the Company
recognized revenues of $1,486,000, $1,735,000 and $2,254,000 during the
fiscal years ended September 30, 1994, 1993 and 1992, respectively. The
Company had contracts and accounts receivable balances from this customer
of $110,000 and $868,000 at September 30, 1994 and 1993, respectively. He
is also a director and officer of a parent to nine additional gaming
businesses, from which the Company recognized revenues of $30,227,000
$9,083,000 and $8,890,000 during the fiscal years ended September 30, 1994,
1993 and 1992, respectively. The Company had contracts and accounts
receivable balances from these businesses of $9,550,000 and $1,020,000 at
September 30, 1994 and 1993, respectively.
Additionally, a member of the Company's Board of Directors is the
Chairman of the Board of a Nevada gaming business from which the Company
recognized revenues of $5,132,000, $4,771,000 and $631,000 during the
fiscal years ended September 30, 1994, 1993 and 1992, respectively. The
Company had contracts and accounts receivable balances from this business
of $1,150,000 and $201,000 at September 30, 1994 and 1993, respectively.
Effective October 1, 1993, the Company entered into an Agreement with
National Holdings, Inc. ("NHI") to form IGT-NHI Joint Venture Company (IGT-
NHI) to engage in the business of supplying and operating bingo halls and
electronic gaming devices in the Peoples Republic of China. The Company
has a 33% ownership interest in IGT-NHI. At September 30, 1994, IGT-NHI
owed the Company $332,000 on a line of credit and $2,044,000 on an
equipment loan.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Debt Offerings
Convertible Subordinated Notes
In May 1991, the Company completed a $115,000,000 public offering of
5-1/2% Convertible Subordinated Notes (the "Notes") maturing June 1, 2001.
The Notes were issued at a price of 80.055% of the principal amount due at
maturity, representing an original issue discount of 19.945% from the
principal amount payable at maturity. Semi-annual interest payments at 5-
1/2% along with the original issue discount represented a yield of 8.5% per
annum. Net proceeds from the issue and sale of the Notes were $89,426,800.
The Company, as permitted under the terms of the Notes, called all the
outstanding Notes for redemption on June 1, 1994. The redemption price was
84.414% of the principal amount due at maturity together with accrued and
unpaid interest to the date of redemption. At the option of the holder,
the Notes were convertible into common stock of the Company at a conversion
rate of 129.384 shares per each $1,000 principal amount until May 31, 1994.
All the outstanding notes were converted prior to the redemption date.
During fiscal 1994 and 1993, notes with a face amount of $72,180,000 and
$42,719,000 were converted into 9,339,000 and 5,527,000 shares,
respectively, of the Company's common stock.
Senior Notes
In September 1994, the Company completed a $100,000,000 private
placement of 7.84% Senior Notes (the "Senior Notes"). The Senior Notes
require annual principal payments of $14.3 million commencing in September
1998 through 2003 and a final principal payment of $14.2 million in
September 2004. Interest is paid quarterly. The Senior Notes contain
covenants which limit the financial commitments the Company may make and
require the maintenance of a minimum level of consolidated net worth. The
net proceeds from the Senior Notes of $99.6 million will be used to finance
the construction of a new manufacturing and headquarters facility and for
general corporate purposes.
Australian Cash Advance Facility
In August 1994, the Company was advanced $18,000,000 (Australian),
from an Australian bank under a cash advance facility. Annual principal
payments (Australian) are $3,000,000, $6,000,000, $6,000,000 and $3,000,000
at September 30, 1995, 1996, 1997, and June 30, 1998, respectively.
Interest is paid quarterly in arrears at a blended rate comprised of fixed
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Debt Offerings (continued)
and floating rates. The proceeds of the loan were used to acquire
manufacturing and administrative facilities in Sydney, Australia.
12. Discontinued Operations
In connection with the Company's focus on gaming machine manufacture
and proprietary software systems development, the Company has divested its
investments in casino operations during fiscal 1993 through the sale of its
interest in CMS and President Riverboat Casinos, Inc. ("PRC"). The
disposition of these investments has been accounted for as discontinued
operations. The revenues from these operations totaled $34,807,000 and
$35,849,000 for fiscal years 1993 and 1992, respectively. The separate
sales transactions of these investments are described below.
Riverboat Operations
During December 1992, the Company transferred 100% of its ownership
interest in three riverboat partnerships to PRC. In exchange for the
transfer of its ownership interests, the Company received 1,671,429 shares
of PRC common stock representing an approximate 32% ownership of PRC.
The Company, under a selling agreement with the principal stockholders
of PRC, offered all of its 1,671,429 shares of PRC common stock as a
selling shareholder in the initial public offering ("IPO") of PRC,
effective December 17, 1992. The Company received proceeds from the IPO of
$28.7 million and recognized a pre-tax gain of $23.6 million on the sale.
PRC additionally repaid $16.2 million in outstanding notes to the Company,
plus all accrued interest.
CMS International
Effective September 30, 1993, the Company sold its equity ownership
interest in CMS to Summit Casinos-Nevada, Inc., ("Summit"), whose owners
include senior management of CMS. The sale consisted of $750,000 in cash
for the Company's ownership of CMS's preferred stock and $250,000 in cash
and a note of $2,043,529 for CMS's common stock. Additionally, the Company
acquired a stock purchase warrant entitling the Company to purchase 4.84%
of CMS at a per share price approximately equal to the book value of CMS
("the CMS Warrant"). The CMS Warrant, which expires on the earlier of
September 30, 2003 or the closing of an underwritten public offering of
CMS, is exchangeable for a Warrant to purchase shares of common stock of
any other affiliate of Summit which proposes an underwritten public
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Discontinued Operations (continued)
offering of its common stock.
The Company recognized a pre-tax loss of approximately $2.0 million on
the sale and remains as guarantor on certain indebtedness of CMS, which had
at September 30, 1994, an aggregate outstanding balance of $17.0 million.
The notes that have been guaranteed are also collateralized by the
respective casino properties. Summit has agreed to indemnify and hold the
Company harmless against any liability arising under these guarantees.
Management believes the likelihood of losses relating to these guarantees
is remote.
The composition of income from discontinued operations in fiscal 1993
is as follows:
</TABLE>
<TABLE>
<CAPTION>
(Dollars in Thousands) Riverboat CMS
Operations Int'l Total
<S> <C> <C> <C>
Income from operations . . . . $ 245 $ 717 $ 962
Gain (loss) on disposal. . . . 23,586 ( 1,956 ) 21,630
Income (loss) on discontinued
operations before taxes. . . 23,831 ( 1,239 ) 22,592
Income tax (provision)
benefit. . . . . . . . . . . ( 9,573) 428 ( 9,145 )
Income (loss) on discontinued
operations, net of taxes . . $14,258 ($ 811 ) $13,447
</TABLE>
13. EDT Common Stock
On January 31, 1992, the stockholders of EDT, previously a 43% owned
subsidiary of the Company, approved the exchange of 57% of the EDT common
stock owned by the public for common stock of the Company. Accordingly,
the outstanding EDT public shares were converted to approximately 876,000
shares of the Company's common stock and EDT became a wholly-owned
subsidiary of the Company. The operations of EDT have been merged into
those of IGT-North America.
14. Disposition of Other Operations
The Company's route and Megapoker operations were sold to Jackpot
Enterprises, a Nevada corporation, in August and November of 1992,
respectively. The route operations included all the route equipment and
operating contracts for the Nevada participation locations involving
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Disposition of Other Operations (continued)
approximately 1,380 gaming machines in 160 locations. This sale resulted
in a net loss of $893,000. The Megapoker sale included all gaming services
and associated equipment used on the Megapoker route along with licenses
for all Megapoker software, trademarks, and tradenames. A net gain of
$242,000 was realized on this sale.
In the first quarter of 1993, the Company completed the sale of its
computerized keno system business to Imagineering Systems, Inc. of Reno,
Nevada. All development, manufacturing, sales and service functions for
the keno systems were included in the sale. The sale did not have a
material effect on the Company's consolidated financial statements.
15. Supplemental Statement of Cash Flows Information
Certain noncash investing and financing activities are not reflected
in the consolidated statements of cash flows. The Company incurred capital
lease obligations to obtain property, plant and equipment in the years
ended September 30, 1993 and 1992 of $46,000 and $1,429,000, respectively.
Additionally, in fiscal 1993 the Company exchanged common stock of the
Company for EDT common stock (see Note 13).
During fiscal 1994 and 1993 notes with a face amount of $72,180,000,
and $42,719,000 were converted to 9,338,877 and 5,527,133 shares of the
Company's common stock, respectively.
The Company had dividends declared, but not yet paid at September 30,
1994 and 1993 totaling $3,971,000 and $3,746,000.
During fiscal 1994, 1993, and 1992, common stock with a cost of
$2,530,000, $4,006,000 and $1,669,000 was acquired in connection with stock
option exercises for the same amounts. The stock option exercise price on
employee stock options may be paid to the Company by the employee by
submitting previously held common stock of the Company.
During the year ended September 30, 1994, the Company purchased a
portion of Radica Games Ltd. for cash of $5,850,000 and 374,436 shares of
the Company's common stock valued upon issuance at $10,250,000.
The tax benefit of stock options totaled $5,131,000, $18,137,000 and
$12,358,000 for the years ended September 30, 1994, 1993, and 1992,
respectively.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Supplemental Statement of Cash Flows Information (continued)
Payments of interest for the years ended September 30, 1994, 1993 and
1992 were $12,272,000, $12,030,000 and $12,132,000, respectively. Payments
for income taxes for the years ended September 30, 1994, 1993 and 1992 were
$85,962,000, $65,699,000 and $31,825,000, respectively.
16. Construction of New Corporate Headquarters and Manufacturing Facility.
In May 1994, the Company purchased a 78 acre site in Reno Nevada for
approximately $6.0 million for the construction of an approximately
1,000,000 square foot office, manufacturing and warehousing facility.
Currently the facility is in its design phase with an estimated completion
date of late calendar 1996, absent unexpected delays, and an estimated
construction cost of $75.0 million.
17. Selected Quarterly Financial Data (Unaudited)
(Dollars in thousands, except per share amounts and stock prices)
During the fourth quarter of fiscal 1994, the Company reevaluated and
reduced it's fiscal 1994 income tax provision accrual rate. If this
reduction had been reflected throughout the year net income would have
increased by $1.1 million ($.01 per fully diluted share) in the first
quarter, $1.1 million ($.01 per fully diluted share) in the second quarter,
$1.4 million ($.01 per fully diluted share) in the third quarter and
decreased by $3.6 million ($.03 per fully diluted share) in the fourth
quarter.
<TABLE>
<CAPTION>
1994
First Qt r Second Qtr Third Qtr Fourth Qtr
<S> <C> <C> <C> <C>
Total revenues . . . $149,767 $164,537 $187,682 $172,475
Income from operations 45,525 45,183 61,658 45,541
Income from continuing
operations . . . . 30,392 31,414 39,905 38,736
Income (loss) from
discontinued
operations . . . - - - -
Net income . . . . . 30,392 31,414 39,905 38,736
Primary earnings per share:
Income from continuing
operations . . . $ .23 $ .24 $ .30 $ .29
Income (loss) from
discontinued
operations . . - - - -
Net income . . . . $ .23 $ .24 $ .30 $ .29
Stock price
High . . . . . $ 41-1/4 $ 33-1/2 $ 28-1/4 $ 24-3/4
Low . . . . . . . 28-1/4 26-1/8 17-1/4 18-1/2
</TABLE>
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Selected Quarterly Financial Data (Unaudited),(continued)
(Dollars in thousands, except per share amounts and stock prices)
<TABLE>
<CAPTION>
1993
First Qtr Second Qtr Third Qtr Fourth Qtr
<S> <C> <C> <C> <C>
Total revenues . . . $ 87,264 $ 98,721 $131,987 $160,058
Income from operations 25,191 27,468 42,315 55,264
Income from continuing
operations . . . . 21,180 18,878 29,647 35,873
Income (loss) from
discontinued
operations . . . 14,369 ( 139 ) 363 ( 1,146)
Net income . . . . . 35,549 18,739 30,010 34,727
Primary earnings per share:
Income from continuing
operations . . . $ .17 $ .15 $ .24 $ .29
Income (loss) from
discontinued
operations . . .12 - - ( .01)
Net income . . . . $ . 29 $ .15 $ .24 $ .28
Stock price
High . . . . . . . $ 26-3/8 $ 33 $ 39-3/4 $ 41-3/8
Low . . . . . . . 17-7/8 23-3/4 28-1/2 32-1/8
1992
First Qtr Second Qtr Third Qtr Fourth Qtr
Total revenues . . . $ 65,163 $ 66,835 $114,043 $117,553
Income from operations 13,826 17,528 33,089 36,459
Income from continuing
operations . . . . 9,909 11,551 19,476 22,348
Income (loss) from
discontinued
operations . . . 613 ( 564 ) 497 954
Net income . . . . . 10,522 10,987 19,973 23,302
Primary earnings per share:
Income from continuing
operations . . . $ .08 $ .10 $ .16 $ .18
Income (loss) from
discontinued
operations . . .01 ( .01 ) - .01
Net income . . . . $ .09 $ .09 $ .16 $ .19
Stock price
High . . . . . $ 12 $ 17-3/8 $ 17-1/8 $ 22-1/8
Low . . . . . . . 6-1/4 10-7/8 11-1/4 12-7/8
</TABLE>
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Fair Value of Financial Instruments
The following table presents the carrying amount and estimated fair
value of the Company's financial instruments in accordance with Statement
of Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments."
<TABLE>
<CAPTION>
September 30, 1994
Carrying Estimated
Amount Fair Value
Assets:
<S> <C> <C>
Cash and cash equivalents. . . . . . . $142,730 $142,730
Short term investments . . . . . . . . 60,320 60,320
Investments to fund liabilities to
Jackpot winners. . . . . . . . . . . 146,141 146,773
Notes and contracts receivable . . . . 142,219 180,574
Liabilities:
Liabilities to Jackpot winners . . . . 147,153 147,784
Notes payable and capital lease
obligations. . . . . . . . . . . . . 114,081 112,094
September 30, 1993
Carrying Estimated
Amount Fair Value
Assets:
Cash and cash equivalents. . . . . . . $ 85,346 $ 85,346
Short term investments . . . . . . . . 131,994 147,123
Investments to fund liabilities to
Jackpot winners. . . . . . . . . . . 92,048 108,027
Notes and contracts receivable . . . . 107,581 127,458
Liabilities:
Convertible subordinated notes
payable. . . . . . . . . . . . . . . 59,998 379,219
Liabilities to Jackpot winners . . . . 92,768 108,747
Notes payable and capital lease
obligations. . . . . . . . . . . . . 1,079 1,079
</TABLE>
The carrying value of cash and cash equivalents at September 30, 1994
and 1993 approximates fair value because of the short term maturity of
those instruments. The estimated fair value of short term investments,
investments to fund liabilities to jackpot winners, and the convertible
subordinated notes payable are based on quoted market prices. The
estimated fair value of liabilities to Jackpot winners is based on quoted
market prices of investments which upon maturity will be used to fund these
liabilities. The estimated fair value of the Senior Notes, included in
notes payable and capital lease obligations at September 30, 1994, was
based on the yield required at September 30, 1994 of a private placement of
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Fair Value of Financial Instruments (continued)
similar terms and credit valuation. The carrying value of notes payable
and capital lease obligations at September 30, 1993 approximates fair value
because of the short term maturity of those investments.
The fair value of the Company's notes and contracts receivable is
estimated by discounting the future cash flows using interest rates
determined by management to reflect the credit risk and remaining
maturities of the related notes and contracts.
In the normal course of business, the Company is a party to financial
instruments with off-balance-sheet risk such as performance bonds and other
guarantees, which are not reflected in the accompanying balance sheets.
Management does not expect any material losses to result from these off-
balance-sheet instruments.
19. Concentrations of Credit Risk
The financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
equivalents and accounts, contracts, and notes receivable. At September
30, 1994, the Company had bank deposits in excess of insured limits of
approximately $16,968,000.
Product sales and the resulting receivables are concentrated in
specific legalized gaming regions. The Company also distributes a
significant portion of its products through third party distributors
resulting in significant distributor receivables. At September 30, 1994
accounts, contracts, and notes receivable by region as a percentage of
total receivables are as follows:
<TABLE>
<S> <C>
Regions
Nevada. . . . . . . . . . . . 34.1%
Riverboats (greater
Mississippi River area). . . 33.7%
Indian Casinos (distributor). 9.0%
Colorado. . . . . . . . . . . 6.5%
Louisiana (distributor) . . . 3.7%
Other Regions (individually
less than 5%) . . 13.0%
Total . . . . . . . . . . . . . 100.0%
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Items 10, 11, 12 and 13 is incorporated by
reference from the 1995 Proxy Statement to be filed with the Securities and
Exchange Commission within 120 days of the end of the fiscal year covered
by this report.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a)(1) Consolidated Financial Statements:
Reference is made to the Index to Financial Statements and
Related Information under Item 8 in Part II hereof where these
documents are listed.
(a)(2) Consolidated Financial Statement Schedule: Page
VIII Valuation and Qualifying Accounts 81
Other financial statement schedules are either not required or
the required information is included in the Consolidated
Financial Statements or Notes thereto.
Parent Company Financial Statements - Financial Statements of the
Registrant only are omitted under Rule 3-05 as modified by
ASR 302.
(a)(3) Exhibits
3.1 Articles of Incorporation of International Game Technology, as
amended.
3.2 Second Restated Code of Bylaws of International Game Technology,
dated November 11, 1987.
4.1 Note Agreement for the 7.84% Senior Notes due September 1, 2004.
10.1 Stock Option Plan for Key Employees of International Game
Technology, as amended (incorporated by reference to Exhibit
10.26 to Registration Statement No. 33-12610 filed by
Registrant).
10.2 International Game Technology 1993 Stock Option Plan
(incorporated by reference to Exhibit 4.1 to Registration
Statement on Form S-8, File No. 33-69400 filed by the
Registrant).
10.3 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 28.1 to Registration Statement on Form S-8, File No. 33-
20308 filed by the Registrant).
10.4 Share Purchase Agreement among certain sellers, Radica Holdings
Limited and International Game Technology dated
January 12, 1994.
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(continued)
10.5 Amendment to Share Purchase Agreement among certain sellers,
Radica Holdings Limited and International Game Technology of
January 12, 1994 dated February 16, 1994.
10.6 Shareholders Agreement Radica Holdings Limited and the
shareholders parties hereto dated January 12, 1994.
10.7 Amendment to Shareholders Agreement among Radica Holdings Limited
and the shareholders parties hereto of January 12, 1994 dated
February 16, 1994.
10.8 Stock Option Agreement between International Game Technology and
certain shareholders of Radica Holding Limited dated January 12,
1994.
10.9 Stock Purchase and Redemption Agreement dated December 4, 1992,
by and between International Game Technology and Golden Eagle
Casinos International (renamed Summit Casinos International,
Inc.)(incorporated by reference to Exhibit 10.6 of Form 10-K for
the year ended September 30, 1992).
10.10 First Amendment to Stock Purchase and Redemption Agreement
between International Game Technology and Golden Eagle Casinos
International (renamed Summit Casinos International, Inc.) dated
March 15, 1993.
10.11 Second Amendment to Stock Purchase and Redemption Agreement
between International Game Technology and Summit Casinos
International, Inc. (formerly named Golden Eagle Casinos
International) dated March 24, 1993.
11 Computation of Earnings Per Share
21 Subsidiaries
24 Independent Auditors' Consent
25 Power of Attorney (See page 76 hereof)
(b) Reports on Form 8-K
No report on Form 8-K was filed during the three-month period
ended September 30, 1994.
<PAGE>
POWER OF ATTORNEY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on the
23st day of December, 1994.
INTERNATIONAL GAME TECHNOLOGY
By:s/John J. Russell
John J. Russell
Director, President, Chief
Executive Officer and Chief
Operating Officer
Each person whose signature appears below hereby authorizes G. Thomas
Baker and Scott H. Shackelton, or either of them, as attorneys-in-fact to
sign on his behalf, individually, and in each capacity stated below, and to
file all amendments and/or supplements to this Annual Report on Form 10-K.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
Chairman, Board of December 23, 1994
Charles N. Mathewson Directors
s/John J. Russell Director, President, December 23, 1994
John J. Russell Chief Executive Officer
and Chief Operating
Officer
s/G. Thomas Baker Vice President Finance December 23, 1994
G. Thomas Baker and Chief Financial
Officer (Principal
Financial Officer)
s/Scott H. Shackelton Chief Accounting Officer December 23, 1994
Scott H. Shackelton (Principal Accounting
Officer)
s/Warren L. Nelson Director December 23, 1994
Warren L. Nelson
s/Wilbur K. Keating Director December 23, 1994
Wilbur K. Keating
s/Frederick B. Rentschler Director December 23, 1994
Frederick B. Rentschler
s/Albert J. Crosson Director December 23, 1994
Albert J. Crosson
s/Claudine B. Williams Director December 23, 1994
Claudine B. Williams
s/Rockwell A. Schnabel Director December 23, 1994
Rockwell A. Schnabel
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
SCHEDULE VIII - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
(Dollars in thousands)
Balance at Amounts Balance
Beginning Written at End
of Period Provisions Off of Period
Valuation allowance on
Marketable Securities:
<S> <C> <C> <C> <C>
Year ended 9/30/94 $ - $ 998 $ - $ 998
</TABLE>
<TABLE>
<CAPTION>
Balance at Accounts Balance
Beginning Written at End
of Period Provisions Recoveries Off of Period
Allowance for Doubtful
Accounts:
<S> <C> <C> <C> <C> <C>
Year ended 9/30/92 $3,604 $3,764 $ 25 $ 335 $7,058
Year ended 9/30/93 $7,058 $2,625 $ 42 $2,751 $6,974
Year ended 9/30/94 $6,974 $1,861 $ 138 $5,017 $3,956
Allowance for
Doubtful Notes and
Contracts
Receivable:
Year ended 9/30/92 $6,048 $ 916 $ 288 $ 453 $ 6,799
Year ended 9/30/93 $6,799 $1,190 $ 208 $ 62 $ 8,135
Year ended 9/30/94 $8,135 $5,338 $ 26 $ 63 $13,436
</TABLE>
(continued)
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
SCHEDULE VIII - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS (continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
Balance at Balance
Beginning Income Income at End
of Period Deferred Recognized of Period
Income Deferred
under the Installment
Method:
<S> <C> <C> <C> <C>
Year ended 9/30/92 $ 501 $ - $ 200 $ 301
Year ended 9/30/93 $ 301 $ - $ 280 $ 21
Year ended 9/30/94 $ 21 $ 591 $ 25 $ 587
</TABLE>
<TABLE>
<CAPTION>
Balance at Disposed Balance
Beginning of and at End
of Period Provisions Written Off of Period
Obsolete Inventory Reserve:
<S> <C> <C> <C> <C>
Year ended 9/30/92 $4,743 $ 6,030 $2,978 $ 7,795
Year ended 9/30/93 $7,795 $ 981 $1,660 $ 7,116
Year ended 9/30/94 $7,116 $ 8,668 $1,920 $13,864
Obsolete Fixed Assets
Reserve:
Year ended 9/30/92 $ 350 $ 489 $ 542 $ 297
Year ended 9/30/93 $ 297 $ 634 $ 664 $ 267
Year ended 9/30/94 $ 267 $ 540 $ 482 $ 325
</TABLE>
(continued)
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
SCHEDULE VIII - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS (continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
Balance at Amounts Balance
Beginning Written at End
of Period Provisions Off of Period
Valuation allowance on
Investment:
<S> <C> <C> <C> <C>
Year ended 9/30/94 $ - $4,288 $ - $4,288
</TABLE>
International Game Technology
Note Agreement
Dated as of September 1, 1994
Re: $100,000,000 7.84%
Senior Notes
Due September 1, 2004
Closing Date: September 30, 1994
Table of Contents
(Not a part of the Agreement)
Section Heading
Page
Parties 1
Section 1.
Description of Notes and Commitment. 1
Section 1.1.
Description of Notes 1
Section 1.2.
Commitment, Closing Date 1
Section 1.3.
Several Commitments 2
Section 2.
Prepayment of Notes. 2
Section 2.1.
Required Prepayments 2
Section 2.2.
Optional Prepayment with Premium 2
Section 2.3.
Notice of Optional Prepayments 3
Section 2.4.
Application of Prepayments 3
Section 2.5.
Direct Payment 3
Section 3.
Representations. 3
Section 3.1.
Representations of the Company 3
Section 3.2.
Representations of the Purchasers 4
Section 4.
Closing Conditions 4
Section 4.1.
Conditions 4
Section 4.2.
Waiver of Conditions 5
Section 5.
Company Covenants 5
Section 5.1.
Corporate Existence, Etc 5
Section 5.2.
Insurance 5
Section 5.3.
Taxes, Claims for Labor and Materials, Compliance with
Laws 5
Section 5.4.
Maintenance, Etc 6
Section 5.5.
Nature of Business 6
Section 5.6.
Consolidated Net Worth 6
Section 5.7.
Limitations on Funded Debt and Priority Debt 6
Section 5.8.
Limitation on Liens 7
Section 5.9.
Mergers, Etc 9
Section 5.10.
Sales of Assets 9
Section 5.11.
Guaranties 11
Section 5.12.
Repurchase of Notes 11
Section 5.13.
Transactions with Affiliates 11
Section 5.14.
Termination of Pension Plans 12
Section 5.15.
Reports and Rights of Inspection 12
Section 5.16.
Restricted Subsidiaries; Designation of Subsidiaries 16
Section 6.
Events of Default and Remedies Therefor 16
Section 6.1.
Events of Default 16
Section 6.2.
Notice to Holders 18
Section 6.3.
Acceleration of Maturities 18
Section 6.4.
Rescission of Acceleration 18
Section 7.
Amendments, Waivers and Consents 19
Section 7.1.
Consent Required 19
Section 7.2.
Solicitation of Holders 19
Section 7.3.
Effect of Amendment or Waiver 19
Section 8.
Interpretation of Agreement; Definitions 20
Section 8.1.
Definitions 20
Section 8.2.
Accounting Principles 27
Section 8.3.
Directly or Indirectly 27
Section 9.
Miscellaneous 28
Section 9.1.
Registered Notes 28
Section 9.2.
Exchange of Notes 28
Section 9.3.
Loss, Theft, Etc. of Notes 28
Section 9.4.
Expenses, Stamp Tax Indemnity 29
Section 9.5.
Powers and Rights Not Waived; Remedies Cumulative 29
Section 9.6.
Notices 29
Section 9.7.
Successors and Assigns 29
Section 9.8.
Survival of Covenants and Representations 30
Section 9.9.
Severability 30
Section 9.10.
Governing Law 30
Section 9.11.
Captions 30
Signature Page 31
Attachments to Note Agreement:
Schedule I _
Names of Note Purchasers and Amounts of
Commitments
Exhibit A _
Form of 7.84% Senior Note due
September 1, 2004
Exhibit B _
Representations and Warranties of the
Company
Exhibit C _
Description of Closing Opinion of
Special Counsel for the Purchasers
Exhibit D _ Description of Closing Opinion of Special Nevada
Counsel for the Purchasers
Exhibit E _ Description of Closing Opinion of the
General Counsel of the Company
Exhibit F _ Description of Closing Opinion of Special Counsel
for the Company
290786
1401215
International Game Technology
5270 Neil Road
Reno, Nevada 89510
<PAGE>
Note Agreement
Re: $100,000,000 7.84%
Senior Notes
Due September 1, 2004
Dated as of
September 1, 1994
To the Purchasers named on Schedule I to this Agreement
.c4.Parties; The undersigned, International Game Technology, a
Nevada corporation (the "Company"), agrees with the Purchasers
named on Schedule I to this Agreement (the "Purchasers") as
follows:
.c1.Section 1. Description of Notes and Commitment.
.c2.Section 1.1. Description of Notes. The Company will
authorize the issue and sale of $100,000,000 aggregate principal
amount of its 7.84% Senior Notes (the "Notes") to be dated the
date of issue, to bear interest from such date at the rate of
7.84% per annum, payable quarterly on the first day of each
September, December, March and June in each year (commencing
December 1, 1994) and at maturity and to bear interest on overdue
principal (including any overdue required or optional prepayment
of principal) and premium, if any, and (to the extent legally
enforceable) on any overdue installment of interest at the rate
of 9.84% per annum after the date due, whether by acceleration or
otherwise, until paid, to be expressed to mature on September 1,
2004, and to be substantially in the form attached hereto as
Exhibit A. Interest on the Notes shall be computed on the basis
of a 360-day year of twelve 30-day months. The Notes are
not subject to prepayment or redemption at the option of the
Company prior to their expressed maturity dates
except on the terms and conditions and in the amounts and with
the premium, if any, set forth in Section 2 of this Agreement.
The term "Notes" as used herein shall include each Note delivered pursuant
to this Agreement.
.c2.Section 1.2. Commitment, Closing Date. Subject to the
terms and conditions hereof and on the basis of the
representations and warranties hereinafter set forth, the Company
agrees to issue and sell to each Purchaser, and such Purchaser
agrees to purchase from the Company, Notes in the principal
amount set forth opposite such Purchaser's name on Schedule I
hereto at a price of 100% of the principal amount thereof on the
Closing Date hereafter mentioned.
Delivery of the Notes will be made at the offices of Chapman
and Cutler, 111 West Monroe Street, Chicago, Illinois 60603,
against payment therefor by wire transfer of immediately
available funds for the account of the Company to account number
0023275005 at First Interstate Bank, One East First Street, Reno,
Nevada 89501 (ABA #121200019) in the amount of the purchase price
at 10:00 a.m. Chicago time, on September 29, 1994 or such later
date (not later than November 15, 1994) as shall mutually be
agreed upon by the Company and the Purchasers (the "Closing
Date"). The Notes delivered to each Purchaser on the Closing Date
will be delivered to such Purchaser in the form of a single
registered Note in the form attached hereto as Exhibit A for the
full amount of such Purchaser's purchase (unless different
denominations are specified by such Purchaser), registered in
such Purchaser's name or in the name of such Purchaser's nominee,
all as such Purchaser may specify at any time prior to the date
fixed for delivery.
.c2.Section 1.3. Several Commitments. The obligations of
the Purchasers shall be several and not joint and no Purchaser
shall be liable or responsible for the acts or defaults of any
other Purchaser.
.c1.Section 2. Prepayment of Notes.
.c2.Section 2.1. Required Prepayments. The Company agrees
that on September 1 in each year, commencing September 1, 1998
and ending September 1, 2003, both inclusive, it will prepay and
apply and there shall become due and payable on the principal
indebtedness evidenced by the Notes an amount equal to the lesser
of (i) $14,300,000 or (ii) the principal amount of the Notes then
outstanding. The entire remaining principal amount of the Notes
shall become due and payable on September 1, 2004. No premium
shall be payable in connection with any required prepayment made
pursuant to this Section 2.1. For purposes of this Section 2.1,
any prepayment of less than all of the outstanding Notes pursuant
to Section 2.2 shall be deemed to be applied first, to the amount
of principal scheduled to remain unpaid on September 1, 2004, and
then to the remaining scheduled principal payments in inverse
chronological order.
In the event of any purchase or other acquisition of less
than all of the Notes (other than a prepayment pursuant to
Section 2.2), the amount of the payment required at maturity and
each prepayment required to be made pursuant to this Section 2.1
shall be reduced in the proportion that the principal amount of
such purchase or other acquisition bears to the unpaid principal
amount of the Notes immediately prior to such purchase or other
acquisition (after giving effect to any prepayment made pursuant
to this Section 2.1 on the date of such purchase or other
acquisition).
.c2.Section 2.2. Optional Prepayment with Premium. In
addition to the payments required by Section 2.1, upon compliance
with Section 2.3, the Company shall have the privilege, on any
interest payment date, of prepaying the outstanding Notes, either
in whole or in part (but if in part then in a minimum principal
amount of $1,000,000 or an integral multiple of $50,000 in excess
thereof) by payment of the principal amount of the Notes, or
portion thereof to be prepaid, and accrued interest thereon to
the date of such prepayment, together with a premium equal to the
Make-Whole Amount, determined as of six business days prior to
the date of such prepayment pursuant to this Section 2.2.
.c2.Section 2.3. Notice of Optional Prepayments. The
Company will give notice of any prepayment of the Notes pursuant
to Section 2.2 to each Holder thereof not less than 30 days nor
more than 60 days before the date fixed for such optional
prepayment specifying (i) such date, (ii) the principal amount of
the Holder's Notes to be prepaid on such date, (iii) that a
premium may be payable, (iv) the date when such premium will be
calculated, (v) the estimated premium, and (vi) the accrued
interest applicable to the prepayment. Such notice of prepayment
shall also certify all facts, if any, which are conditions
precedent to any such prepayment. Notice of prepayment having
been so given, the aggregate principal amount of the Notes
specified in such notice, together with accrued interest thereon
and the premium, if any, payable with respect
thereto shall become due and payable on the prepayment date
specified in said notice. Not later than four business days prior
to the prepayment date specified in such notice, the Company
shall provide each Holder written notice of the premium, if any,
payable in connection with such prepayment and, whether or not
any premium is payable, a reasonably detailed computation of the
Make-Whole Amount.
.c2.Section 2.4. Application of Prepayments. All partial
prepayments, whether required or optional, shall be applied on
all outstanding Notes ratably in accordance with the unpaid
principal amounts thereof.
.c2.Section 2.5. Direct Payment. Except as otherwise
provided in this Section 2.5, both the principal of, interest and
premium, if any, on the Notes are payable at the principal office
of the Company in Reno, Nevada in coin or currency of the United
States of America which at the time of payment shall be legal
tender for the payment of public and private debts.
Notwithstanding anything to the contrary contained in this
Agreement or the Notes, in the case of any Note owned by any
Holder that is a Purchaser or any other Institutional Holder
which has given written notice to the Company requesting that the
provisions of this Section 2.5 shall apply, the Company will
punctually pay when due the principal thereof, interest thereon
and premium, if any, due with respect to said principal, without
any presentment thereof, directly to such Holder at its address
set forth herein or such other address as such Holder may from
time to time designate in writing to the Company or, if a bank
account with a United States bank is so designated for such
Holder, the Company will make such payments in immediately
available funds to such bank account, marked for attention as
indicated, or in such other manner or to such other account in
any United States bank as such Holder may from time to time
direct in writing.
.c1.Section 3. Representations.
.c2.Section 3.1. Representations of the Company. The
Company represents and warrants that all representations and
warranties set forth in Exhibit B are true and correct as of the
date hereof and are incorporated herein by reference with the
same force and effect as though herein set forth in full.
.c2.Section 3.2. Representations of the Purchasers. Each
Purchaser (i) represents, and in entering into this Agreement the
Company understands, that such Purchaser is acquiring the Notes
for the purpose of investment and not with a view to the
distribution thereof, and that such Purchaser has no present
intention of selling, negotiating or otherwise disposing of the
Notes and (ii) acknowledges that the Notes have not been
registered under the Securities Act of 1933, as amended, and that
the Notes may be resold only if registered pursuant to the
provisions of the Securities Act of 1933, as amended, or if an
exemption from registration is available, except under
circumstances where neither such registration nor such exemption
is required by law, and that the Company is not required to
register the Notes; it being understood, however, that the
disposition of such Purchaser's property shall at all times be
and remain within its control. Such Purchaser further represents
that it is acquiring the Notes for its own account and with its
general corporate assets and not with the assets of any separate
account in which any employee benefit plan has any interest. As
used in this Section, the terms "separate account" and "employee
benefit plan" shall have the respective meanings assigned to them
in ERISA.
.c1.Section 4. Closing Conditions.
.c2.Section 4.1. Conditions. The obligation of each
Purchaser to purchase the Notes on the Closing Date shall be
subject to the performance by the Company of its agreements
hereunder which by the terms hereof are to be performed at or
prior to the time of delivery of the
Notes and to the following further conditions precedent:
(a) Closing Certificate. Such Purchaser shall have
received a certificate dated the Closing Date, signed by the
President or a Vice President of the Company the truth and
accuracy of which shall be a condition to such Purchaser's
obligation to purchase the Notes proposed to be sold to such
Purchaser and to the effect that (i) the representations and
warranties of the Company set forth in Exhibit B hereto are
true and correct on and with respect to the Closing Date,
(ii) the Company has performed all of its obligations
hereunder which are to be performed on or prior to the
Closing Date and (iii) no Default or Event of Default has
occurred and is continuing;
(b) Legal Opinions. Such Purchaser shall have
received from Chapman and Cutler, special counsel for the
Purchasers, from Beckley, Singleton, DeLanoy, Jemison &
List, Chtd., special Nevada counsel for the Purchasers, from
Brian McKay, Esq., General Counsel of the Company, and
O'Melveny & Myers, special counsel for the Company, their
respective opinions dated the Closing Date, in form and
substance satisfactory to such Purchaser, and covering the
matters set forth in Exhibits C, D, E, and F respectively,
hereto,
(c) Related Transactions. The Company shall have
consummated the sale of the entire principal amount of the
Notes scheduled to be sold on the Closing Date pursuant to
this Agreement,
(d) Satisfactory Proceedings. All proceedings taken
in connection with the transactions contemplated by this
Agreement, and all documents necessary to the consummation
thereof, shall be satisfactory in form and substance to such
Purchaser and such Purchaser's special counsel, and such
Purchaser shall have received a copy (executed or certified
as may be appropriate) of all legal documents or proceedings
taken in connection with the consummation of said
transactions.
.c2.Section 4.2. Waiver of Conditions. If on the Closing
Date the Company fails to tender to any Purchaser the Notes to be
issued to any Purchaser on such date or if the conditions
specified in Section 4.1 have not been fulfilled, such Purchaser
may thereupon elect to be relieved of all further obligations
under this Agreement. Without limiting the foregoing, if the
conditions specified in Section 4.1 have not been fulfilled, such
Purchaser may waive compliance by the Company with any such
condition to such extent as such Purchaser may in its sole
discretion determine. Nothing in this Section 4.2 shall operate
to relieve the Company of any of its obligations hereunder or to
waive any Purchaser's rights against the Company.
.c1.Section 5. Company Covenants.
From and after the Closing Date and continuing so long as any
amount remains unpaid on any Note:
.c2.Section 5.1. Corporate Existence, Etc. The Company
will preserve and keep in full force and effect, and will cause
each Restricted Subsidiary to preserve and keep in full force and
effect, its corporate existence; provided, however, the Company
shall not be required to preserve and keep in full force and
effect the corporate existence of any Restricted Subsidiary
having no material assets or revenues and which is being
liquidated so long as such liquidation is considered by the
Company to be in its best interests. The Company will preserve
and keep in full force and effect, and will cause each Restricted
Subsidiary to preserve and keep in full force and effect, all
licenses and permits necessary to the proper conduct of its
business and which failure to preserve and keep in full force and
effect could reasonably be expected to materially and adversely
affect the properties, business, prospects, profits or condition
(financial or otherwise) of the Company and its Subsidiaries,
taken as a whole. Nothing contained in this Section 5.1 shall
prevent any transaction permitted by Section 5.9 or Section 5.10.
.c2.Section 5.2. Insurance. The Company will maintain, and
will cause each Subsidiary to maintain, insurance coverage by
financially sound and reputable insurers and in such forms and
amounts and against such risks as are customary for corporations
of established reputation engaged in the same or a similar
business and owning and operating similar properties.
.c2.Section 5.3. Taxes, Claims for Labor and Materials,
Compliance with Laws. The Company will promptly pay and
discharge, and will cause each Subsidiary promptly to pay and
discharge, all lawful taxes, assessments and governmental charges
or levies imposed upon the Company or such Subsidiary,
respectively, or upon or in respect of all or any part of the
property or business of the Company or such Subsidiary and all
trade accounts payable in accordance with usual and customary
business terms; provided, however, that the Company or such
Subsidiary shall not be required to pay any such tax, assessment,
charge, levy or account payable if (i) the validity,
applicability or amount thereof is being contested in good faith
by appropriate actions or proceedings which will prevent the
forfeiture or sale of any property of the Company or such
Subsidiary or any material interference with the use thereof by
the Company or such Subsidiary, and (ii) the Company or such
Subsidiary shall set aside on its books, reserves deemed by it to
be adequate with respect thereto in accordance with GAAP. The
Company will promptly comply and will cause each Subsidiary to
comply with all laws, ordinances or governmental rules and
regulations to which it is subject including, without limitation,
the Occupational Safety and Health Act of 1970, as amended, ERISA
and all laws, ordinances, governmental rules and regulations
relating to environmental protection in all applicable
jurisdictions, the violation of which could reasonably be
expected to materially and adversely affect the properties,
business, prospects, profits or condition (financial or
otherwise) of the Company and its Subsidiaries, taken as a whole
or would result in any Lien not permitted under Section 5.8.
.c2.Section 5.4. Maintenance, Etc. The Company will
maintain, preserve and keep, and will cause each Subsidiary to
maintain, preserve and keep, its properties which are used or
useful in the conduct of its business (whether owned in fee or a
leasehold interest) in good repair and working order and from
time to time will make all necessary repairs, replacements,
renewals and additions so that at all times the efficiency
thereof shall be maintained, unless the failure to do so could
not reasonably be expected to materially and adversely affect the
properties, business, prospects, profits or condition (financial
or otherwise) of the Company and its Subsidiaries, taken as a
whole.
.c2.Section 5.5. Nature of Business. Neither the Company
nor any Restricted Subsidiary will engage in any business if, as
a result, the general nature of the business, taken on a
consolidated basis, which would then be engaged in by the Company
and its Restricted Subsidiaries would be substantially changed
from the general nature of the business engaged in by the Company
and its Restricted Subsidiaries on the date of this Agreement.
.c2.Section 5.6. Consolidated Net Worth. The Company will
at all times keep and maintain Consolidated Net Worth at an
amount not less than $350,000,000.
.c2.Section 5.7. Limitations on Funded Debt and Priority
Debt.
(a) The Company will not, and will not permit any Restricted
Subsidiary to, create, assume or incur or in any manner be or
become liable in respect of any Funded Debt, except:
(1) Funded Debt evidenced by the Notes;
(2) Funded Debt of the Company and its Restricted
Subsidiaries outstanding as of the date of this
Agreement and reflected on Annex B to Exhibit B hereto;
(3) Additional Funded Debt of the Company and its
Restricted Subsidiaries, provided that at the time of
issuance thereof and after giving effect thereto and to
the application of the proceeds thereof, Consolidated
Funded Debt shall not exceed 55% of Total
Capitalization; and
(4) Funded Debt of a Restricted Subsidiary to the
Company or to a Wholly-owned Restricted Subsidiary.
(b) The Company will not at any time permit the aggregate
principal amount outstanding of Current Debt and Funded Debt of
Restricted Subsidiaries (other than Current Debt and Funded Debt
of Restricted Subsidiaries to the Company or a Wholly-owned
Restricted Subsidiary) and all Indebtedness of the Company
secured by Liens permitted by Section 5.8(k) (collectively,
"Priority Debt") to exceed 20% of Consolidated Net Worth.
(c) Any corporation which becomes a Restricted Subsidiary
after the date hereof shall for all purposes of this Section 5.7
be deemed to have created, assumed or incurred at the time it
becomes a Restricted Subsidiary all Current Debt and Funded Debt
of such corporation existing immediately after it becomes a
Restricted Subsidiary. All Current Debt and Funded Debt of
Restricted Subsidiaries to a Wholly-owned Restricted Subsidiary
which is outstanding at the time of the creation of a Minority
Interest therein or the incurrence thereby of Current Debt or
Funded Debt to any Person other than the Company or a
Wholly-owned Restricted Subsidiary shall be deemed to have been
created, assumed or incurred immediately after the creation of
such Minority Interest or the incurrence of such Current Debt or
Funded Debt.
.c2.Section 5.8. Limitation on Liens. The Company will not,
and will not permit any Restricted Subsidiary to, create or
incur, or suffer to be incurred or to exist, any Lien on its or
their property or assets, whether now owned or hereafter
acquired, or upon any income or profits therefrom, or transfer
any property for the purpose of subjecting the same to the
payment of obligations in priority to the payment of its or their
general creditors, or acquire or agree to acquire, or permit any
Restricted Subsidiary to acquire, any property or assets upon
conditional sales agreements or other title retention devices,
except:
(a) Liens for property taxes and assessments or governmental
charges or levies, provided payment thereof is not at the time
required by Section 5.3;
(b) Liens securing claims or demands of mechanics and
materialmen, provided (i) the validity, applicability or amount
thereof is being contested in good faith by appropriate actions
or proceedings which will prevent the forfeiture or sale of any
property of the Company or such Restricted Subsidiary and (ii)
the Company or such Restricted Subsidiary shall have set aside on
its books, reserves deemed by it to be adequate with respect
thereto in accordance with GAAP; (c) Liens of or resulting from
any judgment or award, the time for the appeal or petition for
rehearing of which shall not have expired, or in respect of which
the Company or a Restricted Subsidiary shall (i) at any time in
good faith be prosecuting an appeal or proceeding for a review
and in respect of which a stay of execution pending such appeal
or proceeding for review shall have been secured and (ii) have
set aside on its books, reserves reasonably deemed by it to be
adequate with respect thereto in accordance with GAAP;
(d) Liens incidental to the conduct of business or the
ownership of properties and assets (including Liens in connection
with worker's compensation, unemployment insurance and other like
laws, warehousemen's and attorneys' liens and statutory
landlords' liens) and Liens to secure the performance of bids,
tenders or trade contracts, or to secure statutory obligations,
surety or appeal bonds or other Liens of like general nature
incurred in the ordinary course of business and not in connection
with the borrowing of money; provided in each case, the
obligation secured is not overdue or, if overdue, is being
contested in good faith by appropriate actions or proceedings;
(e) minor survey exceptions or minor encumbrances, easements or
reservations, or rights of others for rights-of-way, utilities
and other similar purposes, or zoning or other restrictions as to
the use of real properties, which are necessary for the conduct
of the activities of the Company and its Restricted Subsidiaries
or which customarily exist on properties of corporations engaged
in similar activities and similarly situated and which do not in
any event materially impair their use in the operation of the
business of the Company and its Restricted Subsidiaries;
(f) Liens securing Indebtedness of a Restricted Subsidiary
to the Company or to another Restricted Subsidiary;
(g) Capitalized Leases permitted by the terms of this
Agreement and other leases;
(h) Liens existing as of the date of this Agreement and
reflected on Annex B to Exhibit B hereto;
(i) Liens incurred after the Closing Date given to secure
the payment of the purchase price incurred in connection with the
acquisition of assets (other than current assets) useful and
intended to be used in carrying on the business of the Company or
a Restricted Subsidiary, including Liens existing on such assets
at the time of acquisition thereof or at the time of acquisition
by the Company or a Restricted Subsidiary of any business entity
then owning such assets, whether or not such existing Liens were
given to secure the payment of the purchase price of the assets
to which they attach so long as they were not incurred, extended
or renewed in contemplation of such acquisition, provided that
(i) the Lien shall attach solely to the assets acquired or
purchased, (ii) the Lien shall be created contemporaneously with,
or within 90 days after, such acquisition or purchase, (iii) at
the time of acquisition of such assets, the aggregate amount
remaining unpaid on all Indebtedness secured by Liens on such
assets whether or not assumed by the Company or a Restricted
Subsidiary shall not exceed an amount equal to the total purchase
price of such assets (as determined in good faith by the Board of
Directors of the Company), and (iv) all such Indebtedness shall
have been incurred within the applicable limitations provided in
Section 5.7;
(j) Liens incurred in connection with Receivables
Securitizations; and
(k) Liens in addition to those permitted by the foregoing
paragraphs (a) through (j) of this Section 5.8 securing other
Indebtedness of the Company or any Restricted Subsidiary,
provided that the total amount of Priority Debt shall not, at any
time, exceed 20% of Consolidated Net Worth.
.c2.Section 5.9. Mergers, Etc. The Company will not
consolidate with or be a party to a merger with any other
corporation or convey, transfer or lease its properties or assets
substantially as an entirety unless (i) either (x) in the case of
any consolidation or merger, the Company shall be the surviving
or continuing corporation, or (y) the surviving or continuing
corporation, if not the Company, or the transferee of the
property or assets of the Company substantially as an entirety
shall (A) be a corporation incorporated and existing under the
laws of any State of the United States of America or any Province
of Canada, (B) expressly assume, by written agreement delivered
to each Holder and satisfactory in form and substance to the
Holders of a majority in principal amount of the Notes, all of
the obligations of the Company under this Agreement and the
Notes, and (C) furnish to the Holders an opinion of counsel
reasonably satisfactory to such Holders to the effect that the
instrument of assumption has been duly authorized, executed and
delivered by the surviving corporation and constitutes the legal,
valid and binding contract and agreement of the surviving
corporation enforceable in accordance with its terms, (ii) at the
time of such consolidation or merger and after giving effect
thereto no Default or Event of Default shall have occurred and be
continuing, and (iii) after giving effect to such consolidation
or merger the surviving or continuing corporation or transferee
would be permitted to incur at least $1.00 of additional Funded
Debt under the provisions of Section 5.7(a)(3).
.c2.Section 5.10. Sales of Assets. The Company will not,
and will not permit any Restricted Subsidiary to, engage in any
Asset Disposition involving any substantial part of the assets of
the Company and its Restricted Subsidiaries, except that any
Restricted Subsidiary may sell, lease or otherwise dispose of all
or any substantial part of its assets to the Company or any
Restricted Subsidiary which has no Minority Interests. As used in
this Section 5.10:
(a) "Asset Disposition" shall mean and include (i) a sale,
lease or other disposition of assets (other than in the ordinary
course of business) by the Company or any Restricted Subsidiary,
(ii) the issuance or sale by any Restricted Subsidiary of any
shares of stock of any class (including as "stock" for the
purpose of this Section 5.10, any warrants, rights or options to
purchase or otherwise acquire stock or other Securities
exchangeable for or convertible into stock) of such Restricted
Subsidiary to any Person other than the Company or a Restricted
Subsidiary which has no Minority Interests (except for the
purpose of qualifying directors, or except in satisfaction of the
validly pre-existing preemptive rights of minority shareholders
in connection with the simultaneous issuance of stock to the
Company and its Restricted Subsidiaries whereby the Company and
its Restricted Subsidiaries maintain their same proportionate
interest in such Restricted Subsidiary), and (iii) the sale,
transfer or other disposition by the Company of any shares of
stock of any Restricted Subsidiary (except to qualify directors)
and the sale, transfer or other disposition (except to the
Company or a Restricted Subsidiary which has no Minority
Interests) by any Restricted Subsidiary of any shares of stock of
any other Restricted Subsidiary; provided, however, that an
"Asset Disposition" shall not mean or include (x) any Receivables
Securitization or (y) any arrangement whereby the Company or any
Restricted Subsidiary sells or transfers any property owned by
the Company or any Restricted Subsidiary to any Person and
thereupon the Company or any Restricted Subsidiary leases, as
lessee, the same property, in each such case, within 90 days
following the acquisition or construction of such property.
(b) An Asset Disposition shall be deemed to involve a
"substantial part" of the assets of the Company and its
Restricted Subsidiaries if the book value of the assets subject
to such Asset Disposition, when added to the book value of all
other assets subject to other Asset Dispositions during the same
fiscal year exceeds 15% of Consolidated Total Assets, determined
as of the end of the immediately preceding fiscal year; provided,
however, that (i) in any computation of "substantial part", the
proceeds from any Asset Disposition that are applied within 180
days after the date of such Asset Disposition to either (x) the
voluntary prepayment of the Notes, other Current Debt or Funded
Debt of the Company ranking prior to or on a parity with the
Notes and Current Debt or Funded Debt of Restricted Subsidiaries,
on a pro rata basis, or (y) the purchase of assets (other than
current assets) for use in the business of the Company or any
Restricted Subsidiary shall, in each such case, constitute a
dollar for dollar reduction in the book value of the assets
subject to such Asset Disposition and (ii) the book value of
assets subject to an Asset Disposition by a Restricted Subsidiary
(the "Transferor Restricted Subsidiary") to another Restricted
Subsidiary (the "Transferee Restricted Subsidiary") shall be an
amount equal to the product obtained by multiplying (x) the
remainder (not less than zero) of (1) the Percentage Minority
Interest in the Transferee Restricted Subsidiary immediately
after such sale or lease less (2) the Percentage Minority
Interest in the Transferor Restricted Subsidiary immediately
prior to such sale or lease by (y) the value on the books of the
Transferor Restricted Subsidiary of the assets subject to such
Asset Disposition immediately prior thereto. Any prepayment of
the Notes, other Current Debt or Funded Debt of the Company
ranking prior to or on a parity with the Notes and Current Debt
or Funded Debt of Restricted Subsidiaries pursuant to this
paragraph (b) shall be made as follows:
(1) First, the Company shall make an offer in writing to all
Holders to prepay the Notes, without premium, in an
aggregate principal amount equal to the Allocable Share and
the Holders shall have the option, severally, to accept such
offer to prepay in the following manner:
(A) Within a period of 30 days after such notice, each
Holder may mail to the Company a reply setting forth
the maximum principal amount of such prepayment which
such Holder desires to accept;
(B) In the event that the aggregate of the amounts so
specified by the Holders as shall reply is equal to or
less than the Allocable Share, the Company will prepay
the Notes of the Holders in the respective amounts so
specified; and
(C) In the event that the aggregate of the amounts so
specified by such Holders as shall reply exceeds the
Allocable Share, the Company will allocate such
prepayment in proportion to the then outstanding
respective principal amounts of the Notes held by such
Holders, except that there shall not be allocated to
any Holder a prepayment in excess of that specified in
its reply, and any balance of the Allocable Share
remaining after any allocation shall be allocated in
the same manner among such Holders to which less than
the amount specified in their replies have been
allocated, and so on until the Allocable Share shall
have been allocated; and
(2) Second, the Company shall apply any balance remaining
after the prepayment of the Notes pursuant to clause (1)
above to the payment of, in its sole discretion, any part of
the following: the Notes, other Current Debt or Funded Debt
of the Company ranking prior to or on a parity with the
Notes and Current Debt or Funded Debt of Restricted
Subsidiaries. Any prepayment of the Notes pursuant to this
clause (2) shall be made in accordance with Section 2.2.
.c2.Section 5.11. Guaranties. The Company will not, and
will not permit any Restricted Subsidiary to, become or be liable
in respect of any Guaranty except Guaranties which are limited in
amount to a stated maximum dollar exposure.
.c2.Section 5.12. Repurchase of Notes. Neither the Company
nor any Subsidiary or Affiliate, directly or indirectly, may
repurchase or make any offer to repurchase any Notes unless an
offer has been made to repurchase Notes, pro rata, from all
Holders at the same time and upon the same terms. In case the
Company repurchases or otherwise acquires any Notes, such Notes
shall immediately thereafter be canceled and no Notes shall be
issued in substitution therefor. Without limiting the foregoing,
upon the repurchase or other acquisition of any Notes by the
Company, any Subsidiary or any Affiliate (or upon the agreement
of Company, any Subsidiary or any Affiliate to purchase or
otherwise acquire any Notes), such Notes shall no longer be
outstanding for purposes of any section of this Agreement
relating to the taking by the Holders of any actions with respect
hereto, including, without limitation, Section 6.3, Section 6.4
and Section 7.1.
.c2.Section 5.13. Transactions with Affiliates. The Company
will not, and will not permit any Restricted Subsidiary to, enter
into or be a party to any transaction or arrangement with any
Affiliate (including, without limitation, the purchase from, sale
to or exchange of property with, or the rendering of any service
by or for, any Affiliate), except (i)(A) in the ordinary course
of and pursuant to the reasonable requirements of the Company's
or such Restricted Subsidiary's business, (B) any payment or
advance of compensation or benefits to any Affiliate in his or
her capacity as an employee, officer or director of the Company
or any Restricted Subsidiary or (C) any repurchase by the Company
or any Restricted Subsidiary of its capital stock held by any
Affiliate and (ii) upon fair and reasonable terms no less
favorable to the Company or such Restricted Subsidiary than would
obtain in a comparable arm's-length transaction with a Person
other than an Affiliate; provided, however, any loan by the
Company or any Restricted Subsidiary to an Affiliate in
accordance with and pursuant to the terms of any of the Company's
or such Restricted Subsidiary's employee stock incentive plans
shall be exempt from the requirements of clause (ii) above.
.c2.Section 5.14. Termination of Pension Plans. The Company
will not and will not permit any Subsidiary to withdraw from any
Multiemployer Plan or permit any employee benefit plan maintained
by it to be terminated if such withdrawal or termination could
result in withdrawal liability (as described in Part 1 of
Subtitle E of Title IV of ERISA) or the imposition of a Lien on
any property of the Company or any Subsidiary pursuant to Section
4068 of ERISA. .c2.Section 5.15. Reports and Rights of
Inspection. The Company will keep, and will cause each
Restricted Subsidiary to keep, proper books of record and account
in which full and correct entries will be made of all dealings or
transactions of, or in relation to, the business and affairs of
the Company or such Restricted Subsidiary, in accordance with
GAAP consistently applied (except for changes disclosed in the
financial statements furnished to the Holders pursuant to this
Section 5.15 and concurred in by the independent public
accountants referred to in Section 5.15(b) hereof), and will
furnish to each Institutional Holder (in duplicate if so
specified below or otherwise requested):
(a) Quarterly Statements. As soon as available and in any
event within 45 days after the end of each quarterly fiscal
period (except the last) of each fiscal year, copies of:
(1) consolidated balance sheets of the Company and its
Restricted Subsidiaries as of the close of such quarterly
fiscal period, setting forth in comparative form the
consolidated figures for the fiscal year then most recently
ended,
(2) consolidated statements of income of the Company and its
Restricted Subsidiaries for such quarterly fiscal period and
for the portion of the fiscal year ending with such
quarterly fiscal period, in each case setting forth in
comparative form the consolidated figures for the
corresponding periods of the preceding fiscal year, and
(3) consolidated statements of cash flows of the Company
and its Restricted Subsidiaries for the portion of the
fiscal year ending with such quarterly fiscal period,
setting forth in comparative form the consolidated figures
for the corresponding period of the preceding fiscal year,
all in reasonable detail and certified as complete and
correct by an authorized financial officer of the Company;
(b) Annual Statements. As soon as available and in any event
within 90 days after the close of each fiscal year of the
Company, copies of:
(1) consolidated and consolidating balance sheets of the
Company and its Restricted Subsidiaries as of the close of
such fiscal year, and
(2) consolidated and consolidating statements of income and
retained earnings and cash flows of the Company and its
Restricted Subsidiaries for such fiscal year,
in each case setting forth in comparative form the consolidated
and consolidating figures for the preceding fiscal year, all in
reasonable detail and accompanied by a report thereon of a firm
of independent public accountants of recognized national
standing selected by the Company to the effect that the
consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the
Company and its Restricted Subsidiaries as of the end of the
fiscal year being reported on and the consolidated results of
the operations and cash flows for said year in conformity with
GAAP and that the examination of such accountants in connection
with such financial statements has been conducted in accordance
with generally accepted auditing standards and included such
tests of the accounting records and such other auditing
procedures as said accountants deemed necessary in the
circumstances;
(c) Audit Reports. Promptly upon receipt thereof, one copy
of each special audit made by independent accountants of the
books of the Company or any Restricted Subsidiary (i) in
connection with a change in the auditors of the Company or such
Restricted Subsidiary, (ii) at the request of any regulatory
body, state, Federal or local, or (iii) pursuant to the
requirements of any law, governmental rule or regulation,
pertaining to any business engaged in by the Company or such
Restricted Subsidiary;
(d) SEC Reports. Promptly upon their becoming available but
in no event later than 15 days after being filed with any
securities exchange or the Securities Exchange Commission, one
copy of each regular or periodic report, registration statement
or prospectus filed by the Company or any Subsidiary with any
securities exchange or the Securities and Exchange Commission or
any successor agency;
(e) Other Reports. Promptly upon their becoming available,
(i) one copy of each financial statement, report, notice or proxy
statement sent by the Company to stockholders generally and (ii)
copies of any orders in any proceedings to which the Company or
any of its Subsidiaries is a party, issued by any governmental
agency, Federal or state, having jurisdiction over the Company or
any of its Subsidiaries, which proceedings if determined
adversely to the Company or any of its Subsidiaries, could
reasonably be expected to materially and adversely affect the
properties, business, prospects, profits or condition (financial
or otherwise) of the Company and its Subsidiaries, taken as a
whole;
(f) ERISA Reports. Promptly upon the occurrence thereof,
written notice of (i) a Reportable Event with respect to any
Plan; (ii) the institution of any steps by the Company, any
ERISA Affiliate, the PBGC or any other person to terminate any
Plan; (iii) the institution of any steps by the Company or any
ERISA Affiliate to withdraw from any Plan; (iv) a non-exempt
"prohibited transaction" within the meaning of Section 406 of
ERISA in connection with any Plan; (v) any material increase in
the contingent liability of the Company or any Restricted
Subsidiary with respect to any post-retirement welfare liability;
or (vi) the taking of any action by, or the threatening of the
taking of any action by, the Internal Revenue Service, the
Department of Labor or the PBGC with respect to any of the
foregoing;
(g) Officer's Certificates. Within the periods provided in
paragraphs (a) and (b) above, a certificate of an authorized
financial officer of the Company stating that such officer has
reviewed the provisions of this Agreement and setting forth: (i)
the information and computations (in sufficient detail) required
in order to establish whether the Company was in compliance with
the requirements of Section 5.6 through Section 5.14 at the end
of the period covered by the financial statements then being
furnished, and (ii) whether there existed as of the date of such
financial statements and whether, to the best of such officer's
knowledge, there exists on the date of the certificate or
existed at any time during the period covered by such financial
statements any Default or Event of Default and, if any such
condition or event exists on the date of the certificate,
specifying the nature and period of existence thereof and the
action the Company is taking and proposes to take with respect
thereto;
(h) Accountant's Certificates. Within the period provided in
paragraph (b) above, a certificate of the accountants who render
an opinion with respect to such financial statements, stating
that they have reviewed this Agreement and stating further
whether, in making their audit, such accountants have become
aware of any Default or Event of Default under any of the terms
or provisions of this Agreement insofar as any such terms or
provisions pertain to or involve accounting matters or
determinations, and if any such condition or event then exists,
specifying the nature and period of existence thereof; and
(i) Requested Information. With reasonable promptness, such
other data and information as such Institutional Holder may
reasonably request. Without limiting the foregoing, the Company
will permit each Institutional Holder (or such Persons as such
Institutional Holder may designate), to visit and inspect, under
the Company's guidance, any of the properties of the Company or
any Restricted Subsidiary, to examine all of their books of
account, records, reports and other papers, to make copies and
extracts therefrom and to discuss their respective affairs,
finances and accounts with their respective officers, employees,
and independent public accountants (and by this provision the
Company authorizes said accountants to discuss with any
Institutional Holder the finances and affairs of the Company and
its Restricted Subsidiaries) all at such reasonable times and as
often as may be reasonably requested. The Company shall not be
required to pay or reimburse any Holder for expenses which such
Holder may incur in connection with any such visitation or
inspection, except that if such visitation or inspection is made
during any period when a Default or an Event of Default shall
have occurred and be continuing, the Company agrees to reimburse
such Holder for all such expenses promptly upon demand.
Each Holder by acceptance of a Note agrees that with respect
to any data and information obtained by such Holder pursuant to
this Section 5.15 which has not theretofore otherwise been
disclosed in such a manner as to render such data and information
no longer confidential, such Holder will use its reasonable
efforts (consistent with its established procedures) to maintain
(and cause persons referred to in (i) below to maintain) the
confidential nature of the data and information therein
contained; provided, however, that anything herein contained to
the contrary notwithstanding, such Holder may, to the extent
necessary, disclose or disseminate such data and information to:
(i) such Holder's employees, agents, attorneys, and accountants
who would ordinarily have access to such data and information in
the normal course of the performance of their duties; (ii) such
third parties as such Holder may, in its discretion, deem
necessary or desirable in connection with or in response to (x)
compliance with any law, ordinance or governmental order,
regulation, rule, policy, subpoena, investigation, regulatory
authority request or request, or (y) any order, decree, judgment,
subpoena, notice of discovery or similar ruling or pleading
issued, filed, served or purported on its face to be issued,
filed or served (A) by or under authority of any court, tribunal,
arbitration board of any governmental or industry agency,
commission, authority, board or similar entity or (B) in
connection with any proceeding, case or matter pending (or on its
face purported to be pending) before any court, tribunal,
arbitration board or any governmental agency, commission,
authority, board or similar entity; provided that if any Holder
deems it necessary or desirable to disclose any confidential
information or data pursuant to this clause (ii), such Holder
will use its reasonable efforts to provide the Company with
prompt written notice of such determination so that the Company
may seek a protective order or other appropriate remedy; (iii)
any prospective purchaser, securities broker or dealer or
investment banker in connection with the resale or proposed
resale by such Holder of any portion of the Notes; provided that
such Person or Persons agrees prior to its receipt of such
information to maintain the confidentiality of such information
in accordance with the provisions of this paragraph; (iv) any
Person holding your debt Securities; provided that such Person or
Persons agrees prior to its receipt of such information to
maintain the confidentiality of such information in accordance
with the provisions of this paragraph; (v) the National
Association of Insurance Commissioners; and (vi) any entity whose
business or regular practice it is to rate or classify your debt
or equity Securities or to report to the public concerning the
industry of which you are a part; provided further, that you
shall not be liable to the Company or any other Person for
damages for any failure by you, despite your reasonable efforts
to do so, to comply with the provisions of this paragraph. On
request by the Company in connection with the delivery to any
Holder (other than a Purchaser) of information required to be
delivered to such Holder under this Section 5.15 or requested by
such Holder, such Holder will acknowledge in writing the
provisions of this paragraph; provided, however, no such Holder
shall be required to acknowledge the provisions of this paragraph
more than once.
.c2.'Section 5.16. Restricted Subsidiaries; Designation of
Subsidiaries'.
(a) The Board of Directors of the Company may at any time
and from time to time, upon not less than 15 days' prior written
notice given to each Holder, designate a Restricted Subsidiary as
an Unrestricted Subsidiary, provided that (i) such Restricted
Subsidiary has not previously been designated an Unrestricted
Subsidiary pursuant to this Section 5.16(a) and (ii) at the time
of such designation and after giving effect thereto (x) no
Default or Event of Default shall have occurred and be continuing
and (y) the Company could incur $1.00 of additional Funded Debt
under the provisions of Section 5.7(a)(3).
(b) The Board of Directors of the Company may at any time
and from time to time, upon not less than 15 days' prior written
notice given to each Holder, designate an Unrestricted Subsidiary
as a Restricted Subsidiary, provided that (i) such Unrestricted
Subsidiary has not previously been designated a Restricted
Subsidiary pursuant to this Section 5.16(b) and (ii) at the time
of such designation and after giving effect thereto (x) no
Default or Event of Default shall have occurred and be continuing
and (y) the Company could incur $1.00 of additional Funded Debt
under the provisions of Section 5.7(a)(3).
(c) (i) For purposes of this Agreement, all Investments of
the Company and its Restricted Subsidiaries in a Restricted
Subsidiary which is being designated an Unrestricted Subsidiary
shall be deemed to be a Restricted Investment immediately after
such designation.
(ii) Any notice of designation pursuant to this Section 5.16
shall be accompanied by a certificate signed by a senior
financial officer of the Company demonstrating by calculations in
reasonable detail that the provisions of this Section 5.16 have
been complied with in connection with such designation and
setting forth the name of each other Subsidiary (if any) which
has or will become an Unrestricted Subsidiary or a Restricted
Subsidiary, as the case may be, as a result of any such
designation.
.c1.Section 6. Events of Default and Remedies Therefore.
.c2.Section 6.1. Events of Default. Any one or more of the
following shall constitute an "Event of Default" as such term is
used herein:
(a) Default shall occur in the payment of interest on any
Note when the same shall have become due and such default shall
continue for more than five business days; or
(b) Default shall occur in the making of any required
prepayment on any of the Notes as provided in Section 2.1; or
(c) Default shall occur in the making of any other payment
of the principal of any Note or premium, if any, thereon at the
expressed or any accelerated maturity date or at any date fixed
for prepayment; or
(d) Default or the happening of any event shall occur under
any indenture, agreement or other instrument under which any
Funded Debt or Current Debt of the Company or any Restricted
Subsidiary in an aggregate principal amount in excess of
$20,000,000 may be issued and such default or event has resulted
in the acceleration of the maturity of Funded Debt or Current
Debt of the Company or any Restricted Subsidiary in an aggregate
principal amount in excess of $20,000,000 outstanding
thereunder; or
(e) Default shall occur in the observance or performance of
any covenant or agreement contained in Section 5.6 through
Section 5.10; or
(f) Default shall occur in the observance or performance of
any other provision of this Agreement which is not remedied
within 30 days after the earlier of (i) the day on which the
Company first obtains actual knowledge of such default, or (ii)
the day on which written notice thereof is given to the Company
by any Holder; or
(g) Any representation or warranty made by the Company
herein, or made by the Company in any statement made by the
Company or certificate furnished by the Company in connection
with the consummation of the issuance and delivery of the Notes
or furnished by the Company pursuant hereto, is untrue in any
material respect as of the date of the issuance or making
thereof; or
(h) Final judgment or judgments for the payment of money
aggregating in excess of $10,000,000 is or are outstanding
against the Company or any Restricted Subsidiary or against any
property or assets of either and any one of such judgments has
remained unpaid, unvacated, unbonded or unstayed by appeal or
otherwise for a period of 30 days from the date of its entry; or
(i) A custodian, liquidator, trustee or receiver is
appointed for the Company or any Restricted Subsidiary or for the
major part of the property of either and is not discharged within
60 days after such appointment; or
(j) The Company or any Restricted Subsidiary is generally
not paying its debts as they become due or makes an assignment
for the benefit of creditors, or the Company or any Restricted
Subsidiary applies for or consents to the appointment of a
custodian, liquidator, trustee or receiver for the Company or
such Restricted Subsidiary or for the major part of the property
of either; or
(k) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy
or similar law or laws for the relief of debtors, are instituted
by or against the Company or any Restricted Subsidiary and, if
instituted against the Company or any Restricted Subsidiary, are
consented to or are not dismissed within 60 days after such
institution.
.c2.Section 6.2. Notice to Holders. When any Event of
Default described in the foregoing Section 6.1 has occurred, or
if any Holder or the holder of any other evidence of Funded Debt
or Current Debt of the Company gives any notice or takes any
other action with respect to a claimed default under any
indenture, agreement or other instrument under which any Funded
Debt or Current Debt of the Company in an aggregate principal
amount in excess of $1,000,000 may be issued, the Company agrees
to give notice within three business days of such event to all
Holders.
.c2.Section 6.3. Acceleration of Maturities. When any
Event of Default described in paragraph (a), (b) or (c) of
Section 6.1 has happened and is continuing, any Holder may, and
when any Event of Default described in paragraphs (d) through
(h), inclusive, of said Section 6.1 has happened and is
continuing, any Holder or Holders holding 33% or more of the
principal amount of Notes at the time outstanding may, by notice
to the Company, declare the entire principal and all interest
accrued on all Notes to be, and all Notes shall thereupon become,
forthwith due and payable, without any presentment, demand,
protest or other notice of any kind, all of which are hereby
expressly waived. When any Event of Default described in
paragraph (i), (j) or (k) of Section 6.1 has occurred, then all
outstanding Notes shall immediately become due and payable
without presentment, demand or notice of any kind. Upon the Notes
becoming due and payable as a result of any Event of Default as
aforesaid, the Company will forthwith pay to the Holders, the
entire principal and interest accrued on the Notes and, to the
extent not prohibited by applicable law, an amount as liquidated
damages for the loss of the bargain evidenced hereby (and not as
a penalty) equal to the Make-Whole Amount, determined as of the
date on which the Notes shall so become due and payable. No
course of dealing on the part of the Holder or Holders nor any
delay or failure on the part of any Holder to exercise any right
shall operate as a waiver of such right or otherwise prejudice
such Holder's rights, powers and remedies. The Company further
agrees, to the extent permitted by law, to pay to the Holder or
Holders all costs and expenses incurred by them in the collection
of any Notes upon any default hereunder or thereon, including
reasonable compensation to such Holder's or Holders' attorneys
for all services rendered in connection therewith.
.c2.Section 6.4. Rescission of Acceleration. The
provisions of Section 6.3 are subject to the condition that if
the principal of and accrued interest on all or any outstanding
Notes have been declared immediately due and payable by reason of
the occurrence of any Event of Default described in paragraphs
(a) through (h), inclusive, of Section 6.1, the Holders holding
68% in aggregate principal amount of the Notes then outstanding
may, by written instrument filed with the Company, rescind and
annul such declaration and the consequences thereof, provided
that at the time such declaration is annulled and rescinded:
(a) no judgment or decree has been entered for the payment
of any monies due pursuant to the Notes or this Agreement;
(b) all arrears of interest upon all the Notes and all
other sums payable under the Notes and under this Agreement
(except any principal, interest or premium on the Notes which has
become due and payable solely by reason of such declaration
under Section 6.3) shall have been duly paid; and
(c) each and every other Default and Event of Default shall
have been made good, cured or waived pursuant to Section 7.1; and
provided further, that no such rescission and annulment shall
extend to or affect any subsequent Default or Event of Default or
impair any right consequent thereto.
.c1.Section 7. Amendments, Waivers and Consents.
.c2.Section 7.1. Consent Required. Any term, covenant,
agreement or condition of this Agreement may, with the consent of
the Company, be amended or compliance therewith may be waived
(either generally or in a particular instance and either
retroactively or prospectively), if the Company shall have
obtained the consent in writing of the Holders holding at least
51% in aggregate principal amount of outstanding Notes; provided,
however, that without the written consent of all of the Holders,
no such amendment or waiver shall be effective (i) which will
change the time of payment (including any prepayment required by
Section 2.1) of the principal of or the interest on any Note or
change the principal amount thereof or change the rate of
interest thereon, or (ii) which will change any of the provisions
with respect to optional prepayments, or (iii) which will change
the percentage of Holders required to consent to any such
amendment or waiver of any of the provisions of this Section 7 or
Section 6.
.c2.Section 7.2. Solicitation of Holders. So long as there
are any Notes outstanding, the Company will not solicit, request
or negotiate for or with respect to any proposed waiver or
amendment of any of the provisions of this Agreement or the Notes
unless each Holder (irrespective of the amount of Notes then
owned by it) shall be informed thereof by the Company and shall
be afforded the opportunity of considering the same and shall be
supplied by the Company with sufficient information to enable it
to make an informed decision with respect thereto. Such
information shall be considered subject to the confidentiality
provisions of Section 5.15. The Company will not, directly or
indirectly, pay or cause to be paid any remuneration, whether by
way of supplemental or additional interest, fee or otherwise, to
any Holder as consideration for or as an inducement to entering
into by any Holder of any waiver or amendment of any of the terms
and provisions of this Agreement or the Notes unless such
remuneration is concurrently offered, on the same terms, ratably
to all Holders.
.c2.Section 7.3. Effect of Amendment or Waiver. Any such
amendment or waiver shall apply equally to all of the Holders and
shall be binding upon them, upon each future Holder and upon the
Company, whether or not any Note shall have been marked to
indicate such amendment or waiver. No such amendment or waiver
shall extend to or affect any obligation not expressly amended or
waived in such amendment or waiver or impair any right consequent
thereon.
.c1.Section 8. Interpretation of Agreement; Definitions'.
.c2.Section 8.1. Definitions. Unless the context otherwise
requires, the terms hereinafter set forth when used herein shall
have the following meanings and the following definitions shall
be equally applicable to both the singular and plural forms of
any of the terms herein defined:
"Affiliate" shall mean any Person (other than a Restricted
Subsidiary) (i) which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common
control with, the Company, (ii) which beneficially owns or holds
5% or more of any class of the Voting Stock of the Company or
(iii) 5% or more of the Voting Stock (or in the case of a Person
which is not a corporation, 5% or more of the equity interest) of
which is beneficially owned or held, directly or indirectly, by
the Company. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the
ownership of Voting Stock, by contract or otherwise; provided,
however, a director, officer or employee of such Person,
including the Company, shall not be deemed to control such Person
solely by reason of such status.
"Agreement" shall mean this Note Agreement.
"Allocable Share" shall be an amount equal to the product
obtained by multiplying (i) the amount of the proceeds from Asset
Dispositions which the Company is to apply to prepay Current Debt
or Funded Debt in accordance with clause (i)(x) of the proviso to
Section 5.10(b) by (ii) a fraction, the numerator of which is the
then outstanding aggregate principal amount of the Notes and the
denominator of which is then outstanding aggregate principal
amount of (x) the Notes, (y) all Current Debt or Funded Debt of
the Company ranking prior to or on a parity with the Notes and
(z) all Current Debt or Funded Debt of Restricted Subsidiaries.
"Capitalized Lease" shall mean any lease the obligation for
Rentals with respect to which is required to be capitalized on a
consolidated balance sheet of the lessee and its subsidiaries in
accordance with GAAP.
"Capitalized Rentals" of any Person shall mean as of the
date of any determination thereof the amount at which the
aggregate Rentals due and to become due under all Capitalized
Leases under which such Person is a lessee would be reflected as
a liability on a consolidated balance sheet of such Person.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Company" shall mean International Game Technology, a Nevada
corporation, and any Person who succeeds to all, or substantially
all, of the assets and business of International Game Technology.
"Consolidated Funded Debt" shall mean all Funded Debt of the
Company and its Restricted Subsidiaries, determined on a
consolidated basis eliminating intercompany items.
"Consolidated Net Worth" shall mean as of the date of any
determination thereof (i) the amount of the stockholders' equity
of the Company and its Restricted Subsidiaries determined in
accordance with GAAP less (ii) the amount by which the total
amount of Restricted Investments exceeds 10% of such
stockholders' equity.
"Consolidated Total Assets" shall mean as of the date of any
determination thereof the total amount of all assets of the
Company and its Restricted Subsidiaries (less depreciation,
depletion and other properly deductible valuation reserves)
determined on a consolidated basis in accordance with GAAP.
"Current Debt" of any Person shall mean as of the date of
any determination thereof (i) all Indebtedness of such Person for
borrowed money other than Funded Debt of such Person and (ii)
Guaranties by such Person of Current Debt of others.
"Default" shall mean any event or condition the occurrence
of which would, with the lapse of time or the giving of notice,
or both, constitute an Event of Default.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended, and any successor statute of similar
import, together with the regulations thereunder, in each case as
in effect from time to time. References to sections of ERISA
shall be construed to also refer to any successor sections.
"ERISA Affiliate" shall mean any corporation, trade or
business that is, along with the Company, a member of a
controlled group of corporations or a controlled group of trades
or businesses, as described in section 414(b) and 414(c),
respectively, of the Code or Section 4001 of ERISA.
"Event of Default" shall have the meaning set forth in
Section 6.1.
"Funded Debt" of any Person shall mean, without duplication,
(i) all Indebtedness of such Person for borrowed money or which
has been incurred in connection with the acquisition of assets in
each case having a final maturity of one or more than one year
from the date of origin thereof (or which is renewable or
extendible at the option of the obligor for a period or periods
more than one year from the date of origin), including all
payments in respect thereof that are required to be made within
one year from the date of any determination of Funded Debt,
whether or not the obligation to make such payments shall
constitute a current liability of the obligor under GAAP, (ii)
all Capitalized Rentals of such Person, and (iii) all Guaranties
by such Person of Indebtedness specified in clauses (i) and (ii)
above of others.
"GAAP" shall mean generally accepted accounting principles
at the time in the United States.
"Guaranties" by any Person shall mean all obligations (other
than endorsements in the ordinary course of business of
negotiable instruments for deposit or collection) of such Person
guaranteeing, or in effect guaranteeing, any Indebtedness,
dividend or other obligation of any other Person (the "primary
obligor") in any manner, whether directly or indirectly,
including, without limitation, all obligations incurred through
an agreement, contingent or otherwise, by such Person: (i) to
purchase such Indebtedness or obligation or any property or
assets constituting security therefor, (ii) to advance or supply
funds (x) for the purchase or payment of such Indebtedness or
obligation, (y) to maintain working capital or other balance
sheet condition or otherwise to advance or make available funds
for the purchase or payment of such Indebtedness or obligation,
(iii) to lease property or to purchase Securities or other
property or services primarily for the purpose of assuring the
owner of such Indebtedness or obligation of the ability of the
primary obligor to make payment of the Indebtedness or
obligation, or (iv) otherwise to assure the owner of the
Indebtedness or obligation of the primary obligor against loss in
respect thereof. For the purposes of all computations made under
this Agreement, a Guaranty in respect of any Indebtedness for
borrowed money shall be deemed to be Indebtedness equal to the
principal amount of such Indebtedness for borrowed money which
has been guaranteed, and a Guaranty in respect of any other
obligation or liability or any dividend shall be deemed to be
Indebtedness equal to the maximum aggregate amount of such
obligation, liability or dividend.
"Holder" shall mean any Person which is, at the time of
reference, the registered Holder of any Note.
"Indebtedness" of any Person shall mean and include, without
duplication, all obligations of such Person which in accordance
with GAAP shall be classified upon a balance sheet of such Person
as liabilities of such Person, and in any event shall include all
(i) obligations of such Person for borrowed money or which has
been incurred in connection with the acquisition of property or
assets, (ii) obligations secured by any Lien upon property or
assets owned by such Person, even though such Person has not
assumed or become liable for the payment of such obligations,
(iii) obligations created or arising under any conditional sale
or other title retention agreement with respect to property
acquired by such Person, notwithstanding the fact that the rights
and remedies of the seller, lender or lessor under such agreement
in the event of default are limited to repossession or sale of
property, (iv) Capitalized Rentals, (v) recourse obligations of
such Person relating to each Receivables Securitization (vi)
Guaranties of obligations of others of the character referred to
in this definition.
"Institutional Holder" shall mean any Holder which is a
Purchaser or an insurance company, bank, savings and loan
association, trust company, investment company, charitable
foundation, employee benefit plan (as defined in ERISA) or other
institutional investor or financial institution and, for purposes
of the direct payment provisions of this Agreement, shall include
any nominee of any such Holder.
"Investments" shall mean all investments, in cash or by
delivery of property made, directly or indirectly in any Person,
whether by acquisition of shares of capital stock, indebtedness
or other obligations or Securities or by loan, advance, capital
contribution or otherwise; provided, however, that "Investments"
shall not mean or include routine investments in property to be
used or consumed in the ordinary course of business.
"Lien" shall mean any interest in property securing an
obligation owed to, or a claim by, a Person other than the owner
of the property, whether such interest is based on the common
law, statute or contract, and including but not limited to the
security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease, consignment
or bailment for security purposes. The term "Lien" shall include
reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases and
other title exceptions and encumbrances (including, with respect
to stock, stockholder agreements, voting trust agreements,
buy-back agreements and all similar arrangements) affecting
property. For the purposes of this Agreement, the Company or a
Restricted Subsidiary shall be deemed to be the owner of any
property which it has acquired or holds subject to a conditional
sale agreement, Capitalized Lease or other arrangement pursuant
to which title to the property has been retained by or vested in
some other Person for security purposes and such retention or
vesting shall constitute a Lien.
"Make-Whole Amount" shall mean in connection with any
prepayment or acceleration of the Notes the excess, if any, of
(i) the aggregate present value as of the date of such prepayment
of each dollar of principal being prepaid (taking into account
the application of such prepayment required by Section 2.1) and
the amount of interest (exclusive of interest accrued to the date
of prepayment) that would have been payable in respect of such
dollar if such prepayment had not been made, determined by
discounting such amounts at the Reinvestment Rate from the
respective dates on which they would have been payable, over (ii)
100% of the principal amount of the outstanding Notes being
prepaid. For purposes of any determination of the Make-Whole
Amount:
"Reinvestment Rate" shall mean 0.5%, plus the
arithmetic mean of the quarter-annual equivalent of the
yields published in the Statistical Release under the
caption "Treasury Constant Maturities" for the maturity
(rounded to the nearest month) corresponding to the Weighted
Average Life to Maturity of the principal being prepaid
(taking into account the application of such prepayment
required by Section 2.1). If no maturity exactly corresponds
to such Weighted Average Life to Maturity, the
quarter-annual equivalent of the yields for the published
maturity next longer than the Weighted Average Life to
Maturity and for the published maturity next shorter than
the Weighted Average Life to Maturity shall be calculated
pursuant to the immediately preceding sentence and the
Reinvestment Rate shall be interpolated from such yields on
a straight-line basis, rounding in each of such relevant
periods to the nearest month. For the purposes of
calculating the Reinvestment Rate, the most recent
Statistical Release published prior to the date of
determination of the Make-Whole Amount shall be used.
"Statistical Release" shall mean the then most recently
published statistical release designated "H.15(519)" or any
successor publication which is published weekly by the
Federal Reserve System and which establishes yields on
actively traded U.S. Government Securities adjusted to
constant maturities or, if such statistical release is not
published at the time of any determination hereunder, then
such other reasonably comparable index which shall be
designated by the Holders holding 66-2/3% in aggregate
principal amount of the outstanding Notes.
"Weighted Average Life to Maturity" of the principal
amount of the Notes being prepaid shall mean, as of the time
of any determination thereof, the number of years obtained
by dividing the then Remaining Dollar-Years of such
principal by the aggregate amount of such principal. The
term "Remaining Dollar-Years" of such principal shall mean
the amount obtained by (i) multiplying (x) the remainder of
(1) the amount of principal that would have become due on
each scheduled payment date if such prepayment had not been
made, less (2) the amount of principal on the Notes
scheduled to become due on such date after giving effect to
such prepayment and the application thereof in accordance
with the provisions of Section 2.1, by (y) the number of
years (calculated to the nearest one-twelfth) which will
elapse between the date of determination and such scheduled
payment date, and (ii) totaling the products obtained in
(i).
"Minority Interests" shall mean any shares of stock of any
class of a Restricted Subsidiary (other than directors'
qualifying shares as required by law) that are not owned by the
Company and/or one or more of its Restricted Subsidiaries.
Minority Interests shall be valued by valuing Minority Interests
constituting preferred stock at the voluntary or involuntary
liquidating value of such preferred stock, whichever is greater,
and by valuing Minority Interests constituting common stock at
the book value of capital and surplus applicable thereto
adjusted, if necessary, to reflect any changes from the book
value of such common stock required by the foregoing method of
valuing Minority Interests in preferred stock.
"Multiemployer Plan" shall have the same meaning as in
ERISA.
"PBGC" means the Pension Benefit Guaranty Corporation and
any entity succeeding to any or all of its functions under ERISA.
"Percentage Minority Interest" in a Restricted Subsidiary at
any date shall mean the percentage equivalent of the amount
obtained by dividing the value of Minority Interests in such
Restricted Subsidiary as at such date by the consolidated net
worth (determined in accordance with GAAP) of such Restricted
Subsidiary as at such date.
"Person" shall mean an individual, partnership, corporation,
limited liability company, trust or unincorporated organization,
and a government or agency or political subdivision thereof.
"Plan" means a "pension plan," as such term is defined in
ERISA, established or maintained by the Company or any ERISA
Affiliate or as to which the Company or any ERISA Affiliate
contributed or is a member or otherwise may have any liability.
"Priority Debt" shall have the meaning set forth in Section
5.7(b).
"Purchasers" shall have the meaning set forth in Section
1.1.
"Receivables Securitization" shall mean any transaction
pursuant to which the Company sells or transfers notes receivable
or accounts receivable to any Person, without recourse, provided
that (i) the purpose of such sale or transfer shall be to
directly or indirectly permit the securitization of such accounts
receivable; (ii) such accounts receivable are sold or transferred
at fair market value; and (iii) no purchaser of such accounts
receivable shall have a Lien on any non-purchased accounts
receivable or other assets of the Company.
"Rentals" shall mean and include as of the date of any
determination thereof all fixed payments (including as such all
payments which the lessee is obligated to make to the lessor on
termination of the lease or surrender of the property) payable by
the Company or a Restricted Subsidiary, as lessee or sublessee
under a lease of real or personal property, but shall be
exclusive of any amounts required to be paid by the Company or a
Restricted Subsidiary (whether or not designated as rents or
additional rents) on account of maintenance, repairs, insurance,
taxes and similar charges. Fixed rents under any so-called
"percentage leases" shall be computed solely on the basis of the
minimum rents, if any, required to be paid by the lessee
regardless of sales volume or gross revenues.
"Reportable Event" shall have the same meaning as in ERISA.
"Restricted Investments" shall mean all Investments, other
than:
(a) Investments by the Company and its Restricted
Subsidiaries in and to Restricted Subsidiaries, including any
Investment in a corporation which, after giving effect to such
Investment, will become a Restricted Subsidiary;
(b) Investments in commercial paper maturing in 270 days or
less from the date of issuance which, at the time of acquisition
by the Company or any Restricted Subsidiary, is accorded one of
the two highest ratings by Standard & Poor's Corporation or
Moody's Investors Service, Inc.;
(c) Investments in direct obligations of the United States
of America or any agency or instrumentality of the United
States of America, the payment or guarantee of which constitutes
a full faith and credit obligation of the United States of
America, in either case, maturing in three years or less from
the date of acquisition thereof;
(d) Investments in certificates of deposit or bankers
acceptances maturing within one year from the date of issuance
thereof, issued by (i) First Interstate Bank, Bank of America
National Trust and Savings Association or (ii) any other
commercial bank whose long-term certificates of deposit are, at
the time of acquisition thereof by the Company or a Restricted
Subsidiary, accorded one of the two highest ratings by Standard &
Poor's Corporation or Moody's Investors Service, Inc.;
(e) Investments in tax-exempt municipal bonds maturing in
three years or less from the date of acquisition thereof and
which at the time of acquisition are accorded one of the two
highest ratings by Standard & Poor's Corporation or Moody's
Investors Service, Inc.;
(f) Investments in money market instrument programs which
are classified as a current asset in accordance with GAAP;
(g) Investments (i) in direct obligations of the United
States of America or any agency or instrumentality of the United
States of America, the payment or guarantee of which constitutes
a full faith and credit obligation of the United States of
America, and (ii) required by the governmental body, agency or
other authority regulating the gaming system giving rise to the
jackpot liability, in each such case, in amounts which the
Company or any Restricted Subsidiary deems necessary to fund
jackpot liabilities;
(h) Investments in assets (other than current assets) for
use by the Company or any Restricted Subsidiary in the ordinary
course of business;
(i) loans or advances in the usual and ordinary course of
business to officers, directors and employees for expenses
(including moving expenses related to a transfer) incidental to
carrying on the business of the Company or any Restricted
Subsidiary;
(j) receivables arising from the sale of goods and services
in the ordinary course of business of the Company and its
Restricted Subsidiaries;
(k) Investments in repurchase agreements having terms of
less than 180 days which are backed by Investments described in
clause (c) above and are issued by a bank or trust company whose
long-term certificates of deposit are, at the time of
acquisition of such Investments by the Company or a Restricted
Subsidiary, accorded one of the two highest ratings by Standard
& Poor's Corporation or Moody's Investors Service, Inc.;
(l) Investments in preferred stock the issuer of which has
a long-term debt rating of "A" or better by Standard & Poor's
Corporation or Moody's Investors Service, Inc. or, if such
issuer's long-term debt is not rated by Standard & Poor's
Corporation and Moody's Investors Service, Inc., such preferred
stock shall have one of the two highest ratings by Standard &
Poor's Corporation or Moody's Investors Service, Inc.; provided,
however, that at the time of acquisition of any Investment
permitted by this paragraph (l) and after giving effect thereto,
the aggregate amount of such Investments in securities of any one
corporation shall not exceed $3,500,000; and
(m) other Investments existing as of the date of this
Agreement and reflected on Annex B to Exhibit C hereto.
In valuing any Investments for purposes of this Agreement,
such Investments shall be taken at the original cost thereof,
without allowance for any subsequent write-offs or appreciation
or depreciation therein, but less any amount repaid or recovered
on account of capital or principal.
For purposes of this Agreement, at any time when a
corporation becomes a Restricted Subsidiary, all Investments of
such corporation at such time shall be deemed to have been made
by such corporation, as a Restricted Subsidiary, at such time.
"Restricted Subsidiary" shall mean any Subsidiary (i) of
which more than 80% (by number of votes) of the Voting Stock is
beneficially owned, directly or indirectly, by the Company and
(ii) which is either (A) identified in Section 1 of Annex A to
Exhibit C hereto or (B) hereafter designated as a Restricted
Subsidiary in accordance with the provisions of Section 5.16.
"Security" shall have the same meaning as in Section 2(1) of
the Securities Act of 1933, as amended.
The term "subsidiary" shall mean as to any particular parent
corporation any corporation of which more than 50% (by number of
votes) of the Voting Stock shall be beneficially owned, directly
or indirectly, by such parent corporation. The term "Subsidiary"
shall mean a subsidiary of the Company.
"Total Capitalization" shall mean as of the date of any
determination thereof the sum of Consolidated Funded Debt and
Consolidated Net Worth.
"Unrestricted Subsidiary" shall mean any Subsidiary which is
not a Restricted Subsidiary.
"Voting Stock" shall mean Securities of any class or
classes, the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate
directors (or Persons performing similar functions).
"Wholly-owned" when used in connection with any Subsidiary
shall mean a Subsidiary of which all of the issued and
outstanding shares of stock (except shares required as directors'
qualifying shares) and all Funded Debt and Current Debt shall be
owned by the Company and/or one or more of its Wholly-owned
Subsidiaries.
.c2.Section 8.2. Accounting Principles. Where the character
or amount of any asset or liability or item of income or expense
is required to be determined or any consolidation or other
accounting computation is required to be made for the purposes of
this Agreement, the same shall be done in accordance with GAAP,
to the extent applicable, except where such principles are
inconsistent with the requirements of this Agreement.
.c2.Section 8.3. Directly or Indirectly. Where any provision
in this Agreement refers to action to be taken by any Person, or
which such Person is prohibited from taking, such provision shall
be applicable whether the action in question is taken directly or
indirectly by such Person.
.c1.Section 9. Miscellaneous.
.c2.Section 9.1. Registered Notes. The Company shall cause
to be kept at its principal office a register for the
registration and transfer of the Notes, and the Company will
register or transfer or cause to be registered or transferred as
hereinafter provided any Note issued pursuant to this Agreement.
At any time and from time to time any Holder which has been
duly registered as hereinabove provided may transfer such Note
upon surrender thereof at the principal office of the Company
duly endorsed or accompanied by a written instrument of transfer
duly executed by the Holder or its attorney duly authorized in
writing.
The Person in whose name any registered Note shall be
registered shall be deemed and treated as the owner and holder
thereof and a Holder for all purposes of this Agreement. Payment
of or on account of the principal, premium, if any, and interest
on any registered Note shall be made to or upon the written order
of such Holder.
.c2.Section 9.2. Exchange of Notes. At any time and from
time to time, upon not less than ten days' notice to that effect
given by the Holder of any Note initially delivered or of any
Note substituted therefor pursuant to Section 9.1, this Section
9.2 or Section 9.3, and, upon surrender of such Note at its
office, the Company will deliver in exchange therefor, without
expense to such Holder, except as set forth below, a Note for the
same aggregate principal amount as the then unpaid principal
amount of the Note so surrendered, or Notes in the denomination
of $100,000 or any amount in excess thereof as such Holder shall
specify, dated as of the date to which interest has been paid on
the Note so surrendered or, if such surrender is prior to the
payment of any interest thereon, then dated as of the date of
issue, registered in the name of such Person or Persons as may be
designated by such Holder, and otherwise of the same form and
tenor as the Notes so surrendered for exchange. The Company may
require the payment of a sum sufficient to cover any stamp tax or
governmental charge imposed upon such exchange or transfer.
.c2.Section 9.3. Loss, Theft, Etc. of Notes. Upon receipt
of evidence satisfactory to the Company of the loss, theft,
mutilation or destruction of any Note, and in the case of any
such loss, theft or destruction upon delivery of a bond of
indemnity in such form and amount as shall be reasonably
satisfactory to the Company, or in the event of such mutilation
upon surrender and cancellation of the Note, the Company will
make and deliver without expense to the Holder thereof, a new
Note, of like tenor, in lieu of such lost, stolen, destroyed or
mutilated Note. If an Institutional Holder is the owner of any
such lost, stolen or destroyed Note, then the affidavit of an
authorized officer of such owner, setting forth the fact of loss,
theft or destruction and of its ownership of such Note at the
time of such loss, theft or destruction shall be accepted as
satisfactory evidence thereof and if such owner is a Purchaser or
has a net worth or admitted assets in excess of $50,000,000, no
further indemnity shall be required as a condition to the
execution and delivery of a new Note other than the written
agreement of such owner to indemnify the Company.
.c2.Section 9.4. Expenses, Stamp Tax Indemnity. Whether or
not the transactions herein contemplated shall be consummated,
the Company agrees to pay directly all of the Purchasers'
out-of-pocket expenses in connection with the preparation,
execution and delivery of this Agreement and the transactions
contemplated hereby, including but not limited to the reasonable
charges and disbursements of Chapman and Cutler, special counsel
to the Purchasers, duplicating and printing costs and charges for
shipping the Notes, adequately insured to each Purchaser's home
office or at such other place as such Purchaser may designate,
and all such expenses of the Holders relating to any amendment,
waivers or consents pursuant to the provisions hereof, including,
without limitation, any amendments, waivers, or consents
resulting from any work-out, renegotiation or restructuring
relating to the performance by the Company of its obligations
under this Agreement and the Notes. The Company also agrees that
it will, except as provided in Section 9.2, pay and save each
Purchaser harmless against any and all liability with respect to
stamp and other taxes, if any, which may be payable or which may
be determined to be payable in connection with the execution and
delivery of this Agreement or the Notes, whether or not any Notes
are then outstanding. The Company agrees to protect and indemnify
each Purchaser against any liability for any and all brokerage
fees and commissions payable or claimed to be payable to any
Person (other than Persons retained by any Holder) in connection
with the transactions contemplated by this Agreement.
.c2.'Section 9.5. Powers and Rights Not Waived; Remedies
Cumulative'. No delay or failure on the part of any Holder in
the exercise of any power or right shall operate as a waiver
thereof; nor shall any single or partial exercise of the same
preclude any other or further exercise thereof, or the exercise
of any other power or right, and the rights and remedies of each
Holder are cumulative to, and are not exclusive of, any rights or
remedies any such Holder would otherwise have.
.c2.Section 9.6. Notices. All communications provided for
hereunder shall be in writing and, if to a Holder, delivered or
mailed prepaid by registered or certified mail or overnight air
courier, or by facsimile communication, in each case addressed to
such Holder at its address appearing beneath its signature at the
foot of this Agreement or such other address as any Holder may
designate to the Company in writing, and if to the Company,
delivered or mailed by registered or certified mail or overnight
air courier, or by facsimile communication, to the Company at the
address beneath its signature at the foot of this Agreement or to
such other address as the Company may in writing designate to the
Holders; provided, however, that a notice to a Holder by
overnight air courier shall only be effective if delivered to
such Holder at a street address designated for such purpose in
accordance with this Section 9.6, and a notice to such Holder by
facsimile communication shall only be effective if made by
confirmed transmission to such Holder at a telephone number
designated for such purpose in accordance with this Section 9.6
and promptly followed by the delivery of such notice by
registered or certified mail or overnight air courier, as set
forth above.
.c2.Section 9.7. Successors and Assigns. This Agreement
shall be binding upon the Company and its successors and assigns
and shall inure to the benefit of each Purchaser and its
successor and assigns, including each successive Holder.
.c2.Section 9.8. Survival of Covenants and Representations.
All covenants, representations and warranties made by the Company
herein and in any certificates delivered pursuant hereto, whether
or not in connection with the Closing Date, shall survive the
closing and the delivery of this Agreement and the Notes.
.c2.Section 9.9. Severability. Should any part of this
Agreement for any reason be declared invalid or unenforceable,
such decision shall not affect the validity or enforceability of
any remaining portion, which remaining portion shall remain in
force and effect as if this Agreement had been executed with the
invalid or unenforceable portion thereof eliminated and it is
hereby declared the intention of the parties hereto that they
would have executed the remaining portion of this Agreement
without including therein any such part, parts or portion which
may, for any reason, be hereafter declared invalid or
unenforceable.
.c2.Section 9.10. Governing Law. This Agreement and the
Notes issued and sold hereunder shall be governed by and
construed in accordance with Nevada law.
.c2.Section 9.11. Captions. The descriptive headings of
the various Sections or parts of this Agreement are for
convenience only and shall not affect the meaning or construction
of any of the provisions hereof.
The execution hereof by the Purchasers shall constitute a
contract among the Company and the Purchasers for the uses and
purposes hereinabove set forth. This Agreement may be executed in
any number of counterparts, each executed counterpart
constituting an original but all together only one agreement.
.c4.Signature Page;
International Game Technology
By /s/ G. Thomas Baker
Its Executive Vice President-Finance,
Chief Financial Officer and Treasurer
International Game Technology
5270 Neil Road
Reno, Nevada 89502
Attention: Chief Financial Officer
Telefacsimile: (702) 688-0777
Confirmation: (702) 688-0100
Accepted as of September 1, 1994:
Connecticut General Life Insurance Company
By CIGNA Investments, Inc.
By /s/ James R. Kuzemchak
Its Managing Director
Connecticut General Life Insurance Company
c/o CIGNA Investments, Inc.
Hartford, Connecticut 06152
Attention: Private Securities Department S-307 Payments
All payments on or in respect of the Notes to be by bank wire
transfer of Federal or other immediately available funds.
FED ABA #021000021 Chase
NYC/CTR/BNF=CIGNA Private Placements/AC=9009001802
OBI=International Game Technology, [PPN Number], 7.84% Senior
Notes due September 1, 2004, the amount of interest and/or
principal, the amount of any prepayment, the payable date, the
originator's contact name and telephone number together with a
notice of each payment to:
Chase Manhattan Bank, N.A.
Private Placement Servicing
P. O. Box 1508, Bowling Green Station
New York, New York 10081
Attention: CIGNA Private Placements
Telecopy Number: (212) 552-3107/1005 Notices
All notices and communications, except notice with respect to
payment, and written confirmation of each such payment, to be
addressed:
CIG & Co.
c/o CIGNA Investments, Inc.
Hartford, Connecticut 06152
Attention: Private Securities Division S-307
Notices with respect to payment, and written confirmation of each
such payment, to be addressed:
CIG & Co.
c/o CIGNA Investments, Inc.
Hartford, Connecticut 06152
Attention: Securities Processing, S-206
CIG & Co.
c/o CIGNA Investments, Inc.
Hartford, Connecticut 06152
Attention: Private Securities Division, S-307
In the event that notices/communications are sent by courier
(e.g., Federal Express) or Express Mail rather than U.S. Postal
Service, the address should be changed to: 900 Cottage Grove
Road, Bloomfield, Connecticut 06002.
Name of Nominee in which Notes are to be issued: CIG & Co.
Taxpayer I.D. Number for CIG & Co.: 13-3574027
Accepted as of September 1, 1994:
Life Insurance Company of North America
By CIGNA Investments, Inc.
By /s/ James R. Kuzemchak
Its Managing Director
Life Insurance Company of North America
c/o CIGNA Investments, Inc.
Hartford, Connecticut 06152
Attention: Private Securities Department
Payments
All payments on or in respect of the Notes to be by bank wire
transfer of Federal or other immediately available funds
(identifying each payment as "International Game Technology,
7.84% Senior Notes due 2004, PPN 459902 A* 3, principal or
interest and providing date payable, contact name and telephone
number") to:
Morgan Guaranty Trust Company of New York (ABA #0210-0023-8)
BTR/BNF=CUSTZ/AC-99999024/Z
Attention: CUST. SVC. ZANDE & Co.
a/c 35001
Notices
All notices of payment on or in respect of the Notes and written
confirmation of each such payment to:
ZANDE & Co.
c/o Life Insurance Company of North America
c/o CIGNA Investments, Inc.
Hartford, Connecticut 06152
Attention: Securities Processing, S-206
All notices and communications other than those in respect to
payments to be addressed as provided immediately above,
Attention: Private Securities Division, S-307.
In the event that notices/communications are sent by courier
(e.g., Federal Express) rather than by regular U.S. Postal
Service, the address should be changed to: 900 Cottage Grove
Road, Bloomfield, Connecticut 06002.
Name of Nominee in which Notes are to be issued: ZANDE & Co.
Taxpayer I.D. Number for ZANDE & Co.: 13-6020804
Accepted as of September 1, 1994:
CIGNA Property and Casualty Insurance Company
By CIGNA Investments, Inc.
By /s/ James R. Kuzemchak
Its Managing Director
CIGNA Property and Casualty Insurance Company
c/o CIGNA Investments, Inc.
Hartford, Connecticut 06152
Attention: Private Securities Department S-307
Payments
All payments on or in respect of the Notes to be by bank wire
transfer of Federal or other immediately available funds.
FED ABA #021000021 Chase
NYC/CTR/BNF=CIGNA Private Placements/AC=9009001802
OBI=[Name of Issuer], [PPN Number], [interest rate], [type of
Notes], [due date], the amount of interest and/or principal, the
amount of any prepayment, the payable date, the originator's
contact name and telephone number together with a notice of each
payment to:
Chase Manhattan Bank, N.A.
Private Placement Servicing
P. O. Box 1508, Bowling Green Station
New York, New York 10081
Attention: CIGNA Private Placements
Telecopy Number: (212) 552-3107/1005
Notices
All notices and communications, except notice with respect to
payment, and written confirmation of each such payment, to be
addressed:
CIG & Co.
c/o CIGNA Investments, Inc.
Hartford, Connecticut 06152
Attention: Private Securities Division S-307
Notices with respect to payment, and written confirmation of each
such payment, to be addressed:
CIG & Co.
c/o CIGNA Investments, Inc.
Hartford, Connecticut 06152
Attention: Securities Processing, S-206
CIG & Co. c/o CIGNA Investments, Inc.
Hartford, Connecticut 06152
Attention: Private Securities Division, S-307
In the event that notices/communications are sent by courier
(e.g., Federal Express) or Express Mail rather than U.S. Postal
Service, the address should be changed to: 900 Cottage Grove
Road,
Bloomfield, Connecticut 06002.
Name of Nominee in which Notes are to be issued: CIG & Co.
Taxpayer I.D. Number for CIG & Co.: 13-3574027
Accepted as of September 1, 1994:
Pacific Mutual Life Insurance Company
By /s/ William R. Schmidt
Its Assistant Vice President
By /s/ Bonnie Chwalek
Its Assistant Vice President
Pacific Mutual Life Insurance Company
700 Newport Center Drive
Newport Beach, California 92658-9000
Attention: Fixed Income Securities Department
Telephone: (714) 640-3379;
Facsimile: (714) 640-3199
Payments
All payments on or in respect of the Notes to be by bank wire
transfer of Federal or other immediately available funds
(identifying each payment as "International Game Technology,
7.84% Senior Notes due 2004, PPN 459902 A* 3, $____________
principal and/or $___________ interest") to:
U.S. Trust NYC (ABA #021001318)
Attention: Bond Principal and Interest Collection Department
For Pacific Mutual Life Insurance Company A/C Number: 473633
Notices
All notices and communications to be addressed as first provided
above, except notices with respect to payments and written
confirmation of each such payment, to be addressed:
Pacific Mutual Life Insurance Company
Attention: Securities Administration
P.O. Box 9000
Newport Beach, California 92658-9000
With a copy to:
Atwell & Co.
P.O. Box 456, Wall Street Station
New York, New York 10005
Name of Nominee in which Notes are to be issued: ATWELL & CO
Taxpayer I.D. Number: 95-4229487
Accepted as of September 1, 1994:
The Minnesota Mutual Life Insurance Company
By MIMLIC Asset Management Company
By /s/ Lynne M. Mills
Its Vice President
The Minnesota Mutual Life Insurance Company
400 North Robert Street
St. Paul, Minnesota 55101
Attention: Investment Department
Payments
All payments on or in respect of the Notes to be by bank wire
transfer of Federal or other immediately available funds
(identifying each payment as "International Game Technology,
7.84% Senior Notes due 2004, PPN 459902 A* 3, principal or
interest") to:
The Federal Reserve Bank of Minneapolis
for the account of: The First Bank National Association (ABA
#091000022)
Minneapolis, Minnesota
BNF The Minnesota Mutual Life Insurance Company
Account Number 1801-10-00600-4
Notices
All notices and communications, including notices with respect to
payments and written confirmation of each such payment, to be
addressed as first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 41-0417830
Accepted as of September 1, 1994:
Mutual Trust Life Insurance Company
By MIMLIC Asset Management Company
By /s/ Lynne M. Mills
Its Vice President
Mutual Trust Life Insurance Company
c/o MIMLIC Asset Management Company
400 North Robert Street
St. Paul, Minnesota 55101
Attention: Client Administrator
Payments
All payments on or in respect of the Notes to be by bank wire
transfer of Federal or other immediately available funds
(identifying each payment as "International Game Technology,
7.84% Senior Notes due 2004, PPN 459902 A* 3, principal or
interest") to:
The Northern Trust Company (ABA #071-0001-52)
Chicago, Illinois
for Credit Wire Account Number 5186041000
for further credit to: Mutual Trust Life Insurance Company
Account Number 26-00621
Attention: MBS Department
Notices
All notices and communications, including notices with respect to
payments and written confirmation of each such payment, to be
addressed as first provided above.
Name of Nominee in which Notes are to be issued: ELL & Co.
Taxpayer I.D. Number: 36-1516780
Accepted as of September 1, 1994:
Pioneer Mutual Life Insurance Company
By MIMLIC Asset Management Company
By /s/ Frederick Feuerherm
Its Vice President
Pioneer Mutual Life Insurance Company
c/o MIMLIC Asset Management Company
400 North Robert Street
St. Paul, Minnesota 55101
Attention: Client Administrator
Payments
All payments on or in respect of the Notes to be by bank wire
transfer of Federal or other immediately available funds
(identifying each payment as "International Game Technology,
7.84% Senior Notes due 2004, PPN 459902 A* 3, principal or
interest") to:
Norwest Bank Minnesota (ABA #091-0000-19)
Minneapolis, Minnesota
for further credit to: Trust Clearing Account
Number 0840245, for Pioneer Mutual Life Insurance Company,
Account Number 7P0001006
Notices
All notices and communications, including notices with respect to
payments and written confirmation of each such payment, to be
addressed as first provided above.
Name of Nominee in which Notes are to be issued: EMSEG & CO.
Taxpayer I.D. Number: 45-0220640
Accepted as of September 1, 1994:
Jefferson-Pilot Life Insurance Company
By /s/ James E. McDonald
Its Second Vice President
Jefferson-Pilot Life Insurance Company
100 North Greene Street
Greensboro, North Carolina 27401
Attention: Securities Administration 3630
Telefacsimile: (910) 691-3025
Payments
All payments on or in respect of the Notes to be by bank wire
transfer of Federal or other immediately available funds
(identifying each payment as "International Game Technology,
7.84% Senior Notes due 2004, PPN 459902 A* 3, principal or
interest") to:
NationsBank of North Carolina (ABA #053 000 196)
Charlotte, North Carolina
(Greensboro office)
for credit to: Jefferson-Pilot Life Insurance Company
Account Number 020-000-014
Attention: Cathy Crisson (910) 691-3133
Notices
All notices and communications, including notices with respect to
payments and written confirmation of each such payment (including
name and address of bank transmitting payment), to be addressed
as first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 56-0359860
Accepted as of September 1, 1994:
Connecticut Mutual Life Insurance Company
By /s/ Lawrence D. Stillman
Its Senior Investment
Officer
Connecticut Mutual Life Insurance Company
140 Garden Street
Hartford, Connecticut 06154
Attention: Private Placements, MS 272
Payments
All payments on or in respect of the Notes to be by bank wire
transfer of Federal or other immediately available funds
(identifying each payment as "International Game Technology,
7.84% Senior Notes due 2004, PPN 459902 A* 3, principal or
interest") to:
The Bank of New York (ABA #021000018)
BNF: IOC566
Attention: P&I Department
For: Connecticut Mutual Life Insurance Co.
referencing issuer, interest rate, PPN Number, maturity and
breakdown of principal,
interest and/or premium
Notices
All notices of payments on or in respect of the Bonds and written
confirmation of each such payment to be addressed to:
Connecticut Mutual Life Insurance Company
c/o The Bank of New York
P. O. Box 19266
Attention: P&I Department
Newark, New Jersey 07195
with a copy to:
Connecticut Mutual Life Insurance Company
140 Garden Street
Hartford, Connecticut 06154
Attention: Securities Accounting, Mr. Lewis Leon
All notices and communications other than those in respect to
payments (such as annual reports, statements, waivers,
amendments) to be addressed as first provided above, with a copy
to:
Connecticut Mutual Life Insurance Company
c/o The Bank of New York
P. O. Box 19266
Attention: P&I Department
Newark, New Jersey 07195
Name of Nominee in which Notes are to be issued: Connecticut
Mutual Life Insurance Co. Taxpayer I.D. Number: 06-0304620
Accepted as of September 1, 1994:
The Franklin Life Insurance Company
By /s/ Daniel C. Leimbach
Its Vice President
By /s/ Elizabeth E. Arthur
Its Assistant Secretary
The Franklin Life Insurance Company
Franklin Square
Springfield, Illinois 62713
Attention: Investment Division
Payments
All payments on or in respect of the Notes to be by bank wire
transfer of Federal or other immediately available funds
(identifying each payment as "International Game Technology,
7.84% Senior Notes due 2004, PPN 459902 A* 3, principal, premium
or interest") to:
Morgan Guaranty Trust Company of New York (ABA #0210-0023-8)
23 Wall Street
New York, New York 10015
Attention: Money Transfer Department
for credit to:
The Franklin Life Insurance Company
Account Number 022-05-988
Notices
All notices and communications, including notices with respect to
payments and written confirmation of each such payment, to be
addressed as first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 37-0281650
Institution Identification Number 36362
Principal Amount Names of Purchasers of Notes to be Purchased
Connecticut General Life Insurance Company1 $25,600,000
Life Insurance Company of North America 3,200,000
CIGNA Property and Casualty Insurance Company 3,200,000
Pacific Mutual Life Insurance Company 20,000,000
The Minnesota Mutual Life Insurance Company 15,000,000
Mutual Trust Life Insurance Company 1,000,000
Pioneer Mutual Life Insurance Company 1,000,000
Jefferson-Pilot Life Insurance Company 13,000,000
Connecticut Mutual Life Insurance Company 12,000,000
The Franklin Life Insurance Company 6,000,000
Total $100,000,000
1To be evidenced by four Notes in the original principal amounts
f $12,800,000, $6,400,000, $3,200,000 and $3,200,000,
respectively.
International Game Technology
7.84% Senior Note, Due September 1, 2004
PPN: 459902 A* 3
No.
_________, 19__ $
International Game Technology, a Nevada corporation (the
"Company"), for value received, hereby promises to pay to or
registered assigns on the first day of September, 2004 the
principal amount of Dollars ($____________) and to pay interest
(computed on the basis of a 360-day year of twelve 30-day months)
on the principal amount from time to time remaining unpaid hereon
at the rate of 7.84% per annum from the date hereof until
maturity, payable quarterly on the first day of each September,
December, March and June in each year (commencing on the first of
such dates after the date hereof) and at maturity. The Company
agrees to pay interest on overdue principal (including any
overdue required or optional prepayment of principal) and
premium, if any, and (to the extent legally enforceable) on any
overdue installment of interest, at the rate of 9.84% per annum
after the due date, whether by acceleration or otherwise, until
paid. Both the principal hereof and interest hereon are payable
at the principal office of the Company in Reno, Nevada in coin or
currency of the United States of America which at the time of
payment shall be legal tender for the payment of public and
private debts.
This Note is one of the 7.84% Senior Notes due September 1,
2004 (the "Notes") of the Company in the aggregate principal
amount of $100,000,000 issued or to be issued under and pursuant
to the terms and provisions of the Note Agreement dated as of
September 1, 1994 (the "Note Agreement"), entered into by the
Company with the original Purchasers therein referred to, and
this Note and the holder hereof are entitled equally and ratably
with the holders of all other Notes outstanding under the Note
Agreement to all the benefits provided for thereby or referred to
therein. Reference is hereby made to the Note Agreement for a
statement of such rights and benefits.
This Note and the other Notes outstanding under the Note
Agreement may be declared due prior to their expressed maturity
dates and certain prepayments are required to be made thereon,
all in the events, on the terms and in the manner and amounts as
provided in the Note Agreement.
The Notes are not subject to prepayment or redemption at the
option of the Company prior to their expressed maturity dates
except on the terms and conditions and in the amounts and with
the premium, if any, set forth in the Note Agreement.
This Note is registered on the books of the Company and is
transferable only by surrender thereof at the principal office of
the Company duly endorsed or accompanied by a written instrument
of transfer duly executed by the registered holder of this Note
or its attorney duly authorized in writing. Payment of or on
account of principal, premium, if any, and interest on this Note
shall be made only to or upon the order in writing of the
registered holder.
International Game Technology
By
Its
Exhibit 10.4
SHARE PURCHASE AGREEMENT
Among
THE SELLERS NAMED ON SCHEDULE A HERETO,
RADICA HOLDINGS LIMITED
and
INTERNATIONAL GAME TECHNOLOGY
Dated as of January 12, 1994
TABLE OF CONTENTS
ARTICLE I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.01. Certain Defined Terms. . . . . . . . . . . 1
ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
PURCHASE AND SALE. . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.01. Purchase and Sale of the Shares. . . . . . 6
SECTION 2.02. Purchase Price . . . . . . . . . . . . . . 6
SECTION 2.03. Closing. . . . . . . . . . . . . . . . . . 7
SECTION 2.04. Closing Deliveries by the Sellers. . . . . 7
SECTION 2.05. Closing Deliveries by the Purchaser. . . . 7
ARTICLE III. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SELLERS . . . . . . . . 8
SECTION 3.01. Authority Relative to This Agreement . . . 8
SECTION 3.02. Organization, Authority and Qualification of
the Company . . . . . . . . . . . . . . . . . . 8
SECTION 3.03. Share Capital of the Company; Ownership of
the Shares. . . . . . . . . . . . . . . . . . . 9
SECTION 3.04. U.S. Companies and Subsidiaries. . . . . . 10
SECTION 3.05. Corporate Books and Records. . . . . . . . 12
SECTION 3.06. No Conflict. . . . . . . . . . . . . . . . 12
SECTION 3.07. Governmental Consents and Approvals. . . . 13
SECTION 3.08. Financial Information; Books and Records . 13
SECTION 3.09. No Undisclosed Liabilities . . . . . . . . 14
SECTION 3.10. Conduct in the Ordinary Course; Absence of
Certain Changes, Events and Conditions. . . . . 14
SECTION 3.11. Compliance . . . . . . . . . . . . . . . . 15
SECTION 3.12. Absence of Litigation. . . . . . . . . . . 16
SECTION 3.13. Trademarks, Patents and Copyrights . . . . 16
SECTION 3.14. Taxes. . . . . . . . . . . . . . . . . . . 16
SECTION 3.15. Certain Business Practices and Regulations 18
SECTION 3.16. Investment Purpose . . . . . . . . . . . . 18
SECTION 3.17. Brokers. . . . . . . . . . . . . . . . . . 18
ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER. . . . . . . . . . . . 18
SECTION 4.01. Organization, Authority and Qualification of
the Purchaser . . . . . . . . . . . . . . . . . 19
SECTION 4.02. Capital Stock of the Purchaser; Shares of
Purchaser Common Stock. . . . . . . . . . . . . 19
SECTION 4.03. No Conflict. . . . . . . . . . . . . . . . 19
SECTION 4.04. Governmental Consents and Approvals. . . . 20
SECTION 4.05. SEC Filings; Financial Statements. . . . . 20
SECTION 4.06. Investment Purpose . . . . . . . . . . . . 21
SECTION 4.07. Brokers. . . . . . . . . . . . . . . . . . 21
ARTICLE V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ADDITIONAL AGREEMENTS. . . . . . . . . . . . . . . . . . . . . 21
SECTION 5.01. Conduct of Business Prior to the Closing . 21
SECTION 5.02. Access to Information. . . . . . . . . . . 23
SECTION 5.03. Regulatory and Other Authorizations; Notices
and Consents. . . . . . . . . . . . . . . . . . 24
SECTION 5.04. Notice of Developments . . . . . . . . . . 24
SECTION 5.05. No Disposition or Encumbrance of Shares. . 24
SECTION 5.06. No Solicitation of Transactions. . . . . . 25
SECTION 5.07. Further Action . . . . . . . . . . . . . . 25
SECTION 5.08. [RESERVED] . . . . . . . . . . . . . . . . 25
SECTION 5.09. [RESERVED] . . . . . . . . . . . . . . . . 25
SECTION 5.10. Registration upon Request. . . . . . . . . 25
SECTION 5.11. Incidental Registration. . . . . . . . . . 27
SECTION 5.12. Other Agreements . . . . . . . . . . . . . 27
ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
CONDITIONS TO CLOSING. . . . . . . . . . . . . . . . . . . . . 27
SECTION 6.01. Conditions to Obligations of the Sellers . 27
SECTION 6.02. Conditions to Obligations of the Purchaser 29
ARTICLE VII. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
TERMINATION AND WAIVER . . . . . . . . . . . . . . . . . . . . 31
SECTION 7.01. Termination. . . . . . . . . . . . . . . . 31
SECTION 7.02. Effect of Termination. . . . . . . . . . . 32
SECTION 7.03. Waiver . . . . . . . . . . . . . . . . . . 32
SECTION 7.04. Obligations of Sellers Several and Not Joint 32
ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 8.01. Non-Survival of Representations, Warranties
and Agreements. . . . . . . . . . . . . . . . . 33
SECTION 8.02. Expenses . . . . . . . . . . . . . . . . . 33
SECTION 8.03. Notices. . . . . . . . . . . . . . . . . . 33
SECTION 8.04. Public Announcements . . . . . . . . . . . 35
SECTION 8.05. Headings . . . . . . . . . . . . . . . . . 35
SECTION 8.06. Severability. . . . . . . . 35
SECTION 8.07. Entire Agreement . . . . . . . . . . . . . 35
SECTION 8.08. Assignment . . . . . . . . . . . . . . . . 35
SECTION 8.09. No Third Party Beneficiaries . . . . . . . 35
SECTION 8.10. Amendment. . . . . . . . . . . . . . . . . 36
SECTION 8.11. Governing Law. . . . . . . . . . . . . . . 36
SECTION 8.12. Consent to Jurisdiction. . . . . . . . . . 36
SECTION 8.13. Counterparts . . . . . . . . . . . . . . . 36
SECTION 8.14. Specific Performance . . . . . . . . . . . 36
SECTION 8.15. Prevailing Currency. . . . . . . . . . . . 37
-iii-
SHARE PURCHASE AGREEMENT, dated as of January 12,
1994, among the sellers named on Schedule A hereto (the
"Sellers"), RADICA HOLDINGS LIMITED, a company incorporated
under the laws of Bermuda (the "Company"), and INTERNATIONAL
GAME TECHNOLOGY, a Nevada corporation (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Sellers own 96% of the issued share
capital, with a par value of $1.00 per share (the "Common
Stock"), of the Company; and
WHEREAS, the Sellers wish to sell to the
Purchaser, and the Purchaser wishes to purchase from the
Sellers, an aggregate of 2,100 shares in the capital of the
Company, representing 11.2% of the issued share capital (the
"Shares"), upon the terms and subject to the conditions set
forth herein;
NOW, THEREFORE, in consideration of the premises
and the mutual agreements and covenants hereinafter set
forth, the Seller, the Company and the Purchaser hereby
agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in
this Agreement, the following terms shall have the following
meanings:
"Action" means any claim, action, suit,
arbitration, inquiry, proceeding or investigation by or
before any Governmental Authority.
"Affiliate" means, with respect to any specified
Person, any other Person that directly, or indirectly
through one or more intermediaries, controls, is controlled
by, or is under common control with, such specified Person.
"Agreement" or "this Agreement" means this Share
Purchase Agreement, dated as of January 12, 1994, among the
Sellers, the Company and the Purchaser (including the
Exhibits and Disclosure Schedules hereto) and all amendments
hereto made in accordance with the provisions of Section
8.10.
"Bengtson Employment Agreement" means the
Employment Agreement dated as of December 13, 1993 between
Radica USA and Jon Bengtson.
"Business" means the business of the Company and
its Subsidiaries as conducted on or prior to the date hereof
and, after the Closing, also includes the business of the
Company and its Subsidiaries to be conducted pursuant to the
OEM Agreement.
"Business Day" means any day that is not a
Saturday, a Sunday or other day on which banks are required
or authorized by law to be closed in The City of New York,
Bermuda or Hong Kong.
"Closing" has the meaning specified in
Section 2.03.
"Closing Date" has the meaning specified in
Section 2.03.
"Code" means the Internal Revenue Code of 1986, as
amended through the date hereof.
"Common Stock" has the meaning specified in the
recitals to this Agreement.
"Companies Act" means the Companies Act 1981 of
Bermuda.
"Companies Ordinance" means the Companies
Ordinance (Chapter 32 of the Laws of Hong Kong).
"Company" has the meaning specified in the
introductory paragraph to this Agreement.
"Company Disclosure Schedule" means the Company
Disclosure Schedule, dated as of the date hereof, which has
been provided to the Purchaser by the Sellers and the
Company pursuant to this Agreement.
"Company Material Adverse Effect" means any
circumstance, change in, or effect on the Business, the
Company, any U.S. Company or any Subsidiary that,
individually or in the aggregate with any other
circumstances, changes in, or effects on, the Business, the
Company, any U.S. Company or any Subsidiary, is, or would
reasonably be expected to be, materially adverse to the
business, operations, assets or Liabilities, results of
operations or the financial condition of the Company, the
U.S. Companies and the Subsidiaries, taken as a whole.
"Confidentiality Agreement" means the letter
agreement dated as of the date hereof among the Company, the
Purchaser Robert E. Davids and James J. Sutter.
"Control" (including the terms "controlled by" and
"under common control with"), with respect to the
relationship between or among two or more Persons, means the
possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of
the affairs or management of a Person, whether through the
ownership of voting securities, as trustee or executor, by
contract or otherwise, including, without limitation, the
ownership, directly or indirectly, of securities having the
power to elect a majority of the board of directors or
similar body governing the affairs of such Person.
"Deed of Indemnity" means the Deed of Indemnity,
dated as of the Closing Date, to be entered into among the
Purchaser, the Sellers and the Company, in a form mutually
agreeable to the parties thereto.
"Encumbrance" means any security interest, pledge,
mortgage, lien (including, without limitation, environmental
and tax liens), charge, encumbrance, adverse claim,
preferential arrangement or restriction of any kind,
including, without limitation, any restriction (other than
as imposed by the securities laws of the United States or
any other jurisdiction) on the use, voting, transfer,
receipt of income or other exercise of any attributes of
ownership.
"Financial Statements" has the meaning specified
in Section 3.08(a).
"Governmental Authority" means any United States
or non-United States federal, state or local government,
governmental, regulatory or administrative authority, agency
or commission or any court, tribunal, or judicial or
arbitral body.
"Governmental Order" means any order, writ,
judgment, injunction, decree, stipulation, determination or
award entered by or with any Governmental Authority.
"Hansen Trusts" means, collectively, the John and
Mary Hansen 1989 Trust and the John and Mary Hansen 1993
Trust.
"HSR Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and
regulations promulgated thereunder.
"Initial Public Offering" means a public offering
of equity securities of the Company in the United States and
such other jurisdictions as the parties may determine
pursuant to an effective registration statement under the
Securities Act.
"Interim Financial Statements" has the meaning
specified in Section 3.08(a).
"IRS" means the Internal Revenue Service of the
United States.
"Law" means any U.S. or non U.S. federal, state or
local statute, law, ordinance, regulation, rule, code,
order, or other rule of law.
"Liabilities" means any and all debts, liabilities
and obligations, whether accrued or fixed, absolute or
contingent, matured or unmatured or determined or
determinable, including, without limitation, those arising
under any Law (including, without limitation, any
environmental Law), Action or Governmental Order and those
arising under any contract, agreement, arrangement,
commitment or undertaking, and deferred taxation.
"OEM Agreement" means the Original Products
Manufacturing Agreement, dated as of the date hereof,
between Purchaser and the Company.
"Person" means any individual, partnership, firm,
corporation, association, trust, unincorporated organization
or other entity, as well as any syndicate or group that
would be deemed to be a person under Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended.
"Purchase Price" has the meaning specified in
Section 2.02.
"Purchase Price Bank Account" means, with respect
to each Seller, a bank account in the United States to be
designated by such Seller in a written notice to the
Purchaser at least two Business Days before the Closing.
"Purchaser" has the meaning specified in the
introductory paragraph to this Agreement.
"Purchaser Common Stock" has the meaning specified
in Section 2.02.
"Purchaser Disclosure Schedule" means the
Purchaser Disclosure Schedule attached hereto, dated as of
the date hereof, which has been provided by the Purchaser to
the Sellers pursuant to this Agreement.
"Purchaser Material Adverse Effect" means any
circumstance, change in, or effect on the Purchaser that,
individually or in the aggregate with any other
circumstances, changes in, or effects on, the Purchaser, is,
or would reasonably be expected to be, materially adverse to
the business, operations, assets or Liabilities, results of
operations or the financial condition of the Purchaser and
its subsidiaries, taken as a whole.
"Radica Limited" means Radica Limited, a Hong Kong
corporation.
"Radica Subsidiaries" means Livermead Limited, a
company incorporated under the laws of Hong Kong, and Radmex
S.A. de C.V., a company incorporated under the laws of
Mexico.
"Radica USA" means Radica Enterprises Limited, a
Nevada corporation, doing business as "Radica USA Ltd."
"Radica USA Shareholders Agreement" means the
Shareholders Agreement, dated as of the Closing Date, among
the Purchaser, Radica USA and the Sellers, in a form
mutually agreeable to the parties thereto.
"Reference Balance Sheet" means the audited
consolidated balance sheet (including the related notes and
schedules thereto) of Radica Limited dated as of October 31,
1993, a copy of which is set forth in Section 3.08(a) of the
Company Disclosure Schedule.
"Reference Balance Sheet Date" means October 31,
1993.
"Related Agreements" means the OEM Agreement, the
Shareholders Agreement, the Stock Option Agreement, the Deed
of Indemnity and the Radica USA Shareholders Agreement.
"Securities Act" means the Securities Act of 1933,
as amended, and the rules and regulations thereunder.
"Sellers" has the meaning specified in the
introductory paragraph to this Agreement.
"Shareholders Agreement" means the Shareholders
Agreement, dated as of the date hereof, among the Company
and the other parties signatory thereto.
"Shares" has the meaning specified in the recitals
to this Agreement.
"Stock Option Agreement" means the Stock Option
Agreement, dated as of the date hereof, among the Purchaser
and the Sellers.
"Subsidiaries" means Radica Limited and the Radica
Subsidiaries.
"Tax" or "Taxes" means any and all taxes, fees,
levies, duties, tariffs, imposts, and other charges of any
kind (together with any and all interest, penalties,
additions to tax and additional amounts imposed with respect
thereto) imposed by any government or taxing authority,
including, without limitation: taxes or other charges on or
with respect to income, franchises, windfall or other
profits, gross receipts, property, sales, use, capital
stock, payroll, employment, social security, workers'
compensation, unemployment compensation, or net worth; taxes
or other charges in the nature of excise, withholding, ad
valorem, stamp, transfer, value added, or gains taxes;
license, registration and documentation fees; and customs
duties, tariffs, and similar charges.
"Transactions" means the transactions contemplated
hereby and by the Related Agreements.
"U.S. Companies" means Radica USA and Disc, Inc.,
a Nevada corporation (each being a "U.S. Company").
"U.S. Company Financial Statements" has the
meaning specified in Section 3.10.
"U.S. Company Interim Financial Statements" has
the meaning specified in Section 3.10.
"U.S. Company Reference Balance Sheet" means the
audited balance sheet (including the related notes and
schedules thereto) of Radica USA dated as of October 31,
1993, a copy of which is set forth in Section 3.08(a) of the
Company Disclosure Schedule.
"U.S. GAAP" means United States generally accepted
accounting principles and practices as in effect from time
to time and applied consistently throughout the periods
involved.
ARTICLE II
PURCHASE AND SALE
SECTION 2.01. Purchase and Sale of the Shares.
Upon the terms and subject to the conditions of this
Agreement, at the Closing, each Seller severally and not
jointly shall sell to the Purchaser, and the Purchaser shall
purchase from each Seller, the number of Shares set forth
opposite such Seller's name on Schedule A hereto.
SECTION 2.02. Purchase Price. The aggregate
purchase price for the Shares shall be $5,850,000 in cash
and 374,436 shares of common stock, par value $.000625 per
share ("Purchaser Common Stock"), of the Purchaser, all as
further provided in this Article II (the "Purchase Price").
SECTION 2.03. Closing. Upon the terms and
subject to the conditions of this Agreement, the sale and
purchase of the Shares contemplated by this Agreement shall
take place at a closing (the "Closing") to be held at the
offices of the Purchaser at 10:00 A.M. local time on the
later to occur of (i) February 24, 1994 and (ii) the second
Business Day following the later to occur of (A) expiration
or termination of all applicable waiting periods under the
HSR Act and (B) satisfaction or waiver of all other
conditions to the obligations of the parties set forth in
Article VI, or at such other place or at such other time or
on such other date as the Seller and the Purchaser may
mutually agree upon in writing (the day on which the Closing
takes place being the "Closing Date").
SECTION 2.04. Closing Deliveries by the Sellers.
At the Closing, each Seller shall deliver or cause to be
delivered to the Purchaser:
(a) an instrument of transfer in respect of the
number of Shares set forth opposite such Seller's name
on Schedule A hereto, duly executed by such Seller in
favor of the Purchaser;
(b) the share certificates relating to the number
of Shares set forth opposite such Seller's name on
Schedule A hereto;
(c) a receipt for such Seller's share of the
Purchase Price; and
(d) the opinions, certificates and other
documents required to be delivered pursuant to
Section 6.02.
SECTION 2.05. Closing Deliveries by the
Purchaser. At the Closing, the Purchaser shall deliver to
each Seller:
(a) such Seller's share of the $5,850,000 cash
portion of the Purchase Price as set forth opposite
such Seller's name on Schedule A hereto, by wire
transfer in immediately available funds to such
Seller's Purchase Price Bank Account;
(b) the number of shares of Purchaser Common
Stock set forth opposite such Seller's name on Schedule
A; and
(c) the opinions, certificates and other
documents required to be delivered pursuant to Section
6.01.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SELLERS
As an inducement to the Purchaser to enter into
this Agreement, each Seller and, with respect to matters
relating to the Company and its Subsidiaries, the Company,
hereby represent and warrant to the Purchaser as follows:
SECTION 3.01. Authority Relative to This
Agreement. Each of the Company and such Seller has all
necessary power and authority to execute and deliver this
Agreement and each Related Agreement to which it or he (as
the case may be) is a party, to perform its or his (as the
case may be) obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby.
The execution and delivery by the Company and such Seller of
this Agreement and each Related Agreement to which it or he
(as the case may be) is a party and the consummation of the
transactions contemplated hereby and thereby have been duly
and validly authorized by all necessary action on the part
of the Company and such Seller. This Agreement has been and
upon its execution, each Related Agreement to which the
Company or such Seller is a party will be, duly executed and
delivered by the Company and such Seller and (assuming the
due authorization, execution and delivery by Purchaser) this
Agreement constitutes, and upon its execution each Related
Agreement to which it or he (as the case may be) is a party
will constitute, a legal, valid and binding obligation of
the Company and such Seller, enforceable against the Company
and such Seller in accordance with its terms.
SECTION 3.02. Organization, Authority and
Qualification of the Company. The Company is a company duly
incorporated, validly existing and in good standing under
the laws of Bermuda and has all necessary power and
authority to own, operate or lease the properties and assets
now owned, operated or leased by it and to carry on the
Business as it has been and is currently conducted. The
Company is duly licensed or qualified to do business and is
in good standing in each jurisdiction in which the
properties owned or leased by it or the operation of its
business makes such licensing or qualification necessary or
desirable, except for such failure to be so licensed or
qualified which, when taken together with all other such
failures, has not had and would not be expected to have a
Company Material Adverse Effect. All corporate actions
taken by the Company have been duly authorized, except for
any such actions where failure to be so authorized, when
taken together with all such other failures, have not had
and would not reasonably be expected to have a Company
Material Adverse Effect, and the Company has not taken any
action that in any respect conflicts with, constitutes a
default under or results in a violation of any provision of
its Memorandum of Association and Bye-laws. True and
correct copies of the Memorandum of Association and Bye-laws
of the Company, each as in effect on the date hereof, have
been delivered by the Sellers to the Purchaser, and copies
of all resolutions and agreements which are required to be
attached to such documents have been so attached. No
petition has been presented to wind up the Company and there
are no grounds on which a winding up order could be made.
SECTION 3.03. Share Capital of the Company;
Ownership of the Shares. (a) The authorized share capital
of the Company is $20,000, consisting of 20,000 shares of
U.S.$1.00 each. As of the date hereof, 18,752 of such
shares are issued and outstanding, all of which are validly
issued and fully paid and nonassessable (to the extent the
assessability of shares is a relevant concept in Bermuda).
None of the issued and outstanding shares of Common Stock
was issued in violation of any preemptive rights. Except as
set forth in Section 3.03 of the Company Disclosure
Schedule, the Company has never reduced, repaid or purchased
any of its share capital, and the Company has not exercised
any lien over any of its issued shares and there is
outstanding no call on any such shares. Except for options
issued under the Bengtson Employment Agreement and the
Company's 1993 Stock Option Plan and except as set forth in
Section 3.03 of the Company Disclosure Schedule, there are
no options, warrants, convertible securities or other
rights, agreements, arrangements or commitments to which the
Company or such Seller is a party of any character relating
to the capital of the Company or obligating any Seller or
the Company to issue or sell any shares or any other
interest in, the Company. Except as set forth in Section
3.03 of the Company Disclosure Schedule, there are no
outstanding contractual obligations of the Company to
repurchase, redeem or otherwise acquire any issued shares or
to provide funds to, or make any investment (in the form of
a loan, capital contribution or otherwise) in, any other
Person. There are no voting trusts, shareholder agreements,
proxies or other agreements or understandings in effect with
respect to the voting or transfer of any of the Shares to
which the Company or such Seller is a party. The Shares set
forth opposite such Seller's name on Schedule A hereto are
owned of record and beneficially solely by such Seller free
and clear of all Encumbrances. Upon delivery of the Shares
and payment of the Purchase Price at the Closing, payment of
all stamp duty and registration of the Shares in the name of
the Purchaser on the Company's register of members, the
Purchaser will own all of the Shares free and clear of all
Encumbrances.
(b) The Company's register of members, register
of directors and officers and all other statutory books of
the Company are up to date and contain records that are
true, complete and accurate in all material respects of
matters required to be dealt with therein, and the Company
has not received any notice of any application or intended
application under the Companies Act for rectification of the
Company's register and all annual or other returns required
to be filed with the Registrar of Companies in Bermuda have
been properly filed within any applicable time limit, and
all legal requirements relating to the formation of the
Company and the issue of shares and other securities have
been complied with in all material respects.
SECTION 3.04. U.S. Companies and Subsidiaries.
(a) Section 3.04(a) of the Company Disclosure Schedule sets
forth a true and complete list of the Company, the U.S.
Companies and all Subsidiaries, listing for each entity its
name, type of entity, the jurisdiction and date of its
incorporation or organization, its authorized capital stock,
partnership capital or equivalent, the number and type of
its issued and outstanding shares of capital stock,
partnership interests or similar ownership interests and the
current ownership of such shares, partnership interests or
similar ownership interests.
(b) Other than the Subsidiaries (in the case of
the Company only), there are no other corporations,
partnerships, joint ventures, associations or other entities
in which the Company or any U.S. Company owns, of record or
beneficially, any direct or indirect equity or other
interest or any right (contingent or otherwise) to acquire
the same. Other than the Subsidiaries, the Company is not a
member of (nor is any part of the Business conducted
through) any partnership. No U.S. Company is a member of
(nor is any part of its business conducted through) any
partnership. Except as set forth in Section 3.04(b) of the
Company Disclosure Schedule, neither the Company, any
Subsidiary nor any U.S. Company is a participant in any
joint venture or similar arrangement.
(c) Each of Radica Limited and Radica USA (i) is
a corporation duly organized and validly existing under the
laws of Hong Kong and the State of Nevada, U.S.A,
respectively, (ii) has all necessary power and authority to
own, operate or lease the properties and assets owned,
operated or leased by it and to carry on its business as it
has been and is currently conducted by it and (iii) is duly
licensed or qualified to do business and is in good standing
(such terms to be given their U.S. meanings with respect to
U.S. corporations and to apply to non-U.S. corporations only
to the extent that similar concepts as to license,
qualification to do business and good standing are
applicable in the relevant jurisdiction) in each
jurisdiction in which the properties owned or leased by it
or the operation of its business makes such licensing or
qualification necessary or desirable, except for such
failures which, when taken together with all other such
failures, have not had and would not reasonably be expected
to have a Company Material Adverse Effect.
(d) All the outstanding shares of capital stock
of each U.S. Company and each Subsidiary are validly issued,
fully paid, nonassessable ("nonassessable"
to be given its U.S. meaning with respect to U.S.
corporations and to apply to non-U.S. corporations only to
the extent that concepts similar thereto are applicable in
the relevant jurisdiction) and, except with respect to
wholly owned Subsidiaries, free of preemptive rights and are
owned by the Company, in the case of Subsidiaries, or by the
Sellers, in the case of the U.S. Companies, in each case
whether directly or indirectly, free and clear of all
Encumbrances.
(e) There are no options, warrants, convertible
securities, or other rights, agreements, arrangements or
commitments of any character (other than the Stock Option
Agreement and the Radica USA Shareholders Agreement)
relating to the capital stock of any Subsidiary or any U.S.
Company or obligating the Sellers, the Company, any
Subsidiary or any U.S. Company to issue or sell any shares
of capital stock of, or any other interest in any Subsidiary
or any U.S. Company.
(f) All corporate actions taken by each of Radica
Limited and Radica USA have been duly authorized, except for
any such actions whose failure to be so authorized, when
taken together with all other such failures, have not had
and would not reasonably be expected to have a Company
Material Adverse Effect, and neither Radica Limited nor
Radica USA has taken any action that in any respect
conflicts with, constitutes a default under or results in a
violation of any provision of its memorandum or articles of
association, charter or by-laws (or similar organizational
documents). True and complete copies of the memorandum or
articles of association or charter and by-laws (or similar
organizational documents), in each case as in effect on the
date hereof, of each of Radica Limited and Radica USA have
been delivered by the Sellers to the Purchaser, and copies
of all resolutions and agreements which are required to be
attached to such documents in the case of Radica Limited
have been so attached.
(g) Except as set forth in Section 3.04(g) of the
Company Disclosure Schedule, no Subsidiary is a member of
(nor is any part of its business conducted through) any
partnership.
(h) There are no voting trusts, shareholder
agreements, proxies or other agreements or understandings in
effect with respect to the voting or transfer of any shares
of capital stock of or any other interests in any U.S.
Company (other than the Stock Option Agreement and the
Radica USA Shareholders Agreement) or any Subsidiary (other
than in Radica Limited's Articles of Association).
(i) The stock register of each U.S. Company and
each Subsidiary accurately records: (i) the name and
address of each Person owning shares of capital stock of
such Company or Subsidiary and (ii) the certificate number
of each certificate evidencing shares of capital stock
issued by such Company or Subsidiary, the number of shares
evidenced by each such certificate, the date of issuance
thereof and, in the case of cancellation, the date of
cancellation. Radica Limited has not received any notice of
any application or intended application under the Companies
Ordinance for rectification of its register of members, and
all annual or other returns required to be filed with the
Companies Registry in Hong Kong have been properly filed
within any applicable time limit, and all legal requirements
relating to the formation of Radica Limited and the issue of
its shares and other securities have been complied with in
all material respects.
(j) None of Livermead Limited, Radmex S.A. de C.V.
nor Disc, Inc. (the "Insignificant Companies") has any
assets or Liabilities with a value, individually or in the
aggregate, in excess of $1.25 million or that is in any way
material to the Business, and no material part of the
Business has been conducted through any Insignificant
Company.
SECTION 3.05. Corporate Books and Records. The
minute books each of the Company, Radica Limited and Radica
USA contain accurate records in all material respects of all
meetings and accurately reflect in all material respects all
other actions taken by the shareholders, Boards of Directors
and all committees of the Boards of Directors of the
Company, Radica Limited and Radica USA, respectively.
Complete and accurate copies of all such minute books and of
the register of members or stock register of the Company,
Radica Limited and Radica USA have been or will be made
available to the Purchaser.
SECTION 3.06. No Conflict. Assuming that all
consents, approvals, authorizations and other actions
described in Section 3.07 have been obtained and all filings
and notifications listed in Section 3.07 of the Company
Disclosure Schedule have been made, the execution, delivery
and performance by the Company and such Seller of this
Agreement and each Related Agreement to which it or he (as
the case may be) is a party do not and will not (a) violate,
conflict with or result in the breach of any provision of
the charter or by-laws (or similar organizational documents)
of the Company, any U.S. Company or any Subsidiary or, in
the case of Hansen Trusts, the trust instrument establishing
the terms of any trust pursuant to which Shares are held,
(b) conflict with or violate (or cause an event which would
reasonably be likely to have a Company Material Adverse
Effect as a result of) any Law or Governmental Order
applicable to such Seller, the Company, any U.S. Company,
any Subsidiary or any of their respective assets, properties
or businesses, including, without limitation, the Business,
or (c) except as set forth in Section 3.06(c) of the Company
Disclosure Schedule, conflict with, result in any breach of,
constitute a default (or event which with the giving of
notice or lapse of time, or both, would become a default)
under, require any consent under, or give to others any
rights of termination, amendment, acceleration, suspension,
revocation or cancellation of, or result in the creation of
any Encumbrance on any of the Shares or on any of the assets
or properties of such Seller, the Company, any U.S. Company
or any Subsidiary pursuant to, any note, bond, mortgage or
indenture, contract, agreement, lease, sublease, license,
permit, franchise or other instrument or arrangement to
which such Seller, the Company, any U.S. Company or any
Subsidiary is a party or by which any of the Shares or any
of such assets or properties is bound, except in case of
each of clause (a), (b) and (c) for such violations,
conflicts, branches or defaults, or such consents the
failure of which to obtain or such rights the exercise of
which, would not reasonably be expected to have a Company
Material Adverse Effect.
SECTION 3.07. Governmental Consents and
Approvals. The execution, delivery and performance by the
Company and such Seller of this Agreement and each Related
Agreement to which it or he (as the case may be) is a party
do not and will not require any consent, approval,
authorization or other order of, action by, filing with or
notification to any Governmental Authority, except (a) as
described in Section 3.07 of the Company Disclosure Schedule
and (b) the notification requirements of the HSR Act, (c)
approval of the Bermuda Monetary Authority, and (d) any such
consent, approval, authorization, order action, filing and
notification the failure of which to make or obtain would
not reasonably be expected to have a Company Material
Adverse Effect.
SECTION 3.08. Financial Information; Books and
Records. (a) (i) True and complete copies of (A) the
audited consolidated balance sheet of Radica Limited as of
October 31, 1993, October 31, 1992, and October 31, 1991,
and the related audited consolidated profit and loss account
and consolidated statement of changes in financial position
of Radica Limited for the fiscal year ended on each such
date, together with all related notes and schedules thereto,
accompanied by the reports thereon of Deloitte Touche
Tohmatsu International (collectively referred to herein as
the "Financial Statements") and (B) the unaudited
unconsolidated balance sheet of Radica Limited as of
November 30, 1993, and the related unaudited unconsolidated
profit and loss account (collectively referred to herein as
the "Interim Financial Statements") have been delivered by
the Sellers to the Purchaser. The Financial Statements, the
Interim Financial Statements and the Reference Balance Sheet
(w) were prepared in accordance with the books of account
and other financial records of Radica Limited, (x) present
fairly the consolidated financial condition and results of
operations of Radica Limited and the Radica Subsidiaries as
of the dates thereof or for the periods covered thereby,
(y) have been prepared in accordance US GAAP (in the case of
the Financial Statements) and with Hong Kong generally
accepted accounting principles (in the case of the Interim
Financial Statements), in each case applied on a basis
consistent with the past practices of Radica Limited and (z)
include all adjustments (consisting only of normal recurring
accruals) that are necessary for a fair presentation of the
consolidated financial condition of Radica Limited and the
Radica Subsidiaries and the results of the operations of
Radica Limited and the Radica Subsidiaries as of the dates
thereof or for the periods covered thereby.
(ii) True and complete copies of (A) the audited
balance sheet of Radica USA as of October 31, 1993 and
October 31, 1992, and the related audited statements of
income, stockholders' equity and cash flows of Radica USA
for the fiscal year ended October 31, 1993 and the period
from April 1, 1992 (inception) to October 31, 1992, together
with all related notes and schedules thereto, accompanied by
the reports thereon of Deloitte & Touche (collectively
referred to herein as the "U.S. Company Financial
Statements") and (B) the unaudited balance sheet of Radica
USA as of November 30, 1993, and the related statements of
income of Radica USA (collectively referred to herein as the
"U.S. Company Interim Financial Statements") have been
delivered or, in the case of the U.S. Company Interim
Financial Statements, will have been delivered no later than
January 14, 1994, by the Sellers to the Purchaser. The U.S.
Company Financial Statements, the U.S. Company Interim
Financial Statements and the U.S. Company Reference Balance
Sheet (w) were prepared in accordance with the books of
account and other financial records of Radica USA,
(x) present fairly the financial condition and results of
operations of Radica USA as of the dates thereof or for the
periods covered thereby, (y) have been prepared in
accordance with U.S. GAAP applied on a basis consistent with
the past practices of Radica USA and (z) include all
adjustments (consisting only of normal recurring accruals)
that are necessary for a fair presentation of the
consolidated financial condition of Radica USA and the
results of the operations of Radica USA as of the dates
thereof or for the periods covered thereby.
(b) The books of account and other financial
records of the Company, Radica Limited and Radica USA:
(i) reflect all items of income and expense and all assets
and Liabilities required to be reflected therein in
accordance with U.S. GAAP (in the case of the Company), Hong
Kong generally accepted accounting principles (in the case
of Radica Limited) or U.S. GAAP (in the case of Radica USA),
in each case applied on a basis consistent with the past
practices of the Company, Radica Limited and Radica USA,
respectively, (ii) are in all material respects complete and
correct, and do not contain or reflect any material
inaccuracies or discrepancies and (iii) have been maintained
in accordance with good business and accounting practices.
SECTION 3.09. No Undisclosed Liabilities.
(a) There are no Liabilities of the Company or any
Subsidiary, other than Liabilities (i) reflected or reserved
against on the Reference Balance Sheet in accordance with
U.S. GAAP, (ii) disclosed in Section 3.09(a) of the Company
Disclosure Schedule or (iii) incurred since the date of the
Reference Balance Sheet in the ordinary course of the
Business, consistent with the past practices of the Company
and the Subsidiaries and which do not and would not
reasonably be expected to have a Company Material Adverse
Effect.
(b) There are no Liabilities of Radica USA other
than Liabilities (i) reflected or reserved against on the
U.S. Company Reference Balance Sheet in accordance with U.S.
GAAP, (ii) disclosed in Section 3.09(b) of the Company
Disclosure Schedule or (iii) incurred since the date of the
U.S. Company Reference Balance Sheet in the ordinary course
of the business, consistent with the past practice, of
Radica USA and which do not and would not reasonably be
expected to have a Company Material Adverse Effect.
SECTION 3.10. Conduct in the Ordinary Course;
Absence of Certain Changes, Events and Conditions. Since
the Reference Balance Sheet Date, except as disclosed in
Section 3.10 of the Company Disclosure Schedule, the
business of the Company and the Subsidiaries has been
conducted in the ordinary course and consistent with past
practice. Since the Reference Balance Sheet Date, except as
disclosed in Section 3.10 of the Company Disclosure
Schedule, the business of each U.S. Company has been
conducted in the ordinary course and consistent with past
practice. As amplification and not limitation of the
foregoing, except as disclosed in Section 3.10 of the
Company Disclosure Schedule and except as have not had and
would not reasonably be expected to have a Company Material
Adverse Effect, since the Reference Balance Sheet Date,
there has not been (a) any change in the business,
operations, assets, Liabilities, results of operations or
financial condition of the Company, any U.S. Company or any
Subsidiary having, individually or in the aggregate, a
Company Material Adverse Effect, (b) any damage, destruction
or loss (whether or not covered by insurance) with respect
to any property or asset of the Company, any U.S. Company or
any Subsidiary and having, individually or in the aggregate,
a Company Material Adverse Effect, (c) any change by the
Company or any U.S. Company in its accounting methods,
principles or practices, (d) any revaluation by the Company
or any U.S. Company of any asset (including, without
limitation, any writing down of the value of inventory or
writing off of notes or accounts receivable), other than in
the ordinary course of business consistent with past
practice, (e) any entry by the Company, any U.S. Company or
any Subsidiary into any commitment or transaction material
to the Company, the U.S. Companies and the Subsidiaries
taken as a whole, (f) any declaration, setting aside or
payment of any dividend or distribution in respect of any
capital stock of the Company, any Subsidiary or any U.S.
Company or any redemption, purchase or other acquisition of
any of its securities or (g) any increase in or
establishment of any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing, stock
option (including, without limitation, the granting of stock
options, stock appreciation rights, performance awards, or
restricted stock awards), stock purchase or other employee
benefit plan, or any other increase in the compensation
payable or to become payable to any officers or key
employees of the Company, any U.S. Company or any
Subsidiary.
SECTION 3.11. Compliance. Each of the Company,
each U.S. Company and each Subsidiary is in possession of
all franchises, grants, authorizations, licenses, permits,
easements, variances, exceptions, consents, certificates,
approvals and orders necessary for each of them to own,
lease and operate its properties or to carry on its business
as it is now being conducted (the "Company Permits"), and no
suspension or cancellation of any of the Company Permits is
pending or, to the best knowledge of such Seller and the
Company, threatened, except where the failure to have, or
the suspension or cancellation of, any of the Company
Permits has not had and would not reasonably be expected to
have a Company Material Adverse Affect. Neither the
Company, any U.S. Company nor any Subsidiary is in conflict
with, or in default or violation of, (a) any Law or
Governmental Order applicable to the Company, any U.S.
Company or any Subsidiary or by which any property or asset
of the Company, any U.S. Company or any Subsidiary is bound,
or (b) any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company, any U.S.
Company or any Subsidiary is a party or by which the
Company, any U.S. Company or any Subsidiary or any property
or asset of the Company, any U.S. Company or any Subsidiary
is bound, except for any such conflicts, defaults or
violations that individually or in the aggregate, have not
had and would not, reasonably be expected to have a Company
Material Adverse Effect.
SECTION 3.12. Absence of Litigation. Except as
disclosed in Section 3.12 of the Company Disclosure
Schedule, there is no Action pending or, to the best
knowledge of such Seller and the Company, threatened against
the Company, any U.S. Company or any Subsidiary, or any
property or asset of the Company, any U.S. Company or any
Subsidiary, before any Governmental Authority, in the United
States or elsewhere, which (a) individually or in the
aggregate, has had or would reasonably be expected to have a
Company Material Adverse Effect or (b) seeks to delay or
prevent the consummation of any Transaction. As of the date
hereof, none of the Company, any U.S. Company nor any
Subsidiary nor any property or asset of the Company, any
U.S. Company or any Subsidiary is subject to any
Governmental Order having, individually or in the aggregate,
a Company Material Adverse Effect.
SECTION 3.13. Trademarks, Patents and Copyrights.
To the best knowledge of the Company and the Sellers, the
Company, the U.S. Companies and the Subsidiaries own or
possess adequate licenses or other valid rights to use all
patents, patent rights, trademarks, trademark rights, trade
names, trade name rights, copyrights, servicemarks, trade
secrets, applications for trademarks and for servicemarks,
mask works, know-how and other proprietary rights and
information used or held for use in connection with the
Business and such Seller and the Company are unaware of any
assertion or claim challenging the validity of any of the
foregoing which, individually or in the aggregate, has had
or would reasonably be expected to have a Company Material
Adverse Effect. The conduct of the Business does not and
will not infringe any patent, patent right, license,
trademark, trademark right, trade name, trade name right,
service mark, mask work or copyright of any third party
that, individually or in the aggregate, has had or would
reasonably be expected to have a Company Material Adverse
Effect. To the best knowledge of such Seller and the
Company, there are no infringements of any propriety rights
owned by or licensed by or to the Company, any U.S. Company
or any Subsidiary which, individually or in the aggregate,
has had or would reasonably be expected to have a Company
Material Adverse Effect. To the best knowledge of such
Seller and the Company, none of the Company, any U.S.
Company nor any Subsidiary has licensed or otherwise
permitted the use by any third party of any proprietary
information on terms or in a manner which, individually or
in the aggregate, has had or would reasonably be expected to
have a Company Material Adverse Effect.
SECTION 3.14. Taxes. (a) Except as set forth in
Section 3.14(a) of the Seller Disclosure Schedule, each of
the Reference Balance Sheet and the U.S. Company Reference
Balance Sheet, as the case may be, contains full provision
for all taxation including deferred or provisional taxation
liable to be assessed on Radica Limited or Radica USA, as
the case may be, for the accounting period ended on the
Reference Balance Sheet Date or for any subsequent period
(on the basis of the rates of Tax and taxation statutes or
any extra-statutory agreements with fiscal authorities in
force at the Reference Balance Sheet Date) in respect of any
transaction, event or omission occurring or any profit
earned by Radica Limited or Radica USA, respectively, on or
prior to the Reference Balance Sheet Date or for which
Radica Limited or Radica USA, respectively, is accountable
up to such date and all contingent liabilities for taxation
have been provided for or disclosed in accordance with U.S.
GAAP in the Reference Balance Sheet or the U.S. Company
Reference Balance Sheet, as the case may be.
(b) Since the Reference Balance Sheet Date, no
further liability for taxation has arisen otherwise than as
a result of trading activities in the ordinary course of
business of the Company, the U.S. Companies and the
Subsidiaries.
(c) All returns of the Company, each U.S. Company
and each Subsidiary made for taxation purposes were when
made and remain materially correct and on a proper basis
(taking into account any extra-statutory agreements with
fiscal authorities) and all other information supplied to
the Inland Revenue Department, U.S. Internal Revenue Service
or other fiscal authority for such purpose was when supplied
and remains materially correct and on a proper basis (taking
into account any extra-statutory agreements with fiscal
authorities), and such returns include all returns and
information which the Company, such U.S. Company or
Subsidiary, as the case may be, ought to have made or given
and are not subject to any dispute with the Inland Revenue
Department, U.S. Internal Revenue Service or any other
relevant fiscal authority at the date hereof and there is no
fact or matter known to the Company or the U.S. Companies
which might be the occasion of any such dispute or of any
liability for Taxes (present or future) not provided for in
their respective audited accounts.
(d) Each of the Company, each U.S. Company and
each Subsidiary has paid all Taxes for which it is liable to
account to the Inland Revenue Department, U.S. Internal
Revenue Service or other fiscal authority on the due date
for payment thereof (taking into account any extra-statutory
agreements with fiscal authorities) and is under no
liability to pay any penalty or interest in connection
therewith and without prejudice to the generality of the
foregoing the Company, each U.S. Company and each Subsidiary
have deducted all taxation required (taking into account any
extra-statutory agreements with fiscal authorities) to be
deducted from any payments made by such entity, including
but not limited to interest, annuities or other annual
payments, royalties, rent, remuneration payable to employees
or sub-contractors or payments to a non-resident and, where
appropriate, such entity has duly accounted for any such
taxation deducted or collected.
(e) All remuneration, compensation payments,
payments on retirement or removal from an office or
employment and other sums paid or payable to employees or
officers or former employees or officers of the Company,
each U.S. Company and each Subsidiary and all interest,
annuities, royalties, rent and other annual payments paid or
payable by the Company, each U.S. Company and each
Subsidiary (whether before or after the date hereof)
pursuant to any obligation in existence at the date hereof
are and will (on the basis of the taxation legislation in
force at the date hereof) be deductible for profits Tax
purposes either in computing the profits of such entity or
as a charge on the income of such entity.
SECTION 3.15. Certain Business Practices and
Regulations. None of such Seller, the Company, any U.S.
Company or any Subsidiary, nor any of their respective
officers, directors, employees or agents, has, to the
knowledge of such Seller and the Company, (a) made or agreed
to make any contribution, payment or gift to any customer,
supplier, governmental official, employee or agent where
either the contribution, payment or gift or the purpose
thereof was illegal under any Law, (b) established or
maintained any unrecorded fund or asset for any purpose or
made any false entries on its books and records for any
reason or (c) made or agreed to make any contribution, or
reimbursed any political gift or contribution made by any
other person, to any candidate for U.S. or non-U.S. federal,
state or local public office in violation under any Law,
except in clauses (a) through (c) where such actions have
not had and would not reasonably be expected to have a
Company Material Adverse Effect.
SECTION 3.16. Investment Purpose. Such Seller is
acquiring shares of Purchaser Common Stock hereunder solely
for the purpose of investment and not with a view to, or for
offer or sale in connection with, any distribution thereof.
SECTION 3.17. Brokers. No broker, finder or
investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the Transactions
based upon arrangements made by or on behalf of the Sellers
or the Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
As an inducement to the Sellers and the Company to
enter into this Agreement, the Purchaser hereby represents
and warrants to the Sellers and the Company as follows:
SECTION 4.01. Organization, Authority and
Qualification of the Purchaser. The Purchaser is a
corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada and has all
necessary corporate power and authority to enter into this
Agreement and each Related Agreement, to carry out its
obligations hereunder and thereunder, to consummate the
transactions contemplated hereby and thereby and to own,
operate or lease the properties and assets now owned,
operated or leased by it and to carry on its business. The
Purchaser is duly licensed or qualified to do business and
is in good standing in each jurisdiction in which the
properties owned or leased by it or the operation of its
business makes such licensing or qualification necessary or
desirable, except for such failure to be so licensed or
qualified which, when taken together with all other such
failures, have not had and would not reasonably be expected
to have a Purchaser Material Adverse Effect. The execution
and delivery of this Agreement and each Related Agreement by
the Purchaser, the performance by the Purchaser of its
obligations hereunder and thereunder and the consummation by
the Purchaser of the transactions contemplated hereby and
thereby have been duly authorized by all requisite action on
the part of the Purchaser. This Agreement has been and,
upon its execution, each Related Agreement will be, duly
executed and delivered by the Purchaser, and (assuming due
authorization, execution and delivery by the Company and
each Seller) this Agreement constitutes and, upon its
execution, each Related Agreement will constitute, a legal,
valid and binding obligation of the Purchaser, enforceable
against the Purchaser in accordance with its terms.
SECTION 4.02. Capital Stock of the Purchaser;
Shares of Purchaser Common Stock. (a) The authorized
capital stock of the Purchaser consists of 320,000,000
shares of Purchaser Common Stock. As of December 31, 1993,
127,926,561 shares of Purchaser Common Stock are issued and
outstanding, all of which are validly issued, fully paid and
nonassessable, and, as of November 30, 1993,
25,401,370 shares of Purchaser Common Stock are reserved for
issuance pursuant to employee stock options granted pursuant
to the Purchaser's stock option plans. None of the issued
and outstanding shares of Purchaser Common Stock was issued
in violation of any preemptive rights. Upon delivery of the
shares of Purchaser Common Stock at the Closing, the Sellers
will own all of such shares free and clear of all
Encumbrances. At the Closing, the shares of Purchaser
Common Stock delivered to the Sellers hereunder will be
newly issued shares and will be duly authorized, validly
issued, fully paid and nonassessable, and issued without
violating any preemptive rights.
SECTION 4.03. No Conflict. Assuming that all
consents, approvals, authorizations and other actions
described in Section 4.04 have been obtained and all filings
and notifications listed in Section 4.04 of the Purchaser
Disclosure Schedule have been made, the execution, delivery
and performance of this Agreement and each Related Agreement
by the Purchaser do not and will not (a) violate, conflict
with or result in the breach of any provision of the
Articles of Incorporation or Bylaws of the Purchaser,
(b) conflict with or violate (or cause an event which would
reasonably be expected to have a Purchaser Material Adverse
Effect as a result of) any Law or Governmental Order
applicable to the Purchaser or any of its assets, properties
or businesses, or (c) except as set forth in Section 4.03(c)
of the Purchaser Disclosure Schedule, conflict with, result
in any breach of, constitute a default (or event which with
the giving of notice or lapse of time, or both, would become
a default) under, require any consent under, or give to
others any rights of termination, amendment, acceleration,
suspension, revocation or cancellation of, or result in the
creation of any Encumbrance on any of the shares of
Purchaser Common Stock to be delivered to the Sellers
hereunder or on any of the assets or properties of the
Purchaser or any of its subsidiaries pursuant to, any note,
bond, mortgage or indenture, contract, agreement, lease,
sublease, license, permit, franchise or other instrument or
arrangement to which the Purchaser or any of its
subsidiaries is a party or by which any of such assets or
properties is bound, except in case of each of clause (a),
(b) and (c) for such violations, conflicts, branches or
defaults, or such consents the failure of which to obtain or
such rights the exercise of which, would not reasonably be
expected to have a Purchaser Material Adverse Effect.
SECTION 4.04. Governmental Consents and
Approvals. The execution, delivery and performance of this
Agreement and each Related Agreement by the Purchaser do not
and will not require any consent, approval, authorization or
other order of, action by, filing with, or notification to,
any Governmental Authority, except (a) as described in
Section 4.04 of the Purchaser Disclosure Schedule, (b) the
notification requirements of the HSR Act, (c) approval of
the Bermuda Monetary Authority, and (d) any such consent,
approval, authorization, order, action, filing and
notification the failure of which to make or obtain would
not reasonably be expected to have a Purchaser Material
Adverse Effect.
SECTION 4.05. SEC Filings; Financial Statements.
(a) The Purchaser has filed all forms, reports and
documents required to be filed by it with the Securities and
Exchange Commission ("SEC") since September 30, 1991, and
has heretofore delivered to the Sellers, in the form filed
with the SEC, (i) its Annual Reports on Form 10-K for the
fiscal years ended September 30, 1991, September 30, 1992
and September 30, 1993, respectively, (ii) its Quarterly
Reports on Form 10-Q for the periods ended March 31, 1993
and June 30, 1993, (iii) all proxy statements relating to
the Purchaser's meetings of stockholders (whether annual or
special) held since January 1, 1992 and (iv) all other
forms, reports and other registration statements (other than
Quarterly Reports on Form 10-Q for periods ended prior to
September 30, 1993) filed by the Purchaser with the SEC
since September 30, 1991 (the forms, reports and other
documents referred to in clauses (i), (ii), (iii) and (iv)
above being referred to herein, collectively, as the "SEC
Reports"). The Purchaser agrees to deliver to the Sellers,
in the form filed with the SEC, all SEC Reports so filed
between the date hereof and the Closing Date. The SEC
Reports were (and any SEC Reports filed prior to the Closing
Date will be) prepared in accordance with the requirements
of the Securities Act and the Securities Exchange Act of
1934, as amended and the rules and regulations thereunder,
as the case may be. The SEC Reports did not at the time
they were filed (and any SEC Reports filed prior to the
Closing Date will not at the time they are filed) contain
any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of
the circumstances under which they were made, not
misleading.
(b) Each of the consolidated financial statements
(including, in each case, any notes thereto) contained in
the SEC Reports (i) was prepared in accordance with the
books of account and other financial records of the
Purchaser, (ii) presents fairly the consolidated financial
condition and results of operations of the Purchaser and its
consolidated subsidiaries as of the dates thereof or for the
periods covered thereby, (iii) has been prepared in
accordance with U.S. GAAP applied on a basis consistent with
the past practices of the Purchaser and (iv) includes all
adjustments (consisting only of normal recurring accruals)
that are necessary for a fair presentation of the
consolidated financial condition of the Purchaser and its
consolidated subsidiaries and the results of the operations
of the Purchaser and its consolidated subsidiaries as of the
dates thereof or for the periods covered thereby.
(c) Since September 30, 1993, except as disclosed
in any SEC Report filed since September 30, 1993 and prior
to the date of this Agreement, there has not been any change
in the business, operations, assets, Liabilities, results of
operations or financial condition of the Purchaser having,
individually or in the aggregate, a Purchaser Material
Adverse Effect.
SECTION 4.06. Investment Purpose. The Purchaser
is acquiring the Shares solely for the purpose of investment
and not with a view to, or for offer or sale in connection
with, any distribution thereof.
SECTION 4.07. Brokers. No broker, finder or
investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the Transactions
based upon arrangements made by or on behalf of the
Purchaser.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Conduct of Business Prior to the
Closing. Each Seller and the Company covenant and agree
that, between the date of this Agreement and the Closing
Date, except as set forth in Section 5.01 of the Company
Disclosure Schedule or unless Purchaser shall otherwise
agree in writing, the businesses of the Company, each U.S.
Company and the Subsidiaries shall be conducted only in, and
the Company, the U.S. Companies and the Subsidiaries shall
not take any action except in, the ordinary course of
business and in a manner consistent with past practice; and
the Company and such Seller shall cause each of the Company
and the U.S. Companies to use all reasonable efforts to
preserve substantially intact the business organization of
the Company, the U.S. Companies and the Subsidiaries, to
keep available, in all material respects, the services of
the current officers, employees and consultants of the
Company, the U.S. Companies and the Subsidiaries and to
preserve the current relationships, in all material
respects, of the Company, the U.S. Companies and the
Subsidiaries with customers, suppliers and other persons
with which the Company, any U.S. Company or any Subsidiary
has significant business relations. By way of amplification
and not limitation, except as contemplated by this Agreement
or Section 5.01 of the Company Disclosure Schedule, none of
the Company, any U.S. Company or any Subsidiary shall,
between the date of this Agreement and the Closing Date,
directly or indirectly do any of the following without the
prior written consent of Purchaser:
(i) amend or otherwise change its Memorandum of
Association, Articles of Association, Certificate of
Incorporation or By-laws or equivalent organizational
documents;
(ii) issue, sell, pledge, dispose of, grant,
encumber, or authorize the issuance, sale, pledge,
disposition, grant or encumbrance of, (i) any shares of
capital stock of any class of the Company, any U.S.
Company or any Subsidiary, or any options, warrants,
convertible securities or other rights of any kind to
acquire any shares of such capital stock, or any other
ownership interest (including, without limitation, any
phantom interest), of the Company, any U.S. Company or
any Subsidiary or (ii) any assets of the Company, any
U.S. Company or any Subsidiary, except for sales in the
ordinary course of business and in a manner consistent
with past practice;
(iii) declare, set aside, make or pay any dividend
or other distribution, payable in cash, stock, property
or otherwise, with respect to any of its capital stock;
(iv) reclassify, combine, split, subdivide or
redeem, purchase or otherwise acquire, directly or
indirectly, any of its capital stock;
(v) (A) acquire (including, without limitation,
by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership, other business
organization or any division thereof or any material
amount of assets; (B) incur any indebtedness for
borrowed money or issue any debt securities or assume,
guarantee or endorse, or otherwise as an accommodation
become responsible for, the obligations of any person,
or make any loans or advances, except in the ordinary
course of business and consistent with past practice;
(C) enter into any contract or agreement other than in
the ordinary course of business, consistent with past
practice; (D) authorize any single capital expenditure
which is in excess of $500,000 or capital expenditures
which are, in the aggregate, in excess of $2,000,000
for the Company, the U.S. Companies and the
Subsidiaries taken as a whole; or (E) enter into or
amend any contract, agreement, commitment or
arrangement with respect to any matter set forth in
this Section 5.01(a)(v);
(vi) increase the compensation payable or to
become payable to its officers or employees (including
without limitation each Seller), except for increases
in the ordinary course of business and consistent with past
practices in salaries or wages of employees of the
Company, the U.S. Company or any Subsidiary who are not
officers of the Company, or grant any severance or
termination pay to, or enter into any employment or
severance agreement with any director, officer or other
employee of the Company, any U.S. Company or any
Subsidiary, or establish, adopt, enter into or amend
any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust,
fund, policy or arrangement for the benefit of any
director, officer or employee;
(vii) take any action, other than reasonable and
usual actions in the ordinary course of business and
consistent with past practice, with respect to
accounting policies or procedures (including, without
limitation, procedures with respect to the payment of
accounts payable and collection of accounts
receivable);
(viii) make any tax election or settle or compromise
any material U.S. or non-U.S. federal, state or local
income tax or profits tax liability; or
(ix) pay, discharge or satisfy any claim,
liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction, in the ordinary
course of business and consistent with past practice,
of liabilities reflected or reserved against in the
Reference Balance Sheet (or, in the case of the U.S.
Companies, in the U.S. Company Reference Balance Sheet)
or subsequently incurred in the ordinary course of
business and consistent with past practice.
SECTION 5.02. Access to Information. Subject to
the provisions of the Confidentiality Agreement, from the
date hereof until the Closing, upon reasonable notice, each
Seller and the Company shall cause the Company, each U.S.
Company and the Subsidiaries and the officers, directors,
employees, agents, representatives, accountants and counsel
of the Company, each U.S. Company and each Subsidiary to:
(a) afford the officers, employees and authorized agents,
accountants, counsel and representatives of the Purchaser
reasonable access, during normal business hours, to the
offices, properties, plants, other facilities, books and
records of the Company, each U.S. Company and each
Subsidiary and to those officers, directors, employees,
agents, accountants and counsel of the Company, each U.S.
Company and of each Subsidiary who have any knowledge
relating to the Company, any U.S. Company, any Subsidiary or
the Business with respect to the transactions contemplated
hereby and (b) furnish to the officers, employees and
authorized agents, accountants, counsel and representatives
of the Purchaser such additional financial and operating
data and other information regarding the assets, properties
and goodwill of the Company, the U.S. Companies, the
Subsidiaries and the Business (or legible copies thereof) as
the Purchaser may from time to time reasonably request with
respect to the transactions contemplated hereby.
SECTION 5.03. Regulatory and Other
Authorizations; Notices and Consents. Each party shall use
its reasonable best efforts to obtain all authorizations,
consents, orders and approvals of all Governmental
Authorities and officials that may be or become necessary
for its execution and delivery of, and the performance of
its obligations pursuant to, this Agreement and each Related
Agreement and will cooperate fully with the other parties in
promptly seeking to obtain all such authorizations,
consents, orders and approvals. Each party hereto agrees to
make an appropriate filing pursuant to the HSR Act with
respect to the transactions contemplated by this Agreement
as soon as reasonably practicable after the date hereof and
to supply as promptly as practicable to the appropriate
Governmental Authorities any additional information and
documentary material that may be requested pursuant to the
HSR Act.
SECTION 5.04. Notice of Developments. Prior to
the Closing, each party shall promptly notify each other
party in writing of (a) all events, circumstances, facts and
occurrences arising subsequent to the date of this Agreement
which would reasonably be expected to result in any material
breach of a representation or warranty or covenant of such
first party in this Agreement or which could have the effect
of making any representation or warranty of such first party
in this Agreement untrue or incorrect in any material
respect and (b) all other material developments known to
such party affecting the business, operations, assets,
Liabilities, results of operations or financial condition of
the Company, any U.S. Company, any Subsidiary or the
Business (in the case of the Sellers) or of the Purchaser
(in the case of the Purchaser).
SECTION 5.05. No Disposition or Encumbrance of
Shares. Each Seller hereby covenants and agrees, severally
and not jointly, that, except as contemplated by this
Agreement, such Seller shall not, and shall not offer or
agree to, sell, transfer, tender, assign, hypothecate or
otherwise dispose of, or create or permit to exist any
security interest, lien, claim, pledge, option, right of
first refusal, agreement, limitation on such Seller's voting
rights, charge or other encumbrance of any nature whatsoever
with respect to any shares of Common Stock.
SECTION 5.06. No Solicitation of Transactions.
Except in connection with the Initial Public Offering,
neither the Company nor any Seller shall, directly or
indirectly, through any agent or representative or
otherwise, solicit, initiate or encourage the submission of
any proposal or offer from any Person relating to (a) any
acquisition or purchase of all or any shares of Common Stock
or (b) any acquisition or purchase of all or substantially
all of the assets of, or any equity interest in, the
Company, any U.S. Company or any Subsidiary or any business
combination with the Company, any U.S. Company or any
Subsidiary or participate in any negotiations regarding, or
furnish to any Person any information with respect to, or
otherwise cooperate in any way with, or assist or
participate in or facilitate or encourage, any effort or
attempt by any Person to do or seek any of the foregoing.
The Company and each Seller immediately shall cease and
cause to be terminated all existing discussions or
negotiations of the Company or such Seller, as the case may
be, and its agents or other representatives with any Person
conducted heretofore with respect to any of the foregoing.
The Company and each Seller shall notify the Purchaser
promptly if any such proposal or offer, or any inquiry or
contact with any Person with respect thereto, is made and
shall, in any such notice to the Purchaser, indicate in
reasonable detail the identity of the Person making such
proposal, offer, inquiry or contact and the terms and
conditions of such proposal, offer, inquiry or contact.
SECTION 5.07. Further Action. Each of the
parties hereto shall use all reasonable efforts to take, or
cause to be taken, all appropriate action, do or cause to be
done all things necessary, proper or advisable under
applicable Law, and execute and deliver such documents and
other papers, as may be required to carry out the provisions
of this Agreement and consummate and make effective the
Transactions.
SECTION 5.08. [RESERVED]
SECTION 5.09. [RESERVED]
SECTION 5.10. Registration upon Request. (a)
The Purchaser shall, if requested by the Hansen Trusts, use
all reasonable efforts to expeditiously prepare and file one
registration statement under the Securities Act if such
registration is necessary in order to permit the sale of the
shares of Purchaser Common Stock received by the Hansen
Trusts hereunder or under the Stock Option Agreement, and
the Purchaser shall use all reasonable efforts to qualify
such shares for offer and sale under any applicable U.S.
state securities laws. The Purchaser shall use all
reasonable efforts to cause such registration statement to
become effective, to obtain all consents or waivers of other
parties which are required therefor and to keep such
registration statement effective for such period not in
excess of 180 days from the day such registration statement
first becomes effective as may be reasonably necessary to
effect such sale or other disposition; provided, however,
that the Purchaser shall not be required to prepare audited
financial statements (solely for this purpose) in order to
maintain the effectiveness of the registration statement.
The obligations of the Purchaser hereunder to file a
registration statement and to maintain its effectiveness may
be suspended (i) if, in the reasonable judgment of the
Purchaser, a registration would adversely affect any public
financing completed or contemplated by the Purchaser, until
the earlier of 90 days after the completion or abandonment
of such financing and the termination of any "black out"
period required by the underwriters in connection with such
financing; and (ii) for one or more periods of time not
exceeding 90 days in the aggregate for all such periods if
the Board of Directors of the Purchaser shall have
determined that the filing of such registration statement or
the maintenance of its effectiveness would require
disclosure of nonpublic information that the Purchaser has a
bona fide business reason for preserving as nonpublic. The
Hansen Trusts shall provide all information reasonably
requested by the Purchaser for inclusion in any registration
statement to be filed hereunder.
(b) The Hansen Trusts (jointly and severally)
shall pay all Registration Expenses (as defined below) in
connection with the registration of Purchaser Common Stock
pursuant to this Section 5.10; provided, however, that, if
any securities of the Purchaser other than shares of
Purchaser Common Stock of the Hansen Trusts are included in
such registration, the Purchaser shall pay a portion of such
Registration Expenses (excluding the expenses of the holders
and their counsel) equivalent to a fraction, the numerator
of which is the net proceeds of such registration of
securities other than shares of Purchaser Common Stock held
by the Hansen Trusts and the denominator of which is the
aggregate net proceeds of such registration. As used
herein, "Registration Expenses" means, for any registration
of shares, all out-of-pocket expenses incident to such
registration including, without limitation, all registration
and filing fees (including filing fees with respect to the
U.S. Securities and Exchange Commission and the National
Association of Securities Dealers, Inc.), all fees and
expenses of qualifying under or complying with state
securities or "blue sky" laws (including reasonable fees and
disbursements of underwriters' counsel in connection with
any "blue sky" memorandum or survey), all listing fees, all
printing expenses, all registrars' and transfer agents'
fees, the fees and disbursements of counsel for the Company
and of its independent public accountants, including the
expenses of any special audits and/or "cold comfort" letters
required by or incident to such performance and compliance,
the fees and disbursements of counsel retained by the
holders of shares being registered, together with all
discounts, commissions or fees of underwriters, selling
brokers, dealer managers, sales agents or similar securities
industry professionals and applicable transfer taxes.
(c) The right of the Hansen Trusts to
registration upon request as provided in this Section 5.10
and Section 5.11 below shall terminate when the Hansen
Trusts become eligible to sell any of their shares of
Purchaser Common Stock under the exemption from registration
provided by Rule 144 promulgated under the Securities Act.
SECTION 5.11. Incidental Registration. (a) If
the Purchaser effects a registration under the Securities
Act of any of its equity securities for its own account or
for any other shareholders of the Purchaser (other than on
Form S-4 or Form S-8, or any successor form), it shall allow
the Hansen Trusts as a holder of Purchaser Common Stock the
right to participate in such registration, and such
participation shall not affect the obligation of the
Purchaser to effect a registration under Section 5.10;
provided that, if the managing underwriters of such offering
advise the Purchaser in writing that in their opinion the
number of shares requested to be included in such
registration exceeds the number which can be sold in such
offering without adversely affecting the price, timing or
distribution of the shares being sold, the Purchaser shall
include in such registration first, the securities intended
to be included therein by the Purchaser, and second, the
number of shares of Purchaser Common Stock and other
securities the holders of which have similar registration
rights requested to be included therein which, in the
opinion of such managing underwriters, can be sold in such
offering without adversely affecting the price, timing or
distribution of the securities of the Purchaser otherwise
being sold; and provided further that the Hansen Trusts
shall be entitled to participate in no more than a total of
two such registrations under this Section 5.11.
(b) The Hansen Trusts (jointly and severally)
shall pay their own expenses and the fees and expenses of
their counsel and a portion of the other Registration
Expenses in connection with the registration of Purchaser
Common Stock pursuant to this Section 5.11, equivalent to a
fraction, the numerator of which is the net proceeds of the
registration of such Purchaser Common Stock and the
denominator of which is the aggregate net proceeds of such
registration.
SECTION 5.12. Other Agreements. In connection
with any registration pursuant to Section 5.10 or 5.11, the
Purchaser and the Hansen Trusts shall provide each other and
any underwriter of the offering with customary
representations, warranties, covenants, indemnification and
contribution in connection with such registration.
ARTICLE VI
CONDITIONS TO CLOSING
SECTION 6.01. Conditions to Obligations of the
Sellers. The obligations of each Seller to consummate the
transactions contemplated by this Agreement shall be subject
to the fulfillment, at or prior to the Closing, of each of
the following conditions:
(a) Representations, Warranties and Covenants.
The representations and warranties of the Purchaser
contained in this Agreement which are qualified as to
materiality shall be true and correct and all such
representations and warranties that are not so
qualified shall be true and correct in all material
respects, in each case as of the date when made and on
and as of the Closing Date, with the same force and
effect as if made as of the Closing Date, other than
such representations and warranties as are made as of
another date (in which case such representations and
warranties shall have been true and correct as of such
date); the covenants and agreements contained in this
Agreement to be complied with by the Purchaser on or
before the Closing shall have been complied with in all
material respects; and the Seller shall have received a
certificate from the Purchaser to such effect signed by
a duly authorized officer thereof;
(b) HSR Act. Any waiting period (and any
extension thereof) under the HSR Act applicable to the
purchase of the Shares contemplated hereby shall have
expired or shall have been terminated;
(c) No Proceeding or Litigation. No Action shall
have been commenced by or before any Governmental
Authority against any Seller or the Purchaser, seeking
to restrain or materially and adversely alter the
Transactions which, in the reasonable, good faith
determination of such Seller, is likely to render it
impossible or unlawful to consummate any of the
Transactions or which would reasonably be expected to
have a Purchaser Material Adverse Effect; provided,
however, that the provisions of this Section 6.01(c)
shall not apply if such Seller has directly or
indirectly solicited or encouraged any such Action;
(d) Resolutions. Such Seller shall have received
a true and complete copy, certified by the Secretary or
an Assistant Secretary of the Purchaser, of the
resolutions duly and validly adopted by the Board of
Directors of the Purchaser evidencing its authorization
of the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby;
(e) Incumbency Certificate. Such Seller shall
have received a certificate of the Secretary or an
Assistant Secretary of the Purchaser certifying the
names and signatures of the officers of the Purchaser
authorized to sign this Agreement and the other
documents to be delivered hereunder;
(f) Legal Opinion. Such Seller shall have
received from each of Raymond D. Pike, Executive Vice
President of the Purchaser, and Shearman & Sterling,
special counsel to the Purchaser, a legal opinion,
addressed to the Sellers and dated the Closing Date,
substantially in the form of Exhibit C-1 and C-2,
respectively.
(g) Consents and Approvals. The Sellers and the
Purchaser shall have received, each in form and
substance reasonably satisfactory to such Seller, all
authorizations, consents, orders and approvals of all
Governmental Authorities and officials and all third
party consents and estoppel certificates necessary for
the consummation of the Transactions;
(h) Organizational Documents. Such Seller shall
have received a copy of (i) the Certificate of
Incorporation, as amended, of the Purchaser, certified
by the Secretary of State of Nevada as of a date not
earlier than five Business Days prior to the Closing
Date and accompanied by a certificate of the Secretary
or Assistant Secretary of each such entity, dated as of
the Closing Date, stating that no amendments have been
made to such Certificate of Incorporation since such
date, and (ii) the By-laws of the Purchaser, certified
by the Secretary or Assistant Secretary;
(i) No Purchaser Material Adverse Effect. No
event or events shall have occurred, or be reasonably
likely to occur, which, individually or in the
aggregate, have, or would reasonably be expected to
have, a Purchaser Material Adverse Effect; and
(j) Related Agreements. The Purchaser shall have
executed and delivered to the counterparties thereto
each of the OEM Agreement, the Shareholders Agreement,
the Stock Option Agreement, the Radica USA Shareholders
Agreement and the Deed of Indemnity.
SECTION 6.02. Conditions to Obligations of the
Purchaser. The obligations of the Purchaser to consummate
the transactions contemplated by this Agreement shall be
subject to the fulfillment, at or prior to the Closing, of
each of the following conditions:
(a) Representations, Warranties and Covenants.
The representations and warranties of the Sellers and
the Company contained in this Agreement which are
qualified as to materiality shall be true and correct
and all such representations
and warranties that are not so qualified shall be true
and correct in all material respects, in each case when
made and on and as of the Closing Date, with the same
force and effect as if made as of the Closing Date,
other than such representations and warranties as are
made as of another date (in which case such
representations and warranties shall have been true and
correct as of such date); the covenants and agreements
contained in this Agreement to be complied with by the
Sellers on or before the Closing shall have been
complied with in all material respects; and the
Purchaser shall have received a certificate signed by
each Seller and two senior officers or directors of the
Company, to such effect; and all of the Sellers shall
have tendered their Shares as contemplated by Section
2.04;
(b) HSR Act. Any waiting period (and any
extension thereof) under the HSR Act applicable to the
purchase of the Shares contemplated hereby shall have
expired or shall have been terminated;
(c) No Proceeding or Litigation. No Action shall
have been commenced or threatened by or before any
Governmental Authority against any Seller or the
Purchaser, seeking to restrain or materially and
adversely alter the Transactions which the Purchaser
believes, in its reasonable good faith determination,
is likely to render it impossible or unlawful to
consummate any of the Transactions or which would
reasonably to have a Company Material Adverse Effect;
provided, however, that the provisions of this Section
6.02(c) shall not apply if the Purchaser has solicited
or encouraged any such Action;
(d) Legal Opinion. The Purchaser shall have
received from Sullivan & Cromwell, special counsel to
Company, a legal opinion, addressed to the Purchaser
and dated the Closing Date, substantially in the form
of Exhibit D and legal opinions from counsel in
Bermuda, Hong Kong and Nevada in form reasonably
satisfactory to the Purchaser;
(e) Consents and Approvals. The Purchaser and
the Sellers shall have received, each in form and
substance reasonably satisfactory to the Purchaser, all
authorizations, consents, orders and approvals of all
Governmental Authorities and officials and all third
party consents and estoppel certificates necessary for
the consummation of the Transactions;
(f) Organizational Documents. The Purchaser
shall have received a copy of (i) the Memorandum of
Association, the Articles of Association or Certificate
of Incorporation, as amended (or similar organizational
documents), of the Company, each U.S. Company and of
each Subsidiary, certified by the secretary of state or
similar official of the jurisdiction in which each such
entity is incorporated or organized, as of a date not
earlier than five Business Days prior to the Closing
Date and accompanied by a certificate of the Secretary
or Assistant Secretary of each such entity, dated as of
the Closing Date, stating that no amendments have been
made to such Memorandum or Articles of Association or
Certificate of Incorporation (or similar organizational
documents) since such date, and (ii) the By-laws (or
similar organizational documents) of the Company, of
each U.S. Company and of each Subsidiary, certified by
the Secretary or Assistant Secretary of each such
entity;
(g) No Company Material Adverse Effect. No event
or events shall have occurred, or be reasonably likely
to occur, which, individually or in the aggregate,
have, or would reasonably be expected to have, a
Company Material Adverse Effect;
(h) Related Agreements. Each party thereto
(other than the Purchaser) shall have executed and
delivered to the Purchaser each of the OEM Agreement,
the Shareholders Agreement, the Stock Option Agreement,
the Radica USA Shareholders Agreement and the Deed of
Indemnity; and
(j) Interim Financials. The interim financial
statements of each of Radica Limited and Radica USA
covering the period from December 1, 1993 through
December 31, 1993 will have been prepared in accordance
with Hong Kong generally accepted accounting principles
(in the case of Radica Limited) and U.S. GAAP (in the
case of Radica USA) and delivered to the Purchaser,
which financial statements will not reflect a
materially worse financial condition than that
reflected in the financial statements included in the
Company Disclosure Schedule.
ARTICLE VII
TERMINATION AND WAIVER
SECTION 7.01. Termination. This Agreement may be
terminated at any time prior to the Closing:
(a) by the Purchaser if, between the date hereof
and the time scheduled for the Closing: (i) an event
or condition occurs that has resulted in or that would
reasonably be expected to result in a Company Material
Adverse Effect, (ii) any representation or warranty of
the Sellers contained in this Agreement shall not have
been true and correct in any material respect when
made; or (iii) any Seller shall not have complied in
any material respect with any covenant or agreement to
be complied with by it and contained in this Agreement;
or
(b) by the Sellers if, between the date hereof
and the time scheduled for the Closing: (i) an event or
condition occurs that has resulted in or that would
reasonably be expected to result in a Purchaser
Material Adverse Effect, (ii) any representation or
warranty of the Purchaser contained in this Agreement
shall not have been true and correct in any material
respect when made, or (iii) the Purchaser shall not
have complied in any material respect with any covenant
or agreement to be complied with by it and contained in
this Agreement; or
(c) by any Seller or the Purchaser if the Closing
shall not have occurred by June 30, 1994; provided,
however, that the right to terminate this Agreement
under this Section 7.01(c) shall not be available to
any party whose failure to fulfill any obligation under
this Agreement shall have been the cause of, or shall
have resulted in, the failure of the Closing to occur
on or prior to such date; or
(d) by any Seller or the Purchaser in the event
that any Governmental Authority shall have issued a
Governmental Order or taken any other action
restraining, enjoining or otherwise prohibiting the
Transactions and such Governmental Order or other
action shall have become final and nonappealable; or
(e) at any time before June 30, 1994, by the
Purchaser if, at any time in the course of its legal,
accounting, financial or operational due diligence
investigation as to the Company, the Subsidiaries and
the U.S. Companies it shall have become aware of any
material facts or circumstances that it was not aware
of on the date hereof, or any additional facts and
circumstances as to material matters of which it was
aware on the date hereof, in either case that would, in
the reasonable judgment of the Purchaser, make it
inadvisable to consummate the Transactions; or
(e) by the mutual written consent of the Sellers
and the Purchaser.
SECTION 7.02. Effect of Termination. In the
event of termination of this Agreement pursuant to Section
7.01, this Agreement shall forthwith become void and there
shall be no liability on the part of any party hereto except
(a) as set forth in Section 8.01 and (b) that nothing herein
shall relieve either party from liability for any wilful
breach of this Agreement.
SECTION 7.03. Waiver. Any party to this
Agreement may (a) extend the time for the performance of any
of the obligations or other acts of any other party, (b)
waive any inaccuracies in the representations and warranties
of the other party contained herein or in any document
delivered by any other party pursuant hereto or (c) waive
compliance with any of the agreements or conditions of any
other party contained herein. Any such extension or waiver
shall be valid only if set forth in an instrument in writing
signed by the party to be bound thereby. Any waiver of any
term or condition shall not be construed as a waiver of any
subsequent breach or a subsequent waiver of the same term or
condition, or a waiver of any other term or condition, of
this Agreement. The failure of any party to assert any of
its rights hereunder shall not constitute a waiver of any of
such rights.
SECTION 7.04. Obligations of Sellers Several and
Not Joint. Neither the Company nor any Seller shall have
any liability or obligation in respect of any breach of any
representation or warranty, covenant or agreement in this
Agreement of any other Seller that results from any
circumstances related to or any actions or omissions of such
other Seller, and the Purchaser agrees that its sole
recourse in the event of such a breach shall be against such
other Seller, provided that the Purchaser may refuse to
purchase any of the Shares contemplated to be sold by this
Agreement if any Seller breaches his obligation to sell to
the Purchaser the number of Shares set forth opposite his
name on Schedule A hereto. The obligations of the Sellers
under this Agreement are several and not joint and any
liability for damages for breach of this Agreement by the
Sellers or any Seller shall be several and not joint.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. Non-Survival of Representations,
Warranties and Agreements. The representations, warranties
and agreements in this Agreement shall terminate at the
Closing or upon the termination of this Agreement pursuant
to Section 7.01, as the case may be, except that the
representations and warranties in last two sentences of
Section 3.03(a) and in Sections 3.04(a) and 4.02 shall
survive the Closing indefinitely, the agreements set forth
in Sections 5.10, 5.11 and 5.12 and shall survive the
Closing indefinitely and those set forth in Section 7.02,
7.04, and Article VIII shall survive termination
indefinitely.
SECTION 8.02. Expenses. Except as otherwise
specified in this Agreement, all costs and expenses,
including, without limitation, fees and disbursements of
counsel, financial advisors and accountants, incurred in
connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring
such costs and expenses, whether or not the Closing shall
have occurred.
SECTION 8.03. Notices. All notices, requests,
claims, demands and other communications hereunder shall be
in writing and shall be given or made (and shall be deemed
to have been duly given or made upon receipt) by delivery in
person, by courier service, by cable, by facsimile
transmission, by telegram, by telex or by registered or
certified mail (postage prepaid, return receipt requested)
to the respective parties at the following addresses (or at
such other address for a party as shall be specified in a
notice given in accordance with this Section 8.03):
(a) if to a Seller, at the address set forth
below such Seller's name on Schedule A
hereto,
with a copy to:
Sullivan & Cromwell
444 South Flower Street
Los Angeles, CA 90071
Facsimile: (213) 683-0457
Attention: Frank H. Golay, Jr.
(b) if to the Company:
Radica Holdings Limited
6F, 2-12 Au Pui Wan Street
Fo Tan, Hong Kong
Facsimile: 852-695-9657
Attention: Bob Davids
with a copy to:
Sullivan & Cromwell
444 South Flower Street
Los Angeles, CA 90071
Facsimile: (213) 683-0457
Attention: Frank H. Golay, Jr.
(c) if to the Purchaser:
International Game Technology
Mailing Address:
P.O. Box 10580
Reno, Nevada 89510-0580
Street Address:
5250 Neil Road
Reno, Nevada 89502-4169
Facsimile: (702) 686-1137
Attention: Corporate General Counsel
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Facsimile: (212) 848-7179
Attention: Fred H. Cohen, Esq.
SECTION 8.04. Public Announcements. Except in
any registration statement with respect to the Company's
Common Stock or as may be required by law or the rules of
any stock exchange, no party to this Agreement shall make,
or cause to be made, any press release or public
announcement in respect of this Agreement or the
Transactions or otherwise communicate with any news media in
respect thereof without the prior written consent of the
other party, and the parties shall cooperate as to the
timing and contents of any such press release or public
announcement.
SECTION 8.05. Headings. The descriptive headings
contained in this Agreement are for convenience of reference
only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.06. Severability. If any term or other
provision of this Agreement is invalid, illegal or incapable
of being enforced by any Law or public policy, all other
terms and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is
not affected in any manner materially adverse to any party.
Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties
as closely as possible in an acceptable manner in order that
the transactions contemplated hereby are consummated as
originally contemplated to the greatest extent possible.
SECTION 8.07. Entire Agreement. This Agreement
and the Related Agreements constitute the entire agreement
of the parties hereto with respect to the subject matter
hereof and thereof and supersede all prior agreements and
undertakings, both written and oral, between the Sellers and
the Purchaser with respect to the subject matter hereof and
thereof.
SECTION 8.08. Assignment. This Agreement may not
be assigned by operation of law or otherwise without the
express written consent of the Sellers and the Purchaser
(which consent may be granted or withheld in the sole
discretion of the Sellers or the Purchaser) and any
purported assignment made without consent shall be null and
void; provided, however, that the Purchaser may assign this
Agreement to an Affiliate of the Purchaser without the
consent of the Sellers provided that no such assignment
shall relieve the Purchaser of its obligations hereunder if
such assignee does not perform such obligations.
SECTION 8.09. No Third Party Beneficiaries. This
Agreement shall be binding upon and inure solely to the
benefit of the parties hereto and their permitted assigns
and nothing herein, express or implied, is intended to or
shall confer upon any other Person any legal or equitable
right, benefit or remedy of any nature whatsoever under or
by reason of this Agreement.
SECTION 8.10. Amendment. This Agreement may not
be amended or modified except (a) by an instrument in
writing signed by, or on behalf of, each of the Sellers, the
Company and the Purchaser or (b) by a waiver in accordance
with Section 7.03.
SECTION 8.11. Governing Law. This Agreement
shall be governed by, and construed in accordance with, the
laws of the State of New York.
SECTION 8.12. Consent to Jurisdiction. Each
party hereby (a) submits to the non-exclusive jurisdiction
of any New York State or Federal court sitting in New York
City and any Nevada State or Federal court sitting in Reno,
Nevada with respect to any actions and proceedings arising
out of or relating to this Agreement, (b) agrees that all
claims with respect to such actions or proceedings may be
heard and determined in any such State or Federal court, (c)
waives the defense of an inconvenient forum, (d) consents to
the service of process upon it by mailing or delivering such
service to Radica Enterprises Limited, 5301 Longley Lane,
No. 4, Reno, Nevada 89511-1806 (in the case of each Seller
and the Company) or to International Game Technology (in the
case of the Purchaser) (each, such party's "Agent") and
authorizes and directs its Agent to accept such service and
(v) agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner
provided by law.
SECTION 8.13. Counterparts. This Agreement may
be executed and delivered (including by facsimile
transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be
an original but all of which taken together shall constitute
one and the same agreement.
SECTION 8.14. Specific Performance. The parties
hereto agree that irreparable damage would occur in the
event any provision of this Agreement was not performed in
accordance with the terms hereof and that the parties shall
be entitled to specific performance of the terms hereof to
the extent permitted by applicable law, in addition to any
other remedy at law or equity.
SECTION 8.15. Prevailing Currency. Unless
otherwise specified, all references to currency in this
Agreement refer to lawful currency of the United States of
America.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed as of the date first written above
by their respective officers thereunto duly authorized.
INTERNATIONAL GAME TECHNOLOGY
By
Name:
Title:
RADICA HOLDINGS LIMITED
By
Name:
Title:
JAMES JOHN SUTTER
ROBERT EUGENE DAVIDS
JOHN AND MARY HANSEN 1989 TRUST
By
John N. Hansen, As Trustee
JOHN AND MARY HANSEN 1993 TRUST
By
John N. Hansen, As Trustee
By
Louis C. Lalanne, As Trustee<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Name and Address Number of Shares Share of Cash Number of Shares of
of Seller to be sold Portion of Purchaser
to Purchaser Purchase Price Common Stock
<S> <C> <C> <C>
James John Sutter 700 $ 1,725,000 131,793
72, 18th Street
Hong Lok Yuen
Tai Po, Hong Kong
Robert Eugene Davids 700 1,725,000 131,793
2 Watersmeet
Tai Tan Village
Sai Kung, Hong Kong
John and Mary Hansen 315 1,075,000 50,038
1989 Trust
249 Shearwater Circle
Foster City, CA 92404
John and Mary Hansen 385 1,325,000 60,812
1993 Trust
249 Shearwater Circle
Foster City, CA 92404
$ 5,850,000 374,436
</TABLE>
PURCHASER DISCLOSURE SCHEDULE
Ref
Section
4.03(c) None
4.04 None
Exhibit 10.5
AMENDMENT TO SHARE PURCHASE AGREEMENT
February 16, 1994
International Game Technology
520 South Rock Boulevard
Reno, Nevada 89502-4169
Attn: Raymond D. Pike
Executive Vice President
Gentlemen:
We refer to the Share Purchase Agreement dated as of
January 12, 1994 (the "Share Purchase Agreement") among the
undersigned and you. Unless otherwise defined herein, the terms
defined in the Share Purchase Agreement shall be used herein as
therein defined.
It is hereby agreed by you and us that the Share Purchase
Agreement is, effective as of the date first above written,
hereby amended generally to delete the John and Mary Hansen 1993
Trust as a party thereto and, in particular, as follows:
(a) The definition of "Bengtson Employment Agreement" is
hereby amended by inserting the words ", as amended
from time to time," after the words "dated as of
December 13, 1993" therein.
(b) The definition of "Confidentiality Agreement" is hereby
amended by inserting the words ", as amended from time
to time," after the words "dated as of the date hereof"
therein.
(c) The definition of "Deed of Indemnity" is hereby amended
by inserting the words "as amended from time to time,"
after the words "dated as of the Closing Date,"
therein.
(d) The definition of "Hansen Trusts" is hereby deleted,
and the following definition inserted in lieu thereof:
"Hansen Trust" means the John and Mary Hansen
1989 Trust.
(e) The definition of "OEM Agreement" is hereby
amended by inserting the words "as amended
from time to time," after the words "dated as
of the date hereof," therein.
(f) The definition of "Radica USA Shareholders Agreement"
is hereby amended by inserting the words "as amended
from time to time," after the words "dated as of the
Closing Date," therein.
(g) The definition of "Shareholders Agreement" is hereby
amended by inserting the words "as amended from time to
time," after the words "dated as of the date hereof,"
therein.
(h) Section 3.06(a) is amended by replacing the reference
therein to "Hansen Trusts" with "Hansen Trust".
(i) Section 5.10(a) is amended by replacing each reference
therein to "Hansen Trusts" with "Hansen Trust".
(j) Section 5.10(b) is amended by replacing each reference
therein to "Hansen Trusts" with "Hansen Trust" and by
deleting the words "(jointly and severally)" in the
first line thereof.
(k) Section 5.10(c) is amended by replacing the
reference therein to "Hansen Trusts" with "Hansen Trust" and
by replacing the words "become eligible to sell any of their
shares" in the third line thereof with the words "becomes
eligible to sell any of its shares".
(l) Section 5.11 is amended by replacing each reference
therein to "Hansen Trusts" with "Hansen Trust" and
Section 5.11(b) is further amended by replacing the
words "(jointly and severally) shall pay their own
expenses and the fees and expenses of their counsel" in
the first and second lines thereof with the words
"shall pay its own expenses and the fees and expenses
of its counsel".
(m) Section 5.12 is amended by replacing the reference
therein to "Hansen Trusts" with "Hansen Trust" and by
deleting the words "each other and" from the second
and third lines thereof.
(n) Schedule A to the Share Purchase Agreement is hereby
amended and restated in the form attached hereto.
On and after the effective date of this letter amendment,
each reference in the Share Purchase Agreement to "this
Agreement", "hereunder", "hereof" or words of like import
referring to the Share Purchase Agreement, shall mean and be a
reference to the Share Purchase Agreement as amended by this
letter amendment. The Share Purchase Agreement, as amended by
this letter amendment, is and shall continue to be in full force
and effect and is hereby in all respects ratified and confirmed.
If you agree to the terms and provisions hereof, please
evidence such agreement by executing and returning at least a
counterpart of this letter amendment to the undersigned. This
letter amendment shall become effective as of the date first
above written.
This letter amendment may be executed and delivered
(including by facsimile transmission) in one or more
counterparts, and by the different parties hereto in separate
counterparts, each of which when so executed and delivered shall
be deemed to be an original but all of which taken together shall
constitute one and the same instrument.
Very truly yours,
RADICA HOLDINGS LIMITED
By
Name:
Title:
JAMES JOHN SUTTER
ROBERT EUGENE DAVIDS
JOHN AND MARY HANSEN 1989
TRUST
By
, As Trustee
JOHN AND MARY HANSEN 1993
TRUST
By
, As Trustee
By
, As Trustee
Agreed as of the date
first above written:
INTERNATIONAL GAME TECHNOLOGY
By
Name:
Title:
<TABLE>
<CAPTION>
Schedule A
Number of Shares Share of Cash Number of Shares
Name and Address to be sold Portion of of Purchaser
of Seller to Purchaser Purchase Price Common STock
<S> <C> <C> <C>
James John Sutter 700 $1,725,000 131,793
72, 18th Street
Hong Lok Yuen
Tai Po, Hong Kong
Robert Eugene Davids 700 1,725,000 131,793
2 Watersmeet
Tai Tan Village
Sai Kung, Hong Kong
John and Mary Hansen 700 2,400,000 110,850
1989 Trust
249 Shearwater Isle
Foster City, CA 92404
2,100 $5,850,000 374,436
</TABLE>
Exhibit 10.6
RADICA HOLDINGS LIMITED
SHAREHOLDERS AGREEMENT
among
RADICA HOLDINGS LIMITED
and
THE SHAREHOLDERS PARTIES HERETO
Dated as of January 12, 1994
TABLE OF CONTENTS
ARTICLE I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Certain Definitions . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.01. Definitions . . . . . . . . . 1
ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Corporate Governance. . . . . . . . . . . . . . . . . . . . . . 5
SECTION 2.01. Number of Directors . . . . . 5
SECTION 2.02. Nomination of Directors . . . 6
SECTION 2.03. Voting Agreement. . . . . . . 6
SECTION 2.04. Removal of Directors. . . . . 7
SECTION 2.05. Vacancies on the Board of Directors 7
SECTION 2.06. Committees of the Board of Directors 8
SECTION 2.07. Action by the Board of Directors 8
SECTION 2.08. Financial and Other Information 8
SECTION 2.09. Memorandum of Association and Bye-laws; No Conflict
with Agreement. . . . . . . . . . . . . 8
SECTION 2.10. Transactions with Shareholders 9
SECTION 2.11. Corporate Governance of Radica Limited 9
ARTICLE III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Restrictions on Transfer. . . . . . . . . . . . . . . . . . . . 9
SECTION 3.01. General Restriction . . . . . 9
SECTION 3.02. Legends . . . . . . . . . . . 9
SECTION 3.03. Certain Restrictions on Transfer 10
SECTION 3.04. Right of First Refusal. . . . 11
SECTION 3.05. Right of First Refusal for New Securities 13
SECTION 3.06. Transferees to Execute Agreement 13
SECTION 3.07. Improper Transfer . . . . . . 14
SECTION 3.08. Avoidance of Controlled Foreign Corporation
Status 14
ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Registration Rights . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 4.01. Registration upon Request . . 14
SECTION 4.02. Incidental Registration . . . 16
SECTION 4.03. Other Agreements. . . . . . . 16
-i-
Table of Contents (cont'd)
ARTICLE V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Certain Agreements. . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 5.01. Deposit of Shares . . . . . . 17
ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 6.01. Representation. . . . . . . . 17
SECTION 6.02. Amendments and Waivers. . . . 17
SECTION 6.03. Notices . . . . . . . . . . . 17
SECTION 6.04. Headings. . . . . . . . . . . 17
SECTION 6.05. Severability. . . . . . . . . 18
SECTION 6.06. Entire Agreement. . . . . . . 18
SECTION 6.07. Successors and Assigns; Benefit 18
SECTION 6.08. Governing Law . . . . . . . . 18
SECTION 6.09. Consent to Jurisdiction . . . 18
SECTION 6.10. Counterparts. . . . . . . . . 19
SECTION 6.11. Specific Performance. . . . . 19
SECTION 6.12. Effectiveness of this Agreement 20
-ii-
SHAREHOLDERS AGREEMENT, dated as of January 12, 1994, among RADICA
HOLDINGS LIMITED, a company incorporated under the laws of Bermuda
(the "Company"), and each of the other parties signatory hereto.
WHEREAS, International Game Technology, a Nevada corporation ("IGT"), James
John Sutter ("Sutter"), Robert Eugene Davids ("Davids") and the John and Mary
Hansen 1989 Trust and the John and Mary Hansen 1993 Trust (collectively, the
"Trusts") are parties to a Share Purchase Agreement dated as of January 12,
1994 (the "Share Purchase Agreement"), relating to the acquisition by IGT
from Sutter, Davids and the Trusts of an aggregate of 2,100 shares of par
value U.S. $1 per share ("Common Stock"), of the Company, representing in
the aggregate 11.2% of the issued and outstanding shares of Common Stock; and
WHEREAS, it is a condition to the obligations of the parties to the
Share Purchase Agreement that this Agreement be executed by the parties
listed on the signature pages hereof;
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
herein contained, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
SECTION 1.01. Definitions. For the purposes of this Agreement, the
following terms have the following meanings:
"Affiliate" means, with respect to any specified Person, any
other Person that directly or indirectly through one or more
intermediaries, controls, is controlled by, or is
under common control with, such specified Person. For purposes
of this definition, "control" (including, with correlative meanings,
the terms "controlled by" or "under common control with"), with
respect to the relationship between or among two or more
Persons, means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the
affairs or management of a Person through the ownership of
voting securities or by contract or otherwise, of the power to elect
a majority of the board of directors or similar body governing
the affairs of such Person.
"Beneficial owner" or "beneficially own" has the meaning specified
in Rule l3d-3 under the 1934 Act.
"Board of Directors" means the Board of Directors of the Company.
"Bye-laws" means the Bye-laws of the Company, as amended from time
to time.
"Closing Date" has the meaning specified in the Share Purchase
Agreement.
"Commission" means the U.S. Securities and Exchange Commission,
and any successor commission or agency having similar powers.
"Common Stock" has the meaning specified in the recitals hereto.
"Davids Director" has the meaning specified in Section 2.02.
"Davids Shareholders" means Davids and his Permitted Transferees
who, at the time of determination, hold any Shares and are parties
to this Agreement.
"Director" means a member of the Board of Directors.
"Encumbrance" means any lien, security interest, pledge,
hypothecation, claim, option, right of first refusal or other
encumbrance with respect to any Share, other than
encumbrances created by this Agreement.
"Hansen Shareholders" means the trustees ("Trustees") for the
Trusts and their Permitted Transferees who, at the time of
determination, hold any Shares and are parties to this Agreement.
"IGT Director" has the meaning specified in Section 2.02.
"IGT Shareholders" means IGT and its Permitted Transferees who,
at the time of determination, hold any Shares and are parties to
this Agreement.
"Independent Director" has the meaning specified in Section 2.02.
"Initial Public Offering" means a public offering of equity securities
of the Company pursuant to an effective registration statement
under the 1933 Act.
"Memorandum of Association" means the Memorandum of Association of
the Company, as amended from time to time.
"New Securities" means shares of capital stock of the Company and
all rights, options or warrants to purchase shares of such capital
stock, and securities of any type whatsoever that in accordance
with their terms, are, or may become, convertible into, or
exchangeable or exercisable for, such shares; provided, however,
that the term "New Securities" does not include (i) securities
purchased under the Share Purchase Agreement; (ii) securities
issued pursuant to an acquisition of another corporation (other
than a corporation in which any Shareholder owns more than 5%
of the voting power or common stock of such corporation) by
the Company or a Subsidiary by merger, purchase of all or
substantially all of the assets or other reorganization whereby
the Company or a Subsidiary shall become the owner of more than
50% of the voting power and common stock of the acquired entity;
(iii) shares issued in connection with the Initial Public
Offering or to purchase shares or assets of Radica
Enterprises Limited; (iv) shares issued pursuant to any
employment agreements or employee benefit plans; (v) shares
issued in connection with any reconstruction of the capital
of the Company or by way of bonus, dividend or
distribution pro rata (or as nearly as possible pro rata)
to existing shareholders; and (vi) securities issued upon
the transfer of any of the foregoing.
"1933 Act" means the U.S. Securities Act of 1933, as amended, and
the rules and regulations thereunder.
"1934 Act" means the U.S. Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"Outstanding", with respect to any Shares, means, as of any date
of determination, Shares that have been issued on
or prior to such date (other than Shares repurchased or
otherwise reacquired by the Company, or any Subsidiary thereof,
or otherwise cancelled or retired on or prior to such date).
"Permitted Transferee" means (a) in the case of IGT, any Subsidiary
thereof, (b) in the case of Sutter or Davids, any
member of such individual's immediate family, grandchildren,
children's or grandchildren's spouses or trusts for any of
their benefit and, upon such individual's death, such
individual's executors, administrators, testamentary
trustees, legatees and beneficiaries and (c) in the case of
the Trustees, any successor or transferee (other than a
purchaser) permitted by law and the terms of the instruments
governing the Trusts.
"Person" means an individual, a partnership, a joint venture,
a corporation, an association, a trust or any other
entity or organization, including a government or any
department or agency thereof.
"Public Offering" means a public offering of equity securities of
the Company in the United States and such other
jurisdictions as the parties may determine pursuant to an
effective registration statement under the 1933 Act.
"Registrable Securities" means (i) any shares of capital stock of
the Company held by an IGT, Davids, Sutter or
Hansen Shareholder that were acquired by such Shareholder
or issued to such Shareholder by the Company pursuant to, or
in accordance with, the terms of the Share Purchase
Agreement or this Agreement, or prior to the date hereof,
(ii) any shares issued as (or issuable upon the conversion
or exercise of any warrant, right, option or other convertible
security which is issued as) a dividend or other distribution with
respect to, or in exchange for, or in replacement of, such shares
of capital stock, (iii) any Common Stock issued by way
of bonus with respect to the shares referred to in clauses (i)
or (ii) above. For purposes of this Agreement, any Registrable
Securities shall cease to be Registrable Securities when
(a) a registration statement covering such Registrable
Securities has been declared effective and such Registrable
Securities have been disposed of pursuant to such effective
registration statement, (b) such Registrable Securities shall
have been distributed pursuant to Rule 144 or Regulation S (or
any similar provision then in force) under the Securities
Act, (c) such Registrable Securities are sold by a person in
a transaction in which the rights under the provisions of this
Agreement are not assigned, (d) such Registrable Securities
may be sold pursuant to Rule 144(k) (or any similar provision
then in force, but not Rule 144A) under the Securities Act without
registration under the Securities Act or (e) such
Registrable Securities shall cease to be outstanding.
"Registration Expenses" means, for any Public Offering, all
out-of-pocket expenses incident to such Offering
including, without limitation, all registration and filing fees
(including filing fees with respect to the Commission and the
National Association of Securities Dealers, Inc.), all
fees and expenses of qualifying under or complying with state
securities or "blue sky" laws (including reasonable fees and
disbursements of underwriters' counsel in connection with
any "blue sky" memorandum or survey), all listing fees, all
printing expenses, all registrars' and transfer agents' fees,
the fees and disbursements of counsel for the Company
and of its independent public accountants, including the expenses
of any special audits and/or "cold comfort" letters required
by or incident to such performance and compliance,
the fees and disbursements of counsel retained by the holders
of Registrable Securities being registered, together with all
discounts, commissions or fees of underwriters, selling brokers,
dealer managers, sales agents or similar securities
industry professionals and applicable transfer taxes.
"Regulation S" means Regulation S (or any successor provision)
under the 1933 Act.
"Restricted Securities" means all Shares other than (a) Shares
that have been registered under a registration
statement pursuant to the 1933 Act and sold thereunder, (b)
Shares with respect to which a Sale has been made in reliance
on and in accordance with Rule 144 or Regulation S and
(c) Shares with respect to which the holder thereof shall have
delivered to the Company either (i) an opinion, in form
and substance satisfactory to the Company, of counsel, who
shall be satisfactory to the Company, or (ii) a "no action"
letter
from the Commission, in form and substance satisfactory to
the Company, to the effect that subsequent transfers of such
Shares may be effected without registration under the 1933
Act.
"Rule 144" means Rule 144 (or any successor provision) under the
1933 Act.
"Sale" means any sale, assignment, transfer, allocation,
distribution or other disposition of Shares or of a
participation therein, and "Sell" shall have correlative
meaning.
"Share" means any share of Common Stock.
"Shareholder" means each Person (other than the Company) that is
a party to this Agreement, whether in connection
with the execution and delivery hereof as of the date
hereof, pursuant to Section 3.06 or otherwise.
"Subsidiary" of any Person means a corporation a majority of the
Voting Shares of which is at the time owned,
directly or indirectly, by such Person. For the purposes of
the term "Subsidiary," "Voting Shares" means stock of the
class or classes having general voting power under ordinary
circumstances to elect members of the board of directors,
managers or trustees of a corporation (irrespective of whether
or not at the time stock of any other class or classes
shall have or might have voting power by reason of the
happening of any contingency).
"Sutter Director" has the meaning specified in Section 2.02.
"Sutter Shareholders" means Sutter and his Permitted Transferees
who, at the time of determination, hold any Shares
and are parties to this Agreement.
"Trusts" has the meaning specified in the recitals hereto.
ARTICLE II
Corporate Governance
SECTION 2.01. Number of Directors. The Board of Directors shall
consist of seven Directors and, after the Initial Public Offering,
11 Directors and, to the extent the parties may lawfully agree, the parties
hereto agree that they will vote their shares in favor of continuing
to have the Board of Directors consist of seven or, after the Initial
Public Offering, 11 Directors, except as may be otherwise agreed
by each Shareholder then entitled to nominate a Director under
Section 2.02.
SECTION 2.02. Nomination of Directors.
(a) (i) At any special or annual general meeting of shareholders of
the Company at which Directors are to be elected, the
parties shall be entitled to nominate the following respective
numbers of Directors:
IGT Shareholders
1 Director
Hansen Shareholders 1 Director
Davids Shareholders
1 Director
Sutter Shareholders
1 Director
(ii) Prior to the Initial Public Offering, there shall also be
two Directors who are ordinarily resident in Bermuda. After the
Initial Public Offering, in lieu of such Directors ordinarily resident
in Bermuda, there shall be four Directors who are independent. Each of the
persons nominated to be the Directors referred to in the previous two
sentences shall be acceptable to each of the IGT, Hansen, Davids and Sutter
Shareholders.
(iii) Prior to the Initial Public Offering there shall also be
one Director (a "Company Director") nominated by a majority of
the Directors then in office (other than any Company Director). Following the
Initial Public Offering, there shall be three Company Directors. The initial
Company Director shall be Jon Bengtson.
(b) If any of such Shareholders ceases to own at least 5% of the
Company's outstanding Common Stock, such Shareholder shall not be entitled
to nominate any Director under this Section 2.02, and the other provisions
of this Article II shall also terminate with respect to only
Shareholder.
(iv) The parties agree to vote their Shares in favor of the
foregoing nominations.
(c) This Article II, and Sections 3.03, 3.04, 3.05 and 3.06, shall
terminate on March 31, 2004.
SECTION 2.03. Voting Agreement. Each Shareholder shall take all
actions necessary to vote all Shares entitled to vote thereon and
owned or held of record by it at any annual or special general meeting
at which any other matter is submitted to a vote of the shareholders of the
Company in a manner consistent with the terms of this Agreement or, if the
Directors nominated by such shareholders shall have voted on such
matter at a meeting of the Board of Directors where a vote was taken
with respect to such matter, in the same manner in which such Directors so
voted or shall take all actions by written consent in lieu of any such
meeting as is consistent with the terms of this Agreement or in the
same manner as such Directors so voted.
SECTION 2.04. Removal of Directors. (a) To the extent that the
parties may lawfully so agree, except as otherwise permitted in
this Section 2.04, no Shareholder shall take any action to remove any Director
not nominated by such Shareholder from office without Cause. Any
Director may be removed for Cause (as defined below) at any time by the
affirmative vote of the holders of at least a majority of the
outstanding Shares entitled to vote thereon. "Cause", for purposes of this
Article II only, shall mean the commission by a Director of such criminal
offense which in the opinion of a majority of the Directors is injurious to
the business reputation of the Company or any Subsidiary thereof or
the commission by a Director of an act constituting the reckless disregard
of his duties to the Company or any Subsidiary thereof, bad faith, gross
negligence, willful misconduct or fraud. The removal of any Director for
Cause shall not prejudice the right of the Shareholder or Shareholders who
nominated such Director to nominate pursuant to this Agreement a substitute
Director to fill the vacancy created by such removal. Any Director
previously removed for Cause shall not be eligible thereafter to serve as
a Director of the Company.
(b) Upon the written request of the Shareholder nominating
a Director, each Shareholder shall take all actions necessary to vote all
Shares entitled to vote thereon and owned or held of record
by such Shareholder, at any annual or special general meeting in favor
of, or shall take all actions by written consent in lieu of any such meeting
necessary to cause, the removal of such Director, as the case may be.
(c) In the event that any Shareholder shall own such
number of shares of Common Stock as to entitle such Shareholder under
Section 2.02(a) to nominate fewer Directors than there are members of
the Board of Directors that have been nominated by such Shareholder,
such Shareholder agrees to procure the resignation of any such
excess Director(s) nominated by him as soon as practicable. In the
event that such resignation is not received, and such Shareholder shall
fail to make a written request within five days for the removal of such
excess Director(s), the Shareholders shall be entitled to take all actions
necessary to vote all Shares entitled to vote thereon and owned or held
of record by such Shareholders at any annual or special general meeting
in favor of, or may take all actions by written consent in
lieu of any such meeting necessary to cause, the removal of such Director(s).
SECTION 2.05. Vacancies on the Board of Directors. If as a
result of death, disability, resignation, removal (with or without
Cause) or otherwise there shall exist or occur any vacancy on the Board
of Directors, the Shareholder or Shareholders then entitled to nominate such
Director hereunder shall be entitled to fill such vacancy. Upon the
nomination of an individual pursuant to this Section 2.05 to fill such
vacancy, each Shareholder shall cause the Director or Directors nominated by
such Shareholder, at a meeting of the Board of Directors, to elect such
individual to the Board of Directors.
SECTION 2.06. Committees of the Board of Directors. The Board
of Directors shall have such committees as established from time to time by
the Board of Directors. All committees shall be comprised of such Directors
as determined by the Board of Directors; provided that the parties agree
to cause their designees to the Board of Directors to vote to cause
an IGT Director to be a member of each such committee at all times.
SECTION 2.07. Action by the Board of Directors. (a) All actions
of the Board of Directors of the Company and committees thereof shall
require the affirmative vote of the majority of the Directors present
at a duly convened meeting of such Board of Directors or committee thereof
at which a quorum is present or, in lieu of a meeting, by the unanimous
written consent of the members of such Board of Directors or committee
thereof; provided that, in the event there is a vacancy on such Board
of Directors or committee thereof and an individual is nominated to
fill such vacancy, the first order of business shall be to fill such vacancy.
(b) Notwithstanding any provision of this Agreement, the
Memorandum of Association or the Bye-laws, the Company shall not, without the
prior written consent of the IGT Shareholders: (i) issue shares in
the Initial Public Offering or in exchange for the assets or shares
of Radica Enterprises Limited if (a) following and as a result of issue
of all such shares, the IGT Shareholders would own less than
9% of the outstanding Shares or (b) the price at which such
shares are issued in any Initial Public Offering consummated prior to
June 30, 1994 is dilutive to the IGT Shareholders; or (ii) issue more
than 1,152 Shares (or equivalent value in other consideration) in exchange
for the assets or shares of Radica Enterprises Limited.
SECTION 2.08. Financial and Other Information. Prior to the
Initial Public Offering, the Company shall, at its expense, provide to each
Shareholder entitled to nominate a Director pursuant to Section 2.02
as promptly as practicable, such financial statements and other
information, including, without limitation, monthly management reports
as such Shareholder may reasonably request.
SECTION 2.09. Memorandum of Association and Bye-laws; No Conflict
with Agreement. (a) The Memorandum of Association a
Company in effect as of the date hereof are hereby made a
part of this Agreement; provided that each Shareholder agrees
to vote his shares of Common Stock and to take all action necessary to amend,
as soon as practicable, each of the Memorandum of Association and Bye-laws
so that they are consistent with the provisions of this Agreement.
(b) To the extent the parties may lawfully so agree, in the
event that this Agreement is amended and restated or otherwise modified, each
Shareholder shall vote his shares of Common Stock and shall take all actions
necessary to amend the Memorandum of Association and Bye-laws of the
Company so that each of the Memorandum of Association and Bye-laws are
consistent with the provisions of this Agreement.
SECTION 2.10. Transactions with Shareholders. The Company
shall not enter into, renew or extend, or permit any Subsidiary to enter into,
renew or extend, any agreement relating to the sale, purchase or lease
of any assets, property or services from or to, or enter into
any other transaction with, any Shareholder or Affiliate thereof (other than
a Subsidiary of the Company) (except for the execution and
delivery of the Original Products Manufacturing Agreement between the Company
and IGT and the purchase of the capital stock or assets of Radica
Enterprises Limited) unless such transaction shall have been approved by a
majority of the Directors not appointed by such Shareholder.
SECTION 2.11. Corporate Governance of Radica Limited. The parties
agree to take all actions necessary to ensure that all of the provisions of this
Article II (including without limitation as to the nomination of directors
but excluding provisions relating exclusively to Bermuda) are effected
with respect to Radica Limited on or prior to the Closing Date.
ARTICLE III
Restrictions on Transfer
SECTION 3.01. General Restriction. No Shareholder shall, directly
or indirectly, make or offer to make any Sale of, or create, incur,
suffer or assume any Encumbrance with respect to, any Shares (or solicit
the opportunity to make any Sale of any Shares), except in compliance with
the 1933 Act and applicable laws and regulations of Bermuda and as permitted
by this Agreement.
SECTION 3.02. Legends. (a) The Company shall be entitled to
affix to each certificate representing outstanding Shares that is issued to any
Shareholder a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED. NO REGISTRATION OF TRANSFER OF SUCH SECURITIES
WILL BE MADE ON THE BOOKS OF THE ISSUER UNLESS SUCH
TRANSFER IS MADE IN CONNECTION WITH AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT OR PURSUANT TO AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT
OR SUCH ACT DOES NOT APPLY.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO CERTAIN RESTRICTIONS ON TRANSFER AND VOTING AS SET
FORTH IN A SHAREHOLDERS AGREEMENT DATED AS OF JANUARY 12,
1994 AS THE SAME MAY BE AMENDED FROM TIME TO TIME, A COPY
OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
ISSUER. NO REGISTRATION OF TRANSFER OF SUCH SECURITIES WILL
BE MADE ON THE BOOKS OF THE ISSUER UNLESS AND UNTIL THE
RESTRICTIONS ON TRANSFER CONTAINED THEREIN SHALL HAVE
BEEN COMPLIED WITH."
(b) In the event that any Shares shall cease to be Restricted
Securities, the Company shall, upon the written request of the holder
thereof, issue to such holder a new certificate representing such
Shares without the first paragraph of the legend required by Section
3.02(a) endorsed thereon. In the event that any Shares shall cease to be
subject to the restrictions on transfer set forth in this
Agreement, the Company shall, upon the written request of the holder
thereof, issue to such holder a new certificate representing such Shares
without the second paragraph of the legend required by Section 3.02(a).
SECTION 3.03. Certain Restrictions on Transfer. No Shareholder
shall (except as required by law), directly or indirectly, make any Sale or
create, incur, suffer or assume any Encumbrance with respect
to any Shares held by such Shareholder other than (a) any Sale to a
Permitted Transferee, (b) any Sale that is made in compliance with the
procedures, and subject to the limitations, set forth in Section 3.04, (c) (to
the extent that the sale otherwise complies with applicable securities
laws) after 180 days following the consummation of the Initial Public
Offering, any Sale that is made by a Shareholder in the open market in a
transaction that complies with Rule 144, so long as (in the case
of this subsection; (c) only), to the best knowledge of such
Shareholder, following any such proposed Sale the purchaser of such Shares
(together with its Affiliates) would not have beneficial
ownership of outstanding shares of Common Stock of the Company that
represent 5% or more of the votes that the outstanding shares of Common Stock
are eligible to cast, provided that the Sutter Shareholders and Davids
Shareholders may not transfer Shares under this clause (c) prior
to the second anniversary of the Closing Date, (d) any Sale made pursuant
to the provisions of Article IV or (e) any sale in the Initial Public Offering,
provided that the Sutter Shareholders and the Davids Shareholders shall each
retain at least 23% of the outstanding Shares following such offering.
Each Shareholder agrees that, except as otherwise expressly provided herein,
all Sales permitted by the foregoing clauses (a) through (c) shall be subject
to, and shall not be made other than in compliance with, the applicable
provisions of Sections 3.01, 3.02, 3.06 and 3.07.
SECTION 3.04. Right of First Refusal. (a) Before effecting any
Sale of Shares, other than as provided in Section 3.03(a), (c), (d) or (e),
each IGT Shareholder, Sutter Shareholder or Davids Shareholder (collectively,
the "Specified Parties") who intends to dispose of Shares (the "Transferor")
shall ensure that the provisions of this Section 3.04
are strictly complied with.
(b) The Transferor shall give a notice in writing of the
proposed transfer of Shares (a "Transfer Notice") to each other Specified
Party then entitled to nominate a Director pursuant to Section 2.02 (such
required recipients of notice
being the "Remaining Shareholders" with respect
to such Transferor for purposes of this Section 3.04) and
to the Board of Directors, stating the number of Shares to be transferred
(the "Offered Shares"), the identity of the proposed transferee
(the "Transferee") and the price per share (the "Transfer
Price") at which the Transferor intends to sell such Shares
to the proposed Transferee. The proposed third party transfer must
be bona fide. The Transferor shall, upon request, provide any
Remaining Shareholder with a copy of the document by which the
proposed Transferee offers or agrees to purchase the Offered Shares.
(c) Within five days of the date of receipt of the Transfer
Notice, each Remaining Shareholder shall state in writing whether it wishes to
purchase any of the Offered Shares at the Transfer
Price and on the other terms specified in the
Transfer Notice, and the maximum number of Offered Shares
it is willing to purchase.
(d) Subject to paragraph (e) below, within five days after
the expiration of the period of five days referred to in Section 3.04(c),
the Board of Directors shall
allocate the Offered Shares
among the Shareholders ("Applicants") who shall have
notified their willingness to purchase the Offered Shares.
(e) If the number of Offered Shares is greater than the
number of Shares applied for by the Applicants, then the Board of
Directors shall forthwith notify
all of the Shareholders of this fact. In such case:
(i) Each Shareholder (other than the Transferor) shall have
the opportunity to increase the number of Shares it wishes to apply
for (or, if such Shareholder was not a Remaining Shareholder for
purposes of Section 3.04 (b), to apply
for Shares), and it will state this
in writing to the Board of Directors
within ten days of
receipt of the notice given by the Board of
Directors referred to in the
previous sentence.
(ii) If the total number of Shares applied for by the Applicants
is still less than the
number of Offered Shares,
then the Transferor shall, at any time within 90 days after
confirmation by the Board of Directors that
the number of Shares applied for is finally less
than the number of Offered Shares, be
free to transfer all (but not less than all) of the
Offered Shares to the proposed Transferee
at any price not less than the Transfer Price and
on other terms not more favorable than
those specified in the Transfer Notice, subject to
the requirements of Section 3.06.
(f) If the number of Offered Shares shall be less than the
number of Shares applied for by the Applicants, the Offered Shares
shall be allocated among the
Applicants (fractions of a Share to be rounded up or down to the
nearest whole number as the Board of Directors deems fit)
so far as possible proportionately according to the aggregate number
of the Shares then held by each of the Applicants. However, if any
such allocation would result in the allocation to an Applicant of a number
of Shares in excess of his Application, such excess
shall be allocated among the remaining Applicants
proportionately according to the aggregate
number of Shares then held by each of them,
and if necessary the process shall be repeated until
all the Offered Shares shall have been allocated.
(g) If following the expiration of the time period referred
to in subsections (c) or (e)(i) above, all of the Offered Shares have been
applied for by the Applicants, the Board of Directors
shall forthwith give notice of each such allocation (an
"Allocation Notice") to the Transferor, to each person to whom
the Offered Shares have been allocated (a "Purchaser") and to each of the
other Shareholders. The Allocation Notice shall
specify the number of Shares allocated to each
Purchaser and the place and time (being not earlier
than five and not later than ten days after the
date of the Allocation Notice) at which the Transfer
Price of the Shares allocated is to be paid by each
Purchaser and the Shares allocated are to be transferred by the Transferor.
(h) The Transferor shall be obligated to transfer the Shares
specified in an Allocation Notice to each respective Purchaser
against tender of an aggregate purchase price equal to the
number of Shares specified in the Allocation Notice multiplied
by the Transfer Price in accordance with the terms thereof.
(i) If all the Shares included in a Transfer Notice shall not
be allocated or if through any fault of a Purchaser the
purchase of any Shares in respect of which
an Allocation Notice has been given shall
not be completed in accordance with the terms thereof,
the Transferor shall at any time within 90 days after
the date of the Allocation Notice or the
failure of the Board of Directors to
allocate the Shares be free to transfer all (but not less than all)
of the Offered Shares to the proposed Transferee
at any price not less than the Transfer Price and
on other terms not more favorable than those
specified in the Transfer Notice, subject to the
requirements of Section 3.06.
SECTION 3.05. Right of First Refusal for New Securities.
(a) The Company hereby grants to each Shareholder entitled to
nominate a Director pursuant to Section 2.02 a right
of first refusal to subscribe for its Aggregate
Pro Rata Portion of any New Securities which the
Company may, from time to time, propose to
issue prior to the Initial Public Offering. The right
of first refusal given by the Company shall
terminate if unexercised within ten days after receipt
of the notice described in Section 3.05(b) below.
For the purposes of this Section 3.05,
"Aggregate Pro Rata Portion" means the
number of New Securities as is equal to the product of
(i) the number of New Securities proposed to
be issued by the Company, multiplied by (ii) a
fraction, the numerator of which shall be the
total number of Shares beneficially owned by the
subscribing Shareholder, and the denominator of
which shall be the total number of Shares then
outstanding.
(b) (i) In the event the Company proposes to undertake an
issuance of New
Securities prior to the Initial Public Offering,
the Company shall give each Shareholder then
entitled to nominate a Director pursuant to
Section 2.02 written notice (the "First Refusal Notice")
of its intention to issue New Securities, describing the
type of New Securities, the price (which
shall be payable solely in cash) and the other
material terms upon which it proposes to issue the
same. Each such Shareholder shall have ten days
from the date such notice is given to agree to
subscribe for all or any portion of such Shareholder's
Aggregate Pro Rata Portion of such New
Securities (as determined pursuant to Section 3.05(a))
for the price and upon the terms specified
in the First Refusal Notice by giving written
notice (the "Purchase Notice") to the Company and
stating therein the quantity of New Securities to be subscribed for.
(ii) In the event that (A) the issuance of New Securities is
not consummated within 180
days after the expiration of such
ten-day period or (B) the price and terms specified in the First
Refusal Notice have been materially changed, the
Company shall give written notice of such fact
to each Shareholder and, if the Company determines
to proceed with such issuance of New
Securities, which determination shall be set
forth in such notice, all Purchase Notices previously
delivered shall be deemed revoked and the Company
shall give to each Shareholder the notices
set forth in this Section 3.05(b) and each
Shareholder shall have the right to subscribe for such
New Securities by delivering a Purchase Notice as set
forth in this Section 3.05(b).
SECTION 3.06. Transferees to Execute Agreement.
(a) Neither the Company nor any Shareholder shall
make any Sale or create, incur or assume any Encumbrance with respect
to any Shares, unless, prior to the consummation of any such Sale
or the creation, incurrence or
assumption of any such Encumbrance, the Person
to whom such Sale is proposed to be made or
the Person in whose favor such Encumbrance
is proposed to be created, incurred or assumed (for
purposes of this Section 3.06, a "Prospective Transferee")
(i) executes and delivers to the
Company an agreement, in form and substance satisfactory
to the Board of Directors, whereby
such Prospective Transferee confirms that,
with respect to the Shares that are the subject of such
Sale or Encumbrance, it shall be deemed to be a "Shareholder"
for the purposes of this Agreement
and agrees to be bound by all the terms of this
Agreement and (ii) except with respect to Sales to
Permitted Transferees who are a member of the transferor's
immediate family or trusts for their
benefit and, upon such individual's death, such
individual's executors, administrators,
testamentary trustees, legatees and beneficiaries,
delivers to the Company an opinion of counsel,
satisfactory in form and substance to the Company,
to the effect that the transfer is exempt from
registration under the 1933 Act.
(b) Anything in this Section 3.06 or in Section 3.03 to the
contrary notwithstanding, the provisions of this Section 3.06 shall
not be applicable to any Sale
of Shares pursuant to Section 3.03(a), (c), (d) or (e).
SECTION 3.07. Improper Transfer. Any attempt to make any
Sale of, or to create, incur or assume any
Encumbrance with respect to, any Shares not in compliance with this
Agreement shall be null and void and neither the Company nor any
transfer agent shall give any
effect in the Company's share register to such
attempted Sale or Encumbrance.
SECTION 3.08. Avoidance of Controlled Foreign Corporation
Status. Notwithstanding the rights of each Shareholder party hereto
to acquire Shares pursuant to Sections
3.04 and 3.05 hereof, each of the parties
hereto agrees that it shall not become owner (beneficially
or of record) of any additional Shares to the extent that
ownership of such additional Shares would
result in the Company becoming a "controlled
foreign corporation", as that term is defined in
Section 957(a) of the U.S. Internal Revenue Code of
1986, as amended, if the Company is not
then a "controlled foreign corporation".
ARTICLE IV
Registration Rights
SECTION 4.01. Registration upon Request. (a) The Company
shall, if requested by a holder of Registrable Securities at any
time following the second anniversary of the Closing
Date, use all reasonable efforts to expeditiously
prepare and file one registration statement for
each of the IGT, Davids, Sutter and Hansen
Shareholders under the 1933 Act if such registration
is necessary in order to permit the Sale of any or
all shares of Registrable Securities, and the
Company shall use all reasonable efforts to qualify
such Securities for offer and sale under any
applicable U.S. state securities laws; provided
that such request may only be made with respect
to Registrable Securities representing at least
3% of the Shares outstanding and provided further,
however, that in the case of the Davids and Sutter
Shareholders, such request may only be made
with respect to Registrable Securities representing
the aggregate number of Shares that such
Shareholder would have been entitled to sell in the
open market in a transaction that complies with
Rule 144 since such second anniversary of the
Closing Date minus the aggregate number of Shares
so sold by such Shareholder since such second
anniversary of the Closing Date minus the
aggregate number of Shares previously sold by such
Shareholder pursuant to Section 4.02. The
Company shall use all reasonable efforts to
cause such registration statement to become effective,
to obtain all consents or waivers of other parties
which are required therefor and to keep such
registration statement effective for such period
not in excess of 180 days from the day such
registration statement first becomes effective
as may be reasonably necessary to effect such sale
or other disposition; provided, however, that the
Company shall not be required to prepare audited
financial statements (solely for this purpose) in
order to maintain the effectiveness of the
registration statement. The obligations of the
Company hereunder to file a registration statement
and to maintain its effectiveness may be suspended
(i) if, in the reasonable judgment of the
Company, a registration would adversely affect
any public financing completed or contemplated
by the Company, until the earlier of 90 days
after the completion or abandonment of such
financing and the termination of any "black out"
period required by the underwriters in connection
with such financing; and (ii) for one or more
periods of time not exceeding 90 days in the
aggregate for all such periods if the Board of
Directors of the Company shall have determined that
the filing of such registration statement or the
maintenance of its effectiveness would require
disclosure of nonpublic information that the
Company has a bona fide business reason for
preserving as nonpublic. Each holder of Registrable
Securities shall provide all information
reasonably requested by the Company for inclusion in
any registration statement to be filed hereunder.
(b) Each holder of Registrable Securities shall pay all
Registration Expenses in connection with the registration of its
Registrable Securities pursuant to
this Section 4.01; provided, however,
that, if any securities of the Company other than Registrable
Securities are included in such registration, the Company
shall pay a portion of such Registration
Expenses (excluding the expenses of the
holders and their counsel) equivalent to a fraction, the
numerator of which is the net proceeds of such registration
of securities other than such holder's
Registrable Securities and the denominator of which
is the aggregate net proceeds of such registration.
(c) Each holder of Registrable Securities shall select the
managing underwriter with respect to any underwritten offering of
its Registrable Securities
pursuant to this Section 4.01. Any such managing
underwriter shall be reasonably satisfactory
to the Company. The Company shall be required
to register Registrable Securities pursuant to
this Agreement only if such managing underwriter
has undertaken to offer and sell such
Registrable Securities in a broad distribution to the public.
SECTION 4.02. Incidental Registration. (a) If, following
the second anniversary of the Closing Date, the
Company effects a registration under the 1933 Act of any of its equity
securities for its own account or for any other shareholders of the
Company (other than the Initial
Public Offering or on Form S-4 or
Form S-8, or any successor form), it shall allow the holders
of Registrable Securities the right to participate in such
registration, and such participation shall
not affect the obligation of the Company to
effect a registration under Section 4.01; provided that,
if the managing underwriters of such offering advise the
Company in writing that in their opinion
the number of Shares requested to be included in such
registration exceeds the number which can
be sold in such offering without adversely
affecting the price, timing or distribution of the Shares
being sold, the Company shall include in such registration
first, the securities intended to be
included therein by the Company, and second, the number
of Registrable Securities and other
securities the holders of which have similar
registration rights requested to be included therein
which, in the opinion of such managing underwriters,
can be sold in such offering without
adversely affecting the price, timing or distribution
of the securities of the Company otherwise
being sold (on a pro rata basis based upon the number
of securities proposed to be included in
such registration by such holder); and provided further
that each Shareholder shall be entitled to
participate in no more than two such registrations
under this Section 4.02 and provided further,
however, that in the case of the Davids and Sutter
Shareholders, such request may only be made
with respect to Registrable Securities representing
the aggregate number of Shares that such
Shareholder would have been able to sell in the open
market in a transaction that complies with
Rule 144 since the second anniversary of the Closing
Date minus the aggregate number of Shares
so sold by such Shareholder since such second
anniversary minus the aggregate number of Shares
previously sold by such Shareholder pursuant to
Section 4.01 or this Section 4.02.
(b) Each holder of Registrable Securities shall pay its
own expenses and the expenses of its counsel
and a portion of the other Registration Expenses in connection with the
registration of its Registrable Securities pursuant to this Section
4.02, equivalent to a fraction, the
numerator of which is the net proceeds of the registration
of such Registrable Securities and the
denominator of which is the aggregate net proceeds of such registration.
SECTION 4.03. Other Agreements. (a) In connection with
any registration pursuant to this Article IV,
the Company and each holder of Registrable Securities participating
in any registration shall provide each other and any underwriter of
the offering with customary
representations, warranties, covenants,
indemnification and contribution in connection with such registration.
(b) In connection with any public offering of equity
securities of the Company,
whether or not pursuant to this Article IV,
each Shareholder agrees that, without the prior written
consent of the Company, it will not offer or sell any
Shares for ten business days before the
offering and the same period of time following the offering
as the Company agrees to restrict its sale of Shares.
ARTICLE V
Certain Agreements
SECTION 5.01. Deposit of Shares. If the Initial Public
Offering is in the form of American depository
receipts or other depositary receipts, the Company will ensure that the
Shares held by the IGT Shareholders are eligible for deposit into
such facility subject to applicable securities laws.
ARTICLE VI
Miscellaneous
SECTION 6.01. Representation. Each of the parties hereto
represents that this Agreement has been
duly authorized, executed and delivered by it and constitutes its
legal, valid and binding obligation, enforceable against
it in accordance with its terms.
SECTION 6.02. Amendments and Waivers. Any term of this
Agreement may be amended and the observance of
any such term may be waived (either generally or
in a particular instance and either retroactively
or prospectively) only with the written consent of the Company,
IGT, the Sutter Shareholders, the Davids Shareholders, and the
Hansen Shareholders; provided
that, in the event that the IGT Shareholders,
the Sutter Shareholders, the Davids Shareholders or
the Hansen Shareholders, respectively, own such number
of outstanding shares of Common Stock
that represent 5% or less of the votes that the
outstanding shares of Common Stock are eligible
to cast, then such consent of IGT, Sutter, Davids or
Hansen (as the case may be) shall not be
required in respect of any such amendment or waiver.
SECTION 6.03. Notices. All notices, requests, claims,
demands and other communications hereunder shall be in writing and shall
be given or made (and shall be deemed
to have been duly given or made upon receipt)
by delivery in person, by courier service, by cable,
by facsimile transmission, by telegram, by telex or
by registered or certified mail (postage
prepaid, return receipt requested) to the respective
parties at the following addresses (or at such
other address for a party as shall be specified
in a notice given in accordance with this Section
6.03): if to any Shareholder, to such Shareholder
at its address set forth on the signature pages
hereof, and, if to the Company, to it at Suite R,
6/F 2-12 Au Poi Wan Street, Fo Tan, Hong
Kong, Attention: Bob Davids, with a copy
to Sullivan & Cromwell, 444 South Flower Street,
Los Angeles, CA 90071, Attention: Frank H. Golay, Jr.
SECTION 6.04. Headings. The descriptive headings contained
in this Agreement are for convenience of reference only
and shall not affect in any way the meaning or interpretation
of this Agreement.
SECTION 6.05. Severability. If any term or other provision
of this Agreement
is invalid, illegal or incapable
of being enforced by any law or public policy, all other terms and
provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that
any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner in order that the
transactions contemplated hereby are consummated as
originally contemplated to the greatest extent possible.
SECTION 6.06. Entire Agreement. This Agreement, the
Share Purchase Agreement and the other Related Agreements
(as defined in the Share Purchase Agreement)
constitute the entire agreement of the parties hereto with
respect to the subject matter hereof and thereof and supersede
all prior agreements and undertakings, both written and oral, among the
parties with respect to the subject matter hereof and thereof.
SECTION 6.07. Successors and Assigns; Benefit. Except as
otherwise provided herein, this Agreement shall be binding upon
and shall inure to the benefit of the respective
successors and permitted assigns of the parties hereto.
No Shareholder may assign any of its
rights hereunder to any Person other than a transferee that has
complied with the requirements of
Section 3.06 in all respects and any assignment without compliance
with the provision of Section 3.06 shall be null and void. Nothing in
this Agreement either express or implied is intended to
confer on any person other than the parties hereto and their
respective successors and assigns, any
rights, remedies or obligations under or by reason of this Agreement.
SECTION 6.08. Governing Law. This Agreement shall be
governed by, and construed in accordance with, the laws of the
State of New York, except that Article II and
Section 3.05 shall be governed by, and construed
in accordance with, the laws of Bermuda.
SECTION 6.09. Consent to Jurisdiction. Each party hereby
(a) submits to the non-exclusive jurisdiction of any
New York State or Federal court sitting in New York City and
any Nevada State or Federal court sitting in Reno, Nevada
with respect to any actions and
proceedings arising out of or relating to this
Agreement, (b) agrees that all claims with respect to
such actions or proceedings may be heard and determined in
any such State or Federal court,
(c) waives the defense of an inconvenient forum,
(d) consents to the service of process upon it by
mailing or delivering such service to Radica Enterprises Limited,
5301 Longley Lane, No. 4, Reno, Nevada 89511-1806 (in the case of
the Company, and the Sutter, Davids and Hansen
Shareholders) or to IGT (in the care of the IGT Shareholders)
(each, such party's "Agent") and
authorizes and directs its Agent to accept such service
and (v) agrees that a final judgment in any
such action or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit
on the judgment or in any other manner provided by law.
SECTION 6.10. Counterparts. This Agreement may be
executed and delivered (including by facsimile transmission)
in one or more counterparts, and by the different parties
hereto in separate counterparts, each of which when so
executed and delivered shall be deemed
to be an original but all of which taken together shall
constitute one and the same agreement.
SECTION 6.11. Specific Performance. The parties
hereto agree that irreparable damage would occur in the event
any provision of this Agreement was not performed in
accordance with the terms hereof and that the parties
shall be entitled to specific performance of
the terms hereof, to the extent permitted by
applicable law, in addition to any other remedy at law or equity.
SECTION 6.12. Effectiveness. This Agreement shall be
effective upon the Closing Date provided that the parties take all
actions necessary to effectuate the provisions of
Sections 2.09(a) and 2.11 by the Closing Date.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized signatories
thereunto duly authorized as of the day and year first above written.
RADICA HOLDINGS LIMITED
By
Title:
Address: 6F, 2-12 Au Pui Wan Street
Fo Tan, Hong Kong
Facsimile: 852-695-9657
Attention: Bob Davids
INTERNATIONAL GAME TECHNOLOGY
By
Title:
Mailing Address:
P.O. Box 10580
Reno, Nevada 89510-0580
Street Address:
520 South Rock Boulevard
Reno, Nevada 89502-4169
Facsimile: (702) 688-0120
Attention: Corporate General
Counsel
JAMES JOHN SUTTER
Address: 72 18th Street
Hong Lok Yuen, Hong Kong
<PAGE>
ROBERT EUGENE DAVIDS
Address: 2 Watersmeet, Tai Tam Village
Sai Kung, Hong Kong
JOHN AND MARY HANSEN 1989 TRUST
By
John N. Hansen, As Trustee
Address: 249 Shearwater Isle
Foster City, CA 92404
JOHN AND MARY HANSEN 1993 TRUST
By
John N. Hansen, As Trustee
Address: 249 Shearwater Isle
Foster City, CA 92404
By
Louis C. Lalanne, As Trustee
Address: 249 Shearwater Circle
Foster City, CA 92404
EXECUTION COPY
Exhibit 10.7
AMENDMENT TO SHAREHOLDERS AGREEMENT
February 16, 1994
International Game Technology
520 South Rock Boulevard
Reno, Nevada 89502-4169
Attn: Raymond D. Pike
Executive Vice President
Gentlemen:
We refer to the Shareholders Agreement dated as of
January 12, 1994 (the "Shareholders Agreement") among the
undersigned and you. Unless otherwise defined herein, the terms
defined in the Shareholders Agreement shall be used herein as
therein defined.
It is hereby agreed by you and us that the Shareholders
Agreement is, effective as of the date first above written, hereby
amended as follows:
(a) The Shareholders Agreement is hereby amended
generally to delete the John and Mary Hansen 1993 Trust as a
party thereto and, in particular, as follows:
(i) the first recital to the Shareholders Agreement is
hereby amended and restated in its entirety as
follows:
WHEREAS, International Game Technology, a Nevada
corporation ("IGT"), James John Sutter ("Sutter"), Robert
Eugene Davids ("Davids") and the John and Mary Hansen
1989 Trust (the "Trust") are parties to a Share Purchase
Agreement dated as of January 12, 1994 (as amended from
time to time, the "Share Purchase Agreement"), relating
to the acquisition by IGT from Sutter, Davids and the
Trust of an aggregate of 2,100 shares of par value U.S.$1
per share ("Common Stock") of the Company, representing
in the aggregate 11.2% of the issued and outstanding
shares of Common Stock; and
(ii) The definition of "Hansen Shareholders" is hereby
amended and restated in its entirety as follows:
"Hansen Shareholders" means the trustees
("Trustees") for the Trust and their Permitted
Transferees who, at the time of determination, hold
any Shares and are parties to this Agreement.
(iii) The definition of "Permitted Transferee" is
hereby amended by deleting the reference to
"Trusts" in clause (c) thereof and inserting
the word "Trust" in lieu thereof.
(iv) The definition of "Trusts" in hereby deleted, and
the following definition inserted in lieu thereof:
"Trust" has the meaning specified in the
recitals hereto.
(b) Section 3.03(b) is amended by adding at the end
thereof the following clause:
",provided that the Sutter Shareholders and Davids
Shareholders may not transfer Shares under this
clause (b) prior to the second anniversary of the
Closing Date without the prior written consent of
IGT".
(c) Section 3.03(c) is amended by adding at the end
thereof the following clause:
"without the prior written consent of IGT".
(d) Section 3.03(e) is amended by replacing the
reference therein to "23%" with "21%".
On and after the effective date of this letter amendment,
each reference in the Shareholders Agreement to "this Agreement",
"hereunder", "hereof" or words of like import referring to the
Shareholders Agreement, shall mean and be a reference to the
Shareholders Agreement as amended by this letter amendment. The
Shareholders Agreement, as amended by this letter amendment, is and
shall continue to be in full force and effect and is hereby in all
respects ratified and confirmed.
<PAGE>
If you agree to the terms and provisions hereof, please
evidence such agreement by executing and returning at least a
counterpart of this letter amendment to the undersigned. This
letter amendment shall become effective as of the date first above
written.
This letter amendment may be executed and delivered
(including by facsimile transmission) in one or more counterparts,
and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an
original but all of which taken together shall constitute one and
the same instrument.
Very truly yours,
RADICA HOLDINGS LIMITED
By
Name:
Title:
JAMES JOHN SUTTER
ROBERT EUGENE DAVIDS
JOHN AND MARY HANSEN 1989 TRUST
By
, As
Trustee
<PAGE>
JOHN AND MARY HANSEN 1993 TRUST
By
, As
Trustee
By
, As
Trustee
Agreed as of the date
first above written:
INTERNATIONAL GAME TECHNOLOGY
By
Name:
Title:
<PAGE>
[EXECUTION COPY]
Exhibit 10.8
STOCK OPTION AGREEMENT, dated as of January 12, 1994 (this
"Agreement"), between INTERNATIONAL GAME TECHNOLOGY, a Nevada corporation
("IGT"), and the persons listed on Schedule A hereto (each, individually, a
"Stockholder" and, collectively, the "Stockholders").
WHEREAS, IGT proposes to enter into a Share Purchase Agreement, dated
as of the date hereof (the "Share Purchase Agreement"), with the Stockholders
and RADICA HOLDINGS LIMITED, a company incorporated under the laws of Bermuda
("Radica"), which provides, among other things, that IGT will purchase
approximately 11.2% of the issued share capital of Radica; and
WHEREAS, as of the date hereof, each Stockholder owns (both beneficially
and of record) the number of shares of Class A common stock, par value US$ 0.10
per share ("Company Common Stock"), of Radica Enterprises Limited, a Nevada
corporation, doing business as "Radica USA Ltd." (the "Company"), set forth
opposite such Stockholder's name on Schedule A hereto; and
WHEREAS, as a condition to the willingness of IGT to enter into the
Share Purchase Agreement, IGT has required that the Stockholders agree, and in
order to induce IGT to enter into the Share Purchase Agreement the Stockholders
have agreed, severally and not jointly, to grant IGT options, in accordance with
the terms of this Agreement, to purchase the shares of Company Common Stock set
forth opposite such Stockholder's name on Schedule A hereto (collectively, the
"Shares").
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
<PAGE>
ARTICLE I
THE STOCK OPTION
SECTION 1.01. Grant of Stock Option. Each Stockholder hereby grants to
IGT an irrevocable option (a "Stock Option" and, collectively, the "Stock
Options") to purchase all, but (subject to Section 1.02(d)) not less than
all, of the Shares set forth opposite such Stockholder's name on Schedule A
hereto at an aggregate purchase price also set forth on Schedule A,
consisting of $2,240,000 cash and shares of common stock, par value per share
("Purchaser Common Stock"), of the Purchaser (the "Purchase Price").
of shares of Purchaser Common Stock to be delivered to each Stockholder
hereunder shall be equal to the quotient derived by dividing the number
specified on Schedule A opposite such Stockholder's name under "Value of
Purchaser Common Stock" by the average of the per share closing prices on the
New York Stock Exchange, Inc. of shares of Purchaser Common Stock (as
reported in the New York Stock Exchange Corporate Transactions) during the
five consecutive trading days immediately preceding the Closing (as defined
below).
SECTION 1.02. Exercise of the Stock Options. (a) Subject to the
conditions set forth in Section 1.03, the Stock Options may be exercised by
IGT, in whole at any time or from time to time after the later of the Closing
Date (as defined in the Share Purchase Agreement) and July 1, 1994 and prior
to the date (the "Termination Date") that is the earlie of (i) the
acquisition of all of the issued and outstanding shares of Common assets, of
the Company by Radica or its wholly owned subsidiary, (Stock Purchase
Agreement in accordance with its terms, (iii) December 31, 1994 and (iv) the
termination of this Agreement by the mutual written agreement of the parties
hereto.
(b) In the event IGT wishes to exercise the Stock Options, IGT shall
send a written notice (an "Exercise Notice") to each Stockholder specifying a
date, which shall be a Business Day at least five Business Days after the date
of such notice and the same day for each Stock Option, and a place, which
shall be in the City of New York and the same place for each Stock Option,
for the closing of such purchase (a "Closing").
(c) Upon receipt of an Exercise Notice, the Stockholder receiving such
Exercise Notice shall be obligated to sell to IGT, and IGT shall be obligated to
purchase from such Stockholder, the number of Shares specified therein, in
accordance with the terms of this Agreement, on the later of the date
specified in such Exercise Notice and the first Business Day on which the
conditions specified in Section 1.03 shall be satisfied.
(d) Each Stock Option shall be exercised by IGT in simultaneous
transactions to purchase all, but not less than all, of the Shares set forth
opposite each Stockholder's name on Schedule A hereto; provided, however,
that if on the date Exercise Notices are delivered to the Stockholders, IGT
is prohibited by the Hart-Scott-Rodino Antitrust Improve as amended, and the
rules and regulations thereunder (the "HSR Act") from purchasing all the
Shares (as long as IGT shall have made all filings, submissions and
notifications required under the HSR Act), IGT shall (i) exercise the Stock
Options to purchase the maximum number of Shares which it is then permitted
to purchase by the HSR Act and (ii) purchase such maximum number of Shares
pro rata from each Stockholder, based upon the number of set forth opposite
such Stockholder's name on Schedule A hereto; provided, such event IGT shall,
not later than one Business Day after such date as it prohibited by the HSR
Act from purchasing all the Shares, deliver Exercise Not Stockholders with
respect to the remaining Shares, which Exercise Notices shall specify a date
not later than five Business Days after such delivery for the Closing of such
purchases.
(e) For the purposes of this Agreement, the term "Business Day" shall
mean a day on which banks are not required or authorized to be closed in the
City of New York or Hong Kong.
<PAGE>
SECTION 1.03. Conditions to Delivery of the Shares.
The obligation of each Stockholder to deliver the Shares owned by such
Stockholder upon any exercise of a Stock Option is subject to the following
conditions:
(a) All waiting periods under the HSR Act applicable to such exercise
of such Stock Option and the delivery of the Shares subject to such Stock
Option in respect of such exercise shall have expired or been terminated;
and
(b) There shall be no preliminary or permanent injunction or other
order by any court of competent jurisdiction restricting, preventing or
prohibiting such exercise of such Stock Option or the delivery of the
Shares subject to such Stock Option in respect of such exercise.
SECTION 1.04. Closings. At each Closing, each Stockholder will deliver
to IGT a certificate or certificates evidencing the number of Shares specified
in the Exercise Notice delivered to such Stockholder in respect of such Closing,
and IGT will purchase such Shares from such Stockholder at the Purchase Price.
Each such certificate shall be duly endorsed in blank or accompanied by stock
powers duly executed in blank, in proper form for transfer and reasonably
satisfactory to IGT, and shall be accompanied by evidence satisfactory to IGT
of the payment of all applicable transfer taxes. All to the Stockholders
pursuant to this Section 1.04 shall be made by delivery to of an amount equal
to the aggregate Purchase Price of the Shares to be so Stockholder by wire
transfer in immediately available funds, to an account or designated at least
two Business Days prior to the applicable Closing, by written notice to IGT
or, in the absence of such notice, by a certified or bank check or checks
(same day funds) payable to or on the order of such Stockholder in such amount.
SECTION 1.05. Adjustments upon Changes in Capitalization. In the event
of any change in the number of issued and outstanding shares of Company Common
Stock by reason of any stock dividend, subdivision, merger, recapitalization,
combination, conversion or exchange of shares, or any other change in the
corporate or capital structure of the Company (including, without limitation,
the declaration or payment of an extraordinary dividend of cash or
securities) which would have the effect of diluting or otherwise affecting
IGT's rights and privileges under this Agreement, the number and kind of the
Shares and the consideration payable in respect of the Shares shall be
appropriately adjusted to restore to IGT its rights and privileges under this
Agreement. Without limiting the scope of the foregoing, in any such event,
at the option of IGT, each Stock Option shall represent to purchase, in
addition to the number and kind of Shares which IGT would be purchase
pursuant to the immediately preceding sentence, whatever securities, cash or
other property the Shares subject to such Stock Option shall have been
converted into or otherwise exchanged for, together with any securities, cash
or other property which shall have been distributed with respect to such
Shares.
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder hereby represents and warrants, severally and not
jointly, to IGT as follows:
SECTION 2.01. Title to the Shares. As of the date hereof, such
Stockholder is the record and beneficial owner of the number of Shares set
forth opposite such Stockholder's name on Schedule A hereto. Such
Stockholder owns all such Shares free and clear of all security interests,
liens, claims, pledges, options, rights of first refusal, limitations on such
Stockholder's voting rights, charges and other encumbr whatsoever, and,
except as provided in this Agreement, such Stockholder has not appointed or
granted any proxy, which appointment or grant is still effective, with
respect to such Shares. Upon the exercise of the Stock Options and the
delivery to IGT by such Stockholder of a certificate or certificates
evidencing such Shares owned by such Stockholder pursuant to Section 1.04,
IGT will receive good, valid and marketable title to such of all security
interests, liens, claims, pledges, options, rights of first refusal, agreements,
limitations on IGT's voting rights, charges and other encumbrances of any
nature whatsoever.
SECTION 2.02. Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated hereby based upon arrangements made by or
on behalf of such Stockholder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF IGT
IGT hereby represents and warrants to each Stockholder as follows:
SECTION 3 01. Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated hereby based upon arrangements made by or
on behalf of IGT.
ARTICLE IV
COVENANTS OF THE STOCKHOLDERS
SECTION 4.01. No Disposition or Encumbrance of Shares. Each
Stockholder and IGT, upon its acquisition of Shares hereunder, hereby
covenants and agrees, severally and not jointly, that, except as contemplated
by this Agreement, such Stockholder and IGT, as the case may be, shall not,
and shall not offer or agree to, sell, transfer, tender, hypothecate or
otherwise dispose of, or create or permit to exist any security interest, lien,
claim, pledge, option, right of first refusal, agreement, limitation on
rights, charge or other encumbrance of any nature whatsoever with respect to
the shares of Company Common Stock now owned or that may hereafter be
acquired by such Stockholder; provided however, that such Stockholder
may sell all of such shares to Radica or its wholly
owned subsidiary.
<PAGE>
SECTION 4.02. No Solicitation of Transactions. Such Stockholder
and IGT, upon its acquisition of Shares hereunder, shall not,
directly or indirectly, through any agent or representative or otherwise,
solicit, initiate or encourage the submission of any proposal or offer from
any individual, corporation, partnership, limited partnership, syndicate,
person (including, without limitation, a "person" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended), trust,
association or entity or government, political subdivision, agency or
instrumentality of a government (collectively, other than IGT and any
affiliate of IGT, a "Person") relating to (i) any acquisition or purchase of
all or any of the shares of Company Common Stock or (ii) any acquisition
or purchase of all or (other than in the ordinary course of business) any
portion of the assets of, or any equity interest in, the Company or any
subsidiary of the Company or any business combination with the Company or
any subsidiary of the Company or participate in any negotiations regarding,
or furnish to any Person any information with respect to, or otherwise
cooperate in any way with, or assist or participate in or facilitate or
encourage, any effort or attempt by any Person to do or seek any of the
foregoing; provided however, that such Stockholder may sell all of such
shares to Radica or its wholly owned subsidiary. Such Stockholder
immediately shall cease and cause to be terminated all existing discussions or
negotiations of such Stockholder and his agents or other representatives
with any Person conducted heretofore with respect to any of the foregoing.
Such Stockholder shall notify IGT promptly if any such proposal or offer, or
any inquiry or contact with any Person with respect thereto, is made
and shall, in any such notice to IGT, indicate in reasonable detail the
identity of the Person making such proposal, offer, inquiry or contact and the
terms and conditions of such proposal, offer, inquiry or contact.
ARTICLE V
COVENANTS
SECTION 5.01. Investment Intent. (a) IGT hereby covenants and agrees
that it shall acquire the Shares for investment purposes only and not
with a view to any resale or distribution thereof, and shall not sell any
Shares purchased pursuant to this Agreement except in compliance with
the Securities Act of 1933, as amended.
(b) Each Stockholder hereby covenants and agrees that it shall acquire
the shares of Purchaser Common Stock hereunder for investment purposes
only and not with a view to any resale or distribution thereof, and
shall not sell any such shares except in compliance with the Securities Act
of 1933, as amended.
<PAGE>
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Obligations of Stockholders Several and Not Joint. No
Stockholder shall have any liability or obligation in respect of any breach
of any representation or warranty, covenant or agreement in this Agreement
of any other Stockholder that results from any circumstances related to or
any actions or omissions of such other Stockholder, and IGT agrees that its
sole recourse in the event of such a breach shall be against such other
Stockholder, provided that IGT may refuse to purchase any of the Shares
contemplated to be sold by this Agreement if any Stockholder breaches his
obligation to sell to IGT the number of Shares set forth opposite his name on
Schedule A hereto. The obligations of the Stockholders under this Agreement
are several and not joint and any liability for damages for breach of this
Agreement by the Stockholders or any Stockholder shall be several and not
joint.
SECTION 6.02. Expenses. Except as otherwise provided herein or in the
Share Purchase Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party
incurring such expenses.
SECTION 6.03. Further Assurances. Each Stockholder and IGT will
execute and deliver all such further documents and instruments and take all
such further action as may be necessary in order to consummate the transactions
contemplated hereby.
SECTION 6.04. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this
Agreement was not performed in accordance with the terms hereof and that the
parties shall be entitled to specific performance of the terms hereof, to the
extent permitted by applicable law, in addition to any other remedy
at law or in equity.
SECTION 6.05. Entire Agreement. This Agreement constitutes the
entire agreement between IGT and the Stockholders with respect to the
subject matter hereof and supersedes all prior agreements and understandings,
both written and oral, between IGT and each Stockholder with respect to the
subject matter hereof.
SECTION 6.06. Assignment. This Agreement shall not be assigned by
operation of law or otherwise (other than by will or the laws of descent
and distribution) and any purported assignment made without consent shall
be null and void, except that IGT may assign all or any of its rights and
obligations hereunder to any affiliate of IGT, provided that no such
assignment shall relieve IGT of its obligations hereunder if such
assignee does not perform such obligations.
<PAGE>
SECTION 6.07. Parties in Interest. This Agreement shall be binding
upon, inure solely to the benefit of, and be enforceable by, the parties
hereto and their successors and permitted assigns. Nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or
by reason of this Agreement.
SECTION 6.08. Amendment; Waiver. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto. Any party
hereto may (i) extend the time for the performance of any obligation
or other act of any other party hereto, (ii) waive any inaccuracy in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any agreement or condition
contained herein. Any such extension or waiver shall be valid if set forth
in an instrument in writing signed by the party or parties to be bound
thereby.
SECTION 6.09. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule
of law, or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as
the economic or legal substance of this Agreement is not affected in any
manner materially adverse to any party. Upon such determination that any term
or other provision is invalid, illegal or incapable of being enforced,
the parties hereto shall negotiate in good faith to modify this Agreement
so as to effect the original intent of the parties as closely as possible
in a mutually acceptable manner in order that the terms of this Agreement
remain as originally contemplated to the fullest extent possible.
<PAGE>
SECTION 6.10. Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given upon receipt) by delivery in person, by cable,
facsimile, telegram or telex or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties at the following
addresses (or at such other address for a party as shall be specified in a
notice given in accordance with this Section 6.10):
if to IGT:
International Game Technology
Mailing Address:
P.O. Box 10580
Reno, Nevada 89510-0580
Street Address:
520 South Rock Boulevard
Reno, Nevada 89502-4169
Facsimile: (702) 688-0120
Attention: Corporate General Counsel
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Facsimile No: (212) 848-7179/80/81/82
Attention: Fred H. Cohen
if to a Stockholder, to the address set forth beneath such Stockholder's
name on Schedule A hereto,
with a copy to:
Sullivan & Cromwell
444 South Flower Street
Los Angeles, CA 90071
Facsimile No: (213) 683-0457
Attention: Frank H. Golay, Jr.
SECTION 6.11. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York.
<PAGE>
SECTION 6.12. Consent to Jurisdiction. Each party hereby (a) submits
to the non-exclusive jurisdiction of any New York State or Federal court
sitting in New York City and any Nevada State or Federal court sitting in Reno,
Nevada with respect to any actions and proceedings arising out of or
relating to this Agreement, (b) agrees that all claims with respect
to such actions or proceedings may be heard and determined in any such State or
Federal court, (c) waives the defense of an inconvenient forum, (d) consents
to the service of process upon it by mailing or delivering such service
to Radica Enterprises Limited, 5301 Longley Lane, No. 4, Reno, Nevada 89511-1806
(in the case of the Stockholders) or to International Game Technology (in the
case of IGT) (each, such party's "Agent") and authorizes and directs
its Agent to accept such service and (v) agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
SECTION 6.13. Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect
in any way the meaning or interpretation of this Agreement.
SECTION 6.14. Counterparts. This Agreement may be executed in one
or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
<PAGE>
IN WITNESS WHEREOF, IGT has caused this Agreement to be executed by its
officer thereunto duly authorized and each Stockholder has duly executed this
Agreement, each as of the date first written above.
INTERNATIONAL GAME TECHNOLOGY
By
Name:
Title:
JAMES JOHN SUTTER
ROBERT EUGENE DAVIDS
JOHN N. HANSEN
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Name and Address of Number of Shares Number of Value of
Stockholder of Company Common Shares Purchase
Stock Beneficially Subject Cash Common
Owned To Option Portion Stock
<S> <C> <C> <C> <C>
James John 500 56 $214,600 $532,067
Sutter
72, 18th Street
Hong Lok Yuen
Tai Po, Hong Kong
Robert Eugene 500 56 214,600 532,067
Davids
2 Watersmeet
Tai Tan Village
Sai Kung, Hong Kong
John N. 500 56 310,800 435,866
Hansen
249 Shearwater
Isle
Foster City, CA
92404
TOTAL $740,000 $1,500,000
$740,000
$1,500,000
</TABLE>
EXHIBIT 11
INTERNATIONAL GAME TECHNOLOGY
COMPUTATION OF EARNINGS PER SHARE
(Dollars in thousands) Years Ended
September 30,
1994 1993 1992
[S]
PRIMARY SHARES OUTSTANDING:
COMMON STOCK OUTSTANDING AT [C] [C] [C]
BEGINNING OF PERIOD. . 138,938,605 130,601,920 126,260,688
SHARES ISSUED UNDER STOCK OPTION PLANS . 800,523 2,800,346 3,363,398
PERCENTAGE OF TIME OUTSTANDING. 65.4% 77.4% 66.2%
WEIGHTED AVERAGE SHARES OUTSTANDING. 523,887 2,166,117 2,226,774
SHARES ISSUED IN EXCHANGE OF EDT
COMMON STOCK. . . . - - 874,356
PERCENTAGE OF TIME OUTSTANDING. -% -% 66.3%
WEIGHTED AVERAGE SHARES OUTSTANDING. . . . . - - 580,104
SHARES ISSUED TO RADICA
COMMON STOCK. . . . 374,436 - -
PERCENTAGE OF TIME OUTSTANDING. 61.9% -% -%
WEIGHTED AVERAGE SHARES OUTSTANDING. . . 231,842 - -
SHARES ISSUED FROM THE CONVERSION OF
CONVERTIBLE SUBORDINATED NOTES . 9,338,877 5,527,133 10,730
PERCENTAGE OF TIME OUTSTANDING. 52.1% 37.6% 39.8%
WEIGHTED AVERAGE SHARES OUTSTANDING. 4,861,607 2,080,186 4,270
SHARES ISSUED UNDER GIFTS. . . . 13,333 8,948 92,748
PERCENTAGE OF TIME OUTSTANDING. 62.5% 59.7% 73.3%
WEIGHTED AVERAGE SHARES OUTSTANDING. . . 8,329 5,344 68,002
SHARES PURCHASED AND HELD IN TREASURY. (17,098,646) (14,071,458) (13,902,732)
PERCENTAGE OF TIME OUTSTANDING. 87.3% 99.8% 99.7%
WEIGHTED AVERAGE SHARES OUTSTANDING. (14,932,659) (14,041,972) (13,867,974)
COMMON STOCK EQUIVALENT OF OPTIONS
OUTSTANDING . . . . 1,748,625 2,806,220 4,809,222
WEIGHTED AVERAGE NUMBER OF PRIMARY COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING . . . . 131,380,236 123,617,815 120,081,086
FULLY DILUTED SHARES OUTSTANDING:
ADDITIONAL DILUTIVE EFFECT OF
STOCK OPTIONS. . . . . - 206,811 492,314
ASSUMED CONVERSION OF
CONVERTIBLE NOTES . 4,477,270 12,785,881 14,874,882
WEIGHTED AVERAGE NUMBER OF FULLY DILUTED
COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING . . . . 135,857,506 136,610,507 135,448,282
INCOME FROM CONTINUING OPERATIONS. $ 140,447 $ 105,578 $ 63,284
INCOME FROM DISCONTINUED OPERATIONS. - 13,447 1,500
NET INCOME. . . . . $ 140,447 $ 119,025 $ 64,784
PRIMARY EARNINGS PER SHARE
INCOME FROM CONTINUING OPERATIONS. $ 1.07 $ 0.85 $ 0.53
INCOME FROM DISCONTINUED OPERATIONS. - 0.11 0.01
NET INCOME. . . . . $ 1.07 $ 0.96 $ 0.54
FULLY DILUTED EARNINGS PER SHARE(1)
INCOME FROM CONTINUING OPERATIONS. $ 1.05 $ 0.80 $ 0.51
INCOME FROM DISCONTINUED OPERATIONS. . - 0.10 0.01
NET INCOME. . . . . $ 1.05 $ 0.90 $ 0.52
(1) Based on addition of $1,635, $4,549, and $5,313, net of taxes, to
income from continuing operations in 1994, 1993, and 1992
respectively, representing interest on convertible subordinated notes.
EXHIBIT 21
INTERNATIONAL GAME TECHNOLOGY SUBSIDIARIES
Name Jurisdiction of Incorporation
International Game Technology Nevada
IGT-North America Nevada
IGT-International Nevada
IGT-Missouri, Inc. Missouri
IGT-Colorado Corporation Colorado
IGT-Montana, Inc. Montana
Fortune Advertising and Marketing Nevada
International Acceptance Corporation Nevada
IGT-China Management Nevada
IGT-NHI Joint Venture Company Nevada
Megasports, Inc. Nevada
International Game Technology
Community Foundation Nevada
IGT-Australia Pty. Ltd. New South Wales,
Australia
Megabucks (Australia) Pty. Limited New South Wales,
Australia
Electronic Data Technologies,
Australia New South Wales,
Australia
FSC, Ltd. Ireland
IGT-New Zealand New Zealand
IGT-Iceland, Ltd. Iceland
IGT-Argentina, S.A. Argentina
IGT-Europe, B.V. The Netherlands
IGT-Japan, K.K. Japan
IGT PNG Pty., Ltd. New Guinea
IGT (Asia) Company Limited Hong Kong
EXHIBIT 24
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statements Nos. 2-75843, 2-91475, 33-20308, 33-27657, 33-69400
and 33-63608 on Form S-8 of our report dated November 4, 1994
appearing in this Annual Report on Form 10-K of International
Game Technology for the year ended September 30, 1994.
DELOITTE & TOUCHE LLP
Reno, Nevada
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<CASH> 142,730
<SECURITIES> 60,320
<RECEIVABLES> 218,488
<ALLOWANCES> 7,685
<INVENTORY> 104,010
<CURRENT-ASSETS> 559,090
<PP&E> 156,440
<DEPRECIATION> 59,195
<TOTAL-ASSETS> 868,008
<CURRENT-LIABILITIES> 78,392
<BONDS> 0
<COMMON> 93
0
0
<OTHER-SE> 520,775
<TOTAL-LIABILITY-AND-EQUITY> 868,008
<SALES> 514,121
<TOTAL-REVENUES> 674,461
<CGS> 271,374
<TOTAL-COSTS> 342,066
<OTHER-EXPENSES> 134,489
<LOSS-PROVISION> 7,199
<INTEREST-EXPENSE> 11,794
<INCOME-PRETAX> 214,760
<INCOME-TAX> 74,313
<INCOME-CONTINUING> 140,447
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 140,447
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.05
</TABLE>
