<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for use of the
Commission Only (as permitted by
[ ] Definitive Proxy Statement Rule 14a-6(e) (2))
[ ] Definitive Additional Material
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
International Lottery & Totalizator Systems, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant As Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-16(i) (4) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a) (2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.
2131 FARADAY AVENUE
CARLSBAD, CALIFORNIA 92008-7297
NOTICE OF SPECIAL MEETING
TO ENSURE YOUR REPRESENTATION AT THE MEETING, PLEASE DATE, SIGN AND MAIL
PROMPTLY THE ENCLOSED PROXY, FOR WHICH A RETURN ENVELOPE IS PROVIDED.
A Special Meeting of Shareholders of International Lottery & Totalizator
Systems, Inc. (the "Company") will be held at 11:00 a.m., Pacific Standard Time,
on Tuesday, November 25, 1997 at the Company's corporate headquarters, 2131
Faraday Avenue, Carlsbad, California, for the following purposes:
1. To approve an amendment to the Company's Articles of Incorporation
to provide for the issuance of up to 20,000,000 shares of preferred stock,
no par value, in one or more classes or series, having such rights,
privileges, designations and preferences as may be determined from time to
time by the Board of Directors.
2. To transact such other business as may properly come before the
meeting.
Shareholders of record at the close of business on October 10, 1997 will be
entitled to vote at the meeting. The transfer books will not be closed. The
approximate date on which the proxy statement and form of proxy are first being
sent or given to shareholders is October 15, 1997.
By order of the Board of Directors,
M. Mark Michalko
President
October 15, 1997
Carlsbad, California
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INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.
2131 FARADAY AVENUE
CARLSBAD, CA 92008-7297
PROXY STATEMENT
Proxies in the form enclosed with this statement are solicited by the Board
of Directors of the Company for use at a Special Meeting of Shareholders to be
held at the Company's headquarters, 2131 Faraday Avenue, Carlsbad, California,
on November 25, 1997, including any adjournments or postponements thereof.
Execution of a proxy will not in any way affect a shareholder's right to attend
the meeting and vote in person, and any holder giving a proxy has the right to
revoke it at any time before it is exercised by filing with the Secretary of the
Company a written revocation or duly executed proxy bearing a later date. The
proxy will be suspended if the holder is present at the meeting and elects to
vote in person.
The voting securities of the Company consist of shares of Common Stock, no
par value ("Common Stock"), of which 18,027,548 shares are outstanding as of
October 10, 1997. Only holders of Common Stock of record on the books of the
Company at the close of business on October 10, 1997 (the "Record Date") will be
entitled to vote at the meeting. Each such holder of Common Stock is entitled to
one vote for each said share.
Votes cast by proxy or in person at the Special Meeting will be counted by
the person appointed by the Company to act as Inspector of Election for the
Special Meeting. The inspector of election will treat shares represented by
proxies that reflect abstentions or include "broker non-votes" as shares that
are present and entitled to vote for purposes of determining the presence of a
quorum. Abstentions or "broker non-votes" do not constitute a vote "for" or
"against" any matter and thus will be disregarded in the calculation of "votes
cast." The affirmative vote of a majority of the shares of Common Stock
outstanding is, however, required for approval of the proposed amendment to the
Company's Articles of Incorporation. As a result, abstentions and "broker
non-votes" on that proposal will have the same effect as negative votes.
The approximate date on which the proxy statement and form of proxy are
first being sent or given to shareholders is October 15, 1997.
The entire cost of solicitation of proxies, including expenses in
connection with preparing and mailing this Proxy Statement, the proxy and any
additional information furnished to the shareholders will be borne by the
Company. Copies of solicitation materials will be furnished to banks, brokerage
houses, nominees, fiduciaries and custodians holding in their names shares of
Common Stock beneficially owned by others to forward to such beneficial owners.
The Company may reimburse persons representing beneficial owners of Common Stock
for their costs in forwarding solicitation materials to such beneficial owners.
Original solicitation of proxies by mail may be supplemented by telephone,
telegram and personal solicitation by directors, officers or other regular
employees of the Company. No additional compensation will be paid to directors,
officers or other regular employees for such services.
PROPOSAL
AMENDMENT OF THE COMPANY'S
ARTICLES OF INCORPORATION
The Board of Directors has adopted, subject to shareholder approval, an
amendment to the Company's Articles of Incorporation (the "Amendment") to
authorize 20,000,000 shares of Preferred Stock, no par value (the "Preferred
Stock").
The additional Preferred Stock authorized under the Amendment may be issued
by the Board of Directors from time to time in one or more series, with rights,
preferences, privileges and restrictions designated by the Board without any
further vote or action by the shareholders. The issuance of such Preferred Stock
could adversely affect the voting power of holders of Common Stock and the
likelihood that such holders will receive dividend payments and payments upon
liquidation. If the Amendment is adopted, it will
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become effective upon filing of a Certificate of Amendment of the Company's
Articles of Incorporation (the "Certificate of Amendment") with the Secretary of
State of California. A copy of the Certificate of Amendment is set forth as
Appendix A to this Proxy Statement and is incorporated herein by this reference.
Other than the Financing (as described below), at present the Board of
Directors has no plans to issue additional shares of Preferred Stock that would
be authorized under the Amendment. However, it desires to have such shares
available to provide additional flexibility to use its capital stock for
business and financial purposes in the future. The additional shares may be
used, without further shareholder approval, for various purposes including,
without limitation, raising capital, establishing strategic relationships with
other companies and expanding the Company's business or product lines through
the acquisition of other businesses or products.
The shares of Preferred Stock that would become available for issuance if
the Amendment were adopted could also be used by the Company to oppose a hostile
takeover attempt or delay or prevent changes in control of management of the
Company. For example, without further shareholder approval, the Board could
strategically sell shares of Preferred Stock in a private transaction to
purchasers who would oppose a takeover or favor the current Board. Although the
Amendment has been prompted by business and financial considerations and not by
the threat of hostile takeover attempt (nor is the Board currently aware of any
such attempts directed at the Company), nevertheless, shareholders should be
aware that approval of the Amendment could facilitate future efforts by the
Company to deter or prevent changes in control of the Company.
PROPOSED FINANCING
The Company has been negotiating the issuance and sale of shares of Series
A Redeemable Preferred Stock (the "Series A Preferred Stock") in a $5 million
private placement (the "Financing"), on the terms and conditions outlined below.
The purchaser in the Financing would be Berjaya Lottery Management (H.K.)
Limited ("Berjaya") which owns approximately 36.6% of the Company's outstanding
shares of Common Stock. Berjaya has three representatives on the Company's Board
of Directors and Berjaya-affiliated lotteries are customers of the Company. The
sale of Series A Preferred Stock in the Financing would be made as a private
placement in reliance on Regulation D promulgated under the Securities Act 1933,
as amended (the "Act"), which offers an exemption from the registration
requirements under the Act, and would be consummated without further shareholder
approval.
Background. In order to strengthen the Company's financial resources and
capabilities so that the Company could more favorably respond to lottery
customers' requests for proposal, the Company decided in late 1996 to seek
financing proposals and retained a financial adviser to assist in that process.
Proposals for financing from banks and other financial institutions have been
presented to the Company's Board of Directors, but all proposals were at high
interest or dividend rates, conversion discounts and required substantial
placement or commitment fees. Therefore the Board determined not to pursue any
financing from the sources presented.
As a result of the Company not having received an attractive financing
proposal from another source, at the Company's request, Berjaya offered to
provide financing to the Company. The Company has appointed a special committee
of the Board of Directors comprised of directors not affiliated with Berjaya
(the "Affiliations Committee") to evaluate the terms of any financing with
Berjaya. The Affiliations Committee members are Messrs., Frederick A. Brunn,
Board Chairman, Theodore A. Johnson and Martin J. O'Meara Jr., with Company
President M. Mark Michalko as a non-voting committee member. The Affiliations
Committee has reviewed and approved the Financing as currently proposed,
including the terms of the Series A Preferred Stock described below.
Terms of Series A Preferred Stock. The principal terms of the Financing,
including the rights, preferences and privileges of the Series A Preferred Stock
as currently proposed are described below. Although the final terms of the
Financing, including the rights, preferences and privileges of the Series A
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Preferred Stock, will be determined by final negotiations between the
Affiliations Committee and Berjaya, the terms are not expected to differ in any
material manner from the terms described below.
General. Berjaya would purchase shares of Series A Preferred Stock for an
aggregate purchase price of $5 million. The number of shares to be purchased and
the per share purchase price would be based on the average of the final bid and
asked price for the Company's Common Stock on NASDAQ on the date of issuance. If
consummated, the Company intends to use the proceeds of the Financing for
general corporate purposes relating to lottery projects the Company may choose
to pursue.
Redemption. Berjaya may require the Company to redeem shares of Series A
Preferred Stock at any time after the third anniversary of the date of issuance
at a redemption price equal to the purchase price of the shares to be redeemed,
together with any accrued but unpaid dividends through the redemption date (the
"Redemption Price"). The Company may redeem shares of Series A Preferred Stock
at any time after the fifth anniversary of the date of issuance at the
Redemption Price.
Liquidation Preference. In the event of any liquidation or winding up of
the Company, the holders of the Series A Preferred Stock will be entitled to
receive, prior and in preference to the holders of Common Stock, an amount equal
to the purchase price for the Series A Preferred Stock, plus any cumulative but
unpaid dividends. Thereafter, the remaining assets shall be distributed ratably
to the holders of the Common Stock. A merger of the Company in which the Company
is not the surviving entity or a sale of all or substantially all of the
Company's assets shall be deemed to be a liquidation or winding up for purposes
of this liquidation preference.
Dividends. The Series A Preferred Stock would be entitled to a cumulative
annual dividend of 8% (eight percent), payable quarterly on the 15th day of
February, May, August and November.
Voting Rights; Restrictive Covenants. The holder of a share of Series A
Preferred Stock shall have one vote for each share and shall vote with holders
of shares of Common Stock (as a single voting group) on all matters brought
before the shareholders, except as otherwise required by law. In addition, as
long as 20% or more of the shares of Series A Preferred Stock is outstanding,
the Company may not, without the approval of holders representing a majority of
the Series A Preferred Stock, grant superior rights to any class of capital
stock as to payment upon liquidation, dissolution or winding up; amend its
Articles of Incorporation or By-laws in any way which would adversely affect the
rights and preferences of the holders of the Series A Preferred Stock as a
class; or redeem or repurchase shares of outstanding Common Stock.
Conversion Rights. Each share of Series A Preferred Stock will be
convertible into one share of Company Common Stock at any time after issuance,
subject to customary anti-dilution adjustments.
Restricted Securities; Non-Transferability. The shares of Series A
Preferred Stock will not be registered under the Act or any other applicable
securities laws and will be deemed to be "restricted securities" under the Act.
The shares of Series A Preferred Stock will not be transferable, except in a
private sale (subject to applicable law) to a purchaser who agrees to be bound
by the transfer restriction and other terms of the Series A Preferred Stock.
CONSEQUENCES OF NON-APPROVAL OF PROPOSAL
The Company believes that obtaining additional capitalization is critical
to its ability to bid on lottery proposals which the Company has already
received and other proposals which are expected in the future. Although the
Company has no outstanding debt securities, some lottery customers have
indicated that the Company's capitalization should be increased or the Company's
lottery bids would be adversely affected. If shareholder approval is not
obtained to authorize the preferred shares under the Amendment, the Company will
seek independent financing from other sources which would be in a form other
than preferred stock. The Affiliations Committee believes, however, that any
such other financing would likely be available, if at all, only on terms
substantially less favorable than those of the Financing.
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<PAGE> 6
RECOMMENDATIONS OF BOARD OF DIRECTORS
The affirmative vote of the holders of a majority of the shares of the
Common Stock outstanding will be required to approve the Amendment. As a result,
abstentions and "broker non-votes" will have the same effect as negative votes.
Berjaya owns 6,600,000 shares of Common Stock of the Company or 36.6% of the
outstanding shares and has indicated to the Company that it intends to vote in
favor of the Amendment. If the Amendment is approved by the shareholders, there
is no further shareholder action required for the Company to complete the
Financing. The final terms of the Financing, including the rights, preferences
and privileges of the Series A Preferred Stock, will be determined by final
negotiations between the Affiliations Committee and Berjaya.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE AMENDMENT.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the shares of the Company's Common Stock as of September 26, 1997
by (i) each director of the Company, (ii) executive officers, (iii) executive
officers and directors of the Company as a group and (iv) each person or entity
who is a beneficial owner of more than 5% of the Company's outstanding Common
Stock. For purposes of this proxy statement, beneficial ownership of securities
is defined in accordance with the rules of the Securities and Exchange
Commission and means generally the power to vote or exercise investment
discretion with respect to securities, regardless of any economic interests
therein. Except as otherwise indicated, the Company believes that the beneficial
owners of the securities listed below have sole investment and voting power with
respect to such shares, subject to community property laws where applicable.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
BENEFICIALLY OWNED
------------------------------
PERCENT
NAME OF BENEFICIAL OWNER AMOUNT OF CLASS
- ---------------------------------------------------------------- --------- --------
<S> <C> <C>
Directors
Frederick A. Brunn.............................................. 161,554(A) *
Chan Kien Sing.................................................. 30,000(B) *
Theodore A. Johnson............................................. 55,825(B) *
M. Mark Michalko................................................ 43,387(A) *
Ng Aik Chin..................................................... 10,465(A) *
Ng Foo Leong.................................................... 30,000(B) *
Martin J. O'Meara, Jr. ......................................... 221,226(B) *
Sir Michael G.R. Sandberg....................................... 110,000(B) *
Executive Officers (excluding those listed above)
Timothy R. Groth................................................ 15,546(A) *
Dennis D. Klahn................................................. 11,769(A) *
Lawrence E. Logue............................................... 6,568(A) *
Robert F. McPhail............................................... 111,354(A) *
All directors and executive officers as a group (12 persons).... 807,694(A)(B)(C) 4.5%
Significant Shareholder
Berjaya Lottery Management (H.K.) Limited....................... 6,600,000(C) 36.6%
Level 28, Shahzan Prudential Tower
30 Jalan Sultan Ismail
5020 Kuala Lumpur, Malaysia
</TABLE>
- ---------------
(A) Includes the number of shares of Common Stock subject to unexercised stock
options which were exercisable within 60 days under the Company's 1986, 1988
and 1990 Employee Stock Option Plans as follows: 116,750 for Mr. Brunn;
13,000 for Mr. Groth; 8,000 for Mr. Klahn; 2,500 for Mr. Logue; 80,000 for
Mr. McPhail; 30,750 for Mr. Michalko; 5,500 for Mr. Aik Chin Ng; and 256,500
for all executive officers as a group.
(B) Includes the number of shares of Common Stock subject to unexercised stock
options which were exercisable within 60 days under the Company's 1993
Directors' Stock Option Plan which for each such outside director is 30,000
and 150,000 for all such directors as a group.
(C) Mr. Chan Kien Sing and Mr. Ng Foo Leong are employees of an affiliate of
Berjaya Lottery Management (H.K.) Limited. Mr. Aik Chin Ng is also a
designee of Berjaya to the Company's Board of Directors. Each disclaims
beneficial ownership of such shares.
* Less than one percent of the outstanding common shares.
5
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OTHER MATTERS
Management knows of no business which will be presented for consideration
at the Special Meeting other than that stated in the Notice of Special Meeting.
However, if any such matter shall properly come before the meeting, the persons
named in the enclosed proxy form will vote the same in accordance with their
best judgement.
Management does not expect a representative from the Company's independent
accountants, Ernst & Young to attend the Special Meeting.
Shareholder proposals for presentation at the 1998 Annual Meeting must be
received by the Company no later than December 8, 1997 to be considered for
inclusion in the 1998 proxy and proxy statement.
By order of the Board of Directors,
M. Mark Michalko
President
Carlsbad, California
6
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APPENDIX A
CERTIFICATE OF AMENDMENT OF ARTICLES OF
INCORPORATION OF
INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.
A CALIFORNIA CORPORATION
M. Mark Michalko and Lawrence E. Logue certify that:
1. They are the President and Secretary of International Lottery &
Totalizator Systems, Inc., a California corporation.
2. The Articles of Incorporation of said corporation shall be amended by
revising Article Four to read as follows:
"FOUR: This corporation is authorized to issue two classes of shares
designated respectively "Common Stock" and "Preferred Stock," and referred
to either as Common Stock or Common shares and Preferred Stock or Preferred
shares, respectively. The authorized number of shares of Common Stock is
50,000,000 and the authorized number of shares of Preferred Stock is
20,000,000.
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is authorized to fix the number of shares of
any series of Preferred Stock and to determine the designation of any such
series. The Board of Directors is also authorized to determine or alter the
rights, privileges, designations, preferences and restrictions granted to
or imposed upon any wholly unissued series of Preferred Stock and, within
the limits and restrictions stated in any resolution or resolutions of the
Board of Directors originally fixing the number of shares constituting any
series, to increase or decrease (but not below the number of shares of such
series then outstanding) the number of shares of any such series subsequent
to the issue of shares of that series."
3. The foregoing amendment of the Articles of Incorporation has been duly
approved by the Board of Directors.
4. The foregoing amendment of the Articles of Incorporation has been duly
approved by the required vote of shareholders in accordance with Section 902 of
the California Corporations Code. The total number of outstanding shares is
18,027,548. The number of shares voting in favor of the amendment equaled or
exceeded the vote required. The percentage vote required was more than 50%.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Date: , 1997
--------------------------------------
M. Mark Michalko, President
--------------------------------------
Lawrence E. Logue, Secretary
<PAGE> 10
INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.
PROXY SOLICITED BY
THE BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 25, 1997
The undersigned hereby appoints M. Mark Michalko and Lawrence E. Logue and
each of them, as attorneys and proxies of the undersigned, with full power of
substitution, to vote all of the shares of stock of which the undersigned may be
entitled to vote at the Special Meeting of International Lottery & Totalizator
Systems, Inc. to be held at 2131 Faraday Avenue, Carlsbad, California on
November 25, 1997 at 11:00 a.m., (local time), and at any and all postponements,
continuations and adjournments thereof, with all powers that the undersigned
would possess if personally present, upon and in respect of the following
matters and in accordance with the following instructions, with discretionary
authority as to any and all other matters that may properly come before the
meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR THE
PROPOSAL, AS MORE SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC
INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL.
PROPOSAL 1: To approve an amendment to the Company's Articles of
Incorporation to provide for the issuance of up to 20,000,000
shares of preferred stock, no par value, in one or more classes
or series, having such rights, privileges, designations and
preferences as may be determined from time to time by the Board
of Directors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be signed on other side)
<PAGE> 11
DATED __________________________________
______________________________________
--------------------------------------
SIGNATURE(S)
Please sign exactly as your name appears
hereon. If the stock is registered in the
names of two or more persons, each should
sign. Executors, administrators,
trustees, guardians and attorneys-in-fact
should add their titles. If a signer is a
corporation, please give full corporate
name and have a duly authorized officer
sign, stating title. If signer is a
partnership, please sign in partnership
name by authorized person.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE
WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
<PAGE> 12
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.
The undersigned hereby appoints M. Mark Michalko and Lawrence E. Logue
proxies, with power to act without the other and with power of substitution, and
hereby authorizes them to represent and vote as designated on the other side,
all the shares of stock of International Lottery & Totalizator Systems, Inc.,
standing in the name of the undersigned with all powers which the undersigned
would possess if present at the Special Meeting of Shareholders to be held
November 25, 1997 at 11:00 a.m., (local time), and at any and all postponements,
continuations and adjournments thereof, with all powers that the undersigned
would possess if personally present, upon and in respect of the following
matters and in accordance with the following instructions, with discretionary
authority as to any and all other matters that may properly come before the
meeting.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
<PAGE> 13
The Board of Directors recommends a vote for:
FOR AGAINST ABSTAIN
Proposal - Amendment of the Company's [ ] [ ] [ ]
Articles of Incorporation to
provide for the issuance of up
to 20,000,000 shares of preferred
stock, no par value, in one or
more classes or series, having
such rights, privileges, designations
and preferences as may be determined
from time to time by the Board of
Directors.
Signature(s) ________________________________________________ DATE _________
Note: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
