<PAGE> 1
SCHEDULE 14A INFORMATION
(Rule 14a-101)
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] 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-6(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:
<PAGE> 2
[LOGO]
INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.
2131 FARADAY AVENUE
CARLSBAD, CALIFORNIA 92008-7297
------------------------
NOTICE OF ANNUAL MEETING
The 1999 Annual Meeting of Shareholders of International Lottery &
Totalizator Systems, Inc. (the "Company") will be held at 3:00 p.m., Pacific
Daylight Savings Time, on Monday, May 24, 1999 at the Olympic Resort Hotel and
Spa, 611 El Camino Real, Carlsbad, California, for the following purpose:
(a) to elect nine directors for the ensuing year
Shareholders of record at the close of business on April 9, 1999 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 April 16, 1999.
By order of the Board of Directors,
/s/ M. MARK MICHALKO
M. Mark Michalko
President
April 16, 1999
Carlsbad, California
TO ENSURE YOUR REPRESENTATION AT THE MEETING, PLEASE DATE, SIGN AND MAIL
PROMPTLY THE ENCLOSED PROXY, FOR WHICH A RETURN ENVELOPE IS PROVIDED.
<PAGE> 3
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 the Annual Meeting of Shareholders to be
held in Carlsbad, California, on May 24, 1999, 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.
VOTING SECURITIES
The voting securities of the Company consist of its common shares of which
6,009,183 shares are outstanding as of April 9, 1999. Only holders of common
shares of record on the books of the Company at the close of business on April
9, 1999 (the "Record Date") will be entitled to vote at the meeting. Each such
holder of common shares is entitled to one vote for each said share, and has the
right to cumulate his or her votes for directors if his or her candidate or
candidates' names have been placed in nomination prior to the voting and any
shareholder has given notice at the meeting prior to the voting of that
shareholder's intention to cumulate his or her votes. The persons named in the
enclosed proxy may or may not elect to give such notice and vote the shares they
represent in such a manner.
Votes cast by proxy or in person at the Annual Meeting will be counted by
the person appointed by the Company to act as Inspector of Election for the
Annual Meeting. The Inspector of Elections 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." Any unmarked proxies, including those submitted by brokers or nominees,
will be voted in favor of the nominees of the Board of Directors, as indicated
on the accompanying proxy card.
The approximate date on which the proxy statement and form of proxy are
first being sent or given to shareholders is April 16, 1999.
<PAGE> 4
ELECTION OF DIRECTORS
The following table sets forth certain information regarding the beneficial
ownership of the Company's common shares as of April 1, 1999 by (i) each
director and nominee for director of the Company, (ii) certain 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 shares. With respect to each director or nominee of
the Company, the table also sets forth his age, the year he was first elected as
a director, employment history for the past five years, and other directorships.
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 AS OF APRIL 1, 1999
---------------------------------------
PERCENT
NAME OF BENEFICIAL OWNER AMOUNT OF CLASS
------------------------ --------- ------------------
<S> <C> <C>
Nominees for Director
FREDERICK A. BRUNN, 54, Director since 1989. President from 39,336(A) *
February 1994 to May 1997. Chief Operating Officer, San
Diego Manufacturing Extension Center since April, 1998.
CHAN KIEN SING, 42, Director since June 1993. Group 11,669(B) *
Executive Director of Berjaya Group Berhad since 1990.
THEODORE A. JOHNSON, 58, Director since 1979. President, 30,275(B) *
Minnesota Cooperation Office for Small Business and Job
Creation, Inc. from 1980 to present. Director of
Surgidyne, Inc.
M. MARK MICHALKO, 44, Director since February 1994. 38,395(C) *
President since May, 1997, Executive Vice President, from
February 1994 to May 1997.
ALAIN K. K. LEE, 43, Executive Vice President, Roadhouse 0(E)
Grill, Inc. since July, 1998 and Director since January
1998. Serves as a director of several companies in the
food industry affiliated with Berjaya. From 1990 to 1997,
Mr. Lee served as Berjaya Group Chief Financial Officer
and General Manager of several Berjaya Group subsidiary
companies.
NG FOO LEONG, 48, Director since June 1993. Executive 11,669(B) *
Director, Sports Toto Malaysia Sdn. Bhd., a lottery gaming
company from 1985 to present.
LEONARD G. MORRISSEY, 64, Consultant to the Company since 25,000(D)
November, 1997. Senior Vice President of GTech
Corporation, a lottery service company, for five years
prior to 1995.
MARTIN J. O'MEARA, JR., 70, Director since 1979. President, 113,578(B) *
The Budget Plan, Inc., a privately-owned company engaged
in the consumer loan business and has been so employed for
more than five years.
MICHAEL G.R. SANDBERG, 71, Director since 1987. Private 39,336(B) *
investor. Chairman and Chief Executive of the Hong Kong
and Shanghai Banking Corporation from 1977 to 1986.
Director of Broadstreet Inc. a bank holding company.
Named Executive Officers (excluding those listed above)
TIMOTHY R. GROTH 17,019(C) *
DENNIS D. KLAHN 9,899(C) *
All directors and executive officers as a group (11 persons) 336,176(A)(B)(C)(D) 5.9%
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED AS OF APRIL 1, 1999
--------------------------------------
AMOUNT PERCENT OF CLASS
-------------- ------------------
<S> <C> <C>
Significant Shareholder
BERJAYA LOTTERY MANAGEMENT (H.K.) LIMITED (BERJAYA) 2,311,500(E) 38.4%
Level 28, Menara Shahzan Insas
Jalan Sultan Ismail
50250 Kuala Lumpur, Malaysia
</TABLE>
- ---------------
(A) Includes 1,667 options exercisable under the 1997 Directors Option Plan and
34,335 options exercisable under Mr. Brunn's consulting agreement. (See
Certain Relationships and Related Transactions herein.)
(B) Includes the number of shares of Common Stock subject to unexercised stock
options which were exercisable within 60 days under the Company's 1997,
Directors Stock Option Plan which, for each such outside director, except
Mr. Brunn, is 11,669 and 58,345 for all such directors as a group.
(C) Includes the number of shares of Common Stock subject to unexercised stock
options which were exercisable within 60 days under the Company's 1990
Employee Stock Option Plan as follows: 10,748 for Mr. Groth; 6,447 for Mr.
Klahn; 31,332 for Mr. Michalko and 48,527 for all executive officers as a
group.
(D) Unexercised options exercisable within 60 days pursuant to Mr. Morrissey's
consultant agreement. (See Certain Relationships and Related Transactions
herein).
(E) Messrs. Chan Kien Sing, Alain Lee and Ng Foo Leong are employees of an
affiliate of Berjaya. All three individuals disclaim beneficial ownership of
such shares.
* Less than one percent of the outstanding common shares.
During 1998, five meetings of the Board of Directors were held. Each
incumbent director attended all meetings of the Board of Directors held during
the year in which he was a director, except Mr. Tan attended no meetings, Lord
Sandberg missed three meetings, Ng Foo Leong missed four meetings, Chan Kien
Sing missed two meetings and Ng Aik Chin missed one meeting. The Company has an
Executive Committee which consists of Messrs. Chan, Johnson and Michalko. The
Executive Committee held no meetings during the year. The Executive Committee
may exercise all the authority of the Board in the management of the Company
except for matters expressly reserved by law for board action. The Board also
has an Executive Compensation Committee consisting of Messrs. Johnson, O'Meara,
Sandberg, and Chan. The Executive Compensation Committee met once during the
year. Its function is to establish compensation for all executive officers of
the Company and administer the Company's 1990 Employee Stock Option Plan. The
Company has an Audit Committee consisting of Messrs. Sandberg, O'Meara, Johnson
and Chan which held one meeting during the year. The Audit Committee provides
advice and assistance regarding accounting, auditing and financial reporting
practices of the Company. Each year it recommends to the Board a firm of
independent public accountants to serve as auditors. The Audit Committee reviews
with such auditors the scope and result of their audit, fees for services and
independence in servicing the Company. The Company also has a Nominating
Committee consisting of Messrs. Chan, O'Meara, Johnson and Michalko. The
Nominating Committee held one meeting during the year. The Nominating Committee
seeks out, evaluates and recommends to the Board qualified nominees for election
as directors of the Company and considers other matters pertaining to the size
and composition of the Board. The Nominating Committee will give appropriate
consideration to qualified persons recommended by shareholders for nomination as
directors provided that such recommendations are accompanied by information
sufficient to enable the Nominating Committee to evaluate the qualifications of
the nominee. The Affiliations Committee reviews and approves the fairness to the
Company of any transactions between the Company and Berjaya. The members of the
Committee are Messrs. Brunn, Johnson and O'Meara. The Affiliations Committee
held three meetings in 1998.
COMPENSATION OF DIRECTORS
Each director who is not an employee of the Company receives an annual
retainer of $4,000 plus $500 per board meeting and reimbursement for all related
expenses. The chairman of each committee who is not an
3
<PAGE> 6
employee of the Company receives an additional annual retainer of $1,000. Each
committee member receives $500 per meeting and reimbursement of all related
expenses, only if a committee meeting is held at a time when it does not
coincide with a board meeting.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Berjaya Transactions
During 1998, the Company received $2,401,168 as payment from four different
affiliates of Berjaya which are lottery customers of the Company and as of
December 31, 1998 there was a balance outstanding owed to the Company by these
customers of $272,976. Payments were primarily from Philippine Gaming Management
Corporation in an amount of $1,872,000 related to a lottery terminal contract
and $358,552 for spare parts delivered in 1998. The Company had software support
agreements with Sports Toto Malaysia Sdn Bhd, which paid the Company $7,000 per
month and Natural Avenue Sdn. Bhd. of Malaysia, which paid $4,700 per month to
the Company. In addition during 1998, U-Luck, a Berjaya-related Taiwanese
company, paid the Company $30,216 for software upgrades and modifications to its
lottery system.
Consulting Agreements
Mr. Brunn
In May 1996, Mr. Brunn and the Company entered into a Consulting Agreement
(the Consulting Agreement) in connection with Mr. Brunn's resignation as
President of the Company.
Pursuant to the Consulting Agreement, Mr. Brunn agreed to provide technical
consulting services to the Company through May 14, 1999 subject to earlier
termination under certain circumstances (the Consulting Period). In
compensation, the Company paid Mr. Brunn consulting fees of $93,800 in 1998 and
will pay $28,000 in 1999, whether or not the Company utilizes his services. In
addition, Mr. Brunn agreed not to directly or indirectly compete with the
Company during the Consulting Period, except as otherwise provided in the
Consulting Agreement.
The Company further agreed to continue Mr. Brunn's health benefits through
November, 1999 and to cause the stock options held by Mr. Brunn to become
immediately vested and exercisable and to remain exercisable through the earlier
of the original expiration date or May 16, 2001.
Mr. Morrissey
On November 12, 1998, the Company and Mr. Morrissey entered into a
Consulting Agreement pursuant to which Mr. Morrissey will be paid a consulting
fee of $4,000 per month for one year. In addition, Mr. Morrissey has been
granted a non-qualified stock option for 50,000 shares at the then fair market
value of $1.19 per share which vests in quarterly installments over the next 12
months and is exercisable beginning one year after the installment vesting date.
The agreement also provides that Mr. Morrissey will be paid from 1% to 3% of the
contract value (depending on the degree of contribution by Mr. Morrissey) of
specific prospective lottery contracts which are awarded to the Company.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
Members of the Executive Compensation Committee (the "Committee") evaluate
the performance of senior management, including the president, and review and
approve the base compensation and lump sum distributions for the Company's
executive officers. The Committee also administers the Company's Executive Bonus
Plan and employee stock option plans. The Committee periodically reports to the
Board on its activities.
4
<PAGE> 7
Compensation Philosophy
The Committee bases its decisions on the Company's executive compensation
philosophy, which relates the level of compensation to the Company's success in
meeting its annual and long-term performance goals, rewards individual
achievement and seeks to attract and retain qualified executives. The Company's
executive compensation program consists of two principal components: (i) base
salary and, (ii) a potential for an annual bonus under the Company's Executive
Bonus Plan based upon the Company achieving a threshold level of profitability
as well as individual performance. The second element constitutes an "at-risk"
portion of the compensation program. The Company positions its overall executive
compensation levels at or near the median of the range of compensation levels
for other companies comparable to the Company located in Southern California and
which are viewed as competitors for executive talent in the overall labor
market. This data is obtained from surveys conducted by external compensation
consultants and trade associations. In reviewing this data, the Company takes
into account how its compensation policies and overall performance compare to
similar indices for comparable companies.
The Company employs a formal performance review system for all employees,
including the president and the other Named Executive Officers (as defined on
page 7). This process generates information that the Committee uses in making
decisions on base compensation and awards under the Company's Executive Bonus
Plan. The president is responsible for preparing the reviews on all executive
officers other than himself. The Committee Chairman is responsible for preparing
the review on the president. All reviews are then discussed and approved by the
Committee. Executive performance is measured both in terms of the performance of
the Company as a whole and various individual performance factors, including the
performance of divisions for which such officer had management responsibility
and individual managerial accomplishments.
The Internal Revenue Code denies a deduction to any publicly held
corporation for compensation paid to any "covered employee" (which are defined
as the president and the Company's other four most highly compensated officers,
as of the end of a taxable year) to the extent that the compensation of any
individual covered employee exceeds $1 million in any taxable year of the
corporation beginning after 1993. Compensation which is payable pursuant to
written binding agreements entered into before February 18, 1993 and
compensation which constitutes "performance-based compensation" is excludable in
applying the $1 million limit. It is the Company's policy to qualify the
compensation paid to its top executives for deductibility under the law in order
to maximize the Company's income tax deductions. Based upon the Internal Revenue
Service's regulations and projected compensation payable to the Company's
"covered employees" for the 1999 taxable year, all compensation payable by the
Company in 1999 to such covered employees should be deductible by the Company.
Base Salaries
In determining base salaries for executive officers, the Committee reviews
external comparative data and also receives recommendations from management. The
Committee bases its decisions on such data, as well as internal salary
comparisons and individual performance evaluations. Under this system, salary
increases have generally the same effect as a cost of living adjustment,
although increases are not expressly tied to any cost of living indicator.
Increases are awarded, however, only to those executives who are performing at a
satisfactory level or above.
Executive Bonus Plan
In addition to base compensation and lump sum distributions, executives are
eligible to participate in the Company's Executive Bonus Plan. Under the
Executive Bonus Plan, the Committee has set threshold levels of net after tax
profit, exclusive of extraordinary items, for 1998 and 1999. No bonus awards are
made for any year in which the Company does not meet the threshold profitability
level. The amount of the bonus pool is based on a percentage of the Company's
net after tax profits above the profitability thresholds and shall not cause the
net after tax profit to fall below the threshold after computation of the bonus
pool. During each year of the Executive Bonus Plan, the Company's research and
development budget must be maintained at a level to ensure that the Company's
new product development is sufficient to keep it competitive in its marketplace,
5
<PAGE> 8
and continuation engineering sufficient to maintain the Company's existing
products is also required. The Committee retains discretion to adjust the bonus
pool and awards based upon extraordinary circumstances and other criteria as
determined by the Committee.
Individual awards under the Executive Bonus Plan are determined by the size
of the bonus pool and individual performance of the executive. The Committee has
structured the Executive Bonus Plan so that award potential is consistent with
competitive norms and potentially represents a significant percentage of the
executive's overall compensation in any given year. Awards are paid after
completion of the Company's audited financial statements for that year.
The Company did not meet the profitability threshold under the Executive
Bonus Plan for 1998. Accordingly, no awards were made with respect to 1998.
Stock Options
The Committee believes that grants of stock options serve to align the
interests of executive officers with shareholder value. The number of stock
options granted takes into account the recipient's position and is intended to
recognize different levels of responsibility. In determining the level of stock
option grants, the Committee also considers competitive practices. As a result,
grants may vary from year to year.
EXECUTIVE COMPENSATION COMMITTEE
<TABLE>
<S> <C>
Theodore A. Johnson, Chan Kien Sing
Chairman
</TABLE>
April 16, 1999
COMPENSATION OF NAMED EXECUTIVE OFFICERS
The following table shows, for the years ended December 31, 1998, 1997 and
1996, the compensation earned by the president and the executive officers of the
Company earning in excess of $100,000 during 1998 (the Named Executive
Officers):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ---------- ---------------
-------------------- NUMBER OF ALL OTHER
NAME AND PRINCIPAL POSITION(S) YEAR SALARY(3) BONUS(4) OPTIONS(5) COMPENSATION(6)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
M. Mark Michalko 1998 $144,518 0 0 0
President & Chief 1997 $136,836 $11,917 80,000 $4,235
Executive Officer and Director 1996 $120,810 $ 4,896 23,000 $3,461
- ----------------------------------------------------------------------------------------------------
Robert F. McPhail(1) 1998 $135,325 0 0 0
Vice President, Sales & 1997 $125,988 $11,785 10,000 0
Marketing 1996 $ 99,915 $ 9,732 0 0
- ----------------------------------------------------------------------------------------------------
Timothy R. Groth 1998 $123,852 0 0 0
Vice President, 1997 $109,464 $ 4,270 20,000 $3,184
Technical Operations 1996 $ 93,769 $ 3,672 12,000 $2,565
- ----------------------------------------------------------------------------------------------------
Frederick A. Brunn(2) 1998 $105,538 0 10,000 0
Director and former 1997 $154,863 0 10,000 0
President 1996 $142,680 $ 5,824 33,000 $4,141
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. McPhail resigned as a Vice President on August 31, 1998. Salary amount
shown for 1998 reflects $36,000 in consultant fees after his resignation.
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<PAGE> 9
(2) Mr. Brunn's 1998 salary includes amounts relating to his Consulting
Agreement and director fees. 1997 salary includes $12,203 relating to his
retirement and $84,000 relating to his Consulting Agreement. (See Certain
Relationships and Related Transactions herein.)
(3) Perquisites for each Named Executive Officer in 1998, 1997 and 1996 are
included under Salary and did not exceed the lesser of $50,000 or 10% of the
total salary and bonus for any such officer.
(4) Amounts reflect lump sum distributions paid in November 1997 and 1996 under
a prior compensation plan.
(5) All awards are incentive stock options, granted pursuant to the Company's
1990 Employee Stock Option Plan, except in the case of Mr. Brunn in which
the option is pursuant to the 1997 Directors Option Plan.
(6) All amounts are Company matching contributions to the Employee Stock Bonus
401(k) Plan in 1997 and 1996. There were no Company matching contributions
in 1998.
STOCK OPTION GRANTS
The following table sets forth information regarding the grant of stock
options during 1998 to the Named Executive Officers:
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
------------------------------------------------------------------
PERCENT OF
TOTAL OPTIONS
NUMBER OF GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES PRICE EXPIRATION VALUE
NAME GRANTED(3) IN 1998 PER SHARE DATE PER SHARE(4)
---- ---------- ------------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Frederick A. Brunn(2).................... 3,333 5% $1.06 9/24/03 $1.05
</TABLE>
- ---------------
(1) No named executive officer other than Mr. Brunn received an option grant in
1998.
(2) This option is issued under the 1997 Directors Option Plan. The option is
exercisable starting one year after the date of grant with 50% of the shares
covered thereby becoming exercisable at that date and with the remaining 50%
of the option shares becoming exercisable on the second anniversary date.
(3) No stock appreciation rights were granted to any of the Named Executive
Officers or other Company employees in 1998.
(4) Present value of option grant at date of grant.
STOCK OPTION HOLDINGS
The following table sets forth information with respect to the Named
Executive Officers concerning unexercised stock options held as of December 31,
1998. There were no stock options exercised by executive officers in 1998 and
there were no unexercised, in-the-money stock options at December 31, 1998.
UNEXERCISED OPTIONS
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED
OPTIONS AT DECEMBER 31, 1998
----------------------------
NAME EXERCISABLE UNEXERCISABLE
---- ----------- -------------
<S> <C> <C>
M. Mark Michalko............................................ 23,833 23,834
Robert F. McPhail........................................... 27,500 --
Timothy R. Groth............................................ 8,667 7,000
Frederick A. Brunn.......................................... 36,002 5,000
</TABLE>
7
<PAGE> 10
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company believes, based upon a review of reports furnished to the
Company, that all reports were timely filed, and that, during 1998 its officers
and directors complied with all filing requirements under Section 16(a) of the
Securities Exchange Act of 1934.
PERFORMANCE GRAPH
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.,
THE S&P SMALLCAP 600 INDEX AND A PEER GROUP
<TABLE>
<CAPTION>
INTERNATIONAL LOTTERY &
TOTALIZATOR SYSTEMS, INC. PEER GROUP S&P SMALLCAP 600
------------------------- ---------- ----------------
<S> <C> <C> <C>
12/93 100.00 100.00 100.00
12/94 16.00 59.00 95.00
12/95 9.00 57.00 124.00
12/96 5.00 65.00 150.00
12/97 5.00 71.00 189.00
12/98 2.00 59.00 194.00
</TABLE>
- ---------------
* $100 INVESTED ON 12/31/93 IN STOCK OR INDEX --
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
8
<PAGE> 11
OTHER MATTERS
All shareholders of record at the close of business on April 9, 1999, the
record date for the determination of shareholders entitled to vote at the Annual
Meeting, have been sent or are currently being sent a copy of the Company's
Annual Report, including financial statements for the year ended December 31,
1998.
The expense of preparing, printing and mailing the Notice of Annual Meeting
and proxy material and all other expenses of soliciting proxies will be borne by
the Company. In addition to the solicitation of proxies by use of the mails, the
directors, officers and regular employees of the Company, who will receive no
compensation in addition to regular salary, may solicit proxies by mail,
telegraph, telephone, or personal interview. The Company may also reimburse
brokerage firms, banks, trustees, nominees and other persons for their expenses
in forwarding proxy material to the beneficial owners of shares held by them of
record.
Management knows of no business which will be presented for consideration
at the Annual Meeting other than that stated in the Notice of Annual 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 expects a representative from the Company's independent
auditors, Arthur Andersen LLP, to attend the meeting.
Shareholder proposals for presentation at the 2000 Annual Meeting must be
received by the Company no later than December 15, 1999 to be considered for
inclusion in the 2000 proxy and proxy statement.
By order of the Board of Directors,
/s/ M. MARK MICHALKO
M. Mark Michalko
President
Carlsbad, California
9
<PAGE> 12
[ILTS LETTERHEAD]
April 16, 1999
Re: Unexchanged ILTS Share Certificates
Dear ILTS Shareholder:
Our records indicate that you have not yet exchanged your certificate(s) shares
of common stock of International Lottery & Totalizator Systems, Inc. ("ILTS")
for new ILTS common share certificates as a result of the 3-for-1 reverse stock
split effective June 12, 1998.
Documents, including a Letter of Transmittal for exchanging the stock
certificate(s), were initially mailed to you in June 1998.
If you need a Letter of Transmittal or have any questions or need assistance in
completing your Letter of Transmittal, please call ChaseMellon Shareholder
Services at 1-800-777-3674.
Very truly yours,
International Lottery & Totalizator Systems, Inc.
/s/ LAWRENCE E. LOGUE
- --------------------------------------
Lawrence E. Logue
General Counsel and Secretary
<PAGE> 13
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.
The undersigned hereby appoints Dennis D. Klahn 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 Annual Meeting of Shareholders to be held May
24, 1999 or any adjournment thereof.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
- --------------------------------------------------------------------------------
*FOLD AND DETACH HERE*
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AN INVITATION
Please join Management and the Board of Directors of
INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.
for the 1999 Annual Meeting of Shareholders
DATE: Monday, May 24, 1999
TIME: 3 p.m.
PLACE: Olympic Resort Hotel & Spa
611 El Camino Real
Carlsbad, California 92009
Call for directions if necessary (760) 438-8330
R.S.V.P. Jim Snow: Tel: (760) 930-3629
Fax: (760) 931-1789
E-Mail: [email protected]
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Please mark
your votes as [X]
indicated in
this example
The Board of Directors recommends a vote FOR Item 1.
Item 1-ELECTION OF DIRECTORS Item 2-In their discretion, the proxies
are authorized to vote upon such other
business as may properly come before the
meeting.
WITHHELD
FOR FOR ALL
[ ] [ ]
Nominees:
Frederick A. Brunn Ng Foo Leong
Chan Kien Sing Leonard G. Morrissey
Theodore A. Johnson Martin J. O'Meara, Jr.
Alain Lee Lord Michael G. R. Sandberg
M. Mark Michalko
WITHHELD FOR: (Write that nominee's name in the space
provided below).
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.
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*FOLD AND DETACH HERE*
