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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: OCTOBER 31, 1995,
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO ______
COMMISSION FILE NUMBER: 0-13063
AUTOTOTE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 81-0422894
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
750 LEXINGTON AVENUE, 25TH FLOOR
NEW YORK, NEW YORK 10022
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(212) 754-2233
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Class A Common
Stock, $.01 par value
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 report), 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 ((S)229.405) 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.
---
The aggregate market value of voting stock held by nonaffiliates of the
registrant as of January 25, 1996, was approximately $72,748,583 (based on the
last sale price of such stock as reported by NASDAQ National Market).
EXHIBIT INDEX APPEARS ON PAGE 72
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[LOGO OF AUTOTOTE APPEARS HERE]
1995 ANNUAL REPORT AND FORM 10-K
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AUTOTOTE CORPORATION designs and sells computerized wagering
equipment and provides facilities management for use in
racetracks, off-track wagering, lotteries and legalized sports
betting facilities. The Company's systems are in place in the
United States, Europe, Central and South America, Canada,
Mexico, New Zealand, China and the Far East.
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AS OF JANUARY 25, 1996, 30,942,295 SHARES OF THE REGISTRANT'S CLASS A COMMON
STOCK, $.01 PAR VALUE PER SHARE ("CLASS A COMMON STOCK"), WERE ISSUED AND
OUTSTANDING.
PART I
ITEM 1. BUSINESS
INTRODUCTION
Autotote Corporation ("Autotote" or the "Company") believes it is one of the
leading worldwide providers of computerized pari-mutuel wagering systems due
to its customer base and its position in the North American market and the
experience of the Company's officers in the industry. The Company believes
that it is the leading provider of pari-mutuel wagering systems in North
America, based on gross monies wagered ("Handle") as well as industry
experience of the Company's officers.
The Company was originally incorporated in the state of Delaware under the
name United Tote, Inc. on July 2, 1984.
FOR INFORMATION ON THE COMPANY'S BUSINESS AND GEOGRAPHIC SEGMENTS, SEE NOTE
22 TO CONSOLIDATED FINANCIAL STATEMENTS.
PARI-MUTUEL SYSTEMS
The Company's pari-mutuel customers include some of the largest North
American pari-mutuel facilities, such as Southern California Off-Track
Wagering, Inc., the Ontario Jockey Club and the New York Racing Association.
Each customer of the Company usually enters into a service contract, which
generally has a term of five years, and pursuant to which the Company provides
the pari-mutuel system, as well as the operations, maintenance and supervisory
personnel necessary to operate the system, while the mutuel clerks who issue
tickets on the Company's teller-operated terminals to patrons of the facility
are employed by the facility. Under the service contracts, the Company retains
ownership of the equipment. Additional software and other support functions
are provided by the Company.
Revenues received by the Company from the operation of its pari-mutuel
wagering systems are generally based upon a percentage of the Handle, subject
in many instances to minimum fees which are usually exceeded under normal
operating conditions. Minimum fees under the Company's service contracts are
generally based on the number of days the facility operates, as well as other
factors, including the type of system and number of terminals installed at the
facility and the reliability of the predicted number of racing days to occur
during the term of the contract. The Company's larger contracts generally do
not provide for minimum payments.
In its service contracts, the Company makes certain warranties which may
cover one or more of the following requirements: (i) that the wagering system
operate in accordance with certain specifications, pass certain acceptance
tests, and be installed and operational by a certain date, (ii) that the
Company maintain the system in good, accurate and efficient operating
condition, (iii) that the Company keep a certain level of spare equipment on
hand, (iv) that the system not cease to be operational for more than a
specified number of races or period of time, and (v) that counterfeit tickets
not be accepted and processed. Upon a breach of such warranties, the Company
generally is responsible for liquidated damages, which may be substantial,
subject in some cases to a maximum daily and/or annual amount. These
provisions present ongoing potential for substantial expense. The Company
maintains insurance against certain losses arising out of breaches of
warranties and damages payable pursuant to such contract damages clauses, with
a deductible of $50,000 per error and a coverage limit of $11 million. This
insurance is designed to protect the Company against claims for damages
resulting from major computer related interruptions, but does not cover the
failure to make terminal repairs on a timely basis. Although the Company
believes that these levels of insurance are adequate for its needs, there can
be no assurance that the Company will be able to continue to obtain such
insurance on reasonable terms or at all or
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that such insurance will be sufficient to protect the Company against material
loss. Liquidated damages paid by the Company equaled less than 1/2 of 1% of
operating revenues for each of the fiscal years 1995, 1994 and 1993 (the
Company's fiscal year ends on October 31), respectively. As a general matter,
all of the Company's wagering systems contracts contain liquidated damages
provisions.
NETWORKS
As part of its strategy to enable its pari-mutuel customers to increase
Handle by offering additional wagering opportunities to the public, the
Company has created regional networks which transmit wagering data between
tracks, off-track betting ("OTB") facilities and casinos. The Company has
established networks in California, Florida, Illinois, Pennsylvania, West
Virginia, Connecticut, New Jersey, Washington, Oregon, Michigan, Ontario,
Alberta, Puerto Rico and Mexico and has also developed national networks, one
linking Nevada casinos with racetracks throughout the country, another linking
nine casinos in Atlantic City, New Jersey with racetracks in other locations,
and another linking racetracks in the United States to OTB facilities in
Mexico.
SIMULCASTING
The Company believes that simulcasting live racing is a significant avenue
for growth in the racing industry. Simulcasting is the process of transmitting
the audio and video signal of a live racing performance from a track to a
satellite for retransmission to wagering locations around the country.
Simulcasting provides racetracks the opportunity to increase revenues by
receiving transmissions from other racetracks and sending their signals to as
many wagering locations as possible. In its simulcasting operations, the
Company receives a per transmission fixed fee and normally receives an
additional monthly fixed fee for decoders.
On July 20, 1994, the Company acquired Marvin H. Sugarman Productions, Inc.
and its affiliate, Racing Technology, Inc., sports simulcasting companies and
established a new subsidiary, Autotote Communications Services, Inc., to
provide simulcasting services. The Company believes that Autotote
Communication Services, Inc. is a leading simulcaster of live horse and
greyhound racing events to OTB patrons in North America. Autotote
Communication Services, Inc. currently simulcasts races from racetracks to
numerous OTB sites and racetracks throughout the United States and the
Caribbean. Autotote Communication Services, Inc. uses digital technology to
simulcast racing events to over 850 OTB sites. The Company believes that this
technology will further its strategy with respect to the North American
simulcasting business by enabling the Company to launch new interactive and
transactional channels on an expanded network.
In fiscal 1995, the Company expanded its North American simulcasting
business by acquiring substantially all of the assets of the Simulcast
Division of LDDS Corporation (formerly IDB Communications Group, Inc.) ("IDB")
and the rights and obligations under leases relating to eight C-band satellite
transponders on the Hughes Communications Galaxy-VI Satellite for $13.7
million in cash.
From time to time, satellite transponder time not used for providing
simulcasting services to the racing industry is sold to other users of
satellite transponders. (See Management's Discussion and Analysis of Financial
Condition and Results of Operations.) The Company sold some of its transponder
time in satisfaction of requirements of a Waiver (as such term is defined
below) to the Company's Senior Bank Credit Facility.
VIDEO GAMING
The Company's latest wagering terminal, the PROBE(R) XLC, functions in video
gaming applications such as keno, video poker and other games. The Company
believes video gaming machines ("VGMs") are more likely to be approved for
operation at racetracks than at other locations, since racetracks already
provide a form of wagering and are subject to an existing regulatory
structure. Accordingly, the Company believes that it is well positioned to
participate in the VGM market if the trend of legalizing VGMs continues. The
Company has installed an aggregate of 1,000 PROBE(R) XLC terminals,
communications equipment and related equipment at two racetracks in West
Virginia, for which it is compensated based on a percentage of net terminal
income. In
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addition, the Company sold a system, terminals and communications equipment to
the Manitoba Lottery Commission. The Company also entered into a contract in
April 1994 to supply VGMs in Mexico. While initial shipment of approximately
600 terminals to Mexico took place in 1994, continued economic and political
turmoil in Mexico has caused the Company to conclude that any revenue from
this project is unlikely and as a result the Company incurred a charge in
fiscal 1995 of $2.7 million (see Management's Discussion and Analysis of
Financial Condition and Results of Operations). In fiscal 1995, the Company
also received an initial VGM order for New Zealand with additional orders from
that country anticipated to be received in fiscal 1996.
SPORTS WAGERING
The Company provides sports wagering systems to 107 out of 113 facilities in
Nevada and at the leading operator of sports wagering facilities in Mexico.
Casinos and other sports wagering facilities generally purchase the
computerized wagering system from the Company and enter into an agreement with
the Company for repair and maintenance of the system and software support.
Under purchase agreements, the Company sells its sports wagering system to the
facility and provides training for the system operators and sell/cash terminal
clerks. The Company does not generally provide the operations and supervisory
personnel necessary to operate the system as it does with pari-mutuel wagering
systems.
INTERNATIONAL PARI-MUTUEL OPERATIONS
In servicing export markets, the Company generally sells, delivers and
installs pari-mutuel wagering systems rather than operating them pursuant to
service contracts. The Company generally designs a customized system to meet
the unique needs of each customer, including game designs, language
preferences, network communications standards and other key elements. The
Company also provides the customer with a royalty-free license for use of the
Company's proprietary system software, as well as technical assistance,
support, accessories and spare parts. The Company's personnel participate in
the installation and then train the customer's personnel. In addition to
terminal and equipment sales in a total of 20 countries, the Company has
installed central "hub" systems in Denmark, Finland, Korea, Chile, Venezuela,
Panama, Argentina, Germany and Mexico.
In its international sales contracts, the Company makes certain warranties
and may provide performance bonds regarding the operation and reliability of
its pari-mutuel wagering systems. The terms of such bonds may require
significant collateral in the form of cash, cash equivalents or letters of
credit. In the case of such international contracts, liquidated damages may be
payable by the Company in the event of late deliveries and/or a portion of the
purchase price may be retained to secure the Company's performance. The
Company maintains insurance against losses arising out of breach of warranty
and payable pursuant to such contract damages clauses with a deductible of
$50,000 per error and with a coverage limit of $11 million. To date, the
Company has not paid liquidated damages in connection with its international
sales.
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The Company's acquisition of ETAG Electronic Totalisator AG and its
affiliates (collectively, the "ETAG Group") in fiscal 1993 increased the
Company's participation in the international pari-mutuel market through the
provision of wagering equipment and services. The ETAG Group provides pari-
mutuel wagering systems and certain linked services to approximately 35
racetracks in Germany and Austria, including all of the harness racetracks in
such countries. A 50%-owned ETAG Group affiliate operates four OTB parlors in
Germany under service contracts.
On November 1, 1994, the Company acquired 80% of the capital stock of the
holding company of SEPMO S.A., ("SEPMO"), a French supplier of wagering
systems and services, for $281,000 plus acquisition related costs. In addition
to the purchase consideration, the Company concurrently advanced the SEPMO
holding company approximately $2.0 million for purposes of repaying certain
convertible debt and purchasing the minority holdings in certain subsidiary
companies. In July 1995, a scheduled purchase of an additional 5% of the
holding Company of SEPMO was made for $61,000. The remaining 15% of the
capital stock of the holding company of SEPMO is scheduled to be purchased
over a period of three years at a purchase price to be determined by a formula
based on the results of operations of SEPMO on a consolidated basis, provided
that the aggregate purchase price for such additional shares will be at least
the equivalent of 3 million French francs and not in excess of the equivalent
of 9 million French francs (approximately $600,000 and $1,800,000,
respectively, based on exchange rates in effect at October 31, 1995). SEPMO
currently provides wagering systems to approximately 45 racetracks and 430
terminals at 120 OTB locations throughout France. SEPMO also provides wagering
systems to customers in Turkey, the Middle East and North Africa.
In December 1994, the Company entered into a preliminary agreement to
acquire an 88% interest in certain gaming and information technology assets of
Elettronica Ingegneria Sistemi S.p.A. ("EIS"), an Italian company which
designs and develops integrated computer and communications networks and
software for pari-mutuel and lottery applications. While the Company has
decided not to pursue the acquisition, it maintains a close relationship with
EIS. In fiscal 1994, the Company had sales of approximately $27.3 million to
EIS consisting mainly of sales of TOTIP terminals. See "Lottery Systems"
below. In fiscal 1995, the Company had sales of approximately $2.0 million to
EIS which consisted mainly of sales of pari-mutuel terminals and equipment.
OPERATION OF OFF-TRACK BETTING ESTABLISHMENTS
The Company currently operates 11 OTB locations statewide including
teletheaters in New Haven and Windsor Locks, Connecticut. In July 1993, the
Company, through its Autotote Enterprises, Inc. ("AEI") subsidiary, purchased
the exclusive right to operate the Connecticut OTB system from the State of
Connecticut. On April 27, 1995, the Company opened its simulcast/multi-
entertainment facility in New Haven, Connecticut called Sports Haven(TM). As a
result, wagering in the New Haven area has shown daily increases of over 150%
compared to wagering at the Company's former location in the New Haven
Coliseum. This new facility features simulcasting, dining facilities, a sports
bar, a disco and dance floor, a game room and multiple food and beverage
facilities. The Company also continues to modernize and upgrade the
Connecticut OTB and to expand its simulcasting from racetracks throughout the
country. In offering its patrons signals from over 50 Thoroughbred,
Standardbred, Greyhound tracks and Jai Alai frontons, the Connecticut OTB has
become the largest simulcast operation in terms of signals offered in the
United States.
The operation of the Connecticut OTB subjects the Company to a Connecticut
pari-mutuel tax of 3 1/2% of all monies wagered and requires the Company to
pay liquidated damages in the event that certain performance standards are not
met. The percentage of total Handle which the Company may receive as operating
revenues from the Connecticut OTB is determined by law and ranges from 15% to
25%, depending on the type of wagers for events occurring in the State of
Connecticut, and varies with respect to events which occur in other states.
The Company believes its success in managing the privatization of the
Connecticut OTB system may provide additional privatization opportunities in
other states.
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LOTTERY SYSTEMS
Through its subsidiary Autotote Lottery Corporation ("Autotote Lottery"),
the Company operates the Connecticut State Lottery, providing all equipment,
personnel and services necessary to operate the lottery network while
retaining title to the equipment. The Company has installed its latest
generation lottery system, utilizing its UNIX-based Aegis central system,
which features open systems architecture and symmetrical multiprocessors, at
the Connecticut State Lottery. The Company's contract for the Connecticut
State Lottery expires in 1998. Autotote Lottery also provides services to the
Massachusetts State Lottery under a technical support contract which expires
in June 1996, as well as equipment and services to Loto Quebec and the Israeli
national lottery.
During 1992, a foreign subsidiary of the Company entered into an agreement
with EIS to provide up to 10,000 terminals to automate Italy's TOTIP pool, a
nationwide lottery based on horse racing. During fiscal 1993, the Company
delivered the initial 300 terminals, was awarded the entire contract amount,
and received an order to supply an additional 3,000 terminals for the TOTIP
pool. The Company delivered the remaining terminals during fiscal 1994. In
fiscal 1995, the Company delivered an additional 1,000 terminals bringing the
total number installed to 14,000. In addition, 10,000 terminals received
memory upgrades in fiscal 1995.
Additionally, the Company's subsidiary Tele Control Beteiligungs-
Gesellschaft GmbH and its affiliates (collectively, the "Tele Control Group"),
acquired in fiscal 1993 and based in Vienna, Austria, develops high volume
transaction processing programs principally for on-line lotteries and other
wagering applications and, to a lesser extent, for banking and credit card
applications, and provides related software support. The Tele Control Group
has installed lottery systems in Austria, Switzerland and The Netherlands and
is supplying the lottery central system hardware and software to five German
states. The Tele Control Group's technology includes "open system" features,
with central systems and software capable of operating with terminals and
components from other suppliers. The Tele Control Group has also developed a
proprietary integrated computer system which can execute a wide variety of
wagering applications including pari-mutuel wagering and lottery and video
games such as keno.
MARKETING
The Company directs its marketing to horse and greyhound racetracks, jai
alai frontons, and OTB and sports wagering facilities with respect to pari-
mutuel contracts, state and national governments with respect to lottery
contracts and end users with respect to the Connecticut OTB. In New York
State, off-track betting is conducted by regional or statewide government off-
track wagering authorities. Bidding by the Company for lottery contracts and
for New York pari-mutuel contracts is therefore subject to applicable public
bidding laws and attendant risks of delays, challenges to contract awards and
resulting litigation.
Contract awards often involve a lengthy competitive bid process, running
from specification development to contract negotiation and award. Contracts
have a high dollar value and are technically and commercially complex and may
require substantial initial cash outlays. Start up costs associated with
contract awards typically involve expenditures for items such as software
development customization, assembly of wagering systems, and installation
costs including electrical and carpentry work, transportation and placement of
equipment, and system implementation. Such costs are primarily comprised of
labor related expenses due to the relative magnitude of software development
and customization in the start up phase.
In the United States, lottery authorities generally commence the contract
award process by issuing a request for proposals inviting bids and proposals
from various lottery vendors. The request for proposals usually indicates
certain requirements specific to the jurisdiction, such as particular games
which will be required, particular pricing mechanisms, the experience required
of the vendor and the amount of any performance bonds that must be furnished.
After the bids have been evaluated and a particular vendor's bid has been
accepted, the lottery authority and the vendor generally negotiate a contract
in more detailed terms. Once the contract has been finalized, the vendor
begins to install the lottery system. After the expiration of the initial
contract term and all
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extensions thereof, a lottery authority in the United States may either
negotiate further extensions or commence a new competitive bidding process.
Some states require, as a condition of bidding for a lottery contract, that a
prospective bidder's wagering system be operating in another state.
Internationally, certain lottery authorities utilize a formal bidding
process, while others negotiate proposals with one or more potential vendors.
There can be no assurance that the Company will be the successful bidder for
any of these contracts.
COMPANY PRODUCTS
Pari-mutuel wagering systems used by racetrack facilities typically have
three central processing units and a significant number of ticket issuing
terminals. The type of central processing unit and the number of ticket
issuing terminals used in a system are generally determined by the amount of
wagering at, and physical layout of the facility. Pari-mutuel wagering systems
used by inter-track and off-track betting facilities typically include ticket
issuing terminals installed at several different racetracks or off-track
facilities, respectively, and the central processing system which communicates
with the wagering systems at the on-track locations via telephone or data
communication lines. Sports wagering systems typically have two central
processing units, peripherals, and ticket issuing terminals. The Company has
designed customized software for the sports wagering industry which can be
tailored for individual customer management information and other
requirements. Prices for the Company's products vary among contracts and
customers as a result of negotiations between the Company and its customers
and the custom features selected by the customers. The Company also designs,
provides and supports the proprietary applications software for its pari-
mutuel systems.
The Company's domestic lottery products consist primarily of central
processing systems, including data communication networks, and on-line/off-
line lottery terminals. The lottery management system portion of the product
includes a client-server database. Lottery terminals are generally on-line to
the central system via telephone lines connected to the system's
communications front end processor.
The Company develops a number of wagering terminal products. The PROBE(R)
horse racing and sports betting terminal instantly converts from a teller
operated terminal to a self service terminal, permitting race track operators
to tailor such terminals to their particular needs at any given time. The
PROBE(R) XLC terminals, or VGMs, allow the patron to play card games, video
slots, keno and bet on horse races, all on the same terminal, and then watch
the race on the picture-in-picture while continuing to play video games. Tiny
TIM is a small wagering terminal for use in the home or box seats of the
track. The PROBE(R) L, which has been developed for the Company's lottery
systems, utilizes a standard PC(Intel) processor in order to take advantage of
software development products currently available. The TOTIP and the P-88
terminals have been developed for use in low sales volume locations or
locations with poor or expensive telephone communications.
The Company also develops communication controllers designed to efficiently
connect terminals to a central system and public display systems, such as
matrix boards and video graphic systems.
SERVICE AND SUPPORT
The Company's staff of approximately 500 trained maintenance and field
service personnel supports the operation of the Company's systems and
communications networks. These personnel include regional and national
managers which support the Company's systems by performing routine system
maintenance and repairs of systems and equipment when needed.
SOFTWARE SYSTEMS AND PRODUCT DEVELOPMENT
The Company believes that its ability to attract new wagering system
customers and retain existing customers depends in part on its ability to
continue to incorporate technological advances into and to improve its product
lines. The Company maintains a development program directed toward systems
development as well as toward the improvement and refinement of its present
products and the expansion of their uses and applications.
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The Company employs approximately 133 people in connection with engineering
and software systems development.
Software systems and product development expenditures were $12.2 million in
1995 as compared to $10.3 million in 1994. The increase in expenditures arises
primarily from the Company's investment in its UNIBET lottery software
developed for the international market. In connection with the Company's
fiscal 1995 third quarter restructuring and asset valuation charges, the
Company incurred a charge of $6.4 million representing valuation adjustments
based on the Company's assessment of the future recoverability of certain
capitalized software systems development costs. (see Management's Discussion
and Analysis of Financial Condition and Results of Operations).
INTELLECTUAL PROPERTY
The Company has a number of registered trademarks in the United States and
in Europe and other common law trademark rights for certain of its products.
The software and control systems for the Company's wagering systems are also
protected by copyright and trade secret laws. Currently, Autotote Lottery
holds 10 patents: five in the United States and one each in Australia, Canada,
Hong Kong, Israel and South Africa. Two of the United States patents have been
licensed to another corporation, for which a licensing fee is paid. The
Company does not believe that patent protection is a vital competitive factor
in the computerized wagering market but believes that other factors, such as
those discussed in "Competition" below, are more important to the success of
the Company. Nevertheless, the Company will seek patent protection where
appropriate.
PRODUCTION PROCESSES; SOURCES AND AVAILABILITY OF COMPONENTS
Production of the Company's wagering systems and component products
primarily involves the assembly of electronic components into more complex
systems and products, generally through contracts with third parties. The
Company believes that it has satisfactory relations with its manufacturers.
The Company normally has sufficient lead time between reaching an agreement
to service a wagering facility and commencing actual operations at such
facility. In the event the current suppliers of central processing units were
no longer available, the Company believes that it would be able to adapt its
application software to hardware available from other sources within a time
frame sufficient to allow it to meet new contractual obligations, although the
price competitiveness of the Company's products might diminish. The lead time
for obtaining most of the electronic components used by the Company is
approximately 120 days. The Company believes that this is consistent with its
competitors' lead times and is also consistent with the needs of its
customers.
BACKLOG
The backlog of the Company's orders for sales of its products believed to be
firm was approximately $18.0 million as of October 31, 1995, compared to
approximately $11.0 million as of October 31, 1994. The increase is primarily
associated with hardware sales in connection with European lottery contracts.
Approximately 90% of the backlog as of October 31, 1995 is expected to be
filled in fiscal 1996. This backlog information does not include revenues
attributable to multi-year wagering systems contracts, a multi-year lottery
service contract, revenues attributable to the operation of the Connecticut
OTB, or maintenance contracts.
COMPETITION
The Company competes primarily on the basis of product design, performance,
reliability, pricing, and customer service. The Company competes with several
pari-mutuel wagering system companies in North America. Certain of those
companies are significantly larger in terms of assets, revenues and net worth.
The Company's principal competitor in the pari-mutuel business has been Video
Lottery Technologies, Inc. ("VLT") which operates its pari-mutuel business
through its subsidiary United Wagering Systems, Inc. ("United"). VLT has also
announced the formation of a ten year strategic technology partnership with
Electronic Data Systems
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Corp., ("EDS"), which owns a minority equity position in VLT. Another
competitor in the pari-mutuel business has been GTECH Holdings Corporation
("GTECH"), which operates its pari-mutuel business through its subsidiary
AmTote International, Inc. ("AmTote"). Both GTECH and EDS have substantially
greater resources than the Company. However, VLT has recently announced that
it intends to sell United and GTECH has announced that it plans to sell
AmTote. The effects of these announcements on the Company's competition is not
clear at this time. The Company also competes with International Totalisator
Systems, Inc. and other smaller pari-mutuel companies. Other video gaming
terminal suppliers include International Game Technology, WMS Industries Inc.,
Bally Gaming International, Inc. and several smaller companies.
Competition outside of North America is more fragmented, with competition
being provided by several international and regional companies. No single
company maintains the leading market position internationally, although
certain companies possess regional strengths. Likewise, competition among
providers of sports wagering systems is, for the most part, between smaller
regional companies. Additionally, some casinos have designed their own sports
wagering systems.
The on-line lottery business is highly competitive. State and foreign
governments normally award contracts based on rigorous competitive bidding
procedures. In the vendor evaluation process, price is important but usually
not the sole or necessarily the most important criterion for selection. Other
significant factors which influence the award of lottery contracts include the
ability to optimize lottery revenues through marketing capability and
applications knowledge; the quality, dependability and upgrade capability of
the network; the experience, financial condition and reputation of the vendor;
and the satisfaction of other requirements and qualifications which the
lottery authority may impose. The Company's major competitors in the on-line
lottery business include GTECH, Automated Wagering International, Inc., (a
subsidiary of VLT), Essnet AB, and several other companies.
Competition in the simulcasting business in North America is fragmented.
REGULATION
General
Pari-mutuel wagering, sports wagering, video gaming and on-line lotteries
may operate in jurisdictions that have enacted enabling legislation. In
jurisdictions which currently permit various wagering activities, regulation
is extensive and evolving. Regulators in such jurisdictions review many facets
of an applicant/holder of a license including, among other items, financial
stability, integrity and business experience. The Company believes that it is
currently in substantial compliance with all regulatory requirements in the
jurisdictions where it operates. Any failure to receive a material license or
the loss of a material license that the Company currently holds could have a
material adverse effect on the overall operations of the Company.
Pari-Mutuel Wagering
More than 40 states (including Puerto Rico and the Virgin Islands), all of
the Canadian provinces and many foreign countries have authorized pari-mutuel
wagering on horse races and 19 states and many foreign countries have
authorized pari-mutuel wagering on dog races. In addition, Connecticut, Rhode
Island, Nevada and Florida also allow pari-mutuel betting on jai alai matches.
Companies which manufacture, distribute and operate pari-mutuel wagering
systems in these jurisdictions are subject to the regulations of the
applicable regulatory authorities there. These authorities generally require
the Company, as well as its directors, officers, certain employees and holders
of 5% or more of the Company's common stock, to obtain various licenses,
permits and approvals. Regulatory authorities may also conduct background
investigations of the Company and its key personnel and stockholders in order
to insure the integrity of the wagering system. These authorities have the
power to refuse, revoke or restrict a license for any cause they deem
reasonable. The loss of a license in one jurisdiction may cause a Company's
licensing status to come under review in other jurisdictions as well.
9
<PAGE>
A subsidiary of the Company, Autotote Systems, Inc. ("ASI"), is licensed by
the New Jersey Casino Control Commission ("New Jersey Commission") as a
gaming-related casino service industry ("CSI") in accordance with the New
Jersey Casino Control Act ("Casino Control Act") for an initial period of two
years and then for renewable periods of four years thereafter. An applicant
for a gaming-related CSI license is required to establish, by clear and
convincing evidence, financial stability, integrity and responsibility; good
character, honesty and integrity; and sufficient business ability and
experience to conduct a successful operation. As the parent corporation of
Autotote Systems, Inc., the Company must also qualify under the standards of
the Casino Control Act. Autotote Systems, Inc., the licensee of the New Jersey
Commission, may also be required to produce such information, documentation
and assurances as required by the regulators to establish the integrity of all
financial and other backers.
The New Jersey Commission has broad discretion in licensing matters and may
at any time condition a license or suspend or revoke a license or impose fines
upon a finding of disqualification or non-compliance. The New Jersey
Commission may require that persons holding five percent or more of the Class
A Common Stock of the Company, including any holder of the Company's 5 1/2%
convertible subordinated debentures due 2001 (the "Debentures") who acquires
five percent or more of the Class A Common Stock upon conversion of the
Debentures, qualify under the Casino Control Act. Under the Casino Control
Act, a security holder is rebuttably presumed to control a publicly-traded
corporation if the holder owns at least five percent of such corporation's
equity securities. There can be no assurance that if a Debenture holder (or
affiliated group) acquired five percent or more of the Company's Class A
Common Stock, such holder would be found qualified under the Casino Control
Act. Failure to qualify could jeopardize the Company's license.
The Company's rights to operate the Connecticut OTB system shall continue as
long as the Company and AEI, the Company's wholly-owned Connecticut
subsidiary, hold all licenses required for the operation of the system. In
addition, the officers and directors of both companies and certain personnel
of AEI must be licensed. Licensees are generally required to submit to
background investigations and provide required disclosures. The Division of
Special Revenue of the State of Connecticut (the "Division") may revoke the
license to operate the system under certain circumstances, including a false
statement in the licensing disclosure materials, a transfer of ownership of
the licensed entity without Division approval and failure to meet financial
obligations. The Company has also agreed to comply with regulations proposed
by the Division which regulate certain aspects of the system's operation. The
approval of the Connecticut regulatory authorities is required before any off-
track betting facility is closed or relocated or any new branch or simulcast
facility is established.
Sports Wagering
Sports wagering is currently authorized in numerous foreign countries,
including Mexico and Canada. The state of Nevada also permits sports wagering
in casinos. In addition, the state of Oregon currently sponsors a lottery
based on the outcome of sporting events; Montana authorizes betting on fantasy
sports leagues; and North Dakota permits certain sports wagering pools.
The federal Professional and Amateur Sports Protection Act (the "Act")
prohibits a governmental entity from sponsoring, operating, advertising,
promoting, licensing or authorizing sports betting on professional or amateur
athletic games, subject to several exceptions. The Act does not terminate
state-authorized sports betting schemes which were already in operation prior
to October 1991, such as those in Nevada, or which existed between January 1,
1976 and August 31, 1990. The Act is also inapplicable to pari-mutuel betting
on horse and dog racing and jai alai.
Companies which manufacture, sell or distribute sports wagering equipment
are also subject to the various laws and regulations of the countries and
states which permit sports wagering. These rules primarily concern the
responsibility, financial stability and character of the sports wagering
equipment companies, as well as the individuals financially interested or
involved in the gaming operations. The rules generally resemble the
regulations which govern the pari-mutuel wagering industry. Companies and
individuals are required to be licensed before they may manufacture,
distribute, own or operate sports wagering equipment; they are subject to
10
<PAGE>
background investigations designed to protect the integrity of the gaming
industry; they may have their licenses denied, revoked or restricted for any
cause deemed reasonable; and the loss of their license in one jurisdiction
could adversely affect their licensing status in other jurisdictions.
The Company believes that it is in substantial compliance with all
regulations now governing sports wagering in the United States and the various
foreign countries where the Company is active. There can be no assurance that
subsequent regulations will not be burdensome to the Company, its personnel or
its stockholders.
Video Gaming
Coin or voucher operated gambling devices offering electronic, video
versions of slots, poker, black-jack and similar games are known as VGMs,
video lottery terminals ("VLTs") or slot machines, depending on the
jurisdiction. These devices represent a growing area in the wagering industry.
The Company or its subsidiaries manufactures and supplies terminals and
wagering systems designed for use as VGMs, VLTs or slot machines.
Approximately sixteen states (Colorado, Delaware, Illinois, Indiana, Iowa,
Louisiana, Mississippi, Montana, Nevada, New Jersey, North Dakota, Oregon,
Rhode Island, South Carolina, South Dakota, and West Virginia) authorize
wagering on VGMs, VLTs or slot machines at casinos, riverboats, racetracks
and/or other licensed facilities. Although some states, such as Rhode Island
and West Virginia, currently restrict VGMs or VLTs to already existing
wagering facilities, others permit these devices to be placed at bars and
restaurants as well. Several Indian tribes throughout the United States are
also authorized to operate these devices on reservation lands. In addition,
several Canadian Provinces and various foreign countries have also authorized
their use.
Government officials in other states are presently considering proposals to
legalize video gaming, video lottery or slot machines in their states.
Legislators have been enthusiastic about the potential of video gaming to
raise significant non-tax revenues. Some officials, however, are reluctant to
expand gaming opportunities or have expressed a desire to limit video gaming
to established wagering facilities if video gaming is authorized in their
jurisdiction at all.
Companies that manufacture, sell or distribute VGMs, VLTs or slot machines
are subject to various provincial, state, county and municipal laws and
regulations. The primary purposes of these rules are (1) to insure the
responsibility, financial stability and character of equipment manufacturers
and their key personnel and stockholders through licensing requirements, (2)
to insure the integrity and randomness of the machines, and (3) to prohibit
the use of VGMs, VLTs or slot machines at unauthorized locations or for the
benefit of undesirable individuals or entities. The regulations governing
VGMs, VLTs and slot machines generally resemble the pari-mutuel and sports
wagering regulations in all the basic elements described above.
However, every jurisdiction has differing terminal design and operational
requirements, and terminals generally must be certified by local regulatory
authorities before being distributed in any particular jurisdiction. These
requirements may require the Company or its subsidiaries to modify its
terminals to some degree in order to achieve certification in particular
locales. In addition, the intrastate movement of such devices in a
jurisdiction where they will be used by the general public is usually allowed
only upon prior notification and/or approval of the relevant regulatory
authorities.
West Virginia and Rhode Island have licensed the Company or its subsidiaries
to supply VLTs to authorized locations in those states. The Company intends to
apply for all necessary licenses in other jurisdictions that may now or in the
future authorize video gaming, video lottery or slot machine operations.
The Company cannot predict the nature of the regulatory schemes or the
terminal requirements that will be adopted in any of these jurisdictions, nor
whether the Company or any subsidiaries can obtain any required licenses and
equipment certifications or will be found suitable.
11
<PAGE>
Federal law also affects the Company's video gaming activities. The Federal
Gambling Devices Act of 1962 (the "Devices Act") makes it unlawful for any
person to manufacture, deliver or receive gambling devices, including VGMs,
VLTs and slot machines, across interstate lines unless that person has first
registered with the Attorney General of the United States, or to transport
such devices into jurisdictions where their possession is not specifically
authorized by state law. The Devices Act permits states to exempt themselves
from its prohibition on transportation, and several states that authorize the
manufacture or use of such devices within their jurisdictions have done so.
The Devices Act does not apply to machines designed for pari-mutuel betting at
a racetrack, such as the Company's pari-mutuel wagering terminal. The Company
has registered under the Devices Act, and believes that it is in compliance
with all of the Devices Act's record-keeping and equipment identification
requirements.
On-Line Lottery
At the present time, 36 states, the District of Columbia, Puerto Rico, all
the Canadian Provinces and many foreign countries authorize lotteries. Once
authorized, the award of lottery contracts and ongoing operation of lotteries
in the United States is highly regulated. Although certain of the features of
a lottery, such as the percentage of gross revenues which must be paid back to
players in prize money, are usually established by legislation, the lottery
authorities generally exercise significant authority, including the
determination of the types of games played, the price of each wager, the
manner in which the lottery is marketed, and the selection of the vendors of
equipment and services.
To ensure the integrity of the contract award and wagering process, most
jurisdictions require detailed background disclosure on a continuous basis
from, and conduct background investigations of, the vendor, its subsidiaries
and affiliates and its principal shareholders. Background investigations of
the vendor's employees who will be directly responsible for the operation of
the system are also generally conducted, and most states reserve the right to
require the removal of employees whom they deem to be unsuitable or whose
presence they believe may adversely affect the operational security or
integrity of the lottery. Certain jurisdictions also require extensive
personal and financial disclosure and background checks from persons and
entities beneficially owning a specified percentage (typically five percent or
more) of the Company's securities. The failure of such beneficial owners to
submit to such background checks and provide such disclosure could result in
the imposition of penalties upon such beneficial owners and could jeopardize
the award of a lottery contract to the Company or provide grounds for
termination of an existing lottery contract.
The international jurisdictions in which the Company markets its lottery
systems also usually have legislation and regulations governing lottery
operations. The regulation of lotteries in these international jurisdictions
typically varies from the regulation of lotteries in the United States. In
addition, restrictions are often imposed on foreign corporations seeking to do
business in such jurisdictions. United States and international regulations
affecting lotteries are subject to change. The Company cannot predict with
certainty the impact on its business of changes in regulations.
Simulcasting
The Federal Communications Commission (the "FCC") regulates the use and
transfer of earth station licenses used to operate the Company's simulcasting
operations. To obtain an earth station license, the applicant must file an
application with the FCC. The FCC then places the application on public notice
and solicits comments for a thirty-day period, during which no action is taken
on the application. At the expiration of the public notice period, assuming no
objections are received from the public, the FCC usually will grant the
application within two to three weeks if it determines that the granting of
such applications is in the public interest.
Before being granted, the Company's applications for assignment of the earth
station licenses originally held by IDB to the Company required a ruling by
the FCC that the Company's two foreign directors (who are citizens of Canada
and the United Kingdom, respectively) did not adversely affect the public
interest. The applications
12
<PAGE>
for licenses were granted on June 27, 1995. In accordance with such licenses,
the Company became obligated to pay to the FCC an annual fee on a per-station
basis and file renewal applications annually. Failure to comply with these
obligations in a timely fashion may result in the assessment of fines or
forfeitures. With respect to the Company's ownership of Autotote Communication
Services, Inc., the Company's application requesting approval of the transfer
of control of the earth station licenses held by Marvin H. Sugarman
Productions to Autotote Communication Services, Inc., has also been approved.
Autotote Communication Services, Inc. has since transferred four licenses to
other parties and has received FCC approval for such transfers.
EMPLOYEES
As of October 31, 1995, the Company employed approximately 1,040 persons. Of
this total approximately 500 were engaged in full-time field operations, 250
in part-time tellering/cashiering for AEI, approximately 130 in engineering
and software product development, approximately 40 in marketing and
approximately 120 in financial, administration and other positions. Most of
the North American pari-mutuel employees of the Company's subsidiary ASI
involved in field operations and repairs are represented by the International
Brotherhood of Electrical Workers (the "IBEW") under two separate contracts,
both of which expire in 1997. ASI's former contracts with Local 3 IBEW expired
on May 31, 1994, and on August 22, 1994, ASI's field service employees
represented by IBEW went on strike for a new collective bargaining agreement.
On October 25, 1994, the employees ratified a new three year agreement and
returned to work. Certain of the persons employed by the Company in Austria
and Germany are members of national workers councils. The Company considers
its employee relations to be satisfactory.
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The directors and executive officers of Autotote Corporation as of October
31, 1995 were as follows:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION SINCE
- ---- --- -------- --------
<S> <C> <C> <C>
A. Lorne Weil........... 49 Chairman of the Board and Chief Executive Officer 1989
Sir Brian Wolfson....... 59 Vice Chairman of the Board(1) 1988
Alan J. Zakon........... 60 Vice Chairman of the Board(1)(2)(3) 1993
Larry J. Lawrence....... 53 Director(1)(2)(3)(4) 1989
Marshall Bartlett....... 70 Director(2)(3) 1991
Thomas H. Lee........... 51 Director(1)(4) 1991
Thomas C. DeFazio....... 54 President and Chief Operating Officer --
Michael D. Harris....... 53 Vice President --
Gerald Lawrence......... 56 Vice President --
Martin E. Schloss....... 49 Vice President, General Counsel and Secretary --
</TABLE>
- --------
(1)Member of Executive Committee
(2)Member of Audit Committee
(3)Member of Compensation Committee
(4)Member of Stock Option Committee
All directors hold office until the next annual meeting of stockholders and
thereafter until their successors have been elected and qualified. Officers of
the Company hold office for an indefinite term, subject to the discretion of
the Board of Directors of the Company ("the Board").
Mr. A. Lorne Weil has been a director of the Company since December 1989,
Chairman of the Board since October 31, 1991 and Chief Executive Officer since
April 1992. From 1982 until 1989, Mr. Weil was a director and consultant to
the holding company of ASI. From October 1990 until April 1992, Mr. Weil held
various senior management positions at the Company and its subsidiaries. From
1979 to November 1992 he was the President of Lorne Weil, Inc., a firm
providing strategic planning and corporate development services to the high
technology industry. Mr. Weil is currently a director of Fruit of the Loom,
Inc. and General Growth Properties, Inc.
13
<PAGE>
Sir Brian Wolfson has been a director of the Company since 1988 and a Vice
Chairman of the Board since May 1995. He served as Acting President and Chief
Executive Officer from June 1991 until October 31, 1991. From 1987 until May
1995 he was the Chairman, and from May 1995 to September 1995 was the Deputy
Chairman, of Wembley plc, a United Kingdom corporation whose holdings include
The Wembley Stadium, Arena and Conference Centre and Exhibition Halls in
London. Sir Brian is currently a director of Kepner-Tregoe, Inc. and Fruit of
the Loom, Inc.
Mr. Alan J. Zakon has been a director of the Company since 1993 and a Vice
Chairman of the Board since May 1995. From 1989 until April 1995, he served as
a managing director of Bankers Trust Corporation. From 1989 until 1990, Mr.
Zakon served as Chairman of the Strategic Policy Committee of Bankers Trust
Corporation. From 1986 until 1989, Mr. Zakon served as Chairman of the Board
of Boston Consulting Group. Mr. Zakon is currently a director of Arkansas Best
Freight Corporation, Augat, Inc., Hechinger Corporation, and Boyle Leasing
Technologies.
Mr. Larry J. Lawrence has been a director of the Company since December
1989. He is co-founder and since 1985 has been managing partner of Lawrence
Venture Partners, the general partner of Lawrence, Tyrrell, Ortale & Smith, a
private equity fund manager. Since 1990, he has been managing partner of LTOS
II Partners, the general partner of Lawrence, Tyrrell, Ortale & Smith II and
since May 1995 has been the general partner of LSH Partners III, L.P., the
general partner of Lawrence, Smith & Horey III. Mr. Lawrence is currently a
director of Earth Technology Corporation as well as several private companies.
Mr. Lawrence served as a director of ASI until it was acquired by the Company
in 1989.
Mr. Marshall Bartlett has been a director of the Company since December
1991. From June 1993 through May 1994, Mr. Bartlett was employed by the
Company in various capacities. Mr. Bartlett was Executive Vice President and
Chief Operating Officer of Bourns Inc., an electronic component manufacturer
from 1979 until his retirement in 1991.
Mr. Thomas H. Lee has been a director of the Company since December 1991.
Mr. Lee founded the Thomas H. Lee Company in 1974 and since that time has
served as its President. Mr. Lee is currently a director of General Nutrition
Companies, Inc., Health o Meter Products, Inc., Hills Stores Company, J.
Baker, Inc., Finlay Fine Jewelry Corporation, Playtex Family Products Inc.,
and Livent Inc. as well as several private companies. Mr. Lee is also a
general partner of the ML-Lee Acquisition Fund, L.P., ML-Lee Acquisition Fund
II, L.P. and the ML-Lee Acquisition Fund (Retirement Accounts) II, L.P. (the
"ML-Lee Acquisition Funds"), Chairman and Trustee of Thomas H. Lee Advisors I,
and a general partner of Thomas H. Lee Advisors II, L.P., the investment
advisors to the ML-Lee Acquisition Funds. He is the general partner of THL
Equity Advisors Limited Partnership, the general partner of and investment
advisor to Thomas H. Lee Equity Partners, L.P. In February 1991, Hills
Department Stores, Inc., of which Mr. Lee was Chairman of the Board, filed for
protection under Chapter 11 of the United States Bankruptcy Code. Mr. Lee was
a director of ASI until it was acquired by the Company in 1989.
Mr. Thomas C. DeFazio has been President and Chief Operating Officer of the
Company since October 1995. From April 1995 to October 1995, Mr. DeFazio was
Executive Vice President and Chief Financial Officer of the Company. From 1991
to April 1995, Mr. DeFazio was a member of the Board of Directors, Executive
Vice President and Chief Financial Officer of Smith Corona Corporation. From
1986 to 1991, he was employed in various capacities by General Instrument
Corporation, including as Vice President of Finance, Chief Financial Officer
and Treasurer. In July 1995, Smith Corona Corporation filed for protection
under Chapter 11 of the United States Bankruptcy Code.
Mr. Michael D. Harris has been Vice President of the Company and President
of Autotote Systems Group, a division of the Company, since April 1995. Mr.
Harris served as President and Chief Executive Officer of Dittler Brothers
Incorporated from January 1993 to March 1995. From June 1989 to December 1992,
Mr. Harris served as President of Arcata Graphics Company, and from June 1991
to December 1992 he also served as Vice President and Division Manager of
Arcata Graphics Buffalo.
14
<PAGE>
Mr. Gerald Lawrence has been Vice President of the Company since November
1994 and President of Autotote Gaming Group, a division of the Company, since
April 1995. From January 1991 to August 1994, he held the position of
Executive Vice President of The New York Racing Association, Inc. From
November 1984 through December 1990, he served as Executive Vice President and
Chief Operating Officer of Churchill Downs Incorporated.
Mr. Martin E. Schloss has been Vice President and General Counsel of the
Company since December 1992 and Secretary since May 1995. From July 1992 until
December 1992, Mr. Schloss provided consulting services to and was employed by
the Company. From 1976 to 1992, Mr. Schloss served in various positions in the
legal department of General Instrument Corporation, with the exception of a
hiatus of approximately one and one-half years.
ITEM 2. PROPERTIES
The Company leases approximately 12,000 square feet for its corporate
headquarters at 750 Lexington Avenue, 25th Floor, New York, New York 10022. In
January 1995, the Company sold its manufacturing facility in Newark, Delaware
for $870,000. In January 1996, the Company entered into a sale-leaseback
transaction of its administration and development facility aggregating
approximately 40,000 square feet located in Newark, Delaware. The sale-
leaseback arrangement established a sale price of $1 million and provides the
Company with a lease term of up to ten years.
The Company leases approximately 16,000 square feet of office and warehouse
space in Rocky Hill, Connecticut in order to operate the Connecticut State
Lottery. The Company leases approximately 2,700 square feet of warehouse space
in Stanton, Delaware, leases office space for its regional sales support
office in Tampa, Florida and 10,000 square feet of warehouse space in Tampa,
Florida. The Company also leases 27,000 square feet for its facility in
Vienna, Austria. In fiscal 1995, the Company completed construction of a new
facility of 19,250 square feet for its sports wagering business in Las Vegas,
Nevada.
The Company leases space for the Connecticut OTB locations in Norwalk,
Bridgeport, West Haven, East Haven, Meriden, New Britain, Bristol, Waterbury
and Torrington and a teletheater in New Haven. AEI purchased teletheaters in
Windsor Locks and in New Haven, both of which relate to the operation of the
Connecticut OTB. The Company constructed a sports entertainment complex at its
teletheater facility in New Haven, where the central off-track betting
computer operations for the Connecticut OTB are located.
The Company is in the process of discontinuing its leased 13,000 square feet
lottery support facility in Owings Mills, Maryland, its 10,000 square feet
manufacturing facility in Ballymahon, Ireland, and its 7,000 square feet
facility in Athlone, Ireland.
ITEM 3. LEGAL PROCEEDINGS
In addition to routine legal proceedings incidental to the conduct of its
business, the Company and certain of its officers and directors were named as
defendants in fifteen lawsuits commenced in February 1995 as class actions in
the United States District Court for the District of Delaware; those lawsuits
were subsequently consolidated into one class action (the "Consolidated
Action"). The complaint alleges that the Company and certain of its officers
and directors violated federal securities laws and seeks remedies of
unspecified monetary damages and awards of fees and expenses. On August 15,
1995, the Company and certain officers and directors answered the complaint in
the Consolidated Action and denied the substance of the allegations. The
putative class consists of purchasers of the Company's Class A Common Stock
and put and call options between March 1994 and January 1995. The likelihood
of success and the ultimate outcome of the litigation cannot be evaluated at
the present time, and no provision for liability, if any, that may result from
the consolidated litigation has been recognized in the Company's financial
statements. In the event of a judgment against, or settlement by, the Company
and the named officers and directors, approximately $15 million of any such
amount may be payable by the Company's insurance carriers on behalf of the
named officers and directors, subject to any defenses such
15
<PAGE>
insurance carriers may have. Any amount of a judgment or settlement award in
excess of $15 million, or any portion of any judgment or settlement
attributable solely to the Company, would be the responsibility of the
Company, and there can be no assurance that the Company would have the
financial resources to fund payments pursuant to a judgment or settlement
award.
The Company is the subject of informal inquiries by the Securities and
Exchange Commission ("SEC") into certain press releases issued by the Company
in 1993 and 1994. The ultimate outcome of these inquiries cannot be predicted
at this time.
ASI and the Company were recently defendants in an arbitration claim in
Singapore by Multivest (PTE) Limited ("Multivest"). The subject matter of the
arbitration involved a joint venture in which Multivest was a party and had
agreed to acquire and contribute equipment and facilities necessary to operate
an on-line lottery system in the Guangdong Province of the People's Republic
of China. Multivest contracted with ASI to provide the lottery system. The
arbitration claim alleged breach of contract by ASI with respect to its
confidentiality obligations thereunder. The claim sought damages in the amount
of approximately $250 million. The claim was dismissed on October 12, 1995,
and Multivest was ordered to pay the Company Singapore $120,000 for costs and
expenses incurred and Singapore $62,235 as reimbursement for money paid by the
Company for the expenses of the arbitration panel. In addition, the Company is
proceeding with its counterclaims in the amount of approximately $800,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the stockholders of the Company was held on August 22,
1995 to elect six directors of the Company and to ratify the selection of KPMG
Peat Marwick LLP as the Company's independent accountants. All the matters put
before the stockholders passed with voting as follows:
<TABLE>
<CAPTION>
DIRECTOR NOMINEES: FOR AGAINST ABSTAIN
------------------ --- ------- -------
<S> <C> <C> <C>
A. Lorne Weil.................................... 21,967,618 361,386 -0-
Sir Brian Wolfson................................ 21,969,512 359,696 -0-
Alan J. Zakon.................................... 21,969,112 360,096 -0-
Larry J. Lawrence................................ 21,969,512 359,696 -0-
Marshall Bartlett................................ 21,968,412 360,796 -0-
Thomas H. Lee.................................... 21,968,312 360,896 -0-
KPMG Peat Marwick LLP ........................... 22,131,397 160,010 37,801
</TABLE>
16
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's Class A Common Stock is traded under the symbol "TOTE" in the
National Market of the National Association of Securities Dealers, Inc.
("NASDAQ"). The following table sets forth, for the periods indicated, the
range of high and low closing prices of the Company's Class A Common Stock in
the NASDAQ National Market adjusted to reflect (i) a three-for-two stock split
in the form of a stock dividend of one share of Class A Common Stock for every
two shares outstanding effective on June 30, 1993, and (ii) a two-for-one
stock split in the form of a stock dividend of one share of Class A Common
Stock for every share outstanding on October 25, 1993.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal 1994
First Quarter............................................. $28.50 $18.50
Second Quarter............................................ $29.25 $17.75
Third Quarter............................................. $21.75 $15.00
Fourth Quarter............................................ $20.25 $13.25
Fiscal 1995
First Quarter............................................. $17.38 $ 6.75
Second Quarter............................................ $ 7.38 $ 4.38
Third Quarter............................................. $ 4.63 $ 2.69
Fourth Quarter............................................ $ 5.00 $ 2.81
</TABLE>
As of October 31, 1995, the Company had approximately 586 holders of record
of its Class A Common Stock.
The Company has never paid any cash dividends on its Class A Common Stock.
The Board presently intends to retain all earnings for use in the Company's
business. Any future determination as to payment of dividends will depend upon
the financial condition and results of operations of the Company and such
other factors as are deemed relevant by the Board.
Under the terms of the Company's Senior Bank Credit Facility, the Company is
not permitted to pay any cash dividends or make any other distributions (other
than stock dividends) on its Class A Common Stock.
See Bank Credit Agreements in Management's Discussion and Analysis of
Financial Condition and Results of Operations and Note 10 to Consolidated
Financial Statements.
ITEM 6. SELECTED FINANCIAL DATA
Selected historical financial data presented below as of and for the five
years ended October 31, 1995 have been derived from the audited consolidated
financial statements of the Company, which financial statements have been
audited by KPMG Peat Marwick LLP, independent certified public accountants.
The following financial information should be read in conjunction with Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, and the Consolidated Financial Statements of the Company and the
notes thereto, included in Item 8. The following financial information gives
effect to (i) a three-for-two stock split in the form of a stock dividend of
one share of Class A Common Stock for every two shares outstanding paid on
June 30, 1993 and (ii) a two-for-one stock split in the form of a stock
dividend of one share of Class A Common Stock for each share outstanding paid
on October 25, 1993. The following financial data also reflects the 1994
acquisition of Marvin H. Sugarman Productions and its affiliate Racing
Technology, Inc. which has been accounted for as a pooling of interests.
Accordingly, the historical financial data has been restated to reflect the
pooling.
17
<PAGE>
FIVE YEAR SUMMARY OF SELECTED
FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Selected Statement of Opera-
tions Data:
Operating Revenues:
Wagering systems.......... $132,260 $ 98,592 $ 59,792 $ 40,526 $ 39,104
Wagering equipment & other
sales.................... 20,924 50,458 25,070 7,838 8,942
-------- -------- -------- -------- --------
153,184 149,050 84,862 48,364 48,046
Expenses & Costs:
Wagering systems.......... 78,569 61,158 36,513 20,713 20,692
Inventory, equipment &
contract adjustments..... -- 3,939 -- -- --
Strike expenses........... -- 2,842 -- -- --
Wagering equipment & other
sales.................... 15,661 35,753 11,679 4,606 5,080
Selling, general &
administrative........... 36,540 25,298 10,956 6,419 7,234
Write-off of investments &
other assets............. 6,640 4,737 -- -- --
Restructuring............. 11,601 3,839 -- -- --
Depreciation and
amortization............. 35,463 25,418 11,809 7,840 11,137
Interest, net............. 15,974 6,103 3,240 5,804 8,999
Other income.............. (48) (647) (65) (487) (6)
Proceeds of insurance
claim.................... -- -- -- (3,000) --
Write-off of financing
fees & expenses.......... -- 4,222 -- -- --
Write-off of goodwill &
other intangible assets.. -- -- -- -- 77,721
Operations of divested
businesses............... -- -- -- -- 4,818
Divestiture expenses...... -- -- -- -- 1,338
Litigation expenses....... -- -- -- (382) 660
-------- -------- -------- -------- --------
200,400 172,662 74,132 41,513 137,673
Net earnings (loss)......... $(49,889) $(22,150) $ 9,438 $ 5,727 $(77,543)
Net earnings (loss) per
common share (Primary)..... $ (1.72) $ (.79) $ .33 $ .37 $ (4.42)
Net earnings (loss) per
common share
(Fully diluted)............ $ (1.72) $ (.79) $ .33 $ .36 $ (4.42)
Selected Balance Sheet Data
(End of period):
Total assets................ $241,021 $241,597 $187,105 $ 62,950 $ 45,431
Total long-term debt,
including current
installments............... $177,264 $143,955 $ 76,987 $ 57,231 $ 54,326
Stockholders' equity (defi-
ciency).................... $ 11,857 $ 55,721 $ 76,079 $(20,972) $(28,775)
Weighted average shares
outstanding (Primary)...... 28,965 28,174 28,210 15,425 17,546
Weighted average shares
outstanding
(Fully diluted)............ 28,965 28,174 28,911 15,911 17,546
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BACKGROUND
The Company incurred a loss of $49.9 million, or $1.72 per share, in fiscal
1995 of which $22.8 million was attributable to fiscal 1995 third quarter
unusual charges substantially resulting from the Company's restructuring,
which includes the closing of two facilities and a reduction in personnel,
certain asset valuation adjustments, and bank credit agreement fees. As a
result of these charges, the Company anticipates total cash obligations of
approximately $5.9 million, $1.1 million of which was paid in fiscal 1995 and
the balance to be paid in fiscal 1996. Restructuring charges of $11.6 million
were attributable to the closing of the lottery support facility in Owings
Mills, Maryland and the scaling back of certain international activities,
including the closing of the Company's manufacturing facility in Ballymahon,
Ireland. As a direct result of the restructuring, the Company anticipates
annualized savings of $5.5 million. The Company also wrote off certain
investments and other non-current assets which totaled $6.6 million and
included $2.7 million attributable to the Company's Mexican video gaming
machine contracts, $2.6 million attributable to European wagering terminals,
and $1.3 million attributable to other assets. Also included in the third
quarter charges was $1.7 million in bank financing costs primarily relating to
a waiver of certain financial covenants of the Company's Senior Bank Credit
Facility agreement. The remaining third quarter charges included miscellaneous
asset valuation adjustments and severance. The Company has evaluated its
business strategies and rationalized the support for certain products, systems
and operations. As a result of the restructuring and other cost reduction
efforts, the Company believes that its streamlined operations will improve its
future cash generation.
Included in the fiscal 1994 loss of $22.2 million, or $0.79 per share, were
restructuring charges of approximately $3.8 million resulting from closing the
Company's Newark, Delaware manufacturing facility and discontinuation of
certain product lines; a $4.7 million write-off of certain assets principally
related to domestic and overseas projects; costs of $2.8 million incurred as a
result of a strike by the field service employees of the Company's subsidiary,
Autotote Systems, Inc. ("ASI"); and an extraordinary item consisting of a non-
cash write-off of financing fees and expenses of $4.2 million associated with
the Company's repayment of its prior senior bank credit facility. The fiscal
1994 restructuring charge was incurred as part of the Company's plan to reduce
manufacturing costs and utilize its working capital more effectively. The
Company has satisfied all cash obligations, consisting primarily of costs of
plant shutdown and employee severance, arising from the fiscal 1994
restructuring. Additional factors contributing to the loss in fiscal 1994
included charges of $7.5 million to operating expenses for payments in 1994 to
former stockholders of the Tele Control Group pursuant to contingent payment
provisions in the Tele Control Group acquisition agreement; inventory,
equipment and contract adjustments resulting in charges of $3.9 million, of
which $3.3 million related to corrections to the financial statements
delivered by the seller in connection with the Company's acquisition of Marvin
H. Sugarman Productions, Inc., and its affiliate Racing Technology, Inc. for
periods prior to the acquisition; and adjustments to the tax liability
relating to certain income generated from the Company's international
operations.
The consolidated statements of operations for the years ended October 31,
1995, 1994 and 1993 reflect the following acquisitions accounted for by the
purchase method of accounting: Autotote Lottery and the ETAG Group in June
1993, the right to operate the Connecticut OTB in July 1993, the Tele Control
Group in September 1993, 80% of the outstanding stock of the holding company
of SEPMO S.A. in November 1994 and substantially all of the assets of the
Simulcast Division of LDDS Corporation (formerly IDB Communications Group,
Inc.) in January 1995.
Historically, the Company's revenues have come from two sources: service
contracts and sales contracts for equipment and software. Service revenue
pursuant to multi-year service contracts is typically based on Handle. The
first quarter of the fiscal year is traditionally the weakest for service
revenue for seasonal reasons. Sales revenue usually reflects a limited number
of large sales which do not recur on an annual basis, but which historically
have given rise to terminal sales and the provision of systems software to
existing customers. The Company's ability to expand is dependent upon its
ability to fulfill and retain its existing contracts and obtain additional
contracts. The sale and delivery of wagering systems and equipment depend on
various factors,
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including customer requirements as to the capabilities and features of the
system and the delivery schedule. Consequently, revenue and operating results
could vary substantially as a result of the timing of revenue recognition from
major equipment sales. The timing of these sales can affect not only annual
performance, but can make quarterly results highly variable and unpredictable.
FISCAL 1995 COMPARED TO FISCAL 1994
Revenue Analysis
Total revenues increased 3% or $4.1 million to $153.2 million fiscal 1995
from $149.1 million in fiscal 1994. Wagering system revenues increased 34% or
$33.7 million to $132.3 million, compared to $98.6 million in fiscal 1994. The
wagering systems revenues increase reflects continued improvement in the
Company's North American off-track betting and pari-mutuel businesses;
significant growth in the Company's simulcasting operations, largely
reflecting the 1995 IDB asset acquisition; and increased revenues for the
Company's European lottery operations. Additionally, the acquisition of SEPMO
in November 1994 contributed $8.7 million to the fiscal 1995 increase.
Offsetting the wagering systems revenue improvement was a decrease in wagering
equipment and other sales revenues of $29.6 million, from $50.5 million in
fiscal 1994 to $20.9 million in fiscal 1995, largely due to the inclusion in
fiscal 1994 of $25.8 million in revenues attributable to the sale of MAX 2000
terminals to EIS for sale to Italy's TOTIP pool and $6.3 million in revenues
associated with the commencement of certain international lottery contracts
received by the Company's Tele Control subsidiary. Partially offsetting the
decline in equipment sales and other revenues were $4.5 million in equipment
sales attributable to the Company's November 1994 acquisition of SEPMO.
Expense Analysis
Total gross margins, exclusive of depreciation and amortization, increased
$13.6 million, or 30%, to $59.0 million in fiscal 1995 as compared to $45.4
million in fiscal 1994. Excluding 1994 inventory, equipment and contract
adjustments of $3.9 million and strike expenses of $2.8 million, total gross
margins increased $6.8 million primarily due to a $16.3 million increase in
wagering systems gross margin. The first quarter acquisition of SEPMO
contributed $4.6 million in wagering systems gross margin. Other increases
were seen in simulcasting, primarily attributable to the acquisition of the
IDB assets, and improvements for North American pari-mutuel and off-track
betting businesses and European lottery operations. Offsetting the wagering
systems gross margins improvement was a decline of $9.4 million in gross
margins on wagering equipment and other sales primarily due to the 1994 MAX
2000 terminal sales, partially offset by sales attributable to the fiscal year
1995 acquisition of SEPMO.
Selling, general and administrative expenses include marketing, sales,
administrative, engineering and software development, finance, legal and other
expenses. These expenses increased to $36.5 million for fiscal 1995 from $25.3
million in fiscal 1994, an increase of $11.2 million or 44%. Approximately
$4.2 million of the increase is due to the acquisition of SEPMO. Additional
increases in fiscal 1995 selling, general and administrative expenses
primarily reflect increased expenses for market development, legal and other
professional fees, and increased expenses attributable to expanded North
American simulcasting and European lottery operations.
Software systems and product development expenditures were $12.2 million in
fiscal 1995 compared to $10.3 million in fiscal 1994, of which $6.0 million
were capitalized. The increase arises primarily from increased spending for
its UNIBET lottery software developed for the international market. Included
in third quarter fiscal 1995 charges was $6.4 million representing valuation
adjustments based on the Company's assessment of the future recoverability of
certain capitalized software systems development costs.
Depreciation and amortization expenses increased 40% to $35.5 million in
fiscal 1995 from $25.4 million in fiscal 1994. The increased depreciation and
amortization was primarily due to the acquisitions of SEPMO and the IDB
assets; capital additions for North American pari-mutuel and video gaming
operations; and increased amortization attributable to capitalized software
systems development costs for European lottery operations.
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<PAGE>
Interest expense increased $10.0 million to $16.4 million in fiscal 1995
compared to $6.4 million in fiscal 1994. The increase primarily reflects
increased borrowings to finance capital additions for North American pari-
mutuel and video gaming operations; the acquisitions of SEPMO and the IDB
assets; $2.4 million in 1995 bank credit agreement fees and other financing
costs primarily related to a waiver of certain financial covenant violations
under the Company's Senior Bank Credit Facility agreement; and the 1994
capitalization of interest costs on certain capital projects.
Fiscal 1994 results included a $4.2 million write-off of deferred financing
fees relating to the 1993 senior bank credit facility. This write-off was
classified as an extraordinary item in the accompanying financial statements.
Income Taxes
Income tax expense was $2.7 million in fiscal 1995 as compared to a benefit
of $1.5 million in fiscal 1994. Income tax expense for fiscal 1995 principally
reflects foreign tax expense. No tax benefit has been recognized on fiscal
1995 domestic operating losses reflecting management's opinion that, more
likely than not, the benefit of deferred tax assets principally related to
operating loss carryforwards in excess of the scheduled reversal of deferred
tax liabilities, will not be realized.
Net Earnings (Loss)
The net loss for fiscal 1995 was $49.9 million, or $1.72 per share on 29.0
million shares outstanding, compared to a net loss of $22.2 million, or $0.79
per share on 28.2 million shares outstanding, in fiscal 1994 which included an
extraordinary charge of $4.2 million. Excluding the effect of the
extraordinary non-cash charge of $4.2 million to write-off financing fees and
expenses associated with the Company's repayment of its prior senior bank
credit facility, the net loss for fiscal 1994 was $18.0 million or $0.64 per
share.
FISCAL 1994 COMPARED TO FISCAL 1993
Revenue Analysis
Total revenues increased 76% or $64.2 million to $149.1 million for the year
ended October 31, 1994 from $84.9 million in fiscal 1993. The 1993
acquisitions, completed in the second half of fiscal 1993, contributed $61.3
million to revenues in fiscal 1994 and $17.1 million to revenues in fiscal
1993. Wagering equipment and other sales revenues, exclusive of equipment and
other sales revenue attributable to the Tele Control and Autotote Lottery
subsidiaries of $10.0 million in fiscal 1994 and $1.6 million in fiscal 1993,
increased $16.9 million in 1994 compared to 1993. Wagering equipment sales
revenue in 1994 included large equipment sales and a software upgrade totaling
$7.7 million to foreign customers; $25.8 million attributable to the
completion of the Company's contract to deliver the MAX 2000 terminals to
Italy's TOTIP pool; and $6.3 million in revenues associated with the
commencement of certain international lottery contracts received by the
Company's Tele Control subsidiary.
Exclusive of revenues attributable to the 1993 acquisitions, wagering
systems revenues increased from $44.9 million in fiscal 1993 to $48.1 million
in fiscal 1994, primarily due to the full year effect of revenue generated
from wagering system contracts which became operational during fiscal 1993 and
fiscal 1994, offset in part by severe winter weather experienced in the
Northeast and an earthquake in California. Wagering systems revenues
attributable to the 1993 Acquisitions totaled $50.5 million in fiscal 1994 and
$14.9 million in fiscal 1993.
Expense Analysis
Total gross margins, exclusive of depreciation and amortization, increased
$8.7 million, or 24%, to $45.4 million in fiscal 1994 as compared to $36.7
million in fiscal 1993. Excluding 1994 inventory, equipment and contract
adjustments of $3.9 million and strike expenses of $2.8 million, total gross
margins increased $15.4 million. The increase in total gross margins was
primarily due to a $14.1 million increase in wagering systems
21
<PAGE>
gross margins, to $37.4 million in fiscal 1994 compared to $23.3 million in
fiscal 1993, reflecting the effect of the 1993 acquisitions. Fiscal 1994
wagering equipment and other sales margins of $14.7 million increased $1.3
million versus fiscal 1993 as the favorable fiscal 1994 effect of the 1993
acquisitions and fiscal 1994 MAX 2000 terminal margins were, in part, offset
by unusually high 1993 wagering equipment and other sales gross margins
exceeding 50% due to the inclusion of certain licensing and contract milestone
related revenues recognized in fiscal 1993. Additionally, fiscal 1994 wagering
equipment and other sales gross margins were unfavorably impacted by $7.5
million included in wagering equipment and other sales operating expenses,
reflecting payments in 1994 to former Tele Control Group stockholders pursuant
to contingent payment provisions in the Tele Control Group acquisition
agreement as a result of the award of lottery contracts to the Tele Control
Group in fiscal 1994. Offsetting the effect of this adjustment was $6.3
million in wagering equipment and other revenues associated with the
commencement of these contracts.
Fiscal 1994 total gross margins were impacted by non-cash inventory,
equipment and contract adjustments of $3.9 million and strike expenses of $2.8
million. Inventory, equipment and contract adjustments consisted principally
of corrections to financial statements delivered by the seller in connection
with the Company's acquisition in July 1994 of Marvin H. Sugarman Productions,
Inc. and Racing Technology, Inc. for periods prior to the acquisition. The
acquisition was accounted for on a "pooling of interests" basis. Strike
expenses consist of contract labor, security, legal and other costs incurred
as a result of a strike by the field service employees of ASI. The strike
affected approximately 275 of ASI's field service employees and was settled in
late October 1994.
Selling, general and administrative expenses include marketing, sales,
administrative, engineering and product development, finance, legal and other
expenses. These expenses increased to $25.3 million for fiscal 1994 from $11.0
million in fiscal 1993, an increase of $14.3 million or 131%. Approximately
$4.9 million of the increase is due to the full year effect of selling,
general and administrative expenses related to the 1993 acquisitions.
Additional increases in fiscal 1994 selling, general and administrative
expenses reflected the strengthening of the Company's management structure;
the Company's expanded multicontinent business; and expansion of the Company's
international and North American marketing efforts, specifically in the on-
line lottery and sports wagering businesses and increased product development
expenses. The Company also incurred significant accounting, legal and
consulting fees associated with the audit of its fiscal 1994 financial
statements, resulting in a charge of approximately $1 million.
Software systems and product development expenditures in fiscal 1994 were
$10.3 million, up from $5.6 million in fiscal 1993, reflecting increases in
new product development and enhancements to existing products. Approximately
$6.0 million of software systems development costs were capitalized in 1994
versus $2.4 million in 1993.
Depreciation and amortization expenses increased 115% to $25.4 million in
fiscal 1994 from $11.8 million in fiscal 1993. The increase is due in part to
increases in amortization and depreciation as a result of management's final
review of the allocation of purchase price and the useful life of goodwill and
certain other assets recorded in connection with the 1993 acquisitions. This
final review resulted in $5.3 million in increased annual depreciation and
amortization with respect to the 1993 acquisitions. The increase also
reflected the full year effect of amortization and depreciation associated
with the 1993 acquisitions and increased depreciation with respect to capital
additions made in North America to the Company's wagering systems base during
fiscal years 1993 and 1994.
Interest expense increased $2.9 million to $6.4 million in fiscal 1994
compared to $3.5 million in fiscal 1993. The increase primarily reflects
increased borrowings associated with the construction of wagering systems
equipment and with the 1993 acquisitions. Interest costs of $819,000 and $1.1
million were capitalized in 1993 and 1994, respectively, reflecting additional
costs of construction of wagering systems placed in service pursuant to
wagering systems contracts.
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<PAGE>
Income Taxes
Effective income tax rates before extraordinary item were approximately 8% in
fiscal 1994 compared to 12% for fiscal 1993. The rate for fiscal 1994 reflects
the non-tax deductible nature of the payments in 1994 to former Tele Control
Group stockholders included in wagering equipment sales operating expenses, the
mix in earnings between foreign and domestic operations, increased non-
deductible goodwill amortization and an increase in the tax liability relating
to certain income generated from the Company's international operations. The
loss in 1994 did not permit the recognition of a tax benefit related to the
extraordinary write-off of financing fees and expenses of $4.2 million
associated with the Company's repayment of its prior senior credit facility.
The rate for 1993 differs from the U.S. statutory tax rate of 34% principally
due to foreign earnings taxed at a lower income tax rate than the U.S. tax
rate, the utilization of foreign tax credits and other business credits in 1993
and adjustments to prior years' income tax accruals.
Net Earnings (Loss)
The net loss for fiscal 1994 was $22.2 million or $0.79 per share compared to
fiscal 1993 net earnings of $9.4 million or $0.33 per share. Without giving
effect to the extraordinary non-cash charge of $4.2 million to write-off
financing fees and expenses associated with the Company's repayment of its
prior senior bank credit facility, the net loss for fiscal 1994 was $18.0
million or $0.64 per share. The earnings/(loss) per share was calculated using
approximately 28.2 million weighted average shares outstanding in both fiscal
1994 and fiscal 1993. The weighted average shares outstanding for fiscal 1993
have been adjusted for 3-for-2 and 2-for-1 stock splits which occurred during
fiscal 1993.
LIQUIDITY AND CAPITAL RESOURCES
In fiscal 1995, net cash provided by operating activities was $8.0 million.
Included in fiscal 1995 operating results were $17.4 million in non-cash
restructuring and asset valuation adjustments. The Company anticipated total
cash obligations arising from restructuring and other unusual charges to be
approximately $5.9 million, of which $1.1 million was paid in fiscal 1995 with
the balance to be paid in fiscal 1996.
In fiscal 1995, the Company invested $8.2 million in expenditures for
equipment under wagering systems and simulcasting contracts. The Company also
invested $14.4 million in acquisitions consisting of $13.7 million for
substantially all of the assets of IDB and the rights relating to eight C-band
satellite transponders (the "IDB Acquisition"), and approximately $.3 million
plus acquisition related costs to acquire SEPMO, a supplier of wagering systems
and services to the French off-track betting network and other customers. In
addition to the purchase consideration, the Company concurrently advanced the
SEPMO holding company approximately $2.0 million for purposes of repaying
certain convertible debt and purchasing the minority holdings in certain
subsidiary companies. The Company invested $10.0 million in fiscal 1995 in
capital expenditures, including $5.6 million in the Company's simulcasting
facilities located in Connecticut and $2.3 million for the construction of a
building in Las Vegas, with the balance attributable to leasehold improvements
and other equipment. Increases in other assets and investments principally
reflect capitalized software systems development costs.
Net cash provided by financing activities consisted primarily of $27.8
million of net borrowings under the Company's Senior Bank Credit Facility of
which $13.7 million was used for the IDB Acquisition. The Company also obtained
$2.1 million of construction/mortgage financing for its building in Las Vegas.
In the fourth quarter of fiscal 1995, the Company raised $4.42 million from
issuance of Class A Common Stock pursuant to a Regulation S offering. Net
proceeds of the offering were used to repay borrowings under the Company's
Senior Bank Credit Facility.
At October 31, 1995, the Company's cash and cash equivalents, exclusive of
restricted cash, totaled $5.0 million as compared to $6.1 million at October
31, 1994.
The Company's wagering systems contracts are capital intensive, requiring
substantial initial cash outlays which are recouped over time from cash flows
from the contracts. The amounts of the Company's future capital
23
<PAGE>
expenditures for wagering systems equipment will depend on the Company's
ability to enter into service contracts with new customers, and to renew
existing contracts with system upgrades. Each new customer may require the
manufacture and assembly of a new wagering system unless the dates of
operations and requirements of a new wagering facility allow an existing
system to be used at such facility. Under some circumstances, the Company may
be required to begin manufacture of wagering systems prior to the award of a
contract in a competitive bidding situation. Expenditures related to the sale
of the Company's wagering equipment are generally funded, in part, by customer
advance payments.
As of October 31, 1995, the Company was in compliance with certain waivers
to the Senior Bank Credit Facility, as described in Note 10 of the
Consolidated Financial Statements, such waivers expiring on January 31, 1996.
The Company had $3.9 million available for borrowing under the Senior Bank
Credit Facility at October 31, 1995. On January 26, 1996, the Company entered
into an Amended and Restated Credit Agreement with its Banks (the "Amended and
Restated Senior Bank Credit Facility"), as described in Note 10 to
Consolidated Financial Statements, which matures on April 30, 1998. The
Amended and Restated Senior Bank Credit Facility contains provisions for
quarterly principal payments beginning January 31, 1996, with total scheduled
principal payments in fiscal 1996 of $8 million. As a result, the Company has
shown $8 million of its borrowings under the Senior Bank Credit Facility as a
current liability. Contributing to the Company's negative working capital
position at October 31, 1995 were $3.7 million in restructuring liabilities.
The Company believes that its cash resources at October 31, 1995 and its
forecasted cash flows arising from operations for fiscal 1996 provide
sufficient liquidity to meet scheduled principal payments and anticipated
capital expenditures in the coming fiscal year arising from current
commitments. There can be no assurances that the Company can do so. The
Company believes that additional financing and/or assets sales will be
required to meet its scheduled principal payments and capital requirements in
subsequent fiscal years, and is currently exploring financing and asset sales
alternatives while simultaneously developing programs to reduce its level of
ongoing expenditures. The Company will be required to evaluate its capital
outlays and commitments in light of availability and timing of additional
financing, which currently remains uncertain.
BANK CREDIT AGREEMENTS
On April 28, 1994, the Company entered into an Amended and Restated Bank
Credit Agreement (the "Senior Bank Credit Facility") with the lenders thereto
and with Bankers Trust Company ("BT") as agent which provided for a $125.0
million, five-year revolving credit facility. The Senior Bank Credit Facility
was subsequently amended in December 1994 pursuant to which the Company was
provided, subject to certain terms and conditions, an additional $10 million
of availability.
The Company was in violation of certain covenants of the Senior Bank Credit
Facility as of October 31, 1994. On February 21, 1995, the Company entered
into an amendment to the Senior Bank Credit Facility (the "Fourth Amendment
and Consent"), which waived the covenant defaults, amended certain financial
covenants and consented to a revised calculation of certain financial ratio
covenants as a result of which the Company was in compliance with the
provisions of the Senior Bank Credit Facility.
The Company was also in violation of certain covenants under the Senior Bank
Credit Facility at various times throughout fiscal 1995. The Company obtained
a number of waivers and consents during the year (the "Waivers"). Pursuant to
the Waivers, the Banks agreed to, among other things, waive compliance by the
Company with certain financial ratios and financial condition tests specified
in the Senior Bank Credit Facility for a period beginning on January 31, 1995
and ending on January 31, 1996 (the "Waiver Period"); provided, however, that
the Company comply with certain modified financial ratios and tests and
fulfill certain other requirements by specified dates. These requirements,
among others, included: (a) issuing to the Banks warrants to purchase an
aggregate of 385,000 shares of Class A Common Stock at an exercise price of
$3.00 per share (the "1995 Lender Warrants"); (b) entering into an arrangement
satisfactory to the Banks with the Debenture Holders, pursuant to which
arrangement the Debenture Holders would agree to defer all cash payments
otherwise due from August 15, 1995 until February 14, 1996; and (c) making
arrangements satisfactory to the Banks to
24
<PAGE>
raise additional cash through the issuance of equity interests in the Company
or the sale of assets of the Company or any of its subsidiaries in an
aggregate amount of at least $5.0 million. The Waivers also restricted the
Company's capital expenditures, acquisitions, sale of equity and assets, and
incurrence of lease and debt obligations, and required the Company to deliver
to the Banks weekly, monthly and quarterly certificates of the Company's Chief
Financial Officer, setting forth certain actual and projected financial
information. In connection with the Waivers, in addition to the 1995 Lender
Warrants, the Banks earned a fee of 1% of $135 million, payable the earlier of
June 30, 1996, or when the Company raised at least $10 million through asset
or equity sales which is still payable under the Amended and Restated Senior
Bank Credit Facility.
On September 13, 1995, the Company issued to the Banks the warrants referred
to in clause (a) of the preceding paragraph. In connection with clause (b) of
the preceding paragraph, the Company reached an agreement regarding interest
payments due on the Debentures, evidenced by a letter agreement dated as of
September 28, 1995 (the "Letter Agreement"), with the Debenture Holders as
described below. In connection with clause (c), the Company received $4.42
million (after deducting commissions paid to the placement agent) through the
sale of 1.56 million shares of Class A Common Stock in accordance with the
provisions of a Regulation S offering of securities, and $1.2 million from the
sale of assets and transponder time, in satisfaction of Waiver requirements.
On January 26, 1996, the Company entered into an Amended and Restated Credit
Agreement with lenders to the Senior Bank Credit Facility (the "Amended and
Restated Senior Bank Credit Facility"), pursuant to which current commitments
of each lender under the Senior Bank Credit Facility, totaling $135 million,
are continued as the Amended and Restated Senior Bank Credit Facility, which
provides for: 1) a $55 million term loan (the "A Term Loan"), 2) a $5 million
term loan (the "B Term Loan"), and 3) a $75 million revolving credit facility
(the "Revolver"), which includes a $25 million sublimit for letters of credit.
$5 million of outstanding Revolving B Facility loans and $50 million of
outstanding Revolving A Facility loans are constituted as the A Term Loan. $5
million of outstanding Revolving B Facility loans are constituted as the B
Term Loan. The balance of all outstanding Revolving A Facility loans are
converted into loans under the Revolver. The A Term Loan provides for certain
quarterly principal repayments, including a $15 million principal repayment on
April 30, 1997 and a $32 million principal repayment at maturity on November
1, 1997. The B Term Loan provides for certain quarterly principal repayments
through its maturity on January 31, 1997. The Revolver matures on April 30,
1998. The Amended and Restated Senior Bank Credit Facility contains various
financial and other covenants, including restrictions on the Company's
acquisitions, indebtedness, investments and capital expenditures, and
covenants that prohibit the payment of cash dividends on the Company's stock
and distributions to stockholders. The Amended and Restated Senior Bank Credit
Facility permits voluntary prepayments, and requires Mandatory Repayments upon
the occurrence of certain events and in certain amounts, including: 1) with
certain limited exceptions, 100% of the net proceeds of assets sales, with a
$1 million per year exclusion; 2) 100% of the net proceeds of debt raised; 3)
certain net proceeds of equity sales, based on a sliding scale; and 4) 75% of
annual "Excess Cashflow", as defined. In addition to customary events of
default, a Change of Control of the Company (as defined) constitutes an event
of default under the Amended and Restated Senior Bank Credit Facility. The
Amended and Restated Senior Bank Credit Facility is guaranteed by the Company
and its subsidiaries and is secured by substantially all of the assets of the
Company and its subsidiaries. Borrowings under the Amended and Restated Senior
Bank Credit Facility bear interest at the Base Rate (as defined) plus a margin
ranging from 1.25% to 2.25%, or the Eurodollar Rate (as defined) plus a margin
ranging from 2.25% to 3.25% per year, in each case depending on the Company's
performance as measured by the ratio of Bank Debt, as defined, to earnings
before interest, taxes, depreciation and amortization ("EBITDA"); and in all
cases an additional 2% in the event of certain defaults. A commitment fee of
0.5% per year is payable on the unused amount under the Revolver. A letter of
credit fee equal to the applicable margin on Eurodollar loans then in effect
plus a facing fee of 1/8 of 1% per year is payable on each letter of credit
issued. As a closing fee, the Company issued to the Banks warrants to purchase
525,000 shares of Class A Common Stock, subject to adjustments, at an exercise
price of $1.25 per share (the "1996 Lender Warrants"). (See Note 15 to the
Consolidated Financial Statements.)
As of October 31, 1995, the Company had approximately $3,937,000 available
for borrowing under its Revolver, and $1,786,000 in outstanding letters of
credit.
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DEBENTURES
On August 20, 1993 the Company issued $40,000,000 principal amount of 5.5%
convertible subordinated debentures due 2001 ("The Debentures") in a private
placement. The Debentures are convertible into 2,000,000 shares of Class A
Common Stock at a conversion price of $20.00 per share. $17,500,000 of the
proceeds were used to complete the Tele Control acquisition, $10,000,000 of
the proceeds were applied to borrowings under the Senior Bank Credit Facility
and the remainder was used for capital expenditures and other corporate
purposes.
On November 6, 1995, the Company entered into an Agreement with holders of
its Debentures whereby the holders would receive unregistered shares of Class
A Common Stock in lieu of cash for interest payments due on August 15, 1995
and February 15, 1996 on the Debentures. (See Note 10 to Consolidated
Financial Statements.)
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" ("SFAS No. 121"), effective for fiscal years
beginning after December 15, 1995. SFAS No. 121, requires, among other things,
that long-lived assets and certain identifiable intangibles to be held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Impairment losses should be based upon the fair value of the
asset, and reported in the period in which the recognition criteria are first
applied and met. The Company believes that the implementation of SFAS No. 121
will not have a material impact on its financial position or results of
operations.
In October 1995, the "FASB" issued SFAS No. 123, "Accounting for Stock-Based
Compensation". This pronouncement permits the Company to choose either a new
fair value based method or the current AFB opinion 25 intrinsic value based
method of accounting for its stock based compensation arrangements. The
Company intends to retain the intrinsic value based method of accounting for
its stock based compensation arrangements and provide the footnote disclosures
as required by SFAS No. 123 in fiscal 1996. Consequently, implementation of
this pronouncement will not impact the Company's financial position or results
of operations.
26
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
AUTOTOTE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
FORM 10-K
(PAGE)
---------
<S> <C>
Independent Auditors' Report......................................... 29
Consolidated Financial Statements:
Balance Sheets as of October 31, 1995 and 1994..................... 30
Statements of Operations for the years ended October 31, 1995, 1994
and 1993.......................................................... 31
Statements of Stockholders' Equity for the years ended October 31,
1995, 1994 and 1993............................................... 32
Statements of Cash Flows for the years ended October 31, 1995, 1994
and 1993.......................................................... 33
Notes to Consolidated Financial Statements........................... 35
Schedule:
II. Valuation and Qualifying Accounts................................ 58
</TABLE>
All other schedules are omitted as the required information is inapplicable
or the information is presented in the consolidated financial statements or
related notes.
27
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
OCTOBER 31, 1995, 1994 AND 1993
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
28
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Autotote Corporation:
We have audited the consolidated financial statements of Autotote
Corporation and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we have
also audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and the financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Autotote
Corporation and subsidiaries as of October 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the years in the three-
year period ended October 31, 1995, in conformity with generally accepted
accounting principles. Also in our opinion, the related 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.
KPMG Peat Marwick LLP
New York, New York
December 11, 1995, except for Note 10
which is as of January 26, 1996.
29
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994
--------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 4,991 6,110
Restricted cash.......................................... 1,282 633
Accounts receivable, net of allowance for doubtful ac-
counts of $1,679 and $498 in 1995 and 1994, respective-
ly...................................................... 21,700 27,492
Inventories.............................................. 12,497 7,062
Unbilled receivables..................................... 4,166 6,015
Prepaid expenses, deposits and other current assets...... 3,121 4,526
--------- -------
Total current assets................................... 47,757 51,838
--------- -------
Property and equipment, at cost............................ 186,005 159,062
Less accumulated depreciation............................ 67,745 41,144
--------- -------
Net property and equipment............................. 118,260 117,918
--------- -------
Goodwill, net of amortization.............................. 26,986 23,052
Operating right, net of amortization....................... 17,848 18,933
Other assets and investments............................... 30,170 29,856
--------- -------
$ 241,021 241,597
========= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and other short-term borrowings............ $ -- 250
Current installments of long-term debt................... 10,772 792
Accounts payable......................................... 16,448 15,618
Accrued liabilities...................................... 23,783 17,477
Income taxes payable..................................... 1,878 2,245
--------- -------
Total current liabilities.............................. 52,881 36,382
--------- -------
Deferred income taxes...................................... 5,807 4,953
Other long-term liabilities................................ 3,984 1,378
Long-term debt, excluding current installments............. 126,492 103,163
Long-term debt, convertible subordinated debentures........ 40,000 40,000
--------- -------
Total liabilities...................................... 229,164 185,876
--------- -------
Stockholders' equity:
Preferred stock, par value $1.00 per share, 2,000 shares
authorized, none outstanding............................ -- --
Class A common stock, par value $0.01 per share, 99,300
shares authorized, 30,528 and 28,748 shares outstanding
at October 31, 1995 and 1994, respectively.............. 306 288
Class B non-voting common stock, par value $0.01 per
share, 700 shares authorized, none outstanding.......... -- --
Additional paid-in capital............................... 140,050 134,864
Accumulated deficit...................................... (129,469) (79,580)
Treasury stock, at cost.................................. (295) --
Translation adjustment................................... 1,265 149
--------- -------
Total stockholders' equity............................. 11,857 55,721
--------- -------
Commitments and contingencies (Notes 8, 10, 12, 14, 16, 18
and 23)................................................... $ 241,021 241,597
========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- ------
<S> <C> <C> <C>
Operating revenues:
Wagering systems.................................. $132,260 98,592 59,792
Wagering equipment and other sales................ 20,924 50,458 25,070
-------- ------- ------
153,184 149,050 84,862
-------- ------- ------
Operating expenses (exclusive of depreciation and
amortization shown below):
Wagering systems.................................. 78,569 61,158 36,513
Inventory, equipment and contract adjustments..... -- 3,939 --
Strike expenses................................... -- 2,842 --
Wagering equipment and other sales................ 15,661 35,753 11,679
-------- ------- ------
94,230 103,692 48,192
-------- ------- ------
Total gross profit.............................. 58,954 45,358 36,670
-------- ------- ------
Selling, general and administrative expenses........ 36,540 25,298 10,956
Write-off of investments and other assets........... 6,640 4,737 --
Restructuring....................................... 11,601 3,839 --
Depreciation and amortization....................... 35,463 25,418 11,809
-------- ------- ------
Operating income (loss)......................... (31,290) (13,934) 13,905
-------- ------- ------
Other deductions (income):
Interest expense.................................. 16,362 6,408 3,473
Interest income................................... (388) (305) (233)
Other income...................................... (48) (647) (65)
-------- ------- ------
15,926 5,456 3,175
-------- ------- ------
Earnings (loss) before income tax expense (bene-
fit) and extraordinary item.................... (47,216) (19,390) 10,730
Income tax expense (benefit)........................ 2,673 (1,462) 1,292
-------- ------- ------
Earnings (loss) before extraordinary item....... (49,889) (17,928) 9,438
Extraordinary item--write-off of financing
fees........................................... -- 4,222 --
-------- ------- ------
Net earnings (loss)............................. $(49,889) (22,150) 9,438
======== ======= ======
Earnings (loss) per common share:
Earnings (loss) per common share before extraordi-
nary item........................................ $ (1.72) (0.64) 0.33
Extraordinary item--write-off of financing fees... -- (0.15) --
-------- ------- ------
Earnings (loss) per common share.................. $ (1.72) (0.79) 0.33
======== ======= ======
Weighted average number of common shares outstand-
ing................................................ 28,965 28,174 28,210
======== ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
PREFERRED COMMON PAID-IN ACCUMULATED TREASURY TRANSLATION STOCKHOLDERS'
STOCK STOCK CAPITAL DEFICIT STOCK ADJUSTMENT EQUITY
--------- ------ ---------- ----------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, October 31,
1992................... $ 4 178 50,571 (66,860) (4,865) -- (20,972)
Exercise of stock op-
tions.................. -- 1 232 -- 154 -- 387
Issuance of common stock
in exchange for
subordinated
debentures............. -- -- 5,958 -- 3,009 -- 8,967
Conversion of Series B
preferred stock........ (4) -- (123) -- 127 -- --
Dividends on Series B
preferred stock........ -- -- -- (8) -- -- (8)
Exercise of warrants.... -- 21 1,620 -- -- -- 1,641
Issuance of Class A com-
mon stock, net of issu-
ance expenses.......... -- 79 75,132 -- 1,575 -- 76,786
Currency translation ad-
justment............... -- -- -- -- -- (160) (160)
Net earnings............ -- -- -- 9,438 -- -- 9,438
----- --- ------- -------- ------ ----- -------
Balances, October 31,
1993................... -- 279 133,390 (57,430) -- (160) 76,079
Exercise of stock op-
tions.................. -- 4 1,398 -- -- -- 1,402
Exercise of warrants.... -- 5 76 -- -- -- 81
Currency translation ad-
justment............... -- -- -- -- -- 309 309
Net loss................ -- -- -- (22,150) -- -- (22,150)
----- --- ------- -------- ------ ----- -------
Balance, October 31,
1994................... -- 288 134,864 (79,580) -- 149 55,721
Exercise of stock op-
tions.................. -- 2 439 -- (235) -- 206
Issuance of Class A com-
mon stock, net of issu-
ance expenses.......... -- 16 4,521 -- -- -- 4,537
Exercise of warrants.... -- -- 60 -- (60) -- --
Deferred compensation... -- -- 166 -- -- -- 166
Currency translation ad-
justment............... -- -- -- -- -- 1,116 1,116
Net loss................ -- -- -- (49,889) -- -- (49,889)
----- --- ------- -------- ------ ----- -------
Balance, October 31,
1995................... $ -- 306 140,050 (129,469) (295) 1,265 11,857
===== === ======= ======== ====== ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)............................. $(49,889) (22,150) 9,438
Adjustments to reconcile net earnings (loss) to
cash provided by operating activities:
Depreciation and amortization................. 35,463 25,418 11,809
Write-off of non-cash financing fees.......... -- 4,222 --
Restructuring charges and asset write-offs,
net of cash payments......................... 17,359 8,576 --
Change in deferred income taxes............... 854 (989) (785)
Non-cash interest charges..................... 1,564 -- --
Changes in operating assets and liabilities,
net of effects of purchase/disposition of
subsidiaries:
Restricted cash............................. (649) (633) --
Accounts receivable......................... 6,576 (10,579) (9,285)
Inventories................................. (4,276) 3,467 2,387
Unbilled receivables........................ 2,264 (6,015) --
Prepaid expense, deposits and other current
assets..................................... 157 (1,778) (1,287)
Accounts payable............................ (616) 2,812 2,727
Accrued liabilities......................... (2,578) 6,114 980
Income taxes payable........................ (367) (215) 1,012
Other......................................... 2,128 (808) (2,674)
-------- ------- --------
Total adjustments........................... 57,879 29,592 4,884
-------- ------- --------
Net cash provided by operating activities......... 7,990 7,442 14,322
-------- ------- --------
Cash flows from investing activities:
Capital expenditures............................ (9,990) (19,533) (3,277)
Expenditures for equipment under wagering sys-
tems contracts................................. (8,150) (39,932) (46,500)
Increase in other assets and investments........ (13,262) (20,629) (6,467)
Payment for operating right..................... -- -- (20,000)
Purchase of companies, net of cash acquired..... (14,400) -- (34,653)
Proceeds from sale of buildings................. 1,000 -- --
Other........................................... 988 (350) --
-------- ------- --------
Net cash used in investing activities............. (43,814) (80,444) (110,897)
-------- ------- --------
Cash flows from financing activities:
Net borrowings (repayments) under lines of cred-
it............................................. (250) (474) (1,417)
Net borrowings under senior bank credit facili-
ty............................................. 27,832 101,448 --
Proceeds from issuance of long-term debt........ 4,198 17,556 86,054
Payments on long-term debt...................... (2,367) (51,562) (57,554)
Net proceeds from issuance of common stock...... 4,495 1,483 78,815
Dividends paid.................................. -- -- (8)
-------- ------- --------
Net cash provided by financing activities......... 33,908 68,451 105,890
-------- ------- --------
Effect of exchange rate changes on cash........... 797 137 3
-------- ------- --------
Increase (decrease) in cash and cash equivalents.. (1,119) (4,414) 9,318
Cash and cash equivalents, beginning of year...... 6,110 10,524 1,206
-------- ------- --------
Cash and cash equivalents, end of year............ $ 4,991 6,110 10,524
======== ======= ========
</TABLE>
(Continued)
33
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
NON-CASH INVESTING AND FINANCING ACTIVITIES
1995
See notes 8, 15 and 16 for a description of capital lease transactions, the
exchange of services for common stock and the exchange of stock options for
Performance Accelerated Restricted Stock.
1994
Net transfers from goodwill to property and equipment were $6,751,000 in
accordance with finalization of purchase price allocations for the 1993
acquisitions. See notes 3 and 8 for a description of acquisitions and capital
lease transactions.
1993
See notes 8 and 10 for a description of capital lease transactions and the
exchange of Subordinated Debentures for common stock.
Supplemental cash flow information
Cash paid during the year for:
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------
1995 1994 1993
------- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Interest (net of interest capitalized of $81, $1,113
and $819 in 1995, 1994 and 1993, respectively)...... $12,504 4,979 3,139
Income taxes......................................... $ 3,260 2,386 852
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1994
(1) Description of the Business and Summary of Significant Accounting Policies
(a) Description of the Business
The Company and its subsidiaries are primarily engaged in the design,
sale and operation of computerized wagering systems for pari-mutuel
wagering, sports/race wagering, simulcasting services and lottery
applications in the United States, Europe and Asia, as well as the
operation of certain off-track betting concerns in the United States
and Europe.
(b) Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Autotote Corporation (the Company) and subsidiaries in which the
Company's ownership is greater than 50%. Investments in other entities
where the Company has the ability to exercise significant influence
over the investee are accounted for principally on the equity basis.
Under the equity method, investments are stated at cost plus the
Company's equity in undistributed earnings after acquisition.
All significant inter-company balances and transactions have been
eliminated in consolidation.
(c) Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with an
original maturity at the date of purchase of three months or less to be
cash equivalents.
(d) Restricted Cash
Restricted cash represents amounts on deposit by customers for TeleBet
wagering. State regulations require the Company to maintain such
balances until deposited amounts are wagered or returned to the
customer.
(e) Inventories
Inventories are stated at the lower of cost or market. Cost is
determined as follows:
<TABLE>
<CAPTION>
ITEM COST METHOD
---- -----------
<C> <S>
Parts............................. First-in, first-out or weighted
moving average.
Work-in-process & Finished goods.. Specific identification or weighted
moving average for direct material
and labor; other fixed and variable
production costs are allocated as a
percentage of direct labor cost.
Ticket paper...................... First-in, first-out
</TABLE>
The Company adjusts inventory accounts on a periodic basis to reflect
the impact of potential obsolescence.
(f) Unbilled Receivables
Unbilled receivables represent costs and related earnings in excess of
payments made by customers.
35
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(g) Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is calculated using the straight-line method over the
estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
ESTIMATED LIFE
ITEM IN YEARS
---- --------------
<S> <C>
Machinery and equipment................................... 3-7
Buildings................................................. 15-40
Transportation............................................ 3-7
Furniture and fixtures.................................... 5-10
Building and leasehold improvements....................... 5-30
</TABLE>
Depreciation expense includes the amortization of capital leased
assets.
(h) Deferred Installation Costs
Certain installation costs consisting of installation materials,
customer contracted software and installation labor associated with
leased systems are deferred and amortized over the lives of the leases
unless such costs are reimbursed by the lessee, in which case such
amounts are included in revenue and cost of sales. Deferred
installation costs, net of accumulated depreciation, included in
property and equipment were approximately $9,482,000 and $11,725,000 at
October 31, 1995 and 1994, respectively.
(i) Goodwill
Goodwill represents the excess of the purchase price over the fair
value of the net assets of acquired companies. The excess of costs over
net assets acquired arising from the Company's acquisition of SEPMO and
IDB is being amortized on a straight-line basis over five years. The
excess of costs over net assets acquired for Autotote Lottery, Tele
Control, and ETAG is being amortized on a straight-line basis over 5, 7
and 10 years, respectively. The balance of goodwill is being amortized
over forty years. Total goodwill amounted to $26,986,000 and
$23,052,000 net of accumulated amortization of $8,673,000 and
$3,740,000 as of October 31, 1995 and 1994, respectively.
The Company assesses the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over its
remaining life can be recovered through undiscounted future cash flows
of the acquired operation and other considerations. The amount of
impairment of goodwill, if any, is measured based on projected
discounted future cash flows.
(j) Operating Right
On July 1, 1993, the Company acquired the exclusive right to operate
the Connecticut off-track betting system. This operating asset is being
amortized on a straight-line basis over twenty years and amounted to
$17,848,000 and $18,933,000 net of accumulated amortization of
$2,357,000 and $1,162,000 at October 31, 1995 and 1994, respectively.
(k) Other Assets and Investments
The Company capitalizes costs associated with internally developed
and/or purchased software systems for new products and enhancements to
existing products that meet technological feasibility and
recoverability tests. The Company also capitalizes costs associated
with the procurement of long-term financing, and costs attributable to
transponder leases, patents, trademarks, marketing rights, and non-
36
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
competition and employment agreements arising primarily from business
acquisitions. These capitalized costs are amortized on the straight-
line basis over their useful lives.
(l) Revenue Recognition
Revenues from major contracts for the sale of wagering systems are
recognized concurrent with achieving specified milestones in connection
with the contract. Revenue for contracted software development is
recognized on the percentage of completion method based on the ratio of
approximate cost incurred to the total estimated cost. Any anticipated
losses on fixed price contracts are charged to earnings when such
losses can be estimated. The Company recognizes revenue from software
licenses upon shipment if there are no, or insignificant, post-delivery
obligations, and if the terms of the agreement are such that the
payment obligation is non-cancelable and non-refundable. Revenue
arising from the sale of component equipment and supplies is recognized
when earned.
Revenues from wagering system service, simulcast and lottery service
contracts are recognized over the contract period pursuant to the terms
of the contracts. Costs of providing operating services under contracts
are charged to earnings in the period incurred.
Revenue from the operation of off-track betting concerns is recognized
based on a percentage of amounts wagered.
(m) Income Taxes
The Company adopted Statement of Financial Accounting Standard (SFAS)
No. 109, "Accounting for Income Taxes," effective November 1, 1993. The
new standard replaces SFAS No. 96, which the Company adopted
previously.
The cumulative effect of adopting SFAS 109 is immaterial since the
recognized benefit of deferred tax assets for the Company remains
unchanged from SFAS 96. Prior period financial statements have not been
restated.
Under SFAS 109, income taxes are calculated using the asset and
liability method. Under the asset and liability method, deferred income
taxes are calculated by applying enacted statutory tax rates to
cumulative temporary differences between financial statement carrying
amounts and tax bases of existing assets and liabilities. Under SFAS
109, the effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
(n) Earnings (Loss) Per Common Share
Earnings per common share are based on the weighted average number of
shares of common stock outstanding during the period and the dilutive
effect of stock options, warrants and other common stock equivalents.
Common stock equivalents for 1995 and 1994 are not included in the
calculation of loss per share since their inclusion would be anti-
dilutive. There were no material common stock equivalents in 1993.
(o) Effect of Stock Splits
All information referring to shares of Class A Common Stock or common
stock equivalents, earnings per share, and other related information
has been adjusted to reflect the effects of the Company's three-for-two
and two-for-one stock splits in the form of stock dividends, effected
on June 30, 1993 and October 25, 1993, respectively.
37
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(p) Foreign Currency Translation
Assets and liabilities of foreign operations are translated at year-end
rates of exchange and operations are translated at the average rates of
exchange for the year. Gains or losses resulting from translating the
foreign currency financial statements are accumulated as a separate
component of stockholders' equity. Gains or losses resulting from
foreign currency transactions are included in other income (deductions)
in the consolidated statements of operations.
(q) Financial Statement Preparation
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Some of the more significant
estimates being made involve percentage of completion for contracted
software development projects, capitalization of software development
costs, evaluation of the recoverability of assets and assessment of
litigation and contingencies. Actual results could differ from those
estimates.
(r) Reclassification
Certain reclassifications have been made to the prior years
consolidated financial statements to conform to the current
presentation.
(2) Unusual Items
In the third quarter of 1995, the Company recognized unusual charges of
$22.8 million, substantially resulting from the Company's restructuring,
certain valuation adjustments, and bank credit agreement fees. As a result of
these charges, the Company anticipates total cash obligations of approximately
$5.9 million, $1.1 million of which was paid in fiscal 1995 and the balance to
be paid in fiscal 1996. Restructuring charges of $11.6 million were
attributable to the closure of the Owings Mills Lottery support facility and
the scaling back of certain international activities, including the closure of
the Company's manufacturing facility in Ballymahon, Ireland. The write-off of
investments and other non-current assets of $6.6 million included $2.7 million
attributable to European wagering terminals, and $1.3 million attributable to
other assets. Also included was $1.7 million in bank financing costs primarily
relating to a waiver of certain financial covenants of the Company's Senior
Bank Credit Facility agreement. The remaining charges included miscellaneous
asset valuation adjustments and severance.
During fiscal 1994, the Company recognized unusual charges of $15.2 million.
These charges included $3.9 million principally for corrections consisting of
inventory, equipment and contract adjustments of which $3.3 million was in
connection with the acquisition of MHSP and RTI, (see Note 3); $2.8 million
for costs incurred as a result of a strike by the field service employees of
the Company's subsidiary, Autotote Systems, Inc.; $4.7 million for the write-
off of certain assets principally related to domestic and overseas projects;
and charges of $3.8 million resulting from closing the Company's Newark,
Delaware manufacturing facility and the discontinuation of certain product
lines. The Company has satisfied all cash obligations with respect to the 1994
unusual charges.
(3) Acquisitions
1995
On November 1, 1994, the Company acquired 80% of the outstanding capital
stock of the holding company of SEPMO S.A., ("SEPMO"), a French supplier of
wagering systems and services to the French off-track
38
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
betting network and other customers, for cash of approximately $281,000, plus
acquisition related costs. In addition to the purchase consideration, the
Company concurrently advanced the SEPMO holding company approximately $2
million for purposes of repaying certain convertible debt and purchasing the
minority holdings in certain subsidiary companies. The remaining 20% of the
capital stock of the holding company of SEPMO was scheduled to be purchased
over a four year period at a price to be determined by formula based on the
results of operations of SEPMO on a consolidated basis during the period,
provided that the aggregate purchase price for such additional shares will be
at least the equivalent of 3 million French francs and not in excess of the
equivalent of 9 million French francs (approximately $600,000 and $1,800,000,
respectively, based on exchange rates in effect at October 31, 1995). In July
1995, the Company purchased an additional 5% of the holding company of SEPMO's
stock for $61,000. The acquisition has been accounted for by the purchase
method of accounting, and accordingly, the purchase price has been allocated
to the assets acquired based on estimates of fair values at the date of
acquisition. The excess of the purchase price plus acquisition related costs
over the estimated fair values of the net assets acquired was $3.2 million,
and has been recorded as goodwill which is being amortized over 5 years.
Currently, certain officers of SEPMO retain the remaining 15% of the capital
stock of SEPMO's holding company.
In January 1995, the Company acquired substantially all of the assets of the
Simulcast Division of LDDS Corporation (formerly IDB Communications Group,
Inc.) ("IDB") and the rights and obligations under leases relating to eight C-
band satellite transponders for a purchase price of $13.7 million in cash. The
acquisition has been accounted for by the purchase method of accounting, and
accordingly, the purchase price has been allocated to the assets acquired
based on estimates of fair values at the date of acquisition. The excess of
the purchase price over the estimated fair values of the net assets acquired
was $5.3 million, and has been recorded as goodwill which is being amortized
over 5 years.
From time to time, satellite transponder time not used for providing
simulcasting services to the racing industry is sold to other users of
satellite transponders. The Company sold some of its transponder time in
satisfaction of requirements of a Waiver (as such term is defined below) to
the Company's Senior Bank Credit Facility.
The operating results of these acquisitions are included in the Company's
consolidated results of operations from the respective dates of the
acquisitions.
1994
On July 20, 1994, Marvin H. Sugarman Productions, Inc. ("MHSP") and Racing
Technology, Inc. ("RTI") were acquired in an exchange of 500,000 shares of the
Company's Class A Common Stock for all of the outstanding shares of MHSP and
RTI. The transaction was accounted for as a pooling of interests and
accordingly, the accompanying consolidated financial statements have been
restated to include the accounts and operations of MHSP and RTI for all
periods prior to the acquisition.
Prior to the acquisition, MHSP and RTI used the calendar year as their
respective fiscal years. The financial results of MHSP and RTI were conformed
to the fiscal year end of the Company as part of the restatement.
Separate results of the combining companies and the combined amounts for the
preacquisition 1993 fiscal year are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, 1993
-----------------
NET NET
REVENUES EARNINGS
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Autotote................................................... $79,478 9,020
MHSP & RTI................................................. 5,384 418
------- -----
Combined................................................. $84,862 9,438
======= =====
</TABLE>
39
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1993
In fiscal 1993, the Company made several acquisitions. At October 31, 1993,
the allocations of the purchase prices were based on preliminary estimates
with the excess of the purchase price over the estimated fair value of the
assets acquired based on the preliminary estimates of allocation of purchase
price for each acquisition to be amortized on a straight-line basis over 40
years. During 1994, the allocations of the purchase prices were finalized and
the useful life of the excess of the purchase price over the estimated fair
value of the net assets acquired was determined.
On June 22, 1993, the Company acquired all of the outstanding stock of ETAG
Electronic Totalisator Gesellschaft m.b.H. and its affiliated companies (the
"ETAG Group"). The ETAG Group leases wagering systems to harness racetracks in
Germany and Austria and provides maintenance services to customers on a per
diem basis. In addition, the ETAG Group sells computerized wagering systems to
third parties, holds a 50% interest in a joint venture which operates off-
track betting parlors in Germany and held a 25% investment in the Tele Control
Group (a provider of on-line lottery systems) which was subsequently acquired.
The Company paid an aggregate purchase price of $10,550,000 in cash, and
agreed to pay 10% (or 5% in certain cases) of the net increase in revenues on
a consolidated basis for the members of the ETAG Group for the calendar years
1993 through 1995, with payment to be made following the end of the respective
calendar year. The acquisition was accounted for using the purchase method;
accordingly, the assets and liabilities of the acquired entities have been
recorded at their estimated fair value at the date of acquisition with a
portion of the purchase price being allocated to property and equipment. The
excess of purchase price over the estimated fair value of the net assets
acquired is being amortized on a straight-line basis over 10 years (see Note 1
(i)). The operating results of the ETAG Group have been included in the
consolidated statement of operations since the date of acquisition.
On June 25, 1993, the Company acquired all of the outstanding stock of
General Instrument Lottery Corporation ("Autotote Lottery") for $7,825,000 in
cash. Autotote Lottery generally conducts business under one of three
contractual arrangements: operating contracts, in which it provides personnel,
equipment and services while retaining ownership of the equipment; technical
and software support contracts, in which it provides certain services but
sells the equipment; and sales contracts, in which it sells the equipment for
a fixed price, without providing personnel and services. The acquisition was
accounted for using the purchase method; accordingly, the assets and
liabilities have been recorded at their estimated fair value at the date of
acquisition with a portion of the purchase price being allocated to property
and equipment. The excess of purchase price over the estimated fair value of
the net assets acquired is being amortized on a straight-line basis over 5
years (see Note 1 (i)). The operating results of Autotote Lottery have been
included in the consolidated statement of operations since the date of
acquisition.
On September 8, 1993, the Company acquired 73% of the Tele Control Group
from several individuals in addition to the 25% interest in the Tele Control
Group which the Company acquired as a result of its acquisition of the ETAG
Group. The Tele Control Group develops high volume transaction processing
programs principally for on-line lotteries and other wagering applications,
and to a lesser extent, for banking and credit card applications, and provides
related software support. The Company paid a purchase price of $17,500,000 in
cash at the closing. In March 1994, the Company acquired the remaining 2%
interest in the Tele Control Group for a $123,000 cash purchase price. In
1994, the Company made an additional contingent cash payment of $7,500,000
based upon the signing of certain lottery contracts. Accordingly, this payment
has been identified to these contracts and classified as operating expense in
the accompanying consolidated statement of operations. The acquisition was
accounted for using the purchase method; accordingly, the assets and
liabilities of the acquired entities have been recorded at their estimated
fair value at the date of acquisition. The excess of purchase price over the
estimated fair value of the net assets acquired is being amortized on a
straight-line basis over 7 years (see Note 1 (i)). The operating results of
the Tele Control Group have been included in the consolidated statement of
operations since the date of acquisition.
40
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table presents unaudited pro forma results of operations as if
the acquisitions had occurred at the beginning of the 1993 fiscal year
presented. These pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of what would have occurred had the
acquisition been made at the beginning of fiscal year 1993 or of results which
may occur in the future. These pro forma results do not reflect the 1994
acquisition of MHSP and RTI, accounted for as a pooling of interests.
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED
OCTOBER 31, 1993
----------------
(IN THOUSANDS)
<S> <C>
Revenue................................................... $93,863
Operating income.......................................... 15,845
Earnings before income taxes.............................. 11,084
Earnings per common share................................. $ 0.35
</TABLE>
(4) Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
----------------
1995 1994
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Parts........................................................ $ 4,667 3,864
Work-in-process.............................................. 4,724 2,318
Finished goods............................................... 2,541 443
-------- ------
11,932 6,625
Ticket paper................................................. 565 437
-------- ------
$12,497 7,062
======== ======
</TABLE>
Work-in-process includes costs for equipment expected to be sold. Costs
incurred for equipment associated with specific wagering system contracts not
yet placed in service are classified as construction in progress in property
and equipment (see Note 5).
(5) Property and Equipment
Property and equipment, including assets under capital leases, consist of
the following:
<TABLE>
<CAPTION>
OCTOBER 31,
----------------
1995 1994
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Machinery, equipment and deferred installation costs....... $144,628 124,482
Land and buildings......................................... 20,169 15,425
Transportation equipment................................... 656 543
Furniture and fixtures..................................... 4,488 2,742
Leasehold improvements..................................... 4,972 889
Construction in progress................................... 11,092 14,981
-------- -------
$186,005 159,062
======== =======
</TABLE>
Depreciation expense for the years ended October 31, 1995, 1994, and 1993
amounted to $19,208,000, $14,256,000 and $10,278,000, respectively.
41
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest costs of $81,000 and $1,113,000 were capitalized in 1995 and 1994,
respectively, as additional costs of qualifying property during the
construction period and are included in the category land and buildings in
1995 and in machinery and equipment in 1994.
For financial reporting purposes, at October 31, 1995 and 1994, costs for
equipment associated with specific wagering systems contracts not yet placed
in service are recorded as construction in progress. When the equipment is
placed in service at wagering facilities, the related costs are transferred
from construction in progress to machinery and equipment.
Under wagering systems contracts, the Company retains ownership of all
equipment located at wagering facilities.
(6) Other Assets and Investments
Other assets and investments (net) consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
--------------
1995 1994
------- ------
(IN THOUSANDS)
<S> <C> <C>
Software systems development costs............................ $15,872 15,085
Deferred financing costs...................................... 1,943 2,338
Deferred transponder costs.................................... 3,656 --
Other intangible assets....................................... 2,143 5,633
Other assets.................................................. 6,556 6,800
------- ------
$30,170 29,856
======= ======
</TABLE>
In 1995, the Company capitalized $7,355,000 of costs associated with
development of its lottery software, principally its UNIBET software developed
for the international market, as well as $2,380,000 of costs related primarily
to video gaming and pari-mutuel terminal applications. In 1995, the Company
wrote-off $6,378,000 of capitalized costs relating primarily to lottery
software and wagering terminal applications development. This write-off is
included in the Company's third quarter 1995 restructuring costs. In 1994, the
Company capitalized $6,012,000 of costs primarily related to lottery and video
lottery systems. Capitalized costs are amortized on a straight-line basis over
a period of five years. Amortization of capitalized software systems
development costs was $4,274,000, $2,245,000 and $758,000 for the years ended
October 31, 1995, 1994 and 1993, respectively.
Deferred financing costs relate to those costs associated with the
procurement of long term financing by the Company. Such costs are amortized
over the life of the financing agreements. In 1995, the Company capitalized
$405,000 incurred in connection with its 1995 financing programs and expensed
$321,000 of fees incurred during the year which had no future benefit. In
1994, the Company wrote off $4.2 million of deferred financing fees and
expenses associated with the Company's repayment of its prior senior credit
facility with Heller Financial Group, Inc. Amortization expense was $785,000,
$534,000 and $475,000 for the years ended October 31, 1995, 1994 and 1993,
respectively.
Deferred transponder costs arose in connection with the acquisition of IDB
and are being amortized over a four year period. Amortization expense in 1995
amounted to $844,000.
(7) Related Party Transactions
In connection with the acquisition of the Tele Control Group, the Company
has assumed a contract with IMMOC leasing, a real estate concern substantially
owned by certain employees of the Company, to rent the
42
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
premises for a minimum period of 15 years. Consequently the Company has annual
rental commitments of approximately $620,000 through the year 2006. Rental
payments made to this concern were $613,000, $433,000 and $24,000 for the
years ended October 31, 1995, 1994 and 1993, respectively. Future minimum
lease payments related to this commitment have been included in Note 8.
In 1995 and 1994, a director of the Company had a consulting arrangement
with the Company whereby he received $100,000 in each year for consulting
services. The arrangement was terminated in 1995.
The Company has a senior bank credit facility with Bankers Trust Company, a
company of which a director of the Company was a managing director.
At October 31, 1995 and 1994, $66,000 and $243,000, respectively, was due
from DATEK, an unconsolidated 50% investee of ETAG.
Rental payments for office space totaling $93,000 were paid to the Company's
Chief Executive Officer in 1993.
In the opinion of management of the Company, the foregoing transactions were
effected at rates which approximate those which the Company would have
realized or incurred had the transactions been effected with independent third
parties.
(8) Leases
At October 31, 1995, the Company was obligated under operating leases
covering office equipment, office space, transponders and transportation
equipment expiring at various dates through 2006. Future minimum lease
payments required under these leasing arrangements at October 31, 1995 are as
follows: 1996, $9,425,000; 1997, $9,251,000; 1998, $9,486,000; 1999,
$5,111,000; 2000, $1,695,000; and thereafter $4,429,000. The Company also
leases equipment as needed under various month-to-month lease agreements.
Total rental expense under these operating leases was $7,715,000, $3,211,000
and $1,196,000 in the years ended October 31, 1995, 1994 and 1993,
respectively.
The Company entered into capital lease obligations of $1,023,000, $587,000
and $1,062,000 during the years ended October 31, 1995, 1994 and 1993,
respectively.
(9) Notes Payable and Other Short Term Borrowings
At October 31, 1994, the Company had short term borrowings in the amount of
$250,000 with a European bank. Interest on the facility is based on LIBOR
(approximately 5.1875% at October 31, 1994). The facility was repaid in full
during 1995.
43
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(10) Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
----------------
1995 1994
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Senior Bank Credit Facility, due April 1999, interest
payable at .25% to 1.25% over prime or 1.25% to 2.25%
over Eurodollar rate (as defined), (8.125% at October 31,
1995), secured by the assets of the Company.............. $129,280 101,448
5.5% subordinated debentures due August, 2001, convertible
into Class A Common Stock at $20.00 per share, interest
due semi-annually commencing February 1994............... 40,000 40,000
Mortgage loan due in monthly installments of $17,565
through August 2005 with remaining balance due September
2005; interest payable at 8%, secured by the facility.... 2,093 --
Capital lease obligations, due in monthly installments
through January 2000, interest rates ranging from 7.93%
to 11.0%................................................. 1,985 1,386
Mortgage loan due in monthly installments of $7,700
through April 2003, interest payable at 11%.............. 1,033 --
Term loan due July 1996, interest payable at 11.03%....... 359 --
Various term loans due in installments through March 1999
at interest rates ranging from 7.33% to 13.75%........... 1,056 --
Term loan due in monthly installments of $39,000, interest
payable at approximately 8%, secured by the equipment.... 731 728
Irish Development Authority grant, due upon shut-down of
plant.................................................... 531 82
Commercial Development Revenue Bond, interest payable at
88% of prime rate (8.75% at October 31, 1995), due in
monthly installments of $7,433 plus interest, through
February 1997, secured by buildings and improvements..... 126 216
Note payable--Video equipment vendor, payable in monthly
installments of $2,099 including interest at 11%, due
September 15, 1999....................................... 70 95
-------- -------
Total long-term debt...................................... 177,264 143,955
Less current installments................................. 10,772 792
-------- -------
Long-term debt, excluding current installments............ $166,492 143,163
======== =======
</TABLE>
On April 28, 1994, the Company entered into an Amended and Restated Bank
Credit Agreement (the "Senior Bank Credit Facility") with the lenders thereto
and with Bankers Trust Company ("BT") as agent which provided for a $125.0
million, five-year revolving credit facility. The Senior Bank Credit Facility
was subsequently amended in December 1994 pursuant to which the Company was
provided, subject to certain terms and conditions, an additional $10 million
of availability.
The Company was in violation of certain covenants of the Senior Bank Credit
Facility as of October 31, 1994. On February 21, 1995, the Company entered
into an amendment to the Senior Bank Credit Facility (the "Fourth Amendment
and Consent"), which waived the covenant defaults, amended certain financial
covenants and consented to a revised calculation of certain financial ratio
covenants as a result of which the Company was in compliance with the
provisions of the Senior Bank Credit Facility.
44
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company was also in violation of certain covenants under the Senior Bank
Credit Facility at various times throughout fiscal 1995. The Company obtained
a number of waivers and consents during the year (the "Waivers"). Pursuant to
the Waivers, the Banks agreed to, among other things, waive compliance by the
Company with certain financial ratios and financial condition tests specified
in the Senior Bank Credit Facility for a period beginning on January 31, 1995
and ending on January 31, 1996 (the "Waiver Period"); provided, however, that
the Company comply with certain modified financial ratios and tests and
fulfill certain other requirements by specified dates. These requirements,
among others, included: (a) issuing to the Banks warrants to purchase an
aggregate of 385,000 shares of Class A Common Stock at an exercise price of
$3.00 per share (the "1995 Lender Warrants"); (b) entering into an arrangement
satisfactory to the Banks with the Debenture Holders, pursuant to which
arrangement the Debenture Holders would agree to defer all cash payments
otherwise due from August 15, 1995 until February 14, 1996; and (c) making
arrangements satisfactory to the Banks to raise additional cash through the
issuance of equity interests in the Company or the sale of assets of the
Company or any of its subsidiaries in an aggregate amount of at least $5.0
million. The Waivers also restricted the Company's capital expenditures,
acquisitions, sale of equity and assets, and incurrence of lease and debt
obligations, and required the Company to deliver to the Banks weekly, monthly
and quarterly certificates of the Company's Chief Financial Officer, setting
forth certain actual and projected financial information. In connection with
the Waivers, in addition to the 1995 Lender Warrants, the Banks earned a fee
of 1% of $135 million, payable the earlier of June 30, 1996, or when the
Company raised at least $10 million through asset or equity sales which is
still payable under the Amended and Restated Senior Bank Credit Facility.
On September 13, 1995, the Company issued to the Banks the warrants referred
to in clause (a) of the preceding paragraph. In connection with clause (b) of
the preceding paragraph, the Company reached an agreement regarding interest
payments due on the Debentures, evidenced by a letter agreement dated as of
November 6, 1995 (the "Letter Agreement"), with the Debenture Holders as
described below. In connection with clause (c), the Company received $4.42
million (after deducting commissions paid to the placement agent) through the
sale of 1.56 million shares of Class A Common Stock in accordance with the
provisions of a Regulation S offering of securities, and $1.2 million from the
sale of assets and excess transponder time, in satisfaction of Waiver
requirements.
On January 26, 1996, the Company entered into an Amended and Restated Credit
Agreement with lenders to the Senior Bank Credit Facility (the "Amended and
Restated Senior Bank Credit Facility"), pursuant to which current commitments
of each lender under the Senior Bank Credit Facility, totaling $135 million,
are continued as the Amended and Restated Senior Bank Credit Facility, which
provides for: 1) a $55 million term loan (the "A Term Loan"), 2) a $5 million
term loan (the "B Term Loan"), and 3) a $75 million revolving credit facility
(the "Revolver"), which includes a $25 million sublimit for letters of credit.
$5 million of outstanding Revolving B Facility loans and $50 million of
outstanding Revolving A Facility loans are constituted as the A Term Loan. $5
million of outstanding Revolving B Facility loans are constituted as the B
Term Loan. The balance of all outstanding Revolving A Facility loans are
converted into loans under the Revolver. The A Term Loan provides for certain
quarterly principal repayments, including a $15 million principal repayment on
April 30, 1997 and a $32 million principal repayment at maturity on November
1, 1997. The B Term Loan provides for certain quarterly principal repayments
through its maturity on January 31, 1997. The Revolver matures on April 30,
1998. The Amended and Restated Senior Bank Credit Facility contains various
financial and other covenants, including restrictions on the Company's
acquisitions, indebtedness, investments and capital expenditures, and
covenants that prohibit the payment of cash dividends on the Company's stock
and distributions to stockholders. The Amended and Restated Senior Bank Credit
Facility permits voluntary prepayments, and requires Mandatory Repayments upon
the occurrence of certain events and in certain amounts, including: 1) with
certain limited expectations, 100% of the net proceeds of assets sales, with a
$1 million per year exclusion; 2) 100% of the net proceeds of debt raised; 3)
certain net proceeds of equity sales, based on a sliding scale; and 4) 75% of
annual "Excess Cashflow," as defined. In addition to customary events of
default, a Change of Control of the Company (as defined) constitutes an event
of default under the Amended and Restated Senior Bank Credit Facility. The
45
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Amended and Restated Senior Bank Credit Facility is guaranteed by the Company
and its subsidiaries and is secured by substantially all of the assets of the
Company and its subsidiaries. Borrowings under the Amended and Restated Senior
Bank Credit Facility bear interest at the Base Rate (as defined) plus a margin
ranging from 1.25% to 2.25%, or the Eurodollar Rate (as defined) plus a margin
ranging from 2.25% to 3.25% per year, in each case depending on the Company's
performance as measured by the ratio of Bank Debt, as defined, to the
Company's earnings before interest, taxes, depreciation and amortization; and
in all cases an additional 2% in the event of certain defaults. A commitment
fee of 0.5% per year is payable on the unused amount under the Revolver. A
letter of credit fee equal to the applicable margin on Eurodollar loans then
in effect plus a facing fee of 1/8 of 1% per year is payable on each letter of
credit issued. As a closing fee, the Company issued to the Banks warrants to
purchase 525,000 shares of Class A Common Stock, subject to adjustments, at an
exercise price of $1.25 per share (the "1996 Lender Warrants") (see Note 15).
On August 20, 1993 the Company issued $40,000,000 principal amount of 5.5%
convertible subordinated debentures due 2001 (the Debentures) in a private
placement. The Debentures are convertible into 2,000,000 shares of Class A
Common Stock at a conversion price of $20.00 per share. $17,500,000 of the
proceeds were used to complete the Tele Control Group acquisition, $10,000,000
of the proceeds were applied to borrowings under the Senior Bank Credit
Facility and the remainder was used for capital expenditures and other
corporate purposes.
On November 6, 1995, the Company entered into a Letter Agreement with
holders of its 5.5% Convertible Subordinated Debentures whereby the holders
would receive unregistered shares of Class A Common Stock in lieu of cash for
interest payments due in August 1995 and February 1996 in the amount of
$1,100,000 each. The Agreement provides demand and piggy-back registration
rights to the Debenture holders with respect to the unregistered shares. In
November 1995, the Company issued 422,500 shares of Class A Common Stock in
payment of the interest due in August 1995. The number of shares of Class A
Common Stock to be issued in payment of the February 1996 interest will be
calculated by dividing $1.1 million by the average of the closing prices of
the Class A Common Stock for 20 consecutive trading days immediately preceding
February 15, 1996 on the NASDAQ national market and multiplying the resultant
by 1.5. The Debentures Holders have agreed that the payments of interest in
the manner described above will not be considered an event of default under
the Debentures.
Deferred financing costs associated with a 1993 Senior Bank Credit Facility
were charged to expense in 1994 in conjunction with the refinancing of that
facility with the Senior Bank Credit Facility discussed above. The write-off
of these deferred financing costs has been classified as an extraordinary item
in the accompanying statements of operations.
In connection with the construction of its Las Vegas facility, in October
1994, the Company entered into a $2.1 million construction loan with interest
at 1.5% above prime rate. This construction loan was refinanced in September
1995 with a 10 year balloon mortgage bearing interest at 8%. Mortgage payments
are based on a 20 year amortization period and the mortgage is secured by a
first deed of trust on the property.
As of October 31, 1995, the Company had approximately $3,937,000 available
for borrowing under its Revolver, with $1,783,000 in outstanding letters of
credit and $129,280,000 in outstanding borrowings.
The aggregate maturities of long-term debt for the next five fiscal years
and thereafter are as follows: 1996, $10,772,000; 1997, $21,271,000; 1998,
$102,219,000; 1999, $482,000; 2000, $251,000; and thereafter, $42,269,000.
46
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(11) Income Tax Expense (Benefit)
The consolidated earnings (loss) before income taxes (benefit) and
extraordinary item, by domestic and foreign source, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------
1995 1994 1993
-------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic......................................... $(45,966) (26,090) 2,921
Foreign.......................................... (1,250) 6,700 7,809
-------- ------- ------
Consolidated earnings (loss) before income taxes
(benefit) and extraordinary item................ $(47,216) (19,390) 10,730
======== ======= ======
</TABLE>
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
1995:
Federal........................................... $ -- -- --
Foreign........................................... 1,819 854 2,673
State............................................. -- -- --
------ ------ ------
$1,819 854 2,673
====== ====== ======
1994:
Federal........................................... $ (579) (5,670) (6,249)
Foreign........................................... 106 4,681 4,787
State............................................. -- -- --
------ ------ ------
$ (473) (989) (1,462)
====== ====== ======
1993:
Federal........................................... $ 724 (968) (244)
Foreign........................................... 1,054 199 1,253
State............................................. 283 -- 283
------ ------ ------
$2,061 (769) 1,292
====== ====== ======
</TABLE>
47
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Temporary differences between the financial statement carrying amounts and
tax bases of assets and liabilities that give rise to significant portions of
the deferred tax liability (asset) relate to the following:
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------
1995 1994
-------- -------
(IN THOUSANDS)
<S> <C> <C>
CURRENT DEFERRED TAX LIABILITY (ASSET)
Accrued restructuring costs........................... $ (1,948) (1,326)
Accrued vacation...................................... (685) (566)
Accrued loss on contracts............................. (742) (497)
Inventory reserve..................................... (571) (393)
Other accrued liabilities............................. (883) (798)
Reserve for doubtful accounts......................... (417) (31)
Other, net............................................ -- (149)
-------- -------
Current deferred tax asset.......................... (5,246) (3,760)
Accrued foreign contract reserve...................... 5,116 3,842
-------- -------
Current deferred tax liability (asset), net......... (130) 82
-------- -------
NONCURRENT DEFERRED TAX LIABILITY (ASSET)
Intangible assets difference in amortization periods.. 776 102
Intercompany sales to affiliates...................... 280 280
Property and equipment due to differences in financial
reporting and tax depreciation methods............... 8,330 8,738
Other, net............................................ 504 --
Interest charge, Domestic International Sales Corp.... 4,495 4,416
-------- -------
Noncurrent deferred tax liability, net.............. 14,385 13,536
-------- -------
Net operating loss carryforward....................... (31,728) (12,823)
Foreign tax credit carryforward....................... (759) (1,030)
Alternative minimum tax credits....................... (184) (184)
Research and experimentation credits.................. (150) (150)
Other, net............................................ -- (372)
-------- -------
Noncurrent deferred tax asset....................... (32,821) (14,559)
Valuation allowance................................... 24,373 5,894
-------- -------
Noncurrent deferred tax asset, net.................. (8,448) (8,665)
-------- -------
Noncurrent deferred tax liability................... 5,937 4,871
-------- -------
Net deferred tax liability on balance sheet......... $ 5,807 4,953
======== =======
</TABLE>
The aggregate deferred tax assets before valuation allowance at October 31,
1995, and 1994 were $38,067,000 and $18,319,000, respectively. The aggregate
deferred tax liabilities at October 31, 1995 and 1994 were $19,501,000 and
$17,378,000, respectively. Deferred tax liabilities were increased by
$2,955,000 during the year ended October 31, 1994 to reflect the final
allocation of purchase price to the assets and liabilities of business
acquired.
48
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The actual tax expense (benefit) differs from the "expected" tax expense
(benefit) (computed by applying the U.S. Federal corporate rate of 34% to
earnings (loss) before income taxes (benefit) and extraordinary item) as
follows:
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------------
1995 1994 1993
-------- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)......... $(16,053) (6,593) 3,648
Increase (reduction) in income taxes resulting
from:
Additional provision for foreign source income.. -- 1,754 --
Unused net operating loss....................... (15,450) -- --
Valuation allowance for deferred tax assets..... -- 384 --
Foreign tax differential........................ 3,098 2,654 (841)
Utilization of net operating loss carryforward.. -- -- (470)
Utilization of foreign tax credits.............. -- -- (377)
Utilization of alternative minimum tax credits.. -- -- (71)
Utilization of research and experimentation
credits........................................ -- -- (38)
Non-deductible goodwill......................... 118 182 --
State income taxes, net of federal benefit...... -- -- 187
Interest charge, Domestic International Sales
Corp. ......................................... -- -- 58
Other, net...................................... 60 157 (804)
-------- ------ -----
$ 2,673 (1,462) 1,292
======== ====== =====
</TABLE>
As a result of the 1994 loss and the allocation of income tax benefit to
continuing operations, no deferred tax benefit remained to be allocated to the
extraordinary loss or additional capital.
The Company has regular tax net operating loss carryforwards of
approximately $1,794,000 that expire in 2005, $1,222,000 that expire in 2006,
$954,000 that expire in 2008, $29,910,000 that expire in 2009 and $45,440,000
that expire in 2010. To the extent that tax carryforwards are realized through
reduction of income taxes payable in future periods, deferred tax liabilities
will be reinstated at the then current rate.
The Company has Minimum Tax Credit (MTC) carryforwards (which can be carried
forward indefinitely) of approximately $184,000, regular foreign tax credits
of approximately $759,000 and research and experimentation credit
carryforwards of approximately $150,000.
Regular foreign tax credits of $285,000 expire in 1996, $195,000 expire in
1997, and the balance of $279,000 expire in 1998.
The research and experimentation credits expire from 1997 to 2003.
The valuation allowance for deferred tax assets in the amount of $5,894,000
was established in 1994. The net change in the valuation allowance for the
year ended October 31, 1995 was an increase of $18,479,000.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax asset will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment.
Management does not believe it is more likely than not that the benefit of
deferred tax assets in excess of the scheduled reversal of deferred tax
liabilities will be realized.
49
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Subsequently recognized tax benefits relating to the valuation allowance for
deferred tax assets as of October 31, 1995 will be allocated as follows (in
thousands):
<TABLE>
<S> <C>
Income tax benefit that would be reported in the consolidated
statements of operations......................................... $21,523
Additional capital (benefit from exercise of stock options)....... 2,850
-------
$24,373
=======
</TABLE>
(12) Pension Plans
The Company has a defined benefit plan for union employees. Retirement
benefits under the plan are based upon the number of years of credited service
up to a maximum of thirty years for the majority of the employees. The
Company's policy is to fund the minimum contribution permissible by the
Internal Revenue Service.
The following are the components of pension expense related to the defined
benefit plan for 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost............................................. $ 63 78 60
Interest cost on projected benefit obligation............ 82 81 71
Actual return on plan assets............................. (87) (32) (51)
Net amortization and deferral............................ 16 (38) (17)
---- --- ---
$ 74 89 63
==== === ===
</TABLE>
The assets and obligations of the defined benefit plan at October 31, 1995
and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of $1,135,000 and $1,007,000 at October 31, 1995 and
1994, respectively...................................... $ 1,255 1,148
------- ------
Projected benefit obligation for services rendered to
date.................................................... 1,272 1,148
Plan assets at fair value (invested in insurance company
general accounts guaranteed as to principle)............ 1,043 970
------- ------
Projected benefit obligation in excess of plan assets.... 229 178
------- ------
Funded status............................................ (229) (178)
Unrecognized net obligation.............................. 57 63
Unrecognized prior service cost.......................... 88 74
Unrecognized net loss.................................... 209 176
------- ------
Prepaid pension cost..................................... $ 125 135
======= ======
</TABLE>
The accumulated benefit obligation represents the actuarial present value of
benefits based upon the benefit multiplied by the participants' historical
years of service.
The accumulated and projected benefit obligation for 1995 and 1994 were
calculated using the unit credit method and reflect the following assumptions:
discount rate of 7.25% in 1995 and 7.50% in 1994, with a 9% long-term rate of
return on assets.
50
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In connection with its collective bargaining agreements, the Company
participates with other companies in a defined benefit pension plan covering
union employees. Payments made to the multi-employer plan were approximately
$187,000, $313,000 and $365,000 during the years ended October 31, 1995, 1994
and 1993, respectively.
The Company has a 401(K) plan covering all employees who are not covered by
a collective bargaining agreement. Company contributions to the plan are at
the discretion of the Board of Directors. Pension expense for the years ended
October 31, 1995, 1994 and 1993 amounted to approximately $839,000, $756,000
and $522,000, respectively. The Company has a 401K plan for all union
employees which does not provide for Company contributions.
(13) Management Incentive Compensation
Upon acquisition of Autotote Systems, Incorporated, the Company assumed the
obligations of an inactive management incentive compensation plan which is
included in the accompanying financial statements net of future tax benefits.
The obligations of the plan will be satisfied, upon favorable termination of
employment, through the issuance of 53,250 shares of Class A Common Stock at a
stated value of $3.33 per share.
The Company also makes cash awards to key management personnel based on
contractual commitments, overall profitability of the Company, as well as
individual performance. Management incentive compensation expense amounted to
$1,157,000, $884,000 and $200,000 in 1995, 1994 and 1993, respectively.
(14) Service Contract Arrangements
Service arrangements for wagering systems in North America generally cover a
five-year period and provide for substantial related services such as
software, maintenance personnel, computer operators, and certain operating
supplies. They also provide for certain warranties covering operation of the
equipment, machines, display equipment, and central computing equipment. The
breach of such warranties could result in significant liquidated damages. The
equipment is placed at customer facilities under contracts generally providing
for revenue based on the greater of a percentage of total amounts wagered or a
specified minimum. The Company also has service contracts based on a
percentage of total amounts wagered with no specified minimum.
Minimum annual payments expected to be received under service contracts in
effect as of October 31, 1995 with a specified minimum aggregate $44,614,000
as follows: 1996, $16,368,000; 1997, $8,947,000; 1998, $7,153,000; 1999,
$5,141,000; 2000, $3,365,000; and thereafter $3,640,000 .
Included in wagering systems revenues are minimum payments received under
service contracts of $25,131,000, $12,002,000 and $11,700,000 in 1995, 1994
and 1993, respectively.
(15) Capital Stock
The Company has two classes of common stock consisting of Class A Common
Stock and Class B Non-voting Common Stock (Class B Common Stock). All shares
of Class A Common Stock and Class B Common Stock entitle holders to the same
rights and privileges except that the Class B Common Stock is non-voting. Each
share of Class B Common Stock is convertible into one share of Class A Common
Stock.
On April 1, 1993, the Company completed a public offering of Class A Common
Stock which resulted in the sale of 11,412,000 shares of the Company's Class A
Common Stock at a price of $9.00 per share. Of the 11,412,000 shares sold,
9,214,000 shares were sold for the account of the Company resulting in net
proceeds, before expenses of the offering, of $77,708,000 while 2,198,000
shares were sold to the public by certain selling stockholders.
51
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1995, the Company issued 12,000 and 15,000 shares of unregistered
Class A Common Stock in exchange for early termination of a services contract
and in payment for services provided to the Company related to MHSPI,
respectively.
In October 1995, the Company completed a private placement of its Class A
Common Stock which raised net proceeds of $4,420,089 through the sale of
1,562,849 shares in accordance with the provisions of the Regulation S. These
shares have not been registered under the Securities Act of 1933 and may not
be offered for sale or sold in the United States absent registration or an
applicable exemption from registration requirements. The Company will use the
net proceeds after deducting expenses of the offering to repay a portion of
the revolving loans outstanding under its Senior Bank Credit Facility.
In November 1995, the Company entered into an Agreement with holders of its
5.5% Convertible Subordinated Debentures whereby the holders would receive
unregistered shares of Class A Common Stock in lieu of cash for interest
payments due in August 1995 and February 1996 in the amount of $1,100,000
each. Additional information is set forth in Note 10.
The voting rights, dividend rate, redemption price, rights of conversion,
rights upon liquidation and other preferences of the undesignated preferred
stock are subject to determination by the Board of Directors.
At October 31, 1992, the Company had outstanding Series B Convertible
Preferred Stock. Each share was convertible into common stock at the
liquidation preference divided by the conversion price, as defined. In January
1993, the conversion privilege on all outstanding shares of Series B
Convertible Preferred Stock was exercised.
Warrants
In 1992, the Company issued to lenders warrants exercisable at $3.83 per
share to purchase 592,074 shares of Class B Common Stock of the Company (the
1992 Lender Warrants) representing, in the aggregate, 3% of the then fully
diluted outstanding shares of the Company. The Company also granted the
lenders an option to purchase 3% of any future issuance of securities of the
Company below market value, with certain exceptions, at the same price at
which any such securities are then issued (the "1992 Options"). In addition, a
warrant to purchase 873,000 shares of Class B Common Stock at $0.01 per share,
issued to lenders in 1991, was increased to 1,173,000 shares. This warrant was
exercised in April 1993. An option issued to lenders in 1991, providing the
lenders the right to purchase 5% of any issuance of securities of the Company
subsequent to October 31, 1991, at the same price at which any such securities
are then issued, was amended to apply only to below market issuances (the
"1991 Option"). The 1992 Lender Warrants gave the lenders certain registration
rights and expires November 1, 2003. The 1992 option had a term of 10 years
and gave the Lenders certain registration rights.
In October 1994, the Board approved the exchange of certain outstanding 1992
Lender Warrants for warrants to purchase Class A Common Stock. In October
1994, a holder of 1992 Lender Warrants acquired 354,546 shares of Class A
Common Stock through a cashless exercise of 445,281 1992 Lender Warrants. Upon
exercise, the holder canceled its 1991 Options and its 1992 Options. At
October 31, 1995, 146,793 of warrants were outstanding to purchase Class B
Common Stock.
On September 13, 1995, pursuant to the Waivers obtained from the Banks under
the Senior Bank Credit Facility, the Company issued to the Banks warrants to
purchase an aggregate of 385,000 shares of Class A Common Stock at an exercise
price of $3.00 per share (the 1995 Lender Warrants). The 1995 Lender Warrants
give the Banks certain registration rights and expire on April 30, 1999. At
October 31, 1995, 385,000 1995 Lender Warrants remain outstanding.
52
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At October 31, 1995, warrants were outstanding to purchase 2,264,493 shares
of Class A Common Stock issued in connection with the 1991 debenture
amendment. During 1995 and 1994, 36,120 and 48,156 warrants were exercised,
respectively.
On January 26, 1996, pursuant to the 1995 Credit Agreement Amendment and
Restatement obtained from the Banks, the Company issued to the Banks warrants
to purchase an aggregate of 525,000 shares of Class A Common Stock at an
exercise price of $1.25 per share (the 1996 Lender Warrants). (see Note 10.)
(16) Stock Options
On July 17, 1984, the Company adopted the 1984 Stock Option Plan (the 1984
Plan) under which 562,500 shares of Class A Common Stock were reserved for
issuance to employees including officers and directors who are also employees.
In Fiscal Year 1992, the Company increased the number of shares of Class A
Common Stock available for delivery under the 1984 Plan to 1,350,000.
On December 17, 1992, the Company adopted the 1992 Equity Incentive Plan
(the 1992 Plan) under which 900,000 shares of Class A Common Stock were
reserved for issuance to employees including officers and directors. At the
August 10, 1994 Annual Meeting, shareholders approved an increase in the
number of shares which may be delivered under the 1992 Plan to 3,000,000.
In May 1995, the Company adopted the 1995 Equity Incentive Plan (the 1995
Plan) under which 2,000,000 shares of Class A Common Stock were reserved for
issuance to employees, including officers and directors.
In May 1995, the Company offered holders of stock options with exercise
prices above market value as of May 26, 1995 the right to cancel such options
in exchange for Performance Accelerated Restricted Stock Units (the PARS). The
PARS represent deferred shares of Class A Common Stock which vest in 20%
increments on the sixth, seventh, eighth, ninth and tenth anniversaries, or,
in certain circumstances, on an accelerated basis based on the Company's stock
being traded at certain per share prices, or at the discretion of the Board of
Directors. Options to purchase 1,887,200 shares were exchanged for 478,705
PARS of which 263,072 were issued under the 1995 Plan and 215,633 were issued
under the 1992 Plan. Additionally, a total of 110,000 PARS with a three year
vesting schedule were issued to certain directors under the 1992 Plan.
In accordance with the exchange of options for PARS, the Company has
recorded compensation expense of $166,000 in 1995. Additional compensation
expense totaling $2,262,000 will be charged to expense through 2005.
Options granted under the Company's equity incentive plans are exercisable
at the fair market value of the stock at the date of grant. From time to time,
the Company grants additional stock options to individuals outside of the 1992
and 1995 Plans in recognition of contributions made to the Company.
53
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Information with respect to the Company's stock options are as follows:
<TABLE>
<CAPTION>
STOCK OPTIONS NUMBER OF SHARES PRICE RANGE
------------- ---------------- -------------
<S> <C> <C>
Outstanding at October 31, 1992.............. 2,040,000
Granted.................................... 1,884,900 $ 4.84-$26.25
Exercised.................................. 174,695 $ 1.59-$ 3.50
---------
Outstanding at October 31, 1993.............. 3,750,205
Granted.................................... 891,400 $15.75-$22.00
Canceled................................... 3,800 $15.75
Exercised.................................. 428,503 $ 1.59-$13.50
---------
Outstanding at October 31, 1994.............. 4,209,302
Granted.................................... 634,000 $ 3.19-$15.00
Canceled................................... 156,100 $ 4.84-$26.25
Exchanged.................................. 1,887,200 $ 4.84-$26.25
Exercised.................................. 168,999 $ 1.59-$ 4.84
---------
Outstanding at October 31, 1995.............. 2,631,003
=========
</TABLE>
At October 31, 1995, 1,791,603 options to acquire shares of Class A Common
Stock were exercisable. Outstanding options expire prior to April 30, 2005,
and are exercisable at prices ranging from $1.59 to $21.00 per share.
(17) Fair Value of Financial Instruments
The fair value of financial instruments is determined by reference to market
data and other valuation techniques as appropriate. The Company believes the
fair value of its financial instruments, principally accounts receivable,
accounts payable, and accrued liabilities, except for its long-term debt, and
subordinated debentures, approximates their recorded values.
With respect to the Company's Senior Bank Credit Facility, the Company is
unable to determine the fair value of this instrument due to the defaults
experienced during the year prior to obtaining the January 1996 Amended and
Restated Senior Bank Credit Facility. Similarly, the Company is unable to
obtain an independent appraisal of the fair market value of its $40,000,000
subordinated debentures.
(18) Litigation
The Company and certain of its officers and directors have been named as
defendants in a number of lawsuits commenced in February 1995 as class actions
in the United States District Court for the District of Delaware. These
lawsuits were consolidated into one class action in June 1995. The putative
class consists of purchasers of Class A Common Stock and put and call options
between March 1994 and January 1995. The consolidated class action complaint
alleges that the Company and certain of its officers and directors violated
federal securities laws and seeks remedies of unspecified monetary damages and
awards of fees and expenses. The defendants answered the complaint in August
1995, denying any violation of federal securities law. Discovery has commenced
pursuant to a court ordered discovery plan. The likelihood of success and the
ultimate outcome of the consolidated litigation cannot be evaluated until
discovery is complete. No provision for liability, if any, that may result
from the consolidated litigation has been recognized in the Company's
financial statements. In the event of a judgment against, or settlement by,
the Company and the named officers and directors, approximately $15 million of
any such amount may be payable by the Company's insurance carriers on behalf
of the named officers and directors, subject to any defenses such insurance
carriers may have. Any amount of a judgment or settlement award in excess of
$15 million, or any portion of any judgment or settlement attributable solely
to the Company, would be the
54
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
responsibility of the Company, and there can be no assurance that the Company
would have the financial resources to fund payments pursuant to a judgment or
settlement award.
(19) Export Sales and Major Customers
Sales to foreign customers amounted to $9,860,000, $6,073,000 and $10,067,000
in 1995, 1994 and 1993, respectively.
A single customer represented $27,290,000 of fiscal 1994 revenues.
(20) Accrued Liabilities
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
--------------
1995 1994
------- ------
(IN THOUSANDS)
<S> <C> <C>
Compensation and benefits................................ $ 7,944 4,833
Taxes, other than income................................. 1,295 575
Customer advances on sales contracts..................... 743 1,420
Sales and use tax........................................ 1,009 1,932
Contract reserves........................................ 1,320 2,171
Interest................................................. 2,069 813
Restructuring costs...................................... 3,710 --
Other.................................................... 5,693 5,733
------- ------
$23,783 17,477
======= ======
</TABLE>
(21) Selected Quarterly Financial Data (Unaudited)
Selected quarterly financial data for the years ended October 31, 1995 and
1994 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, 1995
----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Total operating revenues...... $31,117 37,132 38,722 46,213
Gross profit.................. 12,874 14,960 13,770 17,350
Net loss...................... (5,931) (8,958) (29,246) (5,754)
Loss per common share......... $ (0.21) (0.31) (1.01) (0.20)
========== ========= ========== ==========
Weighted average shares out-
standing..................... 28,810 28,913 28,928 29,201
========== ========= ========== ==========
<CAPTION>
YEAR ENDED OCTOBER 31, 1994
----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Total operating revenues...... $28,289 38,446 41,136 41,179
Gross profit.................. 11,206 14,172 10,830 9,150
Net earnings (loss) before ex-
traordinary item............. (103) 953 (2,214) (16,564)
---------- --------- ---------- ----------
Extraordinary item............ -- (4,222) -- --
---------- --------- ---------- ----------
Net loss...................... $ (103) (3,269) (2,214) (16,564)
========== ========= ========== ==========
Earnings (loss) per common
share, before extraordinary
item......................... $ 0.00 0.03 (0.08) (0.58)
Extraordinary item............ -- (0.15) -- --
---------- --------- ---------- ----------
Earnings (loss) per common
share........................ $ 0.00 (0.12) (0.08) (0.58)
========== ========= ========== ==========
Weighted average shares out-
standing..................... 27,987 28,107 28,196 28,434
========== ========= ========== ==========
</TABLE>
55
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(22) Business and Geographic Segments
The following tables represent revenues, profits, depreciation and assets by
business and geographic segments for the years ended October 31, 1995, 1994
and 1993. Corporate expenses are allocated among industry and geographic
segments.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------
1995 1994 1993
--------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
BUSINESS SEGMENTS
Service contract revenue and product sales
Pari-mutuel/sports betting................... $ 73,455 55,581 64,104
Lottery operations........................... 25,848 56,162 6,514
Off-track betting concerns................... 39,218 29,725 8,860
Simulcasting services........................ 14,663 7,582 5,384
--------- ------- -------
$ 153,184 149,050 84,862
========= ======= =======
Operating income (loss)
Pari-mutuel/sports betting................... $ (19,977) (16,348) 9,601
Lottery operations........................... (11,878) 4,953 1,764
Off-track betting concerns................... 2,674 1,780 1,766
Simulcasting services........................ (2,109) (4,319) 774
--------- ------- -------
$ (31,290) (13,934) 13,905
========= ======= =======
Depreciation and amortization
Pari-mutuel/sports betting................... $ 20,758 15,908 10,420
Lottery operations........................... 8,602 7,067 422
Off-track betting concerns................... 2,291 1,561 207
Simulcasting services........................ 3,812 882 760
--------- ------- -------
$ 35,463 25,418 11,809
========= ======= =======
Assets
Pari-mutuel/sports betting................... $ 128,317 146,809 126,386
Lottery operations........................... 52,801 46,038 34,206
Off-track betting concerns................... 40,064 41,042 22,734
Simulcasting services........................ 19,839 7,708 3,779
--------- ------- -------
$ 241,021 241,597 187,105
========= ======= =======
Capital expenditures and expenditures for
equipment under wagering systems contracts
Pari-mutuel/sports betting................... $ 5,189 40,074 47,115
Lottery operations........................... 3,417 1,511 1,313
Off-track betting concerns................... 6,965 14,272 173
Simulcasting services........................ 2,569 3,608 1,176
--------- ------- -------
$ 18,140 59,465 49,777
========= ======= =======
</TABLE>
56
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------
1995 1994 1993
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
GEOGRAPHIC SEGMENTS
Service contract revenue and product sales
North America................................. $114,943 91,915 70,744
Europe........................................ 34,227 50,350 14,118
Asia.......................................... 4,014 6,785 --
-------- ------- -------
$153,184 149,050 84,862
======== ======= =======
Operating income (loss)
North America................................. $(25,708) (20,515) 6,380
Europe........................................ (5,518) 4,389 7,525
Asia.......................................... (64) 2,192 --
-------- ------- -------
$(31,290) (13,934) 13,905
======== ======= =======
Depreciation and amortization
North America................................. $ 27,548 19,653 11,647
Europe........................................ 7,149 5,715 162
Asia.......................................... 766 50 --
-------- ------- -------
$ 35,463 25,418 11,809
======== ======= =======
Assets
North America................................. $180,637 196,232 140,677
Europe........................................ 60,384 45,365 46,428
Asia.......................................... -- -- --
-------- ------- -------
$241,021 241,597 187,105
======== ======= =======
Capital expenditures and expenditures for equip-
ment under wagering systems contracts
North America................................. $ 15,798 57,460 49,462
Europe........................................ 2,342 2,005 315
Asia.......................................... -- -- --
-------- ------- -------
$ 18,140 59,465 49,777
======== ======= =======
</TABLE>
57
<PAGE>
SCHEDULE II
AUTOTOTE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED OCTOBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED BALANCE AT
BEGINNING COSTS AND TO OTHER END OF
OF PERIOD EXPENSES ACCOUNTS (1) DEDUCTIONS (2) PERIOD
---------- ---------- ------------ -------------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED OCTOBER 31,
1993
Allowance for doubtful
accounts............... $823 423 78 350 974
YEAR ENDED OCTOBER 31,
1994
Allowance for doubtful
accounts............... $974 625 -- 1,101 498
YEAR ENDED OCTOBER 31,
1995
Allowance for doubtful
accounts............... $498 1,372 169 360 1,679
</TABLE>
- --------
(1) Amounts related to acquired companies
(2) Amounts written off
58
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE MATTERS
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See "Executive Officers and Directors of the Company" in Part I of this
Annual Report.
DELINQUENT FILINGS
Under the securities laws of the United States, the Company's directors, its
officers, and any persons holding more than ten percent of the Company's Class
A Common Stock are required to report their ownership of the Company's Class A
Common Stock and any changes in that ownership to the Securities and Exchange
Commission. Specific due dates for these reports have been established and the
Company is required to report in this Annual Report any failure to file by
these dates during fiscal 1995. On January 26, 1996, Marshall Bartlett, Sir
Brian Wolfson, Alan J. Zakon filed a Form 5 with the SEC for options they
received in May 1995. Mr. Bartlett, Sir Wolfson and Mr. Zakon did not file a
Form 4 with respect to such options. On January 26, 1996 A. Lorne Weil, Martin
A. Schloss and Gerald Lawrence filed a Form 5 with the SEC in connection with
an exchange of options for restricted stock awarded under the Company's 1992
Equity Incentive Plan. Mr. Lawrence did not file a Form 4 with respect to
1,000 shares of Class A Common Stock that he purchased in fiscal 1995.
Finally, on January 26, 1996, Michael D. Harris and Alan Cigich filed a Form 5
with the SEC. Mr. Harris, Mr. Lawrence and Mr. Cigich did not file Form 3 when
they became officers of the Company. All filings on Form 5 described above,
except for Mr. Cigich, were not made on a timely basis. In making these
statements, the Company has primarily relied on copies of the reports that the
directors, officers and 10% holders have filed with the SEC.
59
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table shows the compensation paid by the Company for services
rendered for fiscal 1993, 1994 and 1995 to the chief executive officer and the
four highest paid executive officers of the Company who received more than
$100,000 in salary and bonuses during fiscal 1995 and who served as executive
officers during fiscal 1995 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
(1) LONG TERM COMPENSATION AWARDS
-------------------- --------------------------------------
(A) (B) (C) (D) (F) (G) (I)
--- ---- ------- ------- ---------- ---------- ------------
RESTRICTED SECURITIES
STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS AWARD OPTIONS COMPENSATION
AT FISCAL YEAR-END YEAR ($) ($) ($) (11) (#) ($)
- --------------------------- ---- ------- ------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
A. Lorne Weil........... 1995 408,800 -- 534,001(5) -- 12,700(8)
Chief Executive Officer 1994 408,800 -- -- -- 13,500(9)
1993 391,300 200,000 -- 600,000(5) 900(10)
Thomas C. DeFazio....... 1995 148,100 170,000(2) -- 200,000 3,000(8)
President and Chief
Operating Officer
Martin E. Schloss....... 1995 175,000 13,000 70,272(6) -- 7,600(8)
Vice President, General 1994 135,600 115,000(3) -- 65,000(6) 6,200(9)
Counsel and Secretary 1993 125,000 -- -- -- 300(10)
Gerald Lawrence......... 1995 184,600 50,000 137,000(7) 100,000(7) --
Vice President
Michael D. Harris....... 1995 129,800 75,000(4) -- 150,000 1,500(8)
Vice President
</TABLE>
- --------
(1) Amounts shown include cash and non-cash compensation earned by the Named
Executive Officers.
(2) Includes a relocation allowance of $110,000 and a $60,000 bonus for fiscal
1995.
(3) Consists of fiscal 1994 bonus of $60,000 and special bonus of $55,000 to
recognize contributions to the Company's longer-term strategic goals.
These bonuses were initially payable in three equal installments in 1995,
1996 and 1997 as long as Mr. Schloss is employed by the Company. However,
the Compensation Committee of the Board has decided to terminate the
deferred compensation plan and to pay out the second and third
installments in 1996.
(4) Consists of a signing bonus of $25,000 and a fiscal bonus of $50,000.
(5) On May 25, 1995, Mr. Weil exchanged options received in 1993 to purchase
600,000 shares of Class A Common Stock, constituting all of his options
having exercise prices in excess of $4.13 per share (the average of the bid
and asked trading prices of the Class A Common Stock on May 25, 1995)
("Underwater Options"), for an award under the Company's 1992 Equity
Incentive Plan of 129,298 deferred shares of Class A Common Stock
("Deferred Shares") which will be issued in the future subject to vesting
provisions relating to a lengthy period of future service with the Company
or the achievement of certain performance goals for the Company as measured
by the price of Class A Common Stock.
(6) On May 25, 1995, Mr. Schloss exchanged all of his Underwater Options,
constituting options to purchase 65,000 shares of Class A Common Stock, for
an award of 17,015 Deferred Shares under the Company's 1992 Equity
Incentive Plan. The vesting of such Deferred Shares will require either a
lengthy period of future service or the achievement of certain performance
goals for the Company as measured by the price of the Class A Common Stock.
60
<PAGE>
(7) On May 25, 1995, Mr. Lawrence exchanged all of his Underwater Options,
constituting options to purchase 100,000 shares of Class A Common Stock,
for an award of 33,172 Deferred Shares under the Company's 1992 Equity
Incentive Plan. The vesting of such Deferred Shares will require either a
lengthy period of future service or the achievement of certain performance
goals for the Company as measured by the price of the Class A Common
Stock.
(8) Amounts of All Other Compensation for fiscal 1995 include the following:
(i) Contributions to the Company's defined contribution retirement plan
for salaried employees:Mr. Weil, $7,500; Mr. Schloss, $7,500.
(ii) Life insurance coverage: Mr. Weil $5,200; Mr. Schloss, $100.
(iii) COBRA medical coverage: Mr. DeFazio, $3,000; Mr. Harris, $1,500.
(9) Amounts of All Other Compensation for fiscal 1994 include the following:
(i) Contributions to the Company's defined contribution retirement plan
for salaried employees:Mr. Weil, $7,500; Mr. Schloss, $5,800.
(ii) Life insurance coverage: Mr. Weil, $6,000; Mr. Schloss, $400.
(10) Amounts of All Other Compensation for fiscal 1993 include the
following:Life insurance coverage: Mr. Weil, $900; Mr. Schloss, $300.
(11) The number and value of the aggregate restricted stock holdings at October
31, 1995, is as follows:
(i) Number of shares: Mr. Weil, 129,298; Mr. Schloss, 17,015; Mr.
Lawrence, 33,172.
(ii) Value of shares: Mr. Weil, $387,894; Mr. Schloss, $51,045; Mr.
Lawrence, $99,516.
(iii) In the event the Company declares a dividend on the Class A Common
Stock, the restricted stocks listed above would receive dividend(s).
The table below sets forth information with respect to stock options granted
to the Named Executive Officers for fiscal 1995.
OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES
OF STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
-------------------------------------------- -------------------
(A) (B) (C) (D) (E) (F) (G)
--- ----------- ----------- -------- ---------- -------- ----------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES OR BASE
GRANTED (1) IN PRICE EXPIRATION 5% 10%
NAME (#) FISCAL YEAR ($/SH) DATE ($) ($)
---- ----------- ----------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
A. Lorne Weil........... -- 0.00% N/A N/A N/A N/A
Thomas C. DeFazio....... 200,000 31.55% $4.375 17-Apr-00 $241,746 $ 534,196
Martin E. Schloss....... -- 0.00% N/A N/A N/A N/A
Gerald Lawrence ........ 100,000(2) 15.77% $15.00 11-Nov-99 $414,422 $ 915,765
Michael D. Harris....... 150,000 23.66% $ 4.50 24-Apr-05 $424,504 $1,075,776
</TABLE>
- --------
(1) All options were granted under the Company's 1992 Equity Incentive Plan.
Options become exercisable in three equal installments on the first, second
and third anniversaries of the date of grant. The options may, subject to
certain requirements, be exercised through the delivery of cash and/or
Class A Common Stock. The options permit the optionee to request that the
Company withhold shares sufficient to satisfy withholding tax requirements.
The options are not transferable otherwise than by will or the laws of
descent and distribution, in which case, and in the case of disability,
they are exercisable for the following 12 months or the term of the option,
whichever is shorter, for the full number of shares the optionee was
entitled to purchase at the time of his death or disability. In the event
of a termination of employment by
61
<PAGE>
the Company other than for cause or death or disability, an optionee has
the right to exercise his option at any time within the three months
following such termination or the term of the option, whichever is shorter,
for the full number of shares he was entitled to purchase at the time of
termination. In the event of termination for cause, the options shall be
terminated.
(2) In July 1995, Mr. Lawrence exchanged all of his Underwater Options,
constituting options to purchase 100,000 shares of Class A Common Stock,
for an award of 33,172 Deferred Shares under the Company's 1992 Equity
Incentive Plan. The vesting of such Deferred Shares will require either a
lengthy period of future service or the achievement of certain performance
goals for the Company as measured by the price of the Class A Common
Stock.
The table below sets forth information for the Named Executive Officers with
respect to fiscal 1995 year-end option values.
AGGREGATED OPTION EXERCISES IN
LAST FISCAL YEAR, AND FY-END OPTION VALUE
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
--- ----------- ----------- ---------------- ----------------
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED OCT. 31, 1995(#) OCT. 31, 1995($)
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- ----------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C>
A. Lorne Weil........ -0- -0- 1,125,000/-0- $346,500/-0-
Thomas C. DeFazio.... -0- -0- -0-/200,000 -0-/-0-
Martin E. Schloss.... -0- -0- 40,000/-0- -0-/-0-
Gerald Lawrence...... -0- -0- -0-/-0- -0-/-0-
Michael D. Harris.... -0- -0- -0-/150,000 -0-/-0-
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As of May 25, 1995, the Compensation Committee of the Board consisted of
Marshall Bartlett, Larry J. Lawrence and Alan J. Zakon. Until then, the
Compensation Committee consisted of Larry J. Lawrence, Alan J. Zakon and Sir
Brian Wolfson. Sir Brian served as Acting President and Chief Executive
Officer of the Company from June 1991 until October 31, 1991.
Effective December 1, 1994 the Company has a wagering systems service
contract with Lincoln Greyhound Racetrack, a facility owned by Wembley plc, a
United Kingdom corporation of which Sir Brian Wolfson, a director of the
Company, was deputy chairman until September 1995.
The Company has a Senior Bank Credit Facility with Bankers Trust Company, a
company of which Alan J. Zakon, a director of the Company, was a managing
director from 1989 until April 1995.
From June 1994 until June 1995, Mr. Bartlett had a consulting arrangement
with the Company whereby he received $100,000 of which $41,667 was paid for
consulting services in fiscal 1994, with the balance paid in fiscal 1995.
As a result of the acquisition of Tele Control, the Company has assumed a
contract with IMMOC leasing, a real estate concern substantially owned by
certain employees of the Company, to rent premises for a minimum period of 15
years. Consequently the Company has annual rental commitments of approximately
$620,000 through the year 2006. Rental payments made to this concern were
$613,000, $24,000 and $613,000 for fiscal 1995, 1994 and 1993, respectively.
62
<PAGE>
CERTAIN ARRANGEMENTS BETWEEN THE COMPANY AND ITS DIRECTORS AND OFFICERS
Employee Agreements
Effective November 1, 1992, the Company and Mr. Weil entered into a five-
year employment agreement (the "Employment Agreement") that provides for a
base salary of $400,000, subject to annual increases in accordance with the
Consumer Price Index, a performance bonus of 25% of base salary if the Company
meets its budgeted earnings per share, an additional performance bonus based
on excess earnings per share, not to exceed an additional 25% of base salary,
and a performance bonus of up to 50% of base salary at the discretion of the
Board of Directors. If the Company terminates Mr. Weil's employment under the
Employment Agreement other than for cause, Mr. Weil is entitled to collect his
base salary for twelve months following such termination, plus a portion of
the annual earnings per share-based performance bonuses. In connection with
the Employment Agreement, Mr. Weil received a five-year option to purchase
600,000 shares of Class A Common Stock of the Company at an exercise price of
$3.50 per share. The option originally was exercisable in three equal annual
installments on November 1, 1993, November 1, 1994 and November 1, 1995. In
August 1993, the Compensation Committee accelerated the vesting period of the
option such that the option became exercisable in full.
Effective April 17, 1995, the Company and Mr. Thomas DeFazio entered into a
three-year employment agreement (the "DeFazio Employment Agreement") that
provides for an annual base salary of $275,000 and an annual performance bonus
of up to 45% of base salary. Fifty percent of the bonus will be based on the
formula set forth in the Company's executive compensation plan as in effect
from time to time and the remaining 50% of the bonus will be based on
achievement of objectives to be established by the Chief Executive Officer and
the Board in their sole discretion. Under the DeFazio Employment Agreement,
the Company has also paid Mr. DeFazio a relocation allowance of $110,000, a
prorated portion of which, however, must be returned to the Company by Mr.
DeFazio in the event he terminates his employment or the Company terminates
his employment for cause at any time prior to April 17, 1997. If the Company
terminates Mr. DeFazio's employment under the DeFazio Employment Agreement
other than for cause, Mr. DeFazio would be entitled to collect an amount equal
to the greater of (i) one year's base salary or (ii) the product of Mr.
DeFazio's then current monthly salary multiplied by the number of months
remaining under the initial term of the DeFazio Employment Agreement. In
connection with the DeFazio Employment Agreement, Mr. DeFazio received a five-
year option to purchase 200,000 shares of Class A Common Stock at an exercise
price of $4.375 per share. The option will become exercisable in three equal
installments, on each of the first, second and third anniversaries of the date
of grant. If during a period of 12 months following a change of control of the
Company, the Company terminates Mr. DeFazio's employment other than for cause,
Mr. DeFazio will be entitled to collect a lump-sum payment equal to his base
salary for the remainder of the term under the DeFazio Employment Agreement,
and Mr. DeFazio's stock option will become exercisable in full.
63
<PAGE>
Effective April 24, 1995, the Company and Mr. Michael Harris entered into an
employment agreement (the "Harris Employment Agreement"), pursuant to which
Mr. Harris assumed the position of Vice President of the Company and President
of Autotote Systems, a division of the Company, for an initial term of 18
months with automatic extension for 12 month periods. The Harris Employment
Agreement provides for an annual base salary of $250,000 with annual reviews
based on written performance appraisals and an annual bonus of up to 45% of
base salary, one-third of which will be based on overall Company results, one-
third on the performance of Autotote Systems and one-third on discretionary
factors determined by the Chief Executive Officer and the Board. Mr. Harris
received a bonus payment of $50,000 on October 31, 1995 and is guaranteed an
additional bonus payment of $50,000 on May 31, 1996, which later payment will
be considered part of his fiscal 1996 year end bonus. Mr. Harris also received
a signing bonus of $25,000 and a relocation allowance in an amount which will
provide after tax reimbursement of the moving expenses and transaction costs
incurred by Mr. Harris in connection with his relocation, including the
difference between the net sales price of his home and its cost. Either party
may terminate the Harris employment agreement with 30 days prior written
notice. If the Company terminates Mr. Harris' employment under the Harris
Employment Agreement other than for cause, Mr. Harris will be entitled to
collect a lump sum payment equal to the base salary for the remainder of the
term under the Harris Employment Agreement plus any earned bonus. In
connection with the Harris Employment Agreement, Mr. Harris received a ten-
year option to purchase 150,000 of Class A Common Stock at an exercise price
of $4.50 per share. The option will become exercisable in three equal
installments, on each of the first, second and third anniversaries of the date
of grant. If the Company terminates Mr. Harris' employment under the Harris
Employment Agreement other than for cause, an option for 50,000 shares of
Class A Common Stock of the Company will vest immediately if none of the stock
options have vested as of the termination date. In the event of a sale of
substantially all of the Company's stock or assets, Mr. Harris will be
entitled to receive a payment equal to his base salary and any potential
bonuses due over the remaining term of the Harris Employment Agreement, and
Mr. Harris' option will become exercisable in full.
On November 14, 1994, the Company and Mr. Gerald Lawrence entered into a
one-year employment agreement (the "Lawrence Employment Agreement") to employ
Mr. Lawrence as Vice President in charge of North American Pari-mutuel
Operations. The Lawrence Employment Agreement provides for a base salary of
$200,000 and a performance bonus of up to 45% of the base salary. For fiscal
1995, Mr. Lawrence is guaranteed a minimum bonus of $50,000. In connection
with the Lawrence Employment Agreement, Mr. Lawrence received a five-year
option to purchase 100,000 shares of Class A Common Stock of the Company at a
price of $15.00 per share, which option is exercisable in three equal
installments. On May 25, 1995, Mr. Lawrence exchanged such stock option for an
award of 33,172 Deferred Shares under the Company's 1992 Equity Incentive
Plan. The vesting of such Deferred Shares will require either a lengthy period
of future service or the achievement of certain performance goals for the
Company as measured by the price of the Class A Common Stock. In the event
that the Company terminates Mr. Lawrence's employment other than for cause,
Mr. Lawrence is entitled to receive his base salary for twelve months
following such termination.
By letter, dated January 3, 1995, the Company confirmed to Mr. Martin
Schloss that in the event the Company terminates Mr. Schloss' employment, he
will be entitled to receive severance pay, at the time of such termination, of
not less than one year base salary plus all accrued but unpaid bonus
installments earned by him, and Mr. Schloss will retain all unexercised
options to purchase Class A Common Stock held by him at the time of such
termination, which options will remain exercisable in accordance with their
terms.
Directors' Compensation
Effective as of May 25, 1995, each director who is not an employee of the
Company is paid an annual retainer of $20,000, as well as $1,000 plus expenses
for each Board meeting attended, $1,000 plus expenses for each committee
meeting attended in person and held on a day other than on which a Board
meeting is held and $500 plus expenses for each committee meeting attended
held on the same day as a Board meeting or by telephone. Members of the
Executive Committee do not receive fees for attending meeting thereof. In lieu
of the foregoing compensation, Thomas H. Lee Company, of which Mr. Lee is
president, receives $5,000 per month for his services as a director.
64
<PAGE>
In May 1995, Mr. Bartlett, Sir Brian Wolfson and Mr. Zakon each received an
award of 10,000 shares of Class A Common Stock issuable in the future ("Non-
Employee Director Deferred Stock"), and each of Sir Brian Wolfson and Mr.
Zakon received a one time award of 40,000 shares of Non-Employee Director
Deferred Stock. The shares of Non-Employee Director Deferred Stock were
awarded under the Company's 1992 Equity Incentive Plan and vest, on a
cumulative basis, as to one-third of the shares of Non-Employee Director
Deferred Stock on each of the first three anniversaries of the date of grant
or in full if the non-employee director ceases to serve as a director as a
result of death, disability, retirement at or after the age of 65, or the
failure to be renominated or reelected, or in the event of a consolidation or
merger of the Company or a sale of substantially all of the Company's assets.
From June 1994 until June 1995, Mr. Bartlett had a consulting arrangement
with the Company whereby he received $100,000 of which $41,667 was paid for
consulting services in fiscal 1994.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP
The following table sets forth certain information as of October 31, 1995 as
to the security ownership of those persons owning of record or known to the
Company to be the beneficial owners of more than five percent of the
outstanding Class A Common Stock of the Company, each of the Company's
directors and Named Executive Officers and the Company's executive officers
and directors as a group. Except as otherwise indicated, the stockholders
listed on the table have sole voting and investment power with respect to the
shares indicated. Share figures reflect (i) a three-for-two stock split in the
form of a stock dividend of one share of Class A Common Stock for every two
shares outstanding paid on June 30, 1993 and (ii) a two-for-one stock split in
the form of a stock dividend of one share of Class A Common Stock for each
share outstanding paid on October 25, 1993.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF PERCENT OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) CLASS A COMMON STOCK (1)
- ------------------- ------------------------ ------------------------
<S> <C> <C>
Thomas H. Lee......................... 4,023,465 (10) 12.95%
State of Wisconsin Investment Board... 2,810,500 (5) 9.21%
P.O. Box 7842
Madison, WI 53707
A. Lorne Weil......................... 2,417,092 (6) 7.50%
Larry J. Lawrence..................... 2,412,123 (9) 7.65%
Wellington Management Company......... 2,000,000 (3) 6.15%
75 State Street
Boston, MA 02109
The Kaufman Fund, Inc. ............... 1,994,000 (4) 6.53%
140 East 45th Street, 43rd Floor
New York, NY 10017
Lawrence, Tyrrell, Ortale & Smith..... 1,867,952 (2) 5.93%
515 Madison Avenue
New York, New York 10022
Martin E. Schloss..................... 55,000 (14) *
Alan J. Zakon......................... 32,000 (12) *
Marshall Bartlett..................... 30,000 (8) *
Sir Brian Wolfson..................... 30,000 (11) *
Thomas C. DeFazio..................... 20,000 (7) *
Gerald Lawrence....................... 1,000 (13) *
Michael D. Harris..................... -- --
All Directors and Executive Officers
as a group
(10 people)
(6)(7)(8)(9)(10)(11)(12)(13)(14)(15).. 9,020,680 26.61%
</TABLE>
65
<PAGE>
- --------
* Less than 1%
(1) For purposes of determining beneficial ownership of the Company's Class A
Common Stock, owners of Class A warrants and options exercisable within
sixty days are considered to be the beneficial owners of the shares of
Class A Common Stock into which such securities are convertible or for
which such securities are exercisable. The percentage ownership of the
outstanding Class A Common Stock reported herein is based on the
assumption (expressly required by the applicable rules of the Securities
and Exchange Commission) that only the person whose ownership is being
reported has exercised his warrants or options for Class A Common Stock.
(2) Includes 965,469 warrants exercisable within 60 days owned by Lawrence,
Tyrrell, Ortale & Smith.
(3) Represents shares of Class A Common Stock issuable upon conversion of
$40,000,000 of Debentures due 2001 convertible within 60 days owned by
Wellington Management Company.
(4) Based on Schedule 13G, dated September 30, 1995, as filed with the
Securities and Exchange Commission, The Kaufmann Fund, Inc. holds
1,994,000 shares of Class A Common Stock.
(5) Based on a Schedule 13F filed with the Securities and Exchange Commission
on September 30, 1995, the State of Wisconsin Investment Board holds
2,810,500 shares of Class A Common Stock.
(6) Includes shares held in the name of Lorne Weil 1989 Trust of which Mr.
Weil is Trustee. Also includes shares of Class A Common Stock warrants to
purchase 577,920 exercisable within 60 days owned by Mr. Weil, some of
which are held in the name of Lorne Weil 1989 Trust, and options to
purchase 1,125,000 shares of Class A Common Stock exercisable within 60
days by Mr. Weil. Mr. Weil's address is c/o the Company. See
"Management--Employment Agreements." Effective March 25, 1994, Mr. Weil
entered into a swap transaction (the "Swap") with BT in respect of
500,000 shares of the Class A Common Stock of the Company held by him
(the "Swap Shares"). Mr. Weil continues to hold sole voting power over
the Swap Shares which serve as collateral for the Swap transaction;
however, Mr. Weil may substitute other collateral for the Swap Shares.
Under the Swap arrangement (i) Mr. Weil is obligated to pay BT (a) at the
end of each quarter during the five (5) year term of the Swap (the
"Term") the amount of any dividends declared during such quarter on the
Swap and (b) at the end of the Term, any appreciation during the Term in
the price of the Swap Shares above $26.7769 per share, (ii) BT is
obligated to pay Mr. Weil (x) at the end of each quarter during the Term,
the amount equal to the three (3) month London Interbank Offered Rate
less 2.125% of the Calculation Amount (as defined in the Swap documents)
of $13,388,500, and (y) at the end of the Term, an amount equal to any
depreciation during the Term, in the price of the Swap Shares below
$26.7769 per share. Mr. Weil will pay BT an annual fee in consideration
of its entering into the Swap. The Swap is for a five (5) year period,
but will terminate if Mr. Weil dies or if certain other events occur
during such period. Mr. DeFazio's address is c/o the Company.
(7) Represents 20,000 shares of Class A Common Stock owned by Mr. Thomas
DeFazio.
(8) Represents shares issuable upon exercise of options to purchase 30,000
shares of Class A Common Stock exercisable within 60 days owned by Mr.
Bartlett. Mr. Bartlett's address is c/o the Company.
(9) Includes 902,483 shares and warrants to purchase 965,469 shares of Class
A Common Stock exercisable within 60 days held by the partnership of
Lawrence, Tyrrell, Ortale & Smith (see footnote 2) and warrants to
purchase 41,742 shares of Class A Common Stock exercisable within 60 days
owned by Mr. Lawrence. Mr. Lawrence is a general partner of Lawrence
Venture Partners, the sole general partner of such partnership. Mr.
Lawrence's address is c/o the Company.
(10) Includes warrants to purchase 542,109 shares of Class A Common Stock
exercisable within 60 days and 1,535,100 shares owned by the 1989 Thomas
H. Lee Nominee Trust and 1,946,256 shares owned by Thomas H. Lee Equity
Partners, L.P., which are deemed to be beneficially owned by Mr. Lee. Mr.
Lee is a general partner of THL Equity Advisors Limited Partnership,
which is general partner of Thomas H. Lee Equity Partners, L.P. Mr. Lee's
address is c/o the Company.
(11) Represents shares issuable upon the exercise of 30,000 options
exercisable within 60 days owned by Mr. Wolfson. Mr. Wolfson's address is
c/o the Company.
(12) Includes options to purchase 30,000 shares of Class A Common Stock
exercisable within 60 days owned by Mr. Zakon. Mr. Zakon's address is c/o
the Company.
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<PAGE>
(13) Represents 1,000 shares of Class A Common Stock owned by Mr. Gerald
Lawrence. Mr. Lawrence's address is c/o the Company.
(14) Includes options to purchase 40,000 shares of Class A Common Stock
exercisable within 60 days owned by Mr. Schloss. Mr. Schloss' address is
c/o the Company.
(15) Includes warrants to purchase 2,127,240 shares of Class A Common Stock and
options to purchase 1,255,000 shares of Class A Common Stock exercisable
within 60 days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has its Senior Bank Credit Facility with BT, a company of which
Alan J. Zakon, a director of the Company, was a managing director from 1989
until April 1995.
The Company has a service contract with Lincoln Greyhound Racetrack, a
facility owned by Wembley plc, a United Kingdom corporation of which Sir Brian
Wolfson, a director of the Company, was deputy chairman until September 1995.
From June 1994 until June 1995, Mr. Bartlett had a consulting arrangement
with the Company whereby he received $100,000 of which $41,667 was paid for
consulting services in fiscal 1994.
The Company believes that all of these transactions were on terms no less
favorable than could have been obtained from unaffiliated third parties.
67
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements--See Index to Consolidated Financial Statements
attached hereto, page 27.
2. Financial Statements Schedule--See Index to Consolidated Financial
Statements attached hereto, page 27.
Exhibits--The following is a list of exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 Certificate of Incorporation of the Company, as amended through June
29, 1995.(15)
3.2 Bylaws of the Company.(6)
4.1 Certificate representing share of Class A Common Stock of the
Company.(6)
10.1 1984 Stock Option Plan, as amended.(6)*
10.4 Definitive Agreement Governing the Split Off of United Tote World
Wide, Inc. and UT Wisconsin, Inc. from United Tote, Inc. dated as of
October 31, 1991 and Exhibits and Schedules thereto (including the Tax
Sharing Agreement dated as of October 31 1991).(5)
10.5 Letter Agreement, dated as of October 31, 1991, between the Company,
Wembley, Inc., United Tote Company, and Autotote Limited.(5)
10.6 Allocation Agreement dated as of October 31, 1991 between Autotote
Limited and United Tote Company.(5)
10.7 Loan Agreement dated March 17, 1982 between the Company and The
Delaware Economic Development Authority.(7)
10.8 First Mortgage and Security Agreement dated March 17, 1982 between the
Company and Delaware Trust Company.(7)
10.9 Form of Option dated March 3, 1992 issued to A. Lorne Weil.(7)*
10.10 Form of Option dated December 13, 1991 issued to Marshall
Bartlett.(7)*
10.11 Employment Agreement dated November 1, 1992, of A. Lorne Weil and
Autotote Corporation.(7)*
10.12 Amended and Restated Credit Agreement dated as of April 28, 1994 among
Autotote Systems, Inc., Bankers Trust Company and other lenders.(12)
10.13 First Amendment to Credit Agreement dated June 20, 1994 among Autotote
Systems, Inc., Bankers Trust Company and other lenders.(13)
10.14 Second Amendment to Credit Agreement dated August 20, 1994 among
Autotote Systems, Inc., Bankers Trust Company and other lenders.(13)
10.15 Third Amendment to Credit Agreement dated December 27, 1994 among
Autotote Systems, Inc., Bankers Trust Company and other lenders.(13)
10.16 Employment Agreement dated July 18, 1994 between the Company and
Marvin H. Sugarman.(13)*
10.17 Employment Agreement dated December 30, 1993 between the Company and
Dennis C. Wallach.(13)*
10.18 Employment Agreement between Gerald Lawrence and the Company dated
November 14, 1994.(13)*
10.19 Stock Purchase Agreement dated July 15, 1994 among the Company, Marvin
H. Sugarman, Robert Melican, Racing Technology, Inc. and Marvin H.
Sugarman Productions, Inc.(13)
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.20 Asset Purchase Agreement dated January 12, 1995 between Autotote
Communication Services, Inc. and IDB Communications Group Inc.(13)
10.21 Purchase Agreement dated October 14, 1994 between Autotote
Corporation, Yves Alexandre, Marie A. Alexandre and Frederic
Alexandre. (English summary attached to French original.)(13)
10.22 1992 Equity Incentive Plan, as amended.(8)
10.23 Purchase Agreement among the Company, Autotote Enterprises, Inc., and
the State of Connecticut, Division of Special Revenue, dated June 30,
1993.(10)
10.24 Stock Purchase Agreement between the Company and General Instrument
Corporation dated May 18, 1993.(9)
10.25 Purchase and Sale Agreement between the Company and Sven Eriksson
dated May 27, 1993.(9)
10.26 Agreement among ETAG Electronic Totalisator AG, Gerhard Harwalik,
Peter Freudenschuss, Peter Tinkl and Manfred Harwalik dated July 27,
1993.(11)
10.27 Purchase Agreement among certain purchasers and Autotote Corporation
dated August 13, 1993.(11)
10.28 Fourth Amendment to Credit Agreement dated February 21, 1995 among
Autotote Systems, Inc., Bankers Trust Company and other lenders.(13)
10.29 1995 Equity Incentive Plan.
10.30 Waiver, Consent, Agreement and Fifth Amendment, dated as of July 19,
1995, among the Registrant, Autotote Systems, Inc., the lenders party
to the Credit Agreement and Bankers Trust Company, as Agent.(14)
10.31 Consent Agreement and Sixth Amendment, dated as of August 30, 1995,
among the Registrant, Autotote Systems, Inc., the lenders party to the
Credit Agreement and Bankers Trust Company, as Agent.(14)
10.32 Consent Agreement, dated as of September 8, 1995, among the
Registrant, Autotote Systems, Inc., the lenders party to the Credit
Agreement and Bankers Trust Company, as Agent.(14)
10.33 Consent Agreement, dated as of September 11, 1995, among the
Registrant, Autotote Systems, Inc., the lenders party to the Credit
Agreement and Bankers Trust Company, as Agent.(14)
10.34 Consent Agreement, dated as of September 14, 1995, among the
Registrant, Autotote Systems, Inc., the lenders party to the Credit
Agreement and Bankers Trust Company, as Agent.(14)
10.35 1992 Equity Incentive Plan, as amended and restated.
10.36 Registration Rights Agreement, dated as of November 6, 1995, between
the Registrant and Hartford Stock Fund and Hartford Advisers Fund (the
"Fund"), dated as of November 6, 1995, between the Registrant and
Funds.
10.37 Interest Agreement, dated as of November 6, 1995, between the
Registrant and the Funds.
10.38 Employment Agreement, dated April 17, 1995, between the Registrant and
Thomas C. DeFazio.*
10.39 Employment Agreement dated April 24, 1995, between the Registrant and
Michael D. Harris.*
10.40 Letter Agreement, dated January 3, 1995, between the Registrant and
Martin E. Schloss.*
21 List of Subsidiaries.
23 Consent of KPMG Peat Marwick LLP.
28.1 Copy of Final Judgment and Order of the United States District Court
for the District of Delaware dated August 28, 1991.(7)
</TABLE>
- --------
(*)Includes management contracts and compensation plans and arrangements.
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 2-92090) which became effective on August 23, 1984.
(2) Incorporated by reference to the Company's Form 8-K dated November 30,
1988.
(3) Incorporated by reference to the Company's Form 8-K dated April 11, 1989.
(4) Incorporated by reference to the Company's Form 8-K dated December 11,
1989.
69
<PAGE>
(5) Incorporated by reference to the Company's Form 8-K dated November 14,
1991, as amended by Form 8 dated December 10, 1991.
(6) Incorporated by reference to the Company's Registration Statement on Form
S-8 (Registration No. 33-46594) which became effective March 20, 1992.
(7) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1992.
(8) Incorporated by reference to the Company's Registration Statement on Form
S-2 (Registration Statement No. 33-57930) which became effective on April
1, 1993.
(9) Incorporated by reference to the Company's Form 8-K dated June 22, 1993.
(10) Incorporated by reference to the Company's Form 8-K dated July 1, 1993.
(11) Incorporated by reference to the Company's Form 8-K dated September 8,
1993.
(12) Incorporated by reference to the Company's Form 10-Q for the quarter
ended April 30, 1994, dated June 14, 1994.
(13) Incorporated by reference to the Company's Form 10-K for the fiscal year
ended October 31, 1994.
(14) Incorporated by reference to the Company's Form 8-K dated September 15,
1995.
(15) Incorporated by reference to the Company's Form 10-Q for the quarter
ended July 31, 1995, dated September 14, 1995.
(B) Reports on Form 8-K
The Registrant filed a current report on Form 8-K, dated September 15, 1995
disclosing an Item 5 thereof relating to waivers and amendment to the Senior
Bank Credit Facility.
70
<PAGE>
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.
Autotote Corporation
Dated: January 29, 1996
By /s/ A. Lorne Weil
----------------------------------
A. Lorne Weil
Chairman of the Board
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED ON JANUARY , 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ A. Lorne Weil Chairman of the Board & January 29, 1996
- ------------------------------------ Chief Executive Officer, and
A. Lorne Weil Director (principal
executive officer)
/s/ Thomas C. DeFazio President and Chief January 29, 1996
- ------------------------------------ Operating Officer (principal
Thomas C. DeFazio financial officer)
/s/ Philip G. Taggart Corporate Controller January 29, 1996
- ------------------------------------ (principal accounting
Philip G. Taggart officer)
/s/ Sir Brian Wolfson Director January 29, 1996
- ------------------------------------
Sir Brian Wolfson
/s/ Larry J. Lawrence Director January 29, 1996
- ------------------------------------
Larry J. Lawrence
/s/ Thomas H. Lee Director January 29, 1996
- ------------------------------------
Thomas H. Lee
/s/ Marshall Bartlett Director January 29, 1996
- ------------------------------------
Marshall Bartlett
/s/ Alan J. Zakon Director January 29, 1996
- ------------------------------------
Alan J. Zakon
</TABLE>
71
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<C> <S> <C>
10.29 1995 Equity Incentive Plan
10.35 1992 Equity Incentive Plan, as amended and restated
10.36 Registration Rights Agreement
10.37 Interest Agreement
10.38 Employment Agreement, dated April 17, 1995, between the
Registrant and
Thomas C. DeFazio*
10.39 Employment Agreement, dated April 24, 1995, between the
Registrant and
Michael D. Harris*
10.40 Letter Agreement, dated January 3, 1995, between the
Registrant and
Martin E. Schloss*
21 List of Subsidiaries
23 Consent of KPMG Peat Marwick LLP
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
BOARD OF DIRECTORS OFFICERS TRANSFER AGENT
<S> <C> <C>
A. Lorne Weil A. Lorne Weil American Stock Transfer & Trust Company
Chairman and Chief Chairman of the Board 40 Wall Street
Executive and Chief Executive New York, NY 10005
Officer of Autotote Officer
Corporation
Sir Brian Wolfson Sir Brian Wolfson
Vice Chairman of the Vice Chairman of
Board Deputy Autotote Corporation
Chairman of
Wembley plc
Alan J. Zakon Alan J. Zakon STOCK INFORMATION
Vice Chairman of the Vice Chairman of
Board Autotote Corporation At the close of business on January 25,
1996, a total of 30,942,295 shares of
Class A Common Stock were outstanding.
There were 579 holders of record on
such date.
Larry J. Lawrence Thomas C. DeFazio
Managing General Partner President and Chief
of Lawrence, Tyrrell, Operating Officer
Ortale & Smith
Marshall Bartlett Michael D. Harris AUDITORS
Former Executive Vice Vice President
President President of Autotote KPMG Peat Marwick LLP
and COO of Bourns, Inc. Systems Group New York, New York
Thomas H. Lee Gerald Lawrence
President of Thomas H. Vice President
Lee Company President of Autotote
Gaming Group
Martin E. Schloss
Vice President
General Counsel and
Secretary
</TABLE>
<PAGE>
AUTOTOTE CORPORATION
750 LEXINGTON AVENUE, 25TH FLOOR
NEW YORK, NEW YORK 10022
212-754-2233
[LOGO OF AUTOTOTE APPEARS HERE]
<PAGE>
EXHIBIT 10.29
AUTOTOTE CORPORATION
- --------------------------------------------------------------------------------
1995 EQUITY INCENTIVE PLAN
- --------------------------------------------------------------------------------
<PAGE>
AUTOTOTE CORPORATION
- --------------------------------------------------------------------------------
1995 EQUITY INCENTIVE PLAN
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Purpose................................................................ 1
2. Administration......................................................... 1
3. Effective Date and Term of Plan........................................ 2
4. Shares Subject to the Plan............................................. 2
5. Eligibility and Participation.......................................... 2
6. Types of Awards........................................................ 2
7. Events Affecting Outstanding Awards.................................... 7
8. General Provisions..................................................... 9
9. Effect, Discontinuance, Cancellation, Amendment and Termination........ 11
</TABLE>
2
<PAGE>
AUTOTOTE CORPORATION
1995 EQUITY INCENTIVE PLAN
1. PURPOSE
The purpose of this 1995 Equity Incentive Plan (the "Plan") is to advance
the interests of Autotote Corporation (the "Company") by enhancing its ability
to attract and retain employees and other persons or entities, other than
directors and executive officers of the Company, who are in a position to make
significant contributions to the success of the Company and its subsidiaries
through ownership of shares of the Company's Class A Common Stock ("Stock").
The Plan is intended to accomplish these goals by enabling the Company to
grant awards in the form of Options, Stock Appreciation Rights, Restricted
Stock or Unrestricted Stock Awards, Deferred Stock Awards, Performance Awards,
Loans or Supplement Grants, or combinations thereof, all as more fully
described below ("Awards").
2. ADMINISTRATION
The Plan will be administered by the Board of Directors of the Company (the
"Board"). The Board will have authority, not inconsistent with the express
provisions of the Plan and in addition to other authority granted under the
Plan, to (a) grant Awards at such time or times as it may choose; (b)
determine the size of each Award, including the number of shares of Stock
subject to the Award; (c) determine the type or types of each Award; (d)
determine the terms and conditions of each Award; (e) waive compliance by a
person who has received an Award under the Plan that remains outstanding (a
"Participant") with any obligations to be performed by the Participant under
an Award and waive any term or condition of an Award; (f) amend or cancel an
existing Award in whole or in part (and, if an award is canceled, grant
another Award in its place on such terms as the Board shall specify), except
that the Board may not, without the consent of the holder of an Award, take
any action under this clause with respect to such Award if such action would
adversely affect the rights of such holder, (g) prescribe the form or forms of
instruments that are required or deemed appropriate under the Plan, including
any written notices and elections required of Participants, and change such
forms from time to time; (h) adopt, amend and rescind rules and regulations
for the administration of the Plan; and (i) interpret the Plan and decide any
questions and settle all controversies and disputes that may arise in
connection with the Plan. Such determination and actions of the Board, and all
other determinations and actions of the Board made or taken under authority
granted by any provision of the Plan, will be conclusive and will bind all
parties. Nothing in this paragraph shall be construed as limiting the power of
the Board to make adjustments under Section 7.3, Section 7.4 or Section 8.6.
The Board may, in its discretion, delegate some or all of its powers with
respect to the Plan to a committee (the "Committee"), in which event all
references (as appropriate) to the Board hereunder shall be deemed to refer to
the Committee. The Committee, if one is appointed, shall consist of directors
and executive officers, and may have one or more members at any given time. A
majority of the members of the Committee shall constitute a quorum, and all
determinations of the Committee shall be made by a majority of its members.
Any determination of the Committee under the Plan may be made without notice
or meeting of the Committee by a writing signed by a majority of the Committee
members.
3. EFFECTIVE DATE AND TERM OF PLAN
The Plan will become effective on May 26, 1995. The Plan will terminate at
such time as no shares remain available for delivery under the Plan and the
Company and Participants no longer have any rights or obligations with respect
to outstanding Awards under the Plan.
3
<PAGE>
4. SHARES SUBJECT TO THE PLAN
Subject to the adjustment as provided in Section 8.6 below, the aggregate
number of shares of Stock that may be delivered under the Plan will be 2
million. If any Award or portion thereof terminates without delivery of Stock
or if Stock delivered in connection with any Award is forfeited (including any
case in which an Award or portion thereof payable in Stock or cash is
satisfied in cash rather than Stock), the number of shares of Stock subject to
such Award will be available for future grants. For purposes of the Plan,
shares withheld and shares equal to the number of shares surrendered in
payment of the exercise price or mandatory withholding taxes relating to an
Award will be deemed not to have been delivered under the Plan.
Stock delivered under the Plan may be either authorized but unissued Stock
or previously issued Stock acquired by the Company and held in treasury. No
fractional shares of Stock will be delivered under the Plan.
5. ELIGIBILITY AND PARTICIPATION
Those persons eligible to receive Awards under the Plan will be persons in
the employ of the Company or any of its subsidiaries ("Employees") and other
persons or entities who, in the opinion of the Board, are in a position to
make a significant contribution to the success of the Company or its
subsidiaries, provided that no person who is then serving as a director or
executive officer of the Company may receive an Award under the Plan.
6. TYPES OF AWARDS
6.1. Options
(a) Nature of Options. An Option is an Award entitling the recipient on
exercise thereof to purchase Stock at a specified exercise price ("Option").
Options granted under the Plan will be non-qualified options, meaning options
that do not qualify as "incentive stock options" as defined in Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code").
(b) Exercise Price. The exercise price of an Option will be determined by
the Board, subject to the following:
(1) In no case may the exercise price paid for Stock which is part of an
original issue of authorized Stock be less than the par value per share of
the Stock.
(2) The Board may reduce the exercise price of an Option at any time
after the time of grant.
(c) Duration of Options. The latest date on which an Option may be exercised
will be the tenth anniversary of the day immediately preceding the date the
Option was granted, or such earlier date as may have been specified by the
Board at the time the Option was granted.
(d) Exercise of Options. An Option will become exercisable at such time or
times, and on such conditions, as the Board may specify. The Board may at any
time accelerate the time at which all or any part of the Option may be
exercised.
Any exercise of an Option must be in writing, signed by the proper person
and delivered or mailed to the Company, accompanied by (1) any documents
required by the Board and (2) payment in full in accordance with paragraph (e)
below for the number of shares for which the Option is exercised.
(e) Payment for Stock. Stock purchased on exercise of an Option must be paid
for as follows: (1) in cash or by check (acceptable to the Company in
accordance with guidelines established for this purpose), bank draft or money
order payable to the order of the Company or (2), if so permitted by the
instrument evidencing the Option or by the Board at or after grant of the
Option, (i) through the delivery of shares of Stock which have been
outstanding for at least six months (unless the Board expressly approves a
shorter period) and which have a
4
<PAGE>
fair market value on the last business day preceding the date of exercise
equal to the exercise price, or (ii) by delivery of a promissory note of the
Option holder to the Company, payable on such terms as are specified by the
Board, or (iii) by delivery of an unconditional and irrevocable undertaking by
a broker to deliver promptly to the Company sufficient funds to pay the
exercise price, or (iv) by any combination of the permissible forms of
payment; provided, that if the Stock delivered upon exercise of the Option is
an original issue of authorized Stock, at least so much of the exercise price
as represents the par value of such Stock must be paid other than by the
Option holder's promissory note.
(f) Discretionary Payments. If the market price of shares of Stock subject
to an Option (other than an Option which is in tandem with a Stock
Appreciation Right as described in Section 6.2 below) exceeds the exercise
price of the Option at the time of its exercise, the Board may cancel the
Option and cause the Company to pay in cash or in shares of Common Stock (at a
price per share equal to the fair market value per share) to the person
exercising the Option an amount equal to the difference between the fair
market value of the Stock which would have been purchased pursuant to the
exercise (determined on the date the Option is canceled) and the aggregate
exercise price which would have been paid. The Board may exercise its
discretion to take such action only if it has received a written request from
the person exercising the Option, but such a request will not be binding on
the Board.
6.2 Stock Appreciation Rights.
(a) Nature of Stock Appreciation Rights. A Stock Appreciation Right is an
Award entitling the recipient on exercise of the Right to receive, an amount,
in cash or Stock or a combination thereof (such form to be determined by the
Board), determined in whole or in part by reference to appreciation in Stock
value (a "Stock Appreciation Right").
In general, a Stock Appreciation Right entitles the Participant to receive,
with respect to each share of Stock as to which the Right is exercised, the
excess of the share's fair market value on the date of exercise over its fair
market value on the date the Right was granted. However, the Board may provide
at the time of grant that the amount the recipient is entitled to receive will
be adjusted upward or downward under rules established by the Board to take
into account the performance of the Stock in comparison with the performance
of other stocks or an index or indices of other stocks. The Board may also
grant Stock Appreciation Rights that provide that, following a Change in
Control of the Company as defined in Exhibit A hereto, the holder of such
Right will be entitled to receive, with respect to each share of Stock subject
to the Right, an amount equal to the excess of a specified value (which may
include an average of values) for a share of Stock during a period preceding
such Change in Control over the fair market value of a share of Stock on the
date the Right was granted.
(b) Grant of Stock Appreciation Rights. Stock Appreciation Rights may be
granted in tandem with, or independently of, Options granted under the Plan. A
Stock Appreciation Right granted in tandem with an Option may be granted
either at or after the time the Option is granted.
(c) Rules Applicable to Tandem Awards. When Stock Appreciation Rights are
granted in tandem with Options, the following will apply:
(1) The Stock Appreciation Right will be exercisable only at such time or
times, and to the extent, that the related Option is exercisable and will
be exercisable in accordance with the procedure required for exercise of
the related Option.
(2) The Stock Appreciation Right will terminate and no longer be
exercisable upon the termination or exercise of the related Option, except
that a Stock Appreciation Right granted with respect to less than the full
number of shares covered by an Option will not be reduced until the number
of shares as to which the related Option has been exercised or has
terminated exceeds the number of shares not covered by the Stock
Appreciation Right.
(3) The Option will terminate and no longer be exercisable upon the
exercise of the related Stock Appreciation Right.
5
<PAGE>
(4) The Stock Appreciation Right will be transferable only with the
related Option, to the extent permitted hereunder.
(d) Exercise of Independent Stock Appreciation Rights. A Stock Appreciation
Right not granted in tandem with an Option will become exercisable at such
time or times, and on such conditions, as the Board may specify. The Board may
at any time accelerate the time at which all or any part of the Right may be
exercised.
Any exercise of an independent Stock Appreciation Right must be in writing,
signed by the proper person and delivered or mailed to the Company,
accompanied by any other documents required by the Board.
6.3. Restricted and Unrestricted Stock.
(a) Nature of Restricted Stock Award. Restricted Stock is an Award entitling
the recipient to acquire shares of Stock subject to the restrictions described
in paragraph (d) below ("Restricted Stock"), provided that, if the shares to
be received are part of an original issue of authorized Stock, the recipient
shall pay at least so much of the exercise price as represents the par value
of such Stock in cash, services previously provided, or some other form of
lawful consideration under the Delaware General Corporation Law as may be
specified by the Board.
(b) Acceptance of Award. A Participant who is granted a Restricted Stock
Award will have no rights with respect to such Award unless the Participant
accepts the Award by written instrument, in such form as may be specified by
the Board, delivered or mailed to the Company and accompanied by payment in
full of the specified purchase price, if any, of the shares covered by the
Award. Payment may be by certified or bank check or other instrument
acceptable to the Board.
(c) Rights as a Stockholder. A Participant who receives Restricted Stock
will have all the rights of a stockholder with respect to the Stock, including
voting and dividend rights, subject to the restrictions described in paragraph
(d) below and any other conditions imposed by the Board at the time of grant.
Unless the Board otherwise determines, certificates evidencing shares of
Restricted Stock will remain in the possession of the Company until such
shares are free of all restrictions under the Plan, and shall bear such legend
as the Board may specify.
(d) Restrictions. Except as otherwise specifically provided by the Plan,
Restricted Stock may not be sold, assigned, transferred, pledged or otherwise
encumbered or disposed of, and, if the Participant ceases to be an Employee or
otherwise suffers a Status Change (as defined at Section 7.2(a) below) for any
reason, shall be forfeited to the Company (in which case any cash
consideration paid to the Company under Section 6.3(a) above will be refunded,
but no other form of such consideration shall be refunded). These restrictions
will lapse at such time or times, and on such conditions, as the Board may
specify. The Board may at any time accelerate the time at which the
restrictions on all or any part of the shares will lapse.
(e) Notice of Election. Any Participant making an election under Section
83(b) of the Code with respect to Restricted Stock must provide a copy thereof
to the Company within ten days of the filing of such election with the
Internal Revenue Service.
(f) Other Awards Settled with Restricted Stock. The Board may, at the time
any Award described in this Section 6 is granted, provide that any or all the
Stock delivered pursuant to the Award will be Restricted Stock.
(g) Unrestricted Stock. The Board may, in its sole discretion, approve the
grant or sale to any recipient of shares of Stock free of restrictions under
the Plan ("Unrestricted Stock"), provided that, if the shares to be received
are part of an original issue of authorized Stock, the recipient shall pay at
least so much of the exercise price as represents the par value of such Stock
in cash, services previously provided, or some other form of lawful
consideration under the Delaware General Corporation Law as may be specified
by the Board.
6
<PAGE>
6.4. Deferred Stock.
A Deferred Stock Award entitles the recipient to receive shares of Stock to
be delivered in the future ("Deferred Stock"). Delivery of the Stock will take
place at such time or times, and on such conditions, as the Board may specify.
The Board may at any time accelerate the time at which delivery of all or any
part of the Stock will take place. At the time any Award described in this
Section 6 is granted, the Board may provide that, at the time Stock would
otherwise be delivered pursuant to the Award, the Participant will instead
receive an instrument evidencing the Participant's right to future delivery of
Deferred Stock.
6.5. Performance Awards; Performance Goals.
(a) Nature of Performance Awards. A Performance Award entitles the recipient
to receive, without payment, an amount in cash or Stock or a combination
thereof (such form to be determined by the Board) following the attainment of
Performance Goals (a "Performance Award"). Performance Goals may be related to
personal performance, corporate performance, departmental performance or any
other category of performance deemed by the Board to be important to the
success of the Company. The Board will determine the Performance Goals, the
period or periods during which performance is to be measured and all other
terms and conditions applicable to the Award.
(b) Other Awards Subject to Performance Condition. The Board may, at the
time any Award described in this Section 6 is granted, impose the condition
(in addition to any conditions specified or authorized in this Section 6 or
any other provision of the Plan) that Performance Goals be met prior to the
Participant's realization of any specified payment or benefit under the Award.
6.6. Loans and Supplemental Grants.
(a) Loans. The Company may make a loan to a Participant ("Loan"), either on
the date of or after the grant of any Award to the participant. A Loan may be
made either in connection with the purchase of Stock under the Award or with
the payment of any Federal, state and local income tax with respect to income
recognized as a result of the Award. The Board will have fully authority to
decide whether to make a Loan and to determine the amount, terms and
conditions of the Loan, including the interest rate (which may be zero),
whether the Loan is to be secured or unsecured or with or without recourse
against the borrower, the terms on which the Loan is to be repaid and the
conditions, if any, under which it may be forgiven. However, no Loan may have
a term (including extensions) exceeding ten years in duration.
(b) Supplemental Grants. In connection with any Award, the board may at the
time such Award is made or at a later date, provide for and grant a cash award
to the Participant ("Supplemental Grant") not to exceed an amount equal to (1)
the amount of any federal, state and local income tax on ordinary income for
which the Participant may be liable with respect to the Award, determined by
assuming taxation at the highest marginal rate, plus (2) an additional amount
on a grossed-up basis intended to make the Participant whole on an after-tax
basis after discharging all the Participant's income tax liabilities arising
from all payments under this Section 6. Any payments under this subsection (b)
will be made at the time the Participant incurs Federal income tax liability
with respect to the Award.
7. EVENTS AFFECTING OUTSTANDING AWARDS
7.1 Death.
If a Participant dies, the following will apply:
(a) All Options and Stock Appreciation Rights held by the Participant
immediately prior to death, to the extent then exercisable, may be
exercised by the Participant's executor or administrator or the person or
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persons to whom the Option or Right is transferred by will or the
applicable laws of descent and distribution, at any time within the one
year period ending with the first anniversary of the Participant's death
(or such shorter or longer period as the Board may determine), and shall
thereupon terminate. In no event, however, shall an Option or Stock
Appreciation Right remain exercisable beyond the latest date on which it
could have been exercised without regard to this Section 7. Except as
otherwise determined by the Board, all Options and stock Appreciation
rights held by a Participant immediately prior to death that are not then
exercisable shall terminate at death.
(b) Except as otherwise determined by the Board, all Restricted Stock
held by the Participant will be forfeited and transferred to the Company
(and, in the event the certificates representing such Restricted stock are
held by the Company, such Restricted stock will be so transferred without
any further action by the Participant) in accordance with Section 6.3
above.
(c) Any payment or benefit under a Deferred Stock Award, Performance
Award, or Supplemental Grant to which the Participant was not irrevocably
entitled prior to or upon the occurrence of death will be forfeited and the
Award canceled as of the time of death, unless otherwise determined the
Board.
7.2. Termination of Service (Other Than By Death).
If a Participant who is an Employee ceases to be an Employee for any reason
other than death, or if there is a termination (other than by reason of death)
of the consulting, service or similar relationship in respect of which a non-
Employee Participant was granted an Award hereunder (such termination of the
employment or other relationship being hereinafter referred to as a "Status
Change"), the following will apply:
(a) Except as otherwise determined by the Board, all Options and Stock
Appreciation Rights held by the Participant that were not exercisable
immediately prior to the Status Change shall terminate at the time of the
Status Change. Any Options or Rights that were exercisable immediately
prior to the Status Change will continue to be exercisable for a period of
three months (or such longer period as the Board may determine), and shall
thereupon terminate, unless the Award provides by its terms for immediate
or earlier termination in the event of a Status Change or unless the Status
Change results from a discharge for cause which in the opinion of the Board
casts such discredit on the Participant as to justify immediate termination
of the Award. In no event, however, shall an Option or Stock Appreciation
Right remain exercisable beyond the latest date on which it could have been
exercised without regard to this Section 7. For purposes of this paragraph,
in the case of a Participant who is an Employee, a Status Change shall not
be deemed to have resulted by reason of (i) a sick leave or other bona fide
leave of absence approved for purposes of the Plan by the Board, so long as
the Employee's right to reemployment is guaranteed either by statute or by
contract, or (ii) a transfer of employment between the Company and a
subsidiary or between subsidiaries.
(b) Except as otherwise determined by the Board, all Restricted Stock
held by the Participant at the time of the Status Change must be forfeited
and transferred to the Company (and, in the event the certificates
representing such Restricted Stock are held by the Company, such Restricted
Stock will be so transferred without any further action by the Participant)
in accordance with Section 6.3 above.
(c) Any payment or benefit under a Deferred Stock Award, Performance
Award, or Supplemental Grant to which the Participant was not irrevocable
entitled prior to the Status Change will be forfeted and the Award canceled
as of the date of such Status Change, unless otherwise determined by the
Board.
7.3 Acquisition Transactions.
Notwithstanding any other provision of the Plan or of any Award to the
contrary, in the event of a consolidation or merger in which the Company is
not the surviving corporation or which results in the acquisition of
substantially all the Company's outstanding Stock by a single person or entity
or by a group of persons and/or entities acting in concert or in the event of
the sale or transfer of substantially all the Company's assets (an
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"acquisition transaction"), all outstanding Awards will terminate as of the
effective date of the acquisition transaction, and the following will apply:
(a) Each outstanding Option and Stock Appreciation Right will become
exercisable in full ten days prior to the anticipated effective date of the
proposed acquisition transaction unless otherwise expressly provided at the
time of grant.
(b) Each outstanding share of Restricted Stock will become free of all
restrictions and conditions ten days prior to the anticipated effective
date of the proposed acquisition transaction.
(c) Conditions on Deferred Stock Awards, Performance Awards and
Supplemental Grants which relate only to the passage of time and continued
employment will be removed ten days prior to the anticipated effective date
of the proposed acquisition transaction. Performance or other conditions
(other than conditions relating only to the passage of time and continued
employment) will continue to apply unless otherwise provided in the
instrument evidencing the Awards or in any other agreement between the
Participant and the Company or unless otherwise agreed to by the Board.
(d) The Board may in its sole discretion, prior to the effective date of
the acquisition transaction, forgive all or any portion of the principal of
or interest on a Loan.
7.4. Dissolution or Liquidation Transactions.
In the event of a dissolution or liquidation of the Company (a "covered
transaction"), all outstanding Awards will terminate as of the effective date
of the covered transaction, and the following rules shall apply:
(a) Subject to paragraph (b) below, the Board may in its sole discretion,
prior to the effective date of the covered transaction, (1) make each
outstanding Option and Stock Appreciation Right exercisable in full, (2)
remove the restrictions from each outstanding share of Restricted Stock,
(3) cause the Company to make any payment and provide any benefit under
each outstanding Deferred Stock Award, Performance Award, and Supplemental
Grant which would have been made or provided with the passage of time had
the transaction not occurred and the Participant not suffered a Status
Change (or died), and (4) forgive all or any portion of the principal of or
interest on a Loan.
(b) If an outstanding Award is subject to performance or other conditions
(other than conditions relating only to the passage of time and continued
employment) which will not have been satisfied at the time of the covered
transaction, the Board may in its sole discretion remove such conditions.
If it does not do so, however, such Award will terminate as of the date of
the covered transaction notwithstanding paragraph (a) above.
8. GENERAL PROVISIONS
8.1. Documentation of Awards.
Awards will be evidenced by such written instruments, if any, as may be
prescribed by the Board from time to time. Such instruments may be in the form
of agreements to be executed by both the Participant and the Company, or
certificates, letters or similar instruments, which need not be executed by
the participant but acceptance of which will evidence agreement to the terms
thereof.
8.2. Rights as a Stockholder, Dividend Equivalents.
Except as specifically provided by the Plan, the receipt of an Award will
not give a Participant rights as a stockholder; the participant will obtain
such rights, subject to any limitations imposed by the Plan or the instrument
evidencing the Award, upon actual receipt of Stock. However, the Board may, on
such conditions as it deems appropriate, provide that a Participant will
receive a benefit in lieu of cash dividends that would have been payable on
any or all Stock subject to the Participant's Award had such Stock been
outstanding. Without
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limitation, the Board may provide for payment to the Participant of amounts
representing such dividends, either currently or in the future, or for the
investment of such amounts on behalf of the Participant.
8.3. Conditions on Delivery of Stock.
The Company will not be obligated to deliver any shares of Stock pursuant to
the Plan or to remove restrictions from shares previously delivered under the
Plan (a) until all conditions of the Award have been satisfied or removed, (b)
until, in the opinion of the Company's counsel, all applicable federal and
state laws and regulation have been complied with, (c) if the outstanding
Stock is at the time listed on any stock exchange, until the shares to be
delivered have been listed or authorized to be listed on such exchange upon
official notice of issuance, and (d) until all other legal matters in
connection with the issuance and delivery of such shares have been approved by
the Company's counsel. If the sale of Stock has not been registered under the
Securities Act of 1933, as amended, the Company may require, as a condition to
exercise of the Award, such representations or agreements as counsel for the
Company may consider appropriate to avoid violation of such Act and may
require that the certificates evidencing such Stock bear an appropriate legend
restricting transfer.
If an Award is exercised by the Participant's legal representative, the
Company will be under no obligation to deliver Stock pursuant to such exercise
until the Company is satisfied as to the authority of such representative.
8.4. Tax Withholding.
The Company will withhold from any cash payment made pursuant to an Award an
amount sufficient to satisfy all federal, state and local withholding tax
requirements (the "withholding requirements").
In the case of an Award pursuant to which Stock may be delivered, the Board
will have the right to require that the Participant or other appropriate
person remit to the Company an amount sufficient to satisfy the withholding
requirements, or make other arrangements satisfactory to the Board with regard
to such requirements, prior to the delivery of any Stock. If and to the extent
that such withholding is required, the Board may permit the Participant or
such other person to elect at such time and in such manner as the Board
provides to have the Company hold back from the shares to be delivered, or to
surrender and deliver to the Company, Stock having a value calculated to
satisfy the withholding requirement.
8.5. Nontransferability of Awards.
No Award (other than an Award in the form of an outright transfer of cash or
Unrestricted Stock) may be transferred other than by will or by the laws of
descent and distribution, and during an employee's lifetime an Award requiring
exercise may be exercised only by the Participant (or in the event of the
Participant's incapacity, the person or persons legally appointed to act on
the Participant's behalf).
8.6. Adjustments in the Event of Certain Transactions.
(a) In the event of a stock dividend, stock split or combination of shares,
recapitalization or other change in the Company's capitalization, or other
distribution to common stockholders other than normal cash dividends, after
the effective date of the Plan, the Board will make any appropriate
adjustments to the maximum number of shares and kind of shares or securities
that may be delivered under the Plan under Section 4 above.
(b) In any event referred to in paragraph (a), the Board will also make any
appropriate adjustments to the number and kind of shares of stock or
securities subject to Awards then outstanding or subsequently granted, any
exercise prices relating to Awards and any other provision of Awards affected
by such change. The Board may also make such adjustments to take into account
material changes in law or in accounting practices or principles, mergers,
consolidations, acquisitions, dispositions or similar corporate transactions,
or any other event, if it is determined by the Board that adjustments are
appropriate to avoid distortion in the operation of the Plan.
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8.7. Employment Rights, Etc.
Neither the adoption of the Plan nor the grant of Awards will confer upon
any person any right to continued retention by the Company or any subsidiary
as an Employee or otherwise, or affect in any way the right of the Company or
subsidiary to terminate an employment, service or similar relationship at any
time. Except as specifically provided by the Board in any particular case, the
loss of existing or potential profit in Awards granted under the Plan will not
constitute an element of damages in the event of termination of an employment,
service or similar relationship even if the termination is in violation of an
obligation of the Company to the Participant.
8.8. Deferral of Payments.
The Board may agree at any time, upon request of the Participant, to defer
the date on which any payment under an Award will be made.
8.9. Past Services as Consideration.
Where a Participant purchases Stock under an Award for a price equal to the
par value of the Stock, the Board may determine that such price has been
satisfied by past services rendered by the Participant.
9. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION
Neither adoption of the Plan nor the grant of Awards to a Participant will
affect the Company's right to grant to such Participant awards that are not
subject to the Plan, to issue to such Participant Stock as a bonus or
otherwise, or to adopt other plans or arrangements under which Stock may be
issued to Employees.
The Board (but not the Committee) may at any time or times amend the Plan,
and the Board (or Committee) may at any time or times amend any outstanding
Award, for any purpose which may at the time be permitted by law, and the
Board (but not the Committee) may at any time terminate the Plan as to any
further grants of Awards.
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EXHIBIT 10.35
AUTOTOTE CORPORATION
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1992 EQUITY INCENTIVE PLAN AS AMENDED AND RESTATED
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<PAGE>
AUTOTOTE CORPORATION
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1992 EQUITY INCENTIVE PLAN AS AMENDED AND RESTATED
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
1. Purpose................................................................ 1
2. Administration......................................................... 1
3. Effective Date and Term of Plan........................................ 2
4. Shares Subject to the Plan............................................. 2
5. Eligibility and Participation.......................................... 2
6. Types of Awards........................................................ 3
7. Events Affecting Certain Outstanding Awards............................ 7
8. General Provisions..................................................... 12
9. Effect, Discontinuance, Cancellation, Amendment and Termination........ 14
</TABLE>
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AUTOTOTE CORPORATION
1992 EQUITY INCENTIVE PLAN,
AS AMENDED AND RESTATED
1. PURPOSE
The purpose of this Equity Incentive Plan (the "Plan") is to advance the
interests of Autotote Corporation (the "Company") by enhancing its ability to
attract and retain employees and other persons or entities who are in a
position to make significant contributions to the success of the Company and
its subsidiaries through ownership of shares of the Company's Class A Common
Stock ("Stock").
The Plan is intended to accomplish these goals by enabling the Company to
grant Awards in the form of Options, Stock Appreciation Rights, Restricted
Stock or Unrestricted Stock Awards, Deferred Stock Awards, Performance Awards,
Loans or Supplement Grants, or combinations thereof, all as more fully
described below.
2. ADMINISTRATION
The Plan will be administered by the Board of Directors of the Company (the
"Board"). The Board will have authority, not inconsistent with the express
provisions of the Plan and in addition to other authority granted under the
Plan, to (a) grant Awards at such time or times as it may choose; (b)
determine the size of each Award, including the number of shares of Stock
subject to the Award; (c) determine the type or types of each Award; (d)
determine the terms and conditions of each Award; (e) waive compliance by a
Participant (as defined below) with any obligations to be performed by the
Participant under an Award and waive any term or condition of an Award; (f)
amend or cancel an existing Award in whole or in part (and if an award is
canceled, grant another Award in its place on such terms as the Board shall
specify), except that the Board may not, without the consent of the holder of
an Award, take any action under this clause with respect to such Award if such
action would adversely affect the rights of such holder; (g) prescribe the
form or forms of instruments that are required or deemed appropriate under the
Plan, including any written notices and elections required of Participants,
and change such forms from time to time; (h) adopt, amend and rescind rules
and regulations for the administration of the Plan; and (i) interpret the Plan
and decide any questions and settle all controversies and disputes that may
arise in connection with the Plan. Such Determinations and actions of the
Board and all other determinations and actions of the Board made or taken
under authority granted by any provision of the Plan, will be conclusive and
will bind all parties. Nothing in this paragraph shall be construed as
limiting the power of the Board to make adjustments under Section 7.3, Section
7.4 or Section 8.6.
The Board may, in its discretion, delegate some or all of its powers with
respect to the Plan to a committee (the "Committee"), in which event all
references (as appropriate) to the Board hereunder shall be deemed to refer to
the Committee. The Committee, if one is appointed, shall consist of at least
two directors. A majority of the members of the Committee shall constitute a
quorum, and all determinations of the Committee shall be made by a majority of
its members. Any determination of the Committee under the Plan may be made
without notice of meeting of the Committee by a writing signed by a majority
of the Committee members. At any time the Stock is registered under the
Securities Exchange Act of 1934 (the "1934 Act"), the Board shall delegate the
power to select directors and officers to receive Awards under the Plan and
the timing, pricing and amount of such Awards to a committee, all members of
which shall be disinterested persons within the meaning of Rule 16b-3 under
the 1934 Act.
3. EFFECTIVE DATE AND TERM OF PLAN
The Plan will become effective on the date on which it is approved by the
stockholders of the Company. Grants of Awards under the Plan may be made prior
to that date, subject to such approval of the Plan.
No Award may be granted under the Plan after December 17, 2002 (the "Term of
the Plan"), but Awards previously granted may extend beyond that date.
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4. SHARES SUBJECT TO THE PLAN
Subject to the adjustment as provided in Section 8.6 below, the aggregate
number of shares of Stock that may be delivered under the Plan will be
300,000. If any Award requiring exercise by the Participant for delivery of
Stock terminates without having been exercised in full, or if any Award
payable in Stock or cash is satisfied in cash rather than Stock, the number of
shares of Stock as to which such Award was not exercised or for which cash was
substituted will be available for future grants.
Stock delivered under the Plan may be either authorized but unissued Stock
or previously issued Stock acquired by the Company and held in treasury. No
fractional shares of Stock will be delivered under the Plan.
5. ELIGIBILITY AND PARTICIPATION
Those eligible to receive Awards under the Plan ("Participants") will be
persons in the employ of the Company or any of its subsidiaries ("Employees"),
and other persons or entities (including without limitation directors of the
Company or a subsidiary of the Company who are not Employees), if such persons
are determined, in the opinion of the Board, to be in a position to make a
significant contribution to the success of the Company or its subsidiaries. A
"subsidiary" for purposes of the Plan will be a corporation in which the
Company owns, directly or indirectly, stock possessing 50% or more of the
total combined voting power of all classes of stock.
6. TYPES OF AWARDS
6.1. Options
(a) Nature of Options. An Option is an Award entitling the recipient on
exercise thereof to purchase Stock at a specified exercise price.
Both "incentive stock options," as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") (any Option intended to qualify
as an incentive stock option being hereinafter referred to as an "ISO"), and
Options that are not incentive stock options, may be granted under the Plan.
ISOs shall be awarded only to Employees.
(b) Exercise Price. The exercise price of an Option will be determined by
the Board subject to the following:
(1) The exercise price of an ISO shall not be less than 100% (110% in the
case of an ISO granted to a ten-percent shareholder) of the fair market
value of the Stock subject to the Option, determined as of the time the
Option is granted. A "ten-percent shareholder" is any person who at the
time of grant owns, directly or indirectly, or is deemed to own by reason
of the attribution rules of section 424(d) of the Code, stock possessing
more than 10% of the total combined voting power of all classes of stock of
the Company or of any of its subsidiaries.
(2) In no case may the exercise price paid for Stock which is part of an
original issue of authorized Stock be less than the par value per share of
the Stock.
(3) The Board may reduce the exercise price of an Option (other than a
Non-Employee Director Option) at any time after the time of grant, but in
the case of an Option originally awarded as an ISO, only with the consent
of the Participant.
(c) Duration of Options. The latest date on which an Option may be exercised
will be the tenth anniversary (fifth anniversary, in the case of an ISO
granted to a ten-percent shareholder) of the day immediately preceding the
date the Option was granted, or such earlier date as may have been specified
by the Board at the time the Option was granted.
(d) Exercise of Options. An Option will become exercisable at such time or
times, and on such conditions, as the Board may specify. The Board may at any
time accelerate the time at which all or any part of such an Option may be
exercised.
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Any exercise of an Option must be in writing, signed by the proper person
and delivered or mailed to the Company, accompanied by (1) any documents
required by the Board and (2) payment in full in accordance with paragraph (e)
below for the number of shares for which the Option is exercised.
(e) Payment for Stock. Stock purchased on exercise of an Option must be paid
for as follows: (1) in cash or by check (acceptable to the Company in
accordance with guidelines established for this purpose), bank draft or money
order payable to the order of the Company or (2), if so permitted by the
instrument evidencing such Option (or in the case of such an Option which is
not an ISO, by the Board at or after grant of such Option), (i) through the
delivery of shares of Stock which have been outstanding for at least six
months (unless the Board expressly approves a shorter period) and which have a
fair market value on the last business day preceding the date of exercise
equal to the exercise price, or (ii), by delivery of a promissory note of the
Option holder to the Company, payable on such terms as are specified by the
Board, or (iii) by delivery of an unconditional and irrevocable undertaking by
a broker to deliver promptly to the Company sufficient funds to pay the
exercise price, or (iv) by any combination of the permissible forms of
payment; provided, that if the Stock delivered upon exercise of the Option is
an original issue of authorized Stock, at least so much of the exercise price
as represents the par value of such Stock must be paid other than by the
Option holder's promissory note.
(f) Discretionary Payments. If the market price of shares of Stock subject
to an Option (other than an Option which is in tandem with a Stock
Appreciation Right as described in Section 6.2 below) exceeds the exercise
price of the Option at the time of its exercise, the Board may cancel the
Option and cause the Company to pay in cash or in shares of Common Stock (at a
price per share equal to the fair market value per share) to the person
exercising the Option an amount equal to the difference between the fair
market value of the Stock which would have been purchased pursuant to the
exercise (determined on the date the Option is cancelled) and the aggregate
exercise price which would have been paid. The Board may exercise its
discretion to take such action only if it has received a written request from
the person exercising the Option, but such a request will not be binding on
the Board.
6.2. Stock Appreciation Rights.
(a) Nature of Stock Appreciation Rights. A Stock Appreciation Right is an
Award entitling the recipient on exercise of the Right to receive, an amount,
in cash or Stock or a combination thereof (such form to be determined by the
Board), determined in whole or in part by reference to appreciation in Stock
value.
In general, a Stock Appreciation Right entitles the Participant to receive,
with respect to each share of Stock as to which the Right is exercised, the
excess of the share's fair market value on the date of exercise over its fair
market value on the date the Right was granted. However, the Board may provide
at the time of grant that the amount the recipient is entitled to receive will
be adjusted upward or downward under rules established by the Board to take
into account the performance of the Stock in comparison with the performance
of other stocks or an index or indices of other stocks. The Board may also
grant Stock Appreciation Rights that provide, that following a Change in
Control of the Company as defined in Exhibit A hereto that the holder of such
Right will be entitled to receive with respect to each share of Stock subject
to the Right, an amount equal to the excess of a specified value (which may
include an average of values) for a share of Stock during a period preceding
such Change in Control over the fair market value of a share of Stock on the
date the Right was granted.
(b) Grant of Stock Appreciation Rights. Stock Appreciation Rights may be
granted in tandem with, or independently of, Options granted under the Plan. A
Stock Appreciation Right granted in tandem with an Option which is not an ISO
may be granted either at or after the time the Option is granted. A Stock
Appreciation Right granted in tandem with an ISO may be granted only at the
time the Option is granted.
(c) Rules Applicable to Tandem Awards. When Stock Appreciation Rights are
granted in tandem with Options, the following will apply:
(1) The Stock Appreciation Right will be exercisable only at such time or
times, and to the extent, that the related Option is exercisable and will
be exercisable in accordance with the procedure required for exercise of
the related Option.
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(2) The Stock Appreciation Right will terminate and no longer be
exercisable upon the termination or exercise of the related Option, except
that a Stock Appreciation Right granted with respect to less than the full
number of shares covered by an Option will not be reduced until the number
of shares as to which the related Option has been exercised or has
terminated exceeds the number of shares not covered by the Stock
Appreciation Right.
(3) The Option will terminate and no longer be exercisable upon the
exercise of the related Stock Appreciation Right.
(4) The Stock Appreciation Right will be transferable only with the
related Option.
(5) A Stock Appreciation Right granted in tandem with an ISO may be
exercised only when the market price of the Stock subject to the Option
exceeds the exercise price of such option.
(d) Exercise of Independent Stock Appreciation Rights. A Stock Appreciation
Right not granted in tandem with an Option will become exercisable at such
time or times, and on such conditions, as the Board may specify. The Board may
at any time accelerate the time at which all or any part of the Right may be
exercised.
Any exercise of an independent Stock Appreciation Right must be in writing,
signed by the proper person and delivered or mailed to the Company,
accompanied by any other documents required by the Board.
6.3. Restricted and Unrestricted Stock.
(a) Nature of Restricted Stock Award. A Restricted Stock Award entitles the
recipient to acquire, for a purchase price equal to par value, shares of Stock
subject to the restrictions described in paragraph (d) below ("Restricted
Stock").
(b) Acceptance of Award. A Participant who is granted a Restricted Stock
Award will have no rights with respect to such Award unless the Participant
accepts the Award by written instrument delivered or mailed to the Company
accompanied by payment in full of the specified purchase price, if any, of the
shares covered by the Award. Payment may be by certified or bank check or
other instrument acceptable to the Board.
(c) Rights as a Stockholder. A Participant who receives Restricted Stock
will have all the rights of a stockholder with respect to the Stock, including
voting and dividend rights, subject to the restrictions described in paragraph
(d) below and any other conditions imposed by the Board at the time of grant.
Unless the Board otherwise determines, certificates evidencing shares of
Restricted Stock will remain in the possession of the Company until such
shares are free of all restrictions under the Plan.
(d) Restrictions. Except as otherwise specifically provided by the Plan,
Restricted Stock may not be sold, assigned, transferred, pledged or otherwise
encumbered or disposed of, and if the Participant ceases to be an Employee or
otherwise suffers a Status Change (as defined at Section 7.2(a) (below) for
any reason, must be offered to the Company for purchase for the amount of cash
paid for the Stock, or forfeited to the Company if no cash was paid. These
restrictions will lapse at such time or times, and on such conditions, as the
Board may specify. The Board may at any time accelerate the time at which the
restrictions on all or any part of the shares will lapse.
(e) Notice of election. Any Participant making an election under Section
83(b) of the Code with respect to Restricted Stock must provide a copy thereof
to the Company within 10 days of the filing of such election with the Internal
Revenue Service.
(f) Other Awards Settled with Restricted Stock. The Board may, at the time
any Award described in this Section 6 is granted, provide that any or all the
Stock delivered pursuant to the Award will be Restricted Stock.
(g) Unrestricted Stock. The Board may, in its sole discretion, approve the
sale to any Participant of shares of Stock free of restrictions under the Plan
for a price which is not less than the par value of the Stock.
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6.4. Deferred Stock.
A Deferred Stock Award entitles the recipient to receive shares of Stock to
be delivered in the future. Delivery of the Stock will take place at such time
or times, and on such conditions, as the Board may specify. The Board may at
any time accelerate the time at which delivery of all or any part of the Stock
will take place. At the time any Award described in this Section 6 is granted,
the Board may provide that, at the time Stock would otherwise be delivered
pursuant to the Award, the Participant will instead receive an instrument
evidencing the Participant's right to future delivery of Deferred Stock.
6.5. Performance Awards; Performance Goals.
(a) Nature of Performance Awards. A Performance Award entitles the recipient
to receive, without payment, an amount in cash or Stock or a combination
thereof (such form to be determined by the Board) following the attainment of
Performance Goals. Performance Goals may be related to personal performance,
corporate performance, departmental performance or any other category of
performance deemed by the Board to be important to the success of the Company.
The Board will determine the Performance Goals, the period or periods during
which performance is to be measured and all other terms and conditions
applicable to the Award.
(b) Other Awards Subject to Performance Condition. The Board may, at the
time any Award described in this Section 6 is granted, impose the condition
(in addition to any conditions specified or authorized in this Section 6 or
any other provision of the Plan) that Performance Goals be met prior to the
Participant's realization of any payment or benefit under the Award.
6.6. Loans and Supplemental Grants.
(a) Loans. The Company may make a loan to a Participant ("Loan"), either on
the date of or after the grant of any Award to the Participant. A Loan may be
made either in connection with the purchase of Stock under the Award or with
the payment of any Federal, state and local income tax with respect to income
recognized as a result of the Award. The Board will have full authority to
decide whether to make a Loan and to determine the amount, terms and
conditions of the Loan, including the interest rate (which may be zero),
whether the Loan is to be secured or unsecured or with or without recourse
against the borrower, the terms on which the Loan is to be repaid and the
conditions, if any, which it may be forgiven. However, no Loan may have a term
(including extensions) exceeding ten years in duration.
(b) Supplemental Grants. In connection with any Award, the Board may at the
time such Award is made or at a later date, provide for and grant a cash award
to the Participant ("Supplemental Grant") not to exceed an amount equal to (1)
the amount of any federal, state and local income tax on ordinary income for
which the Participant may be liable with respect to the Award, determined by
assuming taxation at the highest marginal rate, plus (2) an additional amount
on a grossed-up basis intended to make the Participant whole on an after-tax
basis after discharging all the Participant's income tax liabilities arising
from all payments under this Section 6. Any payments under this subsection (b)
will be made at the time the Participant incurs Federal income tax liability
with respect to the Award.
7. EVENTS AFFECTING CERTAIN OUTSTANDING AWARDS
7.1. Death.
If a Participant dies, the following will apply:
(a) All Options and Stock Appreciation Rights held by the Participant
immediately prior to death, to the extent then exercisable, may be
exercised by the Participant's executor or administrator or the person or
persons to whom the Option or Right is transferred by will or the
applicable laws of descent and distribution,
7
<PAGE>
at any time within the one year period ending with the first anniversary of
the Participant's death (or such shorter or longer period as the Board may
determine), and shall thereupon terminate. In no event, however, shall an
Option or Stock Appreciation Right remain exercisable beyond the latest
date on which it could have been exercised without regard to this Section
7. Except as otherwise determined by the Board, all Options and Stock
Appreciation Rights held by a Participant immediately prior to death that
are not then exercisable shall terminate at death.
(b) Except as otherwise determined by the Board, all Restricted Stock
held by the Participant must be transferred to the Company (and, in the
event the certificates representing such Restricted Stock are held by the
Company, such Restricted Stock will be so transferred without any further
action by the Participant) in accordance with Section 6.3 above.
(c) Any payment or benefit under a Deferred Stock Award, Performance
Award, or Supplemental Grant, to which the Participant was not irrevocably
entitled prior to death will be forfeited and the Award canceled as of the
time of death, unless otherwise determined the Board.
7.2. Termination of Service (Other Than By Death).
If a Participant who is an Employee ceases to be an Employee for any reason
other than death, or if there is a termination (other than by reason of death)
of the consulting, service or similar relationship in respect of which a non-
Employee Participant was granted an Award hereunder (such termination of the
employment or other relationship being hereinafter referred to as a "Status
Change"), the following will apply:
(a) Except as otherwise determined by the Board, all Options and Stock
Appreciation Rights held by the Participant that were not exercisable
immediately prior to the Status Change shall terminate at the time of the
Status Change. Any Options or Rights that were exercisable immediately
prior to the Status Change will continue to be exercisable for a period of
three months (or such longer period as the Board may determine), and shall
thereupon terminate, unless the Award provides by its terms for immediate
termination in the event of a Status Change or unless the Status Change
results from a discharge for cause which in the opinion of the Board casts
such discredit on the Participant as to justify immediate termination of
the Award. In no event, however, shall an Option or Stock Appreciation
Right remain exercisable beyond the latest date on which it could have been
exercised without regard to this Section 7. For purposes of this paragraph,
in the case of a Participant who is an Employee, a Status Change shall not
be deemed to have resulted by reason of (i) a sick leave or other bona fide
leave of absence approved for purposes of the Plan by the Board, so long as
the Employee's right to reemployment is guaranteed either by statute or by
contract, or (ii) a transfer of employment between the Company and a
subsidiary or between subsidiaries, or to the employment of a corporation
(or a parent or subsidiary corporation of such corporation) issuing or
assuming an option in a transaction to which section 424(a) of the Code
applies.
(b) Except as otherwise determined by the Board, all Restricted Stock
held by the Participant at the time of the Status Change must be
transferred to the Company (and, in the event the certificates representing
such Restricted Stock are held by the Company, such Restricted Stock will
be so transferred without any further action by the Participant) in
accordance with Section 6.3 above.
(c) Any payment or benefit under a Deferred Stock Award, Performance
Award, or Supplemental Grant to which the Participant was not irrevocably
entitled prior to the Status Change will be forfeited and the Award
cancelled as of the date of such Status Change unless otherwise determined
by the Board.
7.3. Acquisition Transactions.
Notwithstanding any other provision of the Plan or of any Award to the
contrary, in the event of a consolidated or merger in which the Company is not
the surviving corporation or which results in the acquisition of substantially
all the Company's outstanding Stock by a single person or entity or by a group
of persons and/or entities acting in concert or in the event of the sale or
transfer of substantially all the Company's assets (an
8
<PAGE>
"acquisition transaction"), all outstanding Awards will terminate as of the
effective date of the acquisition transaction, and the following will apply:
(a) Each outstanding Option and Stock Appreciation Right will become
exercisable in full 10 days prior to the anticipated effective date of the
proposed acquisition transaction unless otherwise expressly provided at the
time of grant.
(b) Each outstanding share of Restricted Stock will become free of all
restrictions and conditions 10 days prior to the anticipated effective date
of the proposed acquisition transaction.
(c) Conditions on Deferred Stock Awards, Performance Awards, and
Supplemental Grants which relate only to the passage of time and continued
employment will be removed 10 days prior to the anticipated effective date
of the proposed acquisition transaction. Performance or other conditions
(other than conditions relating only to the passage of time and continued
employment) will continue to apply unless otherwise provided in the
instrument evidencing the Awards or in any other agreement between the
Participant and the Company or unless otherwise agreed to by the Board.
(d) The Board may in its sole discretion, prior to the effective date of
the acquisition transaction, forgive all or any portion of the principal of
or interest on a Loan.
7.4. Dissolution or Liquidation Transactions.
In the event of a dissolution or liquidation of the Company (a "covered
transaction"), all outstanding Awards will terminate as of the effective date
of the covered transaction, and the following rules shall apply:
(a) Subject to paragraph (b) below, the Board may in its sole discretion,
prior to the effective date of the covered transaction, (1) make each
outstanding Option and Stock Appreciation Right exercisable in full, (2)
remove the restrictions from each outstanding share of Restricted Stock,
(3) cause the Company to make any payment and provide any benefit under
each outstanding Deferred Stock Award, Performance Award, and Supplemental
Grant which would have been made or provided with the passage of time had
the transaction not occurred and the Participant not suffered a Status
Change (or died), and (4) forgive all or any portion of the principal of or
interest on a Loan.
(b) If an outstanding Award is subject to performance or other conditions
(other than conditions relating only to the passage of time and continued
employment) which will not have been satisfied at the time of the covered
transaction, the Board may in its sole discretion remove such conditions.
If it does not do so, however, such Award will terminate as of the date of
the covered transaction notwithstanding paragraph (a) above.
8. GENERAL PROVISIONS
8.1. Documentation of Awards.
Awards will be evidenced by such written instruments, if any, as may be
prescribed by the Board from time to time. Such instruments may be in the form
of agreements to be executed by both the Participant and the Company, or
certificates, letters or similar instruments, which need not be executed by
the Participant but acceptance of which will evidence agreement to the terms
thereof.
8.2. Rights as a Stockholder, Dividend Equivalents.
Except as specifically provided by the Plan, the receipt of an Award will
not give a Participant rights as a stockholder; the participant will obtain
such rights, subject to any limitations imposed by the Plan or the instrument
evidencing the Award, upon actual receipt of Stock. However, the Board may, on
such conditions as it deems appropriate, provide that a Participant will
receive a benefit in lieu of cash dividends that would have been payable on
any or all Stock subject to the Participant's Award had such Stock been
outstanding. Without
9
<PAGE>
limitation, the Board may provide for payment to the Participant of amounts
representing such dividends, either currently or in the future, or for the
investment of such amounts on behalf of the Participant.
8.3. Conditions on Delivery of Stock.
The Company will not be obligated to deliver any shares of Stock pursuant to
the Plan or to remove restrictions from shares previously delivered under the
Plan (a) until all conditions of the Award have been satisfied or removed, (b)
until, in the opinion of the Company's counsel, all applicable federal and
state laws and regulation have been complied with, (c) if the outstanding
Stock is at the time listed on any stock exchange, until the shares to be
delivered have been listed or authorized to be listed on such exchange upon
official notice of issuance, and (d) until all other legal matters in
connection with the issuance and delivery of such shares have been approved by
the Company's counsel. If the sale of Stock has not been registered under the
Securities Act of 1933, as amended, the Company may require, as a condition to
exercise of the Award, such representations or agreements as counsel for the
Company may consider appropriate to avoid violation of such Act and may
require that the certificates evidencing such Stock bear an appropriate legend
restricting transfer.
If an Award is exercised by the Participant's legal representative, the
Company will be under no obligation to deliver Stock pursuant to such exercise
until the Company is satisfied as to the authority of such representative.
8.4. Tax Withholding.
The Company will withhold from any cash payment made pursuant to an Award an
amount sufficient to satisfy all federal, state and local withholding tax
requirements (the "withholding requirements").
In the case of an Award pursuant to which Stock may be delivered, the Board
will have the right to require that the Participant or other appropriate
person remit to the Company an amount sufficient to satisfy the withholding
requirements, or make other arrangements satisfactory to the Board with regard
to such requirements, prior to the delivery of any Stock. If and to the extent
that such withholding is required, the Board may permit the Participant or
such other person to elect at such time and in such manner as the Board
provides to have the Company hold back from the shares to be delivered, or to
deliver to the Company, Stock having a value calculated to satisfy the
withholding requirement.
If at the time an ISO is exercised the Board determines that the Company
would be liable for withholding requirements with respect to a disposition of
the Stock received upon exercise, the Board may require as a condition of
exercise that the person exercising the ISO agree (a) to inform the Company
promptly of any disposition (within the meaning of section 424(c) of the Code)
of Stock received upon exercise, and (b) to give such security as the Board
deems adequate to meet the potential liability of the Company for the
withholding requirements and to augment such security from time to time in any
amount reasonably deemed necessary by the Board to preserve the adequacy of
such security.
8.5. Nontransferability of Awards.
No Award (other than an Award in the form of an outright transfer of cash or
Unrestricted Stock) may be transferred other than by will or by the laws of
descent and distribution, and during a Participant's lifetime an Award
requiring exercise may be exercised only by the Participant (or in the event
of the Participant's incapacity, the person or persons legally appointed to
act on the Participant's behalf).
8.6. Adjustments in the Event of Certain Transactions.
(a) In the event of a stock dividend, stock split or combination of shares,
recapitalization or other change in the Company's capitalization, or other
distribution to common stockholders other than normal cash dividends, after
the effective date of the Plan, the Board will make any appropriate
adjustments to the maximum number of shares that may be delivered under the
Plan under Section 4 above.
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<PAGE>
(b) In any event referred to in paragraph (a), the Board will also make any
appropriate adjustments to the number and kind of shares of stock or
securities subject to Awards then outstanding or subsequently granted, any
exercise prices relating to Awards and any other provision of Awards affected
by such change. The Board may also make such adjustments to take into account
material changes in law or in accounting practices or principles, mergers,
consolidations, acquisitions, dispositions or similar corporate transactions,
or any other event, if it is determined by the Board that adjustments are
appropriate to avoid distortion in the operation of the Plan.
8.7. Employment Rights, Etc.
Neither the adoption of the Plan nor the grant of Awards will confer upon
any person any right to continued retention by the Company or any subsidiary
as an Employee or otherwise, or affect in any way the right of the Company or
subsidiary to terminate an employment, service or similar relationship at any
time. Except as specifically provided by the Board in any particular case, the
loss of existing or potential profit in Awards granted under the Plan will not
constitute an element of damages in the event of termination of an employment,
service or similar relationship even if the termination is in violation of an
obligation of the Company to the Participant.
8.8. Deferral of Payments.
The Board may agree at any time, upon request of the Participant, to defer
the date on which any payment under an Award will be made.
8.9. Past Services as Consideration.
Where a Participant purchases Stock under an Award for a price equal to the
par value of the Stock the Board may determine that such price has been
satisfied by past services rendered by the Participant.
9. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION
Neither adoption of the Plan nor the grant of Awards to a Participant will
affect the Company's right to grant to such Participant awards that are not
subject to the Plan, to issue to such Participant Stock as a bonus or
otherwise, or to adopt other plans or arrangements under which Stock be issued
to Employees.
The Board may at any time or times amend the Plan or any outstanding Award
for any purpose which may at the time be permitted by law, or may at any time
terminate the Plan as to any further grants of Awards, provided that (except
to the extent expressly required or permitted by the Plan) no such amendment
will, without the approval of the stockholders of the Company, effectuate a
change for which stockholder approval is required in order for the Plan to
continue to qualify for the award of ISOs under section 422 of the Code and to
continue to qualify under Rule 16b-3 promulgated under Section 16 of the 1934
Act.
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Exhibit 10.36
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of November 6, 1995 between
AUTOTOTE CORPORATION, a Delaware corporation (the "Company"), and HARTFORD STOCK
FUND and HARTFORD ADVISERS FUND (together, the "Funds").
Concurrently with the execution and delivery hereof, the parties have
entered into an Agreement dated as of the date hereof (the "PIK Agreement"),
pursuant to which the Company has agreed to pay the interest due on each of
August 15, 1995 and February 15, 1996 on the Company's outstanding 5-1/2%
Convertible Subordinated Debentures due 2001 (the "Debentures") by issuing
shares of its Class A Common Stock, $.01 par value ("Class A Stock"), in lieu of
cash, all upon the terms and subject to the conditions provided therein. To
induce the Funds to enter into the PIK Agreement, the Company has agreed to
provide the registration rights set forth in this Agreement.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Definitions.
-----------
As used in this Agreement, the following capitalized terms shall have
the following meanings:
BT Shares: Shares of common stock of the Company issued or issuable
---------
pursuant to the warrants heretofore issued to Bankers Trust Company and others
pursuant to a Warrant Agreement dated as of September 14, 1995.
Business Day: Each day that is not a Saturday or Sunday or a day on
------------
which banks located in the City of New York are authorized or required to be
closed.
Commission: The Securities and Exchange Commission.
----------
Exchange Act: The Securities Exchange Act of 1934, as amended.
------------
Holders: The Funds (so long as they continue to hold Registrable
-------
Securities) and any subsequent transferee of Registrable Securities to which the
registration rights granted hereunder are assigned in accordance with Section
3(c).
Interest Shares: (i) Shares of Class A Stock issued by the Company
---------------
to the Funds in satisfaction of interest due on August 15, 1995 or February 15,
1996 on the Debentures, and (ii) any securities issued by the Company with
respect to any of the securities referred to in clause (i) above or this clause
(ii) by way of stock dividend or stock split or in connection with a combination
of shares, recapitalization, merger, consolidation or other reorganization or
otherwise.
Person: An individual, partnership, corporation, joint venture,
------
trust, estate, unincorporated organization, or a government or agency or
political subdivision thereof.
<PAGE>
Prospectus: The prospectus included in a Registration Statement, as
----------
amended or supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material incorporated by
reference into such prospectus.
Registrable Securities: Any Interest Shares until (i) one or more
----------------------
registration statements covering such Interest Shares have become effective
under the Securities Act and such Interest Shares have been disposed of pursuant
to such effective registration statement, (ii) such Interest Shares have been
sold under circumstances in which all of the applicable conditions of Rule 144
(or any similar provisions then in force) under the Securities Act are met or
under which such Interest Shares may be sold pursuant to Rule 144(k), (iii) such
Interest Shares may be sold pursuant to Rule 144(k), or (iv) the Company has
delivered a new certificate or other evidence of ownership for such Interest
Shares not bearing any legend relating to restrictions on transfer and such
Interest Shares may be resold without subsequent registration under the
Securities Act, or (v) such Interest Shares shall have ceased to be outstanding.
Registration Expenses: See Section 2(e).
---------------------
Registration Statement: Any registration statement of the Company
----------------------
relating to the registration for resale of Registrable Securities pursuant to
the registration statement, which is filed pursuant to the provisions of this
Agreement, including the Prospectus included therein, all amendments and
supplements thereto.
Securities Act: The Securities Act of 1933, as amended.
--------------
Suspension Period: See Section 2(a)(v).
-----------------
2. Registration Rights.
-------------------
(a) Demand Registration Rights. (i) At any time prior to December
--------------------------
31, 1998, the Holders of more than 40% of all of the Interest Shares then
outstanding may make a written request to the Company for registration of
Registrable Securities under the Securities Act with the Commission (or any
successor entity) for a public offering of Registrable Securities (a "Demand
Registration"). The Holders shall have the right, in the aggregate, to one
Demand Registration of all or any part of their Registrable Securities (which
Demand Registration may be on Form S-2 or S-3 or other short-forms if the
Company then qualifies for such short form registration); provided, however,
-------- -------
that the Company shall not be required to effect a registration pursuant to this
Section 2(a)(i) with respect to any Registrable Securities unless the request
for registration covers Registrable Securities representing at least 40% of all
Registrable Securities then outstanding and held by the Holders. Whenever the
Company shall receive a request for a Demand Registration, the Company will
promptly give notice of such registration to all Holders and shall as
expeditiously as is reasonable, use its best efforts to effect the registration
under the Securities Act of the Registrable Securities with respect to which the
Company has received written requests for inclusion therein within 15 days after
such notice is given. All requests made pursuant to this Section 2(a)(i) will
specify the number of shares of Registrable Securities to be registered and will
also specify the intended methods of disposition thereof.
2
<PAGE>
(ii) A registration initiated as a Demand Registration shall not be
deemed a Demand Registration (i) until a registration statement with respect
thereto has become effective and has remained effective for the period of time
in which the Company is required to keep such registration statement effective
under this Agreement (without giving effect to any Suspension Period), provided,
--------
however, that a registration that does not become effective after the Company
- -------
has filed a registration statement with respect thereto solely by reason of the
refusal to proceed of the Holders shall be deemed to have been effected by the
Company, (ii) if after such registration statement has become effective, such
registration statement is interfered with by any stop order, injunction or other
order or requirement of the Commission or other governmental agency or court for
any reason and, as a result thereof, the offering of Registrable Securities is
terminated prior to the sale thereof, unless prior thereto the Holders had a
period of 30 consecutive days during which they were permitted to sell their
Registrable Securities pursuant to such registration statement, or (iii) if
after such registration statement has become effective, the Company exercises
any of its rights under Section 2(a)(v), unless after giving effect to any
termination of a Suspension Period the Holders had a period of 30 consecutive
days during which they were permitted to sell their Registrable Securities
pursuant to such registration statement.
(iii) If the Holders so elect, the offering of such Registrable
Securities pursuant to such Demand Registration shall be in the form of an
underwritten offering. In any such underwritten offering, the investment banker
or investment bankers and manager or managers that will administer the offering
will be selected by the Holders of a majority of the Registrable Securities
included in such offering; provided, that such investment bankers and managers
--------
must be reasonably acceptable to the Company.
(iv) The Company may delay the filing of a registration statement for
up to 120 days if, at the time of a request for registration under Section
2(a)(i), (A) the Company is a party to a transaction involving the purchase,
sale, conversion or issuance of securities of the Company (other than a
transaction which is specifically not prohibited in Rule 10b-6 promulgated by
the Commission under the Exchange Act), (B) in the good faith judgment of the
Company's Board of Directors, there is material undisclosed information
concerning the Company or any subsidiary of the Company which has not been
disclosed to the general public for bona fide business reasons, or (C) financial
---- ----
statements required to be included or incorporated in the registration statement
have not been prepared or are otherwise not available. In addition, the Company
shall not be obligated to honor any such request for registration under Section
2(a)(i) at any time starting with the date 30 days prior to the Company's good
faith estimate of the date of filing of, and ending on the date 120 days
following the effective date of, a registration statement in connection with a
bona fide public offering. The Company shall promptly notify the Holders of any
delay in such filing, the reasons for such delay and proposed length of such
delay.
(v) The Company may suspend the effectiveness of any registration
statement or, without suspending such effectiveness, instruct the Holders that
no sales of Registrable Securities included in such registration statement may
be made (and the Holders shall forthwith discontinue disposition of any such
Registrable Securities) if, in the Company's good faith judgment, the Company
would be required to disclose any actions taken or proposed to be taken by the
Company, which disclosure would have a material adverse effect on the Company or
on
3
<PAGE>
such actions (a "Suspension Period") by providing the Holders with notice of
such Suspension Period and the reasons therefor. The Company shall use its best
efforts to provide such notice a reasonable number of days prior to the
commencement of a Suspension Period, provided that in any event the Company
shall provide such notice no later than the commencement of such Suspension
Period. The Suspension Period shall not exceed 120 days in any consecutive 365-
day period, provided that no more than one Suspension Period may be commenced in
any such 365-day period. The Company shall give prompt notice to the Holders of
the termination of any Suspension Period.
(b) Piggy-Back Registration. If, at any time or from time to time
-----------------------
prior to December 31, 1998 while any Registrable Securities are outstanding, the
Company proposes to register any of its equity securities or debt securities
convertible into its equity securities (whether for its own or others' account)
to be offered for cash or cash equivalents in a public offering under the
Securities Act (other than by a registration statement on Form S-8 or any other
form that does not include substantially the same information as would be
required in a form for the general registration of securities or that would not
be available for registration of Registrable Securities), the Company shall, as
expeditiously as is reasonably possible (but in no event later than 30 days
prior to any such registration), give notice to the Holders of the Company's
intention to effect such registration. If, within 15 days after receipt of such
notice, any Holder submits a written request to the Company specifying the
Registrable Securities such Holder proposes to sell or otherwise dispose of (a
"Piggy-Back Registration"), the Company shall include the number of shares of
Registrable Securities specified in such Holder's request in such registration
statement and the Company shall use its best efforts to effect the registration
under the Securities Act of such Registrable Securities to the extent requisite
to permit the proposed sale or other disposition thereof, provided, however,
-------- -------
that if, at any time after giving notice of its intention to register any
securities and prior to the effective date of the registration statement filed
in connection with such registration, the Company shall determine not to
register or to delay registration of such securities, the Company shall give
notice of such determination to the Holders and, thereupon, (i) in the case of a
determination not to register any securities, the Company shall be relieved of
its obligation to register any Registrable Securities in connection with such
registration (but not from any obligation of the Company to pay the Registration
Expenses in connection therewith), and (ii) in the case of a determination to
delay registering any securities, the Company shall be permitted to delay
registering any Registrable Securities, for the same period as the delay in
registering such other securities; and, provided, further, that if, after any
-------- -------
such registration statement has been declared effective, the Company reasonably
determines that it would be required to disclose any actions taken or proposed
to be taken by the Company, which disclosure would have a material adverse
effect on the Company or on such actions, the Company shall, subject to
discontinuance of sales of all other securities covered by the registration
statement, be entitled to suspend the effectiveness of such registration
statement, or without suspending such effectiveness, to request that each Holder
forthwith discontinue the disposition of such Registrable Securities and each
such Holder agrees that it will discontinue the disposition of such Registrable
Securities pursuant to such registration statement (so long as the disposition
of all other such securities is also discontinued) and thereupon the Company
shall be relieved of its obligation under this Section 2(b) with respect to such
registration (but not from its obligation to pay the Registration Expenses in
connection therewith to the extent provided in Section 2(e)). Any Holder
participating in an underwritten offering pursuant to this Section 2(b) shall,
if required by the managing underwriter or underwriters of
4
<PAGE>
such offering, enter into an underwriting agreement in a form customary for
underwritten offerings of the same general type as such offering.
No Holder shall have the right to include any Registrable Securities
in a registration statement initiated as a Piggy-Back Registration under this
Section 2(b) unless (i) such securities are of the same class and type as the
Registrable Securities being registered, and (ii) if such Piggy-Back
Registration is an underwritten offering, the Company or such Person, as
applicable, agree in writing to sell their securities on the same terms and
conditions as apply to the Registrable Securities being sold.
(c) Reduction of Offering. Notwithstanding anything contained
---------------------
herein, if, in the opinion of the managing underwriter or underwriters of an
offering described in Section 2(a) or (b), the size of the offering that the
Holders, the Company or any other Person intends to make or the kind or
combination of securities that the Holders, the Company and any other Persons
intend to include in such offering are such that the success of the offering
would be materially and adversely affected by inclusion of the Registrable
Securities requested to be included, including if marketing factors require a
limitation of the number of Registrable Securities to be underwritten, then:
(i) in the case of a Demand Registration, the amount of any Class A
Stock proposed to be offered shall be reduced or excluded from the offering
as follows:
If shares of common stock of the Company issued or issuable pursuant
to the warrants heretofore issued to Lehman Brothers Finances S.A. and
Pilgrim Prime Rate Trust (such warrants, the "Lehman Warrants," and
such shares, the "Lehman Shares") are proposed to be included in the
underwriting as a result of the exercise of incidental registration
rights previously granted under the Lehman Warrants, then the number
of shares that shall be included in the underwriting shall be
allocated as follows: (A) one Lehman Share shall be included for each
share held by the Holders and all other holders of common stock of the
Company possessing registration rights whose shares are to be included
in the underwriting and any shares to be sold for the account of the
Company (collectively, the "Non-Lehman Shares") until either the limit
is reached or all the Lehman Shares are included in the underwriting
(so that an equal number of Lehman Shares and Non-Lehman Shares are
included in the underwriting pursuant to this clause (A)), and (B) any
excess shares up to such limitation shall be Non-Lehman Shares. In
allocating Non-Lehman Shares under clauses (A) and (B) of the
immediately preceding sentence, or if no Lehman Shares are proposed to
be included in the underwriting, the amount allocated shall be such
that each holder of Non-Lehman Shares (including any Holder) may
include in the underwriting that portion of the amount to be allocated
which the number of shares proposed to be included by such holder
bears to the aggregate number of shares proposed to be included by
holders of all Non-Lehman Shares.
(ii) in the case of a Piggy-Back Registration, the amount of any
Class A Stock proposed to be offered shall be reduced or excluded from the
offering as follows:
5
<PAGE>
(A) If the registration is initiated as a result of the exercise by a
holder of Lehman Shares of demand registration rights ("Lehman Demand
Rights"), then the number of shares to be included in the underwriting
shall be allocated as follows: (1) all Lehman Shares to be sold shall
be included and (2) any additional shares to be included shall be
allocated pursuant to the last sentence of Section 2(c)(i) and (B) if
the registration is not initiated as a result of the exercise of
Lehman Demand Rights, then the number of Non-Lehman Shares of holders
not initiating the registration which may be included therein shall be
allocated as set forth in the last sentence of Section 2(c)(i),
subject to Section 2(c)(i)(A) if Lehman Shares are included as a
result of the exercise of incidental registration rights relating
thereto; provided, that, in the case of clauses (A) and (B) of this
paragraph, if BT Shares are proposed to be included in the
registration as a result of the exercise of any registration rights
previously granted to the holders of BT Shares, all of such BT Shares
shall be included in any such registration before any Non-Lehman
Shares held by the Holders.
(d) Registration Procedures. Whenever the Holders request that any
------------------------
Registrable Securities be registered pursuant to this Section 2, the Company
will, subject to the limitations otherwise provided in this Agreement, use its
best efforts to effect the registration and the sale of such Registrable
Securities in accordance with the intended method of disposition thereof, and in
connection with any such request:
(i) The Company will prepare and file with the Commission a
registration statement on any form for which the Company then qualifies or
which counsel for the Company shall deem appropriate and which form shall
be available for the sale of the Registrable Securities to be registered
thereunder in accordance with the intended method of distribution thereof,
and use its best efforts to cause such filed registration statement to
become and remain effective for a period of not less than 120 days or, if
earlier, until all of such Registrable Securities have been disposed of,
subject to any Suspension Period which will suspend any remaining portion
of such 120-day period until termination of such Suspension Period.
(ii) The Company will, if requested, prior to filing a registration
statement or prospectus or any amendment or supplement thereto, furnish to
the Holders requesting registration of Registrable Securities and each
underwriter, if any, of the Registrable Securities covered by such
registration statement copies of such registration statement as proposed to
be filed, and thereafter furnish to the Holders requesting registration of
Registrable Securities and underwriter, if any, such number of copies of
such registration statement, each amendment and supplement thereto (in each
case including all exhibits thereto and documents incorporated by reference
therein), the prospectus included in such registration statement (including
each preliminary prospectus) and such other documents as the Holders
requesting registration of Registrable Securities or underwriter may
reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Holders.
(iii) After the filing of the registration statement, the Company
will promptly notify the Holders of any stop order issued or threatened by
the Commission and take
6
<PAGE>
all reasonable actions required to prevent the entry of such stop order or
to remove it if entered.
(iv) The Company will use its best efforts to register or qualify the
Registrable Securities under such other securities or blue sky laws of such
jurisdictions in the United States as the Holders requesting registration
of Registrable Securities reasonably (in light of such Holders' intended
plan of distribution) request and do any and all other acts or things
reasonably necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by the registration
statement; provided that the Company will not be required to (A) qualify
--------
generally to do business in any jurisdiction where it would not otherwise
be required to qualify but for this paragraph (iv), (B) subject itself to
taxation in any such jurisdiction or (C) consent to general service of
process in any such jurisdiction.
(v) The Company will immediately notify the Holders, at any time when
a prospectus relating thereto is required to be delivered under the
Securities Act, of the occurrence of an event requiring the preparation of
a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
will not contain an untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading and promptly make available to the
Holders any such supplement or amendment.
(vi) The Company will enter into customary agreements (including an
underwriting agreement in customary form) and take such other actions as
are reasonably required in order to expedite or facilitate the disposition
of such Registrable Securities.
(vii) The Company will make available for inspection by the Holders
requesting registration of Registrable Securities, any underwriter
participating in any disposition pursuant to such registration statement
and any attorney, accountant or other professional retained by such Holders
or underwriter (collectively, the "Inspectors"), all financial and other
records, pertinent corporate documents and properties of the Company
(collectively, the "Records") as shall be reasonably necessary to enable
them to exercise their due diligence responsibility, and cause the
Company's officers, directors and employees to supply all information
reasonably requested by any Inspectors in connection with such registration
statement. Records that the Company determines, in good faith, to be
confidential and which it notifies the Inspectors are confidential shall
not be disclosed by the Inspectors unless (A) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in such
registration statement or (B) the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent
jurisdiction. Each Holder agrees that information obtained by it as a
result of such inspections shall be deemed confidential and shall not be
used by it as the basis for any market transactions in the securities of
the Company or its Affiliates unless and until such is made generally
available to the public.
(viii) The Company will furnish to the Holders requesting
registration of Registrable Securities and to each underwriter, if any, a
signed counterpart, addressed
7
<PAGE>
to such Holders or underwriter, of (i) an opinion or opinions of counsel to
the Company and (ii) a comfort letter or comfort letters from the Company's
independent public accountants, each in customary form and covering such
matters of the type customarily covered by opinions or comfort letters, as
the case may be.
(ix) The Company will otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and make available
to the Holders, as soon as reasonably practicable, an earnings statement
covering a period of 12 months, beginning within three months after the
effective date of the registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act.
(x) The Company will (at its own expense) use its best efforts to
cause all such Registrable Securities to be listed on each securities
exchange or automated inter-dealer quotation system, as the case may be, on
which similar securities issued by the Company are then listed, if the
listing of such Registrable Securities is then permitted by the rules of
such exchange or system.
The Company may require the Holders requesting registration of
Registrable Securities to promptly furnish in writing to the Company such
information regarding the distribution of the Registrable Securities as the
Company may from time to time reasonably request and such other information as
may be legally required in connection with such registration.
The Holders agree that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 2(d)(iii) or (v),
the Holders will forthwith discontinue disposition of any Registrable Securities
registered pursuant to this Section 2 pursuant to the registration statement
covering such Registrable Securities until any such stop order (if entered) has
been removed or the Holders' receipt of the copies of the supplemented or
amended prospectus contemplated by Section 2(d)(v), and, if so directed by the
Company, the Holders will deliver to the Company all copies, other than
permanent file copies then in such Holders' possession, of the most recent
prospectus covering such Registrable Securities at the time of receipt of such
notice. If the Company shall give such notice, the Company shall extend the
period during which such registration statement shall be maintained effective
(including the period referred to in Section 2(d)(i)) by the number of days
during the period from and including the date of the giving of notice pursuant
to Section 2(d)(iii) or (v), as the case may be, to the date when the Company
shall have removed any stop order that has been entered or the date that the
Company shall make available to the Holder a prospectus supplemented or amended
to conform with the requirements of Section 2(d)(v), as the case may be.
(e) Registration Expenses. In connection with any registration
---------------------
statement required to be filed hereunder, the Company shall pay the following
registration expenses incurred in connection with the registration hereunder
(the "Registration Expenses"): (i) all registration and filing fees and expenses
(including filings made with the National Association of Securities Dealers
Inc.), (ii) fees and expenses of compliance with federal securities and state
blue sky or securities laws; (iii) expenses of printing; (iv) fees and
disbursements of counsel for the Company; (v) all application and filing fees in
connection with listing the Registrable Securities on a national securities
exchange or automated quotation system pursuant to the requirements
8
<PAGE>
hereof; (vi) all fees and disbursements of independent certified public
accountants of the Company (including the expenses of any "cold comfort" or
"agreed upon procedures" letters required by or incident to such performance);
and (vii) internal expenses of the Company (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, and the fees and expenses
of any Person, including special experts, retained by the Company. The Company
shall have no obligation to pay any underwriting fees, discounts or commissions
attributable to the sale of Registrable Securities, or any out-of-pocket
expenses of Holders selling Registrable Securities under this Section 2 (or any
of the agents who manage any Holder's account).
(f) Indemnification and Contribution. (i) The Company agrees to
--------------------------------
indemnify and hold harmless each Holder and each Person, if any, who controls
such Holder within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act from and against any and all losses, claims, damages, liabilities
and expenses (including, without limiting the foregoing but subject to Section
6(c) hereof, the reasonable legal and other expenses incurred in connection with
any action, suit or proceeding or any claim asserted) arising out of or based
upon any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) or any preliminary Prospectus, or arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made in the case of the Prospectus, not
misleading, except insofar as such losses, claims, damages, liabilities, or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission based upon information (i) relating to such
Holder, furnished in writing to the Company by or on behalf of such Holder
expressly for use therein or (ii) made in any preliminary Prospectus if a copy
of the Prospectus (as amended or supplemented) was not sent or given by or on
behalf of the Holder to the Person asserting any such loss, claim, damage or
liability or obtaining such judgment at or prior to the written confirmation of
the sale of the Registrable Securities as required by the Act, and the
Prospectus (as so amended or supplemented) would have corrected such untrue
statement or omission; provided, however, that the Company shall have furnished
-------- -------
copies of such Prospectus (as so amended or supplemented) to the Holder in
compliance with Section 2(d)(iii).
(ii) As a condition to the inclusion of its Registrable Securities in
any Registration Statement pursuant to this Agreement, each Holder thereof will
furnish to the Company in writing, promptly after receipt of a request therefor,
such information as the Company may reasonably request for use in connection
with any Registration Statement, Prospectus or preliminary prospectus and agrees
to indemnify and hold harmless, the Company and its directors, its officers who
sign such Registration Statement, and any Person controlling the Company within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act to the
same extent as the indemnity from the Company to each Holder and Persons
controlling such Holder, but only with reference to information relating to such
Holder furnished in writing by or on behalf of such Holder expressly for use in
such Registration Statement or the Prospectus or any preliminary Prospectus
included therein. In case any action shall be brought against the Company, any
of its directors, any such officer, or any such controlling Person based on the
Registration Statement, the Prospectus or any preliminary prospectus and in
respect of which indemnity may be sought against one or more of the Holders,
such Holders shall have the rights
9
<PAGE>
and duties given to the Company (except that if the Company as provided in
Section 2(f)(iii) shall have assumed the defense thereof such Holders shall not
be required to do so, but may employ separate counsel therein and participate in
the defense thereof but the fees and expenses of such counsel shall be at such
Holders' expense) and the Company and its directors, any such officers, and any
such controlling Person shall have the rights and duties given by Section
2(f)(iii). In no event shall the liability of any selling Holder hereunder be
greater than the gross proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
(iii) In case any action or proceeding shall be brought against any
Holder or any Person controlling such Holder, based upon the Registration
Statement, the Prospectus or any preliminary prospectus, or any amendment or
supplement thereto, and with respect to which indemnity may be sought against
the Company, such Holder or such Person controlling such Holder shall promptly
notify the Company in writing and the Company shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Holder and
payment of all reasonable fees and expenses relating thereto. Such Holder and
such Persons controlling such Holder shall have the right to employ separate
counsel in any such action or proceeding and participate in the defense thereof,
but the fees and expenses of such counsel shall be at such Holder's expense
unless (i) the employment of such counsel has been specifically authorized in
writing by the Company, (ii) the Company has not assumed the defense and
employed counsel reasonably satisfactory to such Holder within 15 days after
notice of any such action or proceeding, or (iii) the named parties to any such
action or proceeding (including any impleaded parties) include both a Holder or
any Person controlling such Holder and the Company and such Holder or any Person
controlling such Holder shall have been advised by such counsel that there may
be one or more legal defenses available to such Holder or Person controlling
such Holder that are different from or additional to those available to the
Company (in which case the Company shall not have the right to assume the
defense of such action or proceeding on behalf of such Holder or controlling
Person, it being understood, however, that the Company shall not, in connection
with any one such action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for all such Holders and controlling Persons, which
firm shall be designated in writing by the Holders of a majority of the
Registrable Securities. The Company shall not be liable for any settlement of
any such action effected without the written consent of the Company, but if
settled with the written consent of the Company, which consent shall not be
unreasonably withheld, or if there is a final judgment for the plaintiff, the
Company agrees to indemnify and hold harmless such Holder and all Persons
controlling such Holder from and against any loss or liability by reason of such
settlement or judgment.
(iv) If the indemnification provided for in this Section 2(f) is
unavailable to an indemnified party under Sections 2(f)(i) or (ii) in respect of
any losses, claims, damages, liabilities or expenses referred to therein, then
each indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and expenses in such proportion as
is appropriate to reflect the relative fault of the Company on the one hand and
the Holders on the other hand in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations; provided
--------
10
<PAGE>
that no Holder shall be required to contribute an amount greater than the gross
proceeds received by such Holder with respect to the sale of Registrable
Securities giving rise to the indemnification obligation under this Section
2(f). The relative fault of the Company on the one hand and the Holders on the
other hand shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Company on the one hand or
by the Holders on the other hand and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or expenses shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim.
(v) The Company and the Holders agree that it would not be just and
equitable if contribution pursuant to this Section 2(f) were determined by a pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in Section 2(f)(iv). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages, liabilities and expenses referred to in Section 2(f)(iv) shall be
deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating any claim or defending any such action, suit or proceeding. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
(g) Participation in Underwritten Registrations. Subject to the
-------------------------------------------
registration rights granted by the Company prior to the date hereof, no Person
may participate in any underwritten registration hereunder unless such Person
(i) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Company and the Holders and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements and these registration rights.
(h) Holdback Agreement. Each Holder whose Registrable Securities are
------------------
covered by a Registration Statement filed pursuant to this Section 2 agrees,
upon the request of the underwriter(s) in any underwritten offering permitted
pursuant hereto, not to effect any public sale or distribution of securities of
the Company of the same class as the securities or any security convertible into
or exchangeable or exercisable for such security, included in such Registration
Statement, including a sale pursuant to Rule 144 under the Securities Act
(except as part of such registration), during the 30-day period prior to, and
during the 90-day period beginning on, the closing date of any such underwritten
offering made pursuant to such Registration Statement, to the extent timely
notified in writing by the Company or such underwriter(s).
3. Miscellaneous
-------------
(a) Amendments and Waivers. The provisions of this Agreement may not
----------------------
be amended, modified or supplemented, and waivers or consents to or departures
from the
11
<PAGE>
provisions hereof may not be given unless the Company has obtained the consent
of Holders of at least 50% of the then outstanding Registrable Securities.
(b) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telecopier, or air courier
guaranteeing overnight delivery:
(i) if to a Holder, to the most current address of such Holder set
forth on the records of the Company; and
(ii) if to the Company, to Autotote Corporation, 888 Seventh Avenue,
Suite 1808, New York, New York 10106, Attention: Martin E. Schloss, Esq.,
with copies to Kronish, Lieb, Weiner & Hellman LLP, 1114 Avenue of the
Americas, New York, New York 10036, Attention: Steven K. Weinberg, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
(c) Successors and Assigns. The registration rights granted to the
----------------------
Funds pursuant to this Agreement shall not be for the benefit of, or enforceable
by, any subsequent holders of the Registrable Securities; provided, however,
-------- -------
that the registration rights granted to the Funds pursuant to this Agreement may
be assigned to a transferee of Registrable Securities who signs a writing, in
form and substance satisfactory to the Company, making such transferee a party
to this Agreement. This Agreement shall inure to the benefit of and be binding
upon the successors and assigns of the Company. Except as aforesaid, no Person
shall acquire or have any right under or by virtue of this Agreement.
(d) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(e) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(f) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York, without regard to the
conflicts of law principles thereof.
(g) Severability. If any one or more of the provisions contained
------------
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
12
<PAGE>
(h) Entire Agreement. This Agreement, together with the PIK Agreement
----------------
and the Debentures, is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the agreement
and understanding of the parties hereto in respect of the subject matter
contained herein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein with respect to
the registration rights granted by the Company with respect to the Registrable
Securities. This Agreement, together with the PIK Agreement and the Debentures,
supersedes all prior agreements and understandings between the parties with
respect to such subject matter (including the letter agreement dated September
28, 1995 between the Company and Wellington Management Company, on behalf of the
Funds).
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
AUTOTOTE CORPORATION HARTFORD STOCK FUND
HARTFORD ADVISERS FUND
By
---------------------------
Name: By: WELLINGTON MANAGEMENT COMPANY
Title:
By
---------------------------
Name:
Title:
13
<PAGE>
Exhibit 10.37
AGREEMENT
AGREEMENT dated as of November 6, 1995 between AUTOTOTE CORPORATION, a
Delaware corporation (the "Company"), and HARTFORD STOCK FUND and HARTFORD
ADVISERS FUND (together, the "Funds").
The Funds are the beneficial and record holders of $40,000,000
principal amount of the Company's 5-1/2% Convertible Subordinated Debentures due
2001 (the "Debentures").
By letters dated August 10, 1995 and September 8, 1995, the Company
and Wellington Management Company, on behalf of the Funds and any subsequent
holders of the Debentures, agreed that no interest payments on the Debentures
would be made by the Company during the period from August 10, 1995 through and
including October 5, 1995 (including the interest payment in the amount of $1.1
million due on August 15, 1995).
The parties have agreed that the Company will pay the interest due on
the Debentures in the amount of $1.1 million on each of August 15, 1995 and
(absent prior conversion of the Debentures) February 15, 1996 by issuing shares
of its Class A Common Stock, $.01 par value ("Shares"), in lieu of cash, all
upon the terms and subject to the conditions hereinafter provided.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Issuance of Shares in Lieu of Cash Payment of Interest. (a) On
------------------------------------------------------
the basis of the representations, warranties and agreements contained in, and
subject to the terms and conditions of, this Agreement, the Funds (being the
holders of 100% of the Debentures) hereby purchase and accept from the Company,
and the Company hereby issues and sells to the Funds, in lieu of and in full
satisfaction of the cash interest payment due on August 15, 1995 on the
Debentures, an aggregate of 422,500 Shares (the "August/1995 Shares"), such
Shares to be allocated pro rata in accordance with the respective principal
--- ----
amount of Debentures held by the Funds (i.e., 40% to Hartford Stock Fund and 60%
----
to Hartford Advisers Fund). The Company shall deliver to each of the Funds
certificates representing the August/1995 Shares so purchased by it, duly
registered in its name, within 14 business days after the date hereof. Each of
the Funds hereby waives any Event of Default (as such term is defined pursuant
to the terms of the Debentures) that would otherwise be deemed to arise or have
arisen under the terms of the Debentures solely by reason of the Company's
failure to make the cash interest payment due on August 15, 1995 on the
Debentures, provided the Company issues to the Funds the August/1995 Shares in
accordance with the provisions of this Section 1(a).
(b) The Funds (in their capacity as the holders of 100% of the
Debentures) and the Company hereby agree, pursuant to Section 6(a) of the terms
of the Debentures, that the terms thereof are hereby amended as follows:
<PAGE>
(i) The Company shall pay the interest due on February 15, 1996 on
the Debentures then outstanding (aggregating $1.1 million assuming no prior
conversion of the Debentures) by issuing to the holders of the Debentures on
that date (pro rata in accordance with the respective principal amount of
--- ----
Debentures held by such holders), in lieu of cash, such whole number of Shares
(the "February/1995 Shares"), rounded up or down to the nearest Share, as shall
equal the product of (A) the quotient obtained by dividing (1) the amount of
interest due on that date on the Debentures by (2) the Market Price per Share
(as hereinafter defined) on that date, times (B) 1.5. The Company shall deliver
-----
to each such holder certificates representing the February/1995 Shares to be so
issued to it, duly registered in its name, on or prior to March 18, 1996.
Notwithstanding anything to the contrary contained in the terms of the
Debentures, no Event of Default (as such term is defined pursuant to the terms
of the Debentures) shall be deemed to arise or have arisen under the terms of
the Debentures solely by reason of the Company's failure to make the cash
interest payment that (absent this Section 1(b)(i)) would have been due on
February 15, 1996 on the Debentures, provided the Company issues the
February/1995 Shares to the holders of the Debentures in accordance with the
provisions of this Section 1(b)(i).
(ii) As used in this Agreement, "Market Price Per Share" on any date
means the average of the daily closing prices for the 20 consecutive trading
days immediately preceding such date. For this purpose, the closing price for
each day shall be the last reported sale price per Share of the Shares on the
NASDAQ National Market System ("NASDAQ-NMS") on that date or, if there shall
have been no sale of the Shares on that date, the last reported sale price per
Share on the NASDAQ-NMS prior to that date, or, if the Shares shall not at the
time be listed on the NASDAQ-NMS, the average of the last bid and asked prices
per Share for such Shares on that date on the over-the-counter market, as
reported by the National Quotation Bureau, or, if the Shares shall not at the
time be listed on the NASDAQ-NMS and quotations for the Shares shall not at the
time be reported by the National Quotation Bureau, the fair value per Share of
such Shares on that date as determined in good faith by the Board of Directors
of the Company (or a duly authorized committee thereof). For the purposes
hereof, "trading day" means a day on which the NASDAQ-NMS is open for the
transaction of business or, if the Shares are not listed or admitted to trading
on the NASDAQ-NMS, any business day.
(c) The Funds shall promptly (and in no event later than ten days
after the date hereof) deliver to the Company the Debentures so that the Company
may place an appropriate notation on the Debentures about the amendment provided
for in Section 1(b)(i), whereupon the Debentures shall be returned to the Funds.
Such amendment shall be conclusive and binding on the Funds and any future
holders of the Debentures (including any Debentures issued upon the registration
of transfer thereof or exchange therefor or in lieu thereof), whether or not
notation of such amendment is made thereon.
2. Registration Rights Agreement. Concurrently with the execution
-----------------------------
and delivery hereof, the parties have entered into a Registration Rights
Agreement dated as of the date hereof (the "Registration Rights Agreement"),
providing the Funds with certain
2
<PAGE>
registration rights with respect to the August/1995 Shares and the February/1995
Shares issued or to be issued to the Funds.
3. Representations and Warranties of the Company. The Company
---------------------------------------------
hereby represents and warrants to, and agrees with, the Funds as follows:
(a) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware.
(b) Neither the execution, delivery and performance by the Company of
this Agreement or the Registration Rights Agreement nor the consummation by the
Company of any of the transactions contemplated hereby or thereby (including,
without limitation, the issuance and sale by the Company of the August/1995
Shares or the February/1996 Shares) will give rise to a right to terminate or
accelerate the due date of any payment due under, or conflict with or result in
the breach of any term or provision of, or constitute a default (or an event
which with notice or lapse of time or both would constitute a default) under, or
require any consent or waiver under, or result in the execution or imposition of
any lien, charge or encumbrance upon any properties or assets of the Company or
any subsidiary thereof pursuant to the terms of, any indenture, mortgage, deed
of trust or other agreement or instrument to which the Company or any subsidiary
thereof is a party or by which they or any of their properties or business is
bound, or any franchise, license, permit, judgment, decree, order, statute, rule
or regulation applicable to the Company or any subsidiary thereof or violate any
provision of the charter or by-laws of the Company or any subsidiary thereof,
except for such consents or waivers that have already been obtained and are in
full force and effect, or require any consent, approval, authorization or other
order of or registration or filing with, any court, regulatory body,
administrative agency or other governmental body, agency or official.
(c) The August/1995 Shares and, when issued and delivered in
accordance with Section 1(b), the February/1996 Shares will be validly issued,
fully paid and nonassessable and free of any preemptive or similar rights.
(d) All necessary corporate and shareholder action has been duly and
validly taken to authorize the execution, delivery and performance by the
Company of this Agreement and the Registration Rights Agreement. Each of this
Agreement and the Registration Rights Agreement has been duly and validly
authorized, executed and delivered by the Company and constitutes the legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as the enforceability thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles.
(e) The Company has furnished each of the Funds with copies of its
Annual Report on Form 10-K for the fiscal year ended October 31, 1994 (the "1994
Form 10-K")
3
<PAGE>
and all documents heretofore filed with the Securities and Exchange Commission
(the "Commission") pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), since the filing of the 1994 Form 10-K (the 1994 Form 10-K
and such other documents being referred to collectively as the "Exchange Act
Documents").
4. Representations and Warranties of the Funds. Each of the Funds
-------------------------------------------
hereby represents and warrants to, and agrees with, the Company as follows:
(a) All necessary corporate and shareholder action has been duly and
validly taken to authorize the execution, delivery and performance by such Fund
of this Agreement and the Registration Rights Agreement. Each of this Agreement
and the Registration Rights Agreement has been duly and validly authorized,
executed and delivered by such Fund (Wellington Management Company having full
power and authority to execute and deliver each of this Agreement and the
Registration Rights Agreement on behalf of such Fund) and constitutes the legal,
valid and binding obligation of such Fund enforceable against such Fund in
accordance with its terms, except as the enforceability thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles.
(b) Neither the execution, delivery and performance by such Fund of
this Agreement or the Registration Rights Agreement nor the consummation of any
of the transactions contemplated hereby or thereby will conflict with or result
in the breach of any term or provision of, or constitute a default (or an event
which with notice or lapse of time or both would constitute a default) under, or
require any consent or waiver under, any indenture, mortgage, deed of trust or
other agreement or instrument to which such Fund is a party or by which it or
any of its properties or business is bound, or any franchise, license, permit,
judgment, decree, order, statute, rule or regulation applicable to such Fund or
violate any provision of the charter or by-laws of such Fund, except for such
consents or waivers that have already been obtained and are in full force and
effect, or require any consent, approval, authorization or other order of or
registration or filing with, any court, regulatory body, administrative agency
or other governmental body, agency or official.
(c) Such Fund understands that the August/1995 Shares have not been,
and when issued and delivered in accordance herewith the February/1996 Shares
will not be, registered under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon the exemption from registration provided for
under Section 4(2) of the Securities Act, and that the reliance of the Company
on such exemption is predicated, in part, upon the truth and accuracy of the
representations and warranties of such Fund set forth herein. Accordingly, such
Fund agrees that, if any of such representations or warranties is no longer
accurate, it shall promptly notify the Company. The August/1995 Shares and the
February/1996 Shares acquired or to be acquired by such Fund are being acquired
for investment for such Fund's own account and not as nominee or agent for any
other person and without any view to any distribution of all or any part thereof
(and, without limiting the generality of the foregoing, not for offer or sale in
any manner that would be in violation of
4
<PAGE>
federal securities or state blue sky or securities laws). Such Fund is an
"investment company," as such term is defined in the Investment Company Act of
1940, as amended, and an "accredited investor," as such term is defined under
Regulation D promulgated pursuant to the Securities Act, and has such knowledge
and experience in financial and business matters and in making high risk
investments that it is capable of evaluating the merits and risks of an
investment in such Shares, it being acknowledged that an investment in such
Shares will involve a high degree of risk that can result in substantial or even
a total loss of the investment. Such Fund understands that it must bear, and is
capable of bearing, the economic risk of its investment in such Shares for an
indefinite period of time, as such Shares may not be sold, transferred or
otherwise disposed of in the absence of an effective registration statement
covering such Shares or an available exemption from registration under the
Securities Act (and in a manner consistent with the representations, warranties
and agreements of such Fund set forth herein). Such Fund understands that,
except as provided for in the Registration Rights Agreement, the Company has no
obligation or intention to register the August/1995 Shares or the February/1996
Shares under any federal or state securities laws in the United States.
(d) Such Fund understands that the certificates evidencing the
August/1995 Shares and the February/1996 Shares shall bear substantially the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY
NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. ANY SALE OR OTHER
TRANSFER OF SUCH SECURITIES WILL BE INVALID UNLESS A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES
LAWS IS IN EFFECT AS TO SUCH SALE OR TRANSFER OR, IN THE OPINION OF
COUNSEL TO THE COMPANY, SUCH REGISTRATION IS UNNECESSARY FOR SUCH SALE
OR TRANSFER TO COMPLY WITH THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS."
(e) Such Fund acknowledges that it has received copies of the
Exchange Act Documents and press releases dated October 16, 1995, October 19,
1995 and October 31, 1995, and that it has been furnished access to the business
records of the Company and such additional information and documents as such
Fund has requested, and has been afforded the opportunity to ask questions of
and receive answers from representatives of the Company concerning the business,
operations, market potential, capitalization, financial condition and prospects,
and all other matters deemed relevant by such Fund, and that any information
received by such Fund pursuant to the aforesaid procedures is not inconsistent
with the information contained in the Exchange Act Documents and such press
releases. Such Fund
5
<PAGE>
further acknowledges that it has neither requested nor received any material,
non-public information. In evaluating the suitability of an investment in the
Shares, such Fund has not relied on any statement or information (whether oral
or written), other than as set forth in the Exchange Act Documents and such
press releases. Such Fund is not and will not be acquiring the August/1995
Shares or the February/1996 Shares as a result of any advertisement, article,
notice or other communication published in any newspaper, magazine or similar
media or broadcast over television or radio, or presented at any seminar or
general meeting.
(f) Such Fund has not taken any action that would cause the Company
to be subject to any claim for brokerage commissions, finders' fees or similar
compensation by any broker, finder or other person and such Fund hereby
indemnifies the Company against any such claim caused by the actions of such
Fund or any of its employees or agents.
(g) All of the Debentures are owned (and since their original date of
issuance have been owned) by the Funds.
5. Covenants of the Company. For a period of five years after the
------------------------
date of this Agreement, the Company shall furnish to the Funds, in addition to
copies of such financial statements and other periodic and special reports as
the Company may from time to time distribute generally to the holders of the
Shares, a copy of each annual or other report filed by the Company with the
Commission.
6. Miscellaneous. (a) The respective agreements, representations
-------------
and warranties of the Company and of the Funds set forth in or made pursuant to
this Agreement shall remain in full force and effect, regardless of any
investigation made by or on behalf of any Fund or the Company, and shall survive
delivery of the August/1995 Shares and the February/1996 Shares.
(b) This Agreement, together with the Registration Rights Agreement
and the Debentures, is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the agreement
and understanding of the parties hereto in respect of the subject matter
contained herein. This Agreement, together with the Registration Rights
Agreement and the Debentures, supersedes all prior agreements and understandings
between the parties with respect to such subject matter (including the letter
agreement dated September 28, 1995 between the Company and Wellington Management
Company, on behalf of the Funds).
(c) This Agreement has been and is made for the benefit of the Funds
and their respective successors and assigns, and the Company and directors and
officers of the Company and their respective successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include (except as
otherwise provided herein) any purchaser of Debentures from any Fund merely
because of such purchase.
6
<PAGE>
(d) For the purposes of this Agreement, (i) the term "business day"
means any day that is not a Saturday or Sunday or a day on which banks located
in the City of New York are authorized or required to be closed; and (ii) the
term "person" means an individual, partnership, corporation, joint venture,
trust, estate, unincorporated organization, or a government or agency or
political subdivision thereof.
(e) All notices and communications hereunder shall be in writing and
mailed or delivered or by facsimile if subsequently confirmed in writing, (a) if
to the Funds, c/o Wellington Management Company, 75 State Street, Boston, MA
02109, Attn: Legal Department, facsimile no. 617-951-5760, and (b) if to the
Company, to Autotote Corporation, 888 Seventh Avenue, Suite 1808, New York,
New York 10106, Attention: Martin E. Schloss, Esq., with copies to Kronish,
Lieb, Weiner & Hellman LLP, 1114 Avenue of the Americas, New York, New York
10036, Attention: Steven K. Weinberg, Esq.
(f) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York without regard to conflicts of laws
principles thereof.
(g) This Agreement may be signed in any number of counterparts, each
of which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
AUTOTOTE CORPORATION HARTFORD STOCK FUND
HARTFORD ADVISERS FUND
By
---------------------------
Name: By: WELLINGTON MANAGEMENT COMPANY
Title:
By
---------------------------
Name:
Title:
7
<PAGE>
Exhibit 10.38
AUTOTOTE CORPORATION
888 SEVENTH AVENUE
SUITE 1808
NEW YORK, NEW YORK 10106
April 17, 1995
Mr. Thomas C. DeFazio
3l1 Codfish Lane
Weston, Connecticut 06883
Dear Mr. DeFazio:
Autotote Corporation (the "Company") wishes to retain your services upon the
following terms and conditions:
1. Employment and Offices. You will serve the Company as its Executive Vice
President and Chief Financial Officer, and as such you will have direct
reporting responsibility for all financial and administrative functions of the
Company. Additionally, as the Company's second-ranking senior officer, you
will work with the Company's Chief Executive Officer to oversee and implement
the Company's strategy and operations on a world-wide basis.
2. Term. The term of this Agreement shall commence on the date you join the
Company, which shall be no later than April 17, 1995 (the "Effective Date")
and shall end three (3) years thereafter (the "Initial Term"); provided,
however, that the term of this Agreement shall be automatically extended for
successive, additional terms of twelve months each (each, an "Additional
Term") at the end of the Initial Term and each Additional Term, unless either
you or the Company shall have given written notice to the other at least
twelve months prior thereto that the term of this Agreement shall not be so
extended.
3. Services. You agree to accept employment on a full time basis and to
perform, to the best of your ability, the duties, undertake the
responsibilities and exercise the authority customarily performed, undertaken
and exercised by a chief financial officer of a publicly-held corporation,
without commitment to other business endeavors, except that you may serve as a
director of businesses and charities with the approval of the Board of
Directors of the Company.
4. Compensation.
(a) Base Salary. As base salary for your services as described in Section
3 above, and for the covenants set forth in Section 7 hereof, the Company
will pay you a base salary of $275,000 per year ("Base Salary"), payable
according to the Company's regular pay practices.
(b) Performance Bonus. In addition to the amount payable as provided in
Section 4(a) hereof, you shall be eligible to receive an annual performance
bonus of up to 45% of Base Salary (the "Bonus") as follows:
(i) 50% of the Bonus shall be based on the formula applicable to
Group A executives as set forth in the Company's executive incentive
compensation plan as in effect from time to time; and
(ii) 50% of the Bonus shall be based on the achievement of objectives
to be established by the Chief Executive Officer of the Company and the
Board of Directors in their sole discretion, it being understood that
no performance bonus is required by this Section 4(b)(ii).
(c) You will be granted a five-year option (the "Option") to purchase
200,000 shares of the Company's Class A Common Stock, $.01 par value per
share (the "Common Stock"), which shall become exercisable in three equal
installments, on each of the first, second and third anniversaries of the
date of grant. The exercise price of the Option shall be the closing price
of the Common Stock on the NASDAQ National Market System on the Effective
Date. Following the first anniversary of the Effective Date, the
<PAGE>
Chief Executive Officer and the Compensation Committee of the Board of
Directors will review your stock option position as part of your overall
first year performance review.
(d) The Company will reimburse you for all reasonable costs of interim
housing incurred by you for housing in New York, New York beginning on the
Effective Date for a period not to exceed six months. The Company also
agrees to pay you on the Effective Date a relocation allowance of $110,000;
provided, however, that if you terminate this Agreement or the Company
terminates this Agreement for Cause at any time before the second
anniversary of the Effective Date, you will promptly repay to the Company
an amount equal to the product of (i) $110,000 and (ii) a fraction, the
numerator of which is the number of full months between the date of
termination of the Agreement and the second anniversary of the Effective
Date and the denominator of which is twenty-four (24) or, at your
discretion, a number of shares of the Company's Class A Common Stock equal
to the product of (x) 20,000 and (y) the fraction described in clause (ii)
above.
5. Termination of Employment.
(a) Notice. You may terminate this Agreement upon thirty (30) days' prior
written notice to the Company. The Company may terminate this Agreement
upon twelve (12) months' prior written notice to you; provided, however,
that if the Company terminates this Agreement prior to the third
anniversary of the date hereof, the Company shall promptly pay to you the
greater of (i) an amount equal to one year's base salary at the then
current rate or (ii) an amount equal to the product of (i) your then
current monthly salary and (ii) the number of months, or fraction thereof
remaining under the initial three-year term, except that the Company may
terminate your employment hereunder for Cause, as defined in Section 5(d),
at any time upon notice to you.
(b) Termination Otherwise than for Cause Upon a Change in Control. If
during the Initial Term or any Additional Term a Change of Control, as
defined in Section 5(d), occurs and the Company terminates your employment
other than for Cause within twelve (12) months following such Change of
Control, you shall be entitled:
(i) to collect from the Company a lump-sum payment equal to Base
Salary for the remainder of the Initial Term, or any Additional Term
then in effect, as the case may be; and
(ii) the Option shall be accelerated to become fully vested and
exercisable in full 10 days prior to the anticipated effective date of
the Change in Control and will terminate as of the effective date of
the Change in Control.
For purposes of this Section 5(b), a termination nominally at your
initiative but in fact induced without Cause by the Company shall be deemed a
termination by the Company without Cause, rather than a voluntary termination,
and in that event the Company shall make the payments to you provided in this
Section 5(b).
(c) Voluntary Termination or Termination by the Company. If during the
Initial Term or any Additional Term your employment should terminate by
reason of your voluntary act, or if the Company shall terminate your
employment, you shall not be entitled to any compensation after such
termination, except as otherwise provided in Section 5(b).
(d) Definitions. For purposes of this Agreement,
(i) "Cause" shall mean (A) conviction of fraud, crimes of moral
turpitude or other conduct which reflects on the Company in a material
and adverse manner; (B) a willful failure to carry out a directive of
the Board of Directors or the Chief Executive Officer; (C) disloyalty,
bad faith or embezzlement of funds of the Company; or (D) gross
negligence or willful misconduct that is materially harmful to the
Company. Cause shall be established by the good faith determination of
the Board of Directors; and
(ii) "Change of Control" means the acquisition of substantially all
the Company's outstanding stock by a single person or entity or by a
group of persons and/or entities acting in concert or the sale or
transfer of substantially all the Company's assets.
2
<PAGE>
(e) Death. Upon your death this Agreement shall terminate. The Company
shall be obligated to make all Base Salary payments to you or your legal
representative accrued up to the date of death.
(f) Disability. In the event of your disability (whether total or
partial, and whether temporary or permanent) which prevents your performing
your duties hereunder, you shall be entitled to receive your Base Salary
hereunder pursuant to Section 5(a) for the period of disability; provided,
however, that if at any time after six months of disability your disability
is total and permanent, or you are, as a result thereof, incapable of
performing your duties under this Agreement, the obligation of the Company
to make payments to you pursuant to this paragraph shall terminate from and
after such date and this Agreement shall terminate. Disability shall be
determined by a physician selected by mutual agreement of you and the
Company.
(g) Limitations. Notwithstanding anything in this Agreement to the
contrary, the maximum amount of cash and other benefits payable (whether on
a current or deferred basis and whether or not includible in income for
income tax purposes) under this Agreement (the "Contract Benefits") shall
be limited to the extent necessary to avoid causing any portion of such
Contract Benefits, or any other payment in the nature of compensation to
you, to be treated as a "parachute payment" within the meaning of Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended. Any adjustment
required to satisfy the limitation described in the preceding sentence
shall be accomplished first by reducing any cash payments that would
otherwise be made to you and then, if further reductions are necessary, by
adjusting other benefits as determined by the Company.
6. Insurance for the Benefit of the Company. You agree that the Company may
at any time or times and for the Company's own benefit (or for a lender to the
Company) apply for and take out life, health, accident and other insurance
covering you, either independently or together with others, in any amount
which the Company may deem to be in its best interests. The Company shall own
all rights in such insurance and proceeds thereof and you shall not have any
right, title or interest therein. You agree to assist the Company at the
Company's expense in obtaining any such insurance by, among other things,
submitting to the customary examinations and correctly preparing, signing and
delivering such applications and other documents as reasonably may be
required.
7. Restrictive Covenants.
(a) You agree that you will not, during your employment with the Company
and for a period of twenty-four (24) months after termination thereof,
engage (whether for compensation or without compensation) in any business
activity, either as principal, proprietor, consultant, partner, officer,
director, employee, agent or in any other capacity, which competes with any
business then being conducted or planned (at the time of such termination)
by the Company, its subsidiaries or affiliates in any geographic area in
which the Company, its subsidiaries or affiliates are then engaged in such
business. For purposes of this Section 7(a), the term "business activity"
shall mean any activity whether conducted for profit or not for profit by
an individual, partnership, firm, corporation, government or any other
entity which competes with the Company. For purposes of this section 7(a),
"Planned" shall refer to any business which has been actively discussed as
a potential new business for the company during the twelve months prior to
such termination.
(b) You agree that, except as required in the performance of your duties
hereunder, you will not at any time disclose to any person or entity any
trade secrets, secret processes or any other confidential information
belonging or relating to the Company, its business practices, personnel or
those of its subsidiaries or affiliates; provided, however, this
prohibition shall not apply to any such secret or confidential data which
becomes generally publicly known or is publicly disclosed through or by
persons other than you. This Section 7(b) shall survive the termination of
this Agreement.
(c) During your employment with the Company and for a period of twenty-
four (24) months after termination of your employment with the Company, you
will not, directly or indirectly, recruit or otherwise solicit employees of
the Company, its subsidiaries or affiliates or otherwise induce such
employees to leave
3
<PAGE>
the Company, its subsidiaries or affiliates and to join or otherwise become
employed by or associated with you or any company or organization with
which you may then be employed or associated.
(d) Upon the termination of this Agreement, all documents, records,
notebooks, computer programs, data systems and similar repositories
containing trade secrets or other confidential information, whether
prepared by you or others, will be left with the Company.
(e) You agree that any violation of the covenants in this Section 7 will
cause the Company irreparable injury and agree that the Company may enforce
said covenants by seeking injunctive or other equitable relief (in addition
to any other remedies the Company may have at law for damages or otherwise)
from a court of competent jurisdiction. In the event such court declares
these covenants to be too broad to be specifically enforced, the covenants
shall be enforced to the largest extent for the Company's protection as may
be allowed by such court. You agree that no breach by the Company of, or
other failure by the Company to perform, any of the covenants and
obligations of the Company under this Agreement shall relieve you of any of
your obligations under this Section 7, and that in the event of any such
breach or failure of performance, you will seek no remedy other than
damages at law.
8. Other Benefits. You shall be eligible for four weeks of paid vacation for
each year of service under this Agreement. The Company will also provide you
with all fringe benefits routinely furnished to senior executives of the
Company.
9. Representation by Employee. You represent and warrant that your
execution, delivery and performance of this Agreement will not violate, result
in a breach of or constitute a default under any agreement, understanding or
instrument to which you are a party or by which you are bound.
10. Miscellaneous.
(a) This Agreement shall be binding on and inure to the benefit of the
parties hereto and their respective heirs, legal representatives,
successors and assigns. You may not assign this Agreement to any person or
entity. In the event that the Company consolidates with or merges into
another corporation and the Company is not the surviving corporation, or
substantially all of the assets of the Company are sold to another
corporation, this Agreement and the obligations of the parties shall
survive such consolidation, merger or sale and shall bind the company
and/or successor in interest of the Company. This Agreement may be modified
or amended only by a written agreement signed by the parties hereto.
(b) Each party hereby consents and submits to the jurisdiction of the
federal and state courts in and of the State of Delaware and will accept
service of process by registered or certified mail or the equivalent
directed to the addresses set forth herein or such other addresses as shall
have been furnished for this purpose by the parties or by whatever other
means are permitted by such court.
(c) This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware (other than internal conflict of law
rules).
(d) The waiver of any breach of any term or condition of this Agreement
shall not be deemed to constitute a waiver of any other term or condition
hereof. If any term or provision of this Agreement or the application
thereof to any person or circumstance shall to any extent be invalid or
unenforceable, the remainder of this Agreement or the application of such
term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable shall not be affected thereby, and each
term and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
(e) All notices pursuant to this Agreement shall be in writing and shall
be given by depositing said notices in the United States, registered or
certified mails, return receipt requested, addressed to the parties hereto
at the addresses set forth below, or to such other addresses as may
hereafter be specified by notice in writing given in the same manner by any
party.
4
<PAGE>
Notice to the Company:
Autotote Corporation
888 Seventh Avenue
Suite 1808
New York, New York 10106
Attention: Chief Executive Officer
Notice to Employee:
Thomas C. DeFazio
31 Codfish Lane
Weston, CT 06883
(f) This Agreement constitutes the entire Agreement between the parties
and supersedes all prior communications, agreements and understandings,
written or oral, with respect to the terms of your employment with the
Company.
If you accept and agree to the foregoing, please so signify by signing and
returning a counterpart of this letter, whereupon this letter will become a
binding agreement between you and the Company as of the date first written
above.
Very truly yours,
Autotote Corporation
/s/ Larry J. Lawrence
By: _________________________________
Larry J. Lawrence
Chairman, Executive Committee of
the Board of Directors
Accepted and Agreed to:
/s/ Thomas C. DeFazio
_____________________________________
Thomas C. DeFazio
5
<PAGE>
Exhibit 10.39
AUTOTOTE CORPORATION
888 Seventh Avenue
Suite 1808
New York, New York 10106
As of April 24, 1995
Mr. Michael D. Harris
4120 Paran Pointe Drive
Atlanta, GA 30327-3127
Dear Mr. Harris:
Autotote Corporation (the "Company") wishes to retain your services upon
the following terms and conditions:
1. Employment and Offices. You will serve as a Vice President of the
----------------------
Company and as the President of its principal operating subsidiary, Autotote
Systems, Inc. You will have direct reporting responsibility for all North
American operations of the Company providing technology based wagering products,
systems and services to institutional customers, including state and national
lotteries and parimutuel networks in North America, South America and Asia and
will report to the Company's Chief Executive Officer.
2. Term. The term of this Agreement shall commence on April 24, 1995
----
(the "Effective Date") and shall end eighteen (18) months thereafter (the
"Initial Term"); provided however, that the term of this Agreement shall be
-------- -------
automatically extended thereafter from time to time so that twelve months shall
remain until the end of the term (the "Additional Term").
3. Services. You agree to accept employment on a full time basis and to
--------
perform, to the best of your ability, the duties, undertake the responsibilities
and exercise the authority contemplated by the positions set forth in Section 1
hereof, without commitment to other business endeavors.
<PAGE>
Mr. Michael D. Harris -2- As of April 24, 1995
4. Compensation
------------
(a) Base Salary. As base salary for your services as described in
-----------
Section 3 above, and for the covenants set forth in Section 7 hereof, the
Company will pay you a base salary of $250,000 per year ("Base Salary"),
payable according to the Company's regular pay practices, subject to
increase based upon annual written appraisals of your performance
hereunder.
(b) Performance Bonus. In addition to the amount payable as provided
-----------------
in Section 4(a) hereof, you shall be eligible to receive, in respect of the
fiscal year ending October 31, 1996 and each subsequent fiscal year during
the term of this Agreement, an annual performance bonus of up to 45% of
Base Salary (the "Bonus") based on the formula applicable to Group A
operating executives as set forth in the Company's executive incentive
compensation plan as in effect from time to time.
(c) Guaranteed Bonus. You will receive bonus payments of $50,000 on
----------------
October 31, 1995 and of $50,000 on May 31, 1996. The May 31, 1996 payment
shall be credited against any Bonus payable under Section 4(b) in respect
of the fiscal year ended October 31, 1996.
(d) You will be granted a ten-year option (the "Option") to purchase
150,000 shares of the Company's Class A Common Stock, $.01 par value per
share (the "Common Stock"), which shall become exercisable in three equal
installments, on each of the first, second and third anniversaries of the
Effective Date. The exercise price of the Option shall be the lower of the
closing price of the Common Stock on the NASDAQ National Market System on
(x) the trading day immediately preceding the Effective Date, or (y) the
date of the announcement by the Company of your employment.
(e) For the period beginning on the Effective Date and ending on the
date of your permanent relocation to the area where you perform your duties
hereunder (the "Interim Period"), the Company will reimburse you for all
reasonable costs of interim housing, including meals, rental and other
related expenses, incurred by you. In addition, during the Interim Period,
the Company agrees to pay for round-trip air travel between the location
where you perform your duties hereunder and Atlanta, Georgia, for either
you or your wife once each week.
(f) The Company agrees to promptly reimburse you for all moving
expenses and transaction costs associated with the sale of your current
home in Atlanta, Georgia (the "Atlanta Home") and the purchase of your new
home in the location where you
<PAGE>
Mr. Micheal D. Harris -3- As of April 24, 1995
perform your duties hereunder, including the excess, if and, of (x) $313,500
over (y) the gross sale price of the Atlanta Home (collectively, "Relocation
Expenses"). All expense reimbursements for Relocation Expenses shall be
tax-effected such that the amount of reimbursement received by you net of any
taxes and withholdings (including such amounts in respect of payments pursuant
to this sentence) equals the expense incurred.
(g) The Company agrees to pay you a signing bonus of $25,000 within 30
days of the Effective Date.
5. Termination of Employment.
-------------------------
(a) Notice: Termination Without Cause. Either the Company or you may
---------------------------------
terminate this Agreement upon thirty (30) days' prior written notice to the
other; provided, however, that if the Company terminates this Agreement during
the Initial Term or the Additional Term other than for Cause (as defined in
Section 5(d)), you shall be entitled to collect from the Company a lump-sum
payment equal to (x) your Base Salary for the remainder of the Initial Term or
the Additional Term then in effect, as the case may be, plus (y) any Bonus
----
payable under Section 4(b) hereof in respect of periods prior to termination,
and your health and medical benefits shall continue until the conclusion of the
Initial Term or the Additional Term or until you obtain new employment,
whichever is sooner. The Company may terminate your employment hereunder for
Cause, as defined in Section 5(d), at any time upon notice to you. Additionally,
if the Company terminates this Agreement other than for Cause prior to the first
anniversary of the Effective Date, options for 50,000 shares of Common Stock
under the Option shall be immediately exercisable. No payments or benefits shall
be due under this Section 5(a) if a payment is due under Section 5(b) hereof.
(b) Payments Due and Vesting of Options Upon a Change of Control. If
------------------------------------------------------------
during the Initial Term or the Additional Term a Change of Control, as defined
in Section 5(e) occurs, you shall be entitled:
(i) to collect from the Company a lump-sum payment equal to Base
Salary plus the full amount of all Bonuses potentially payable
under Section 4(b) hereof for the remainder of the Initial
Term, or the Additional Term, as the case may be;
(ii) to the continuation of your health and medical benefits until
the conclusion of the Initial Term or the Additional Term or
until you obtain new employment, whichever is sooner, and
<PAGE>
Mr. Michael D. Harris -4- As of April 24, 1995
(iii) the Option shall be accelerated to become fully vested and
exercisable in full 10 days prior to the anticipated effective
date of the Change of Control and will terminate as of the
effective date of the Change of Control.
(c) Constructive Termination. A termination nominally at your initiative
-------------------------
but in fact induced without Cause by the Company shall be deemed a
"Constructive Termination" by the Company. Without limiting generality
of the foregoing sentence, a Constructive Termination shall include
(i) a material diminution in your employment responsibilities or
authority, as the same may be increased from time to time; (ii) the
assignment to you of duties inconsistent with your status as the Vice
President of the Company and the President of its principal operating
subsidiary; (iii) a material diminution in your job description, title
or reporting responsibilities; (iv) any reduction in your Base Salary
as in effect on the date hereof or as the same may be increased from
time to time; (v) any reduction in the practical bonus potential to
less than 45% of your Base Salary as in effect on the date hereof or
as the same may be increased from time to time; (vi) any failure by
the Company to pay any amounts payable to you hereunder when due;
(vii) the assignment to you of, or any requirement that you perform,
any duties that are illegal or that you determine, in good faith, are
immoral or unethical; or (viii) any material breach by the Company of
this Agreement. In the event of a Constructive Termination by the
Company, you shall be entitled to the same payments and other rights
inuring to your benefit under Section 5(b).
(d) Voluntary Termination or Termination by the Company for Cause. If
--------------------------------------------------------------
during the Initial Term or the Additional Term your employment should terminate
by reason of your voluntary act (other than as provided in Section 5(b)), or if
the Company shall terminate your employment for Cause, you shall not be entitled
to any compensation after such termination.
(e) Definitions. For purposes of this Agreement.
------------
(i) "Cause" shall mean the following: (A) a willful failure to
carry out a reasonable, legal directive of the Board of
Directors or the Chief Executive Officer; (B) disloyalty, bad
faith or embezzlement of funds of the Company; or (C) gross
negligence or willful misconduct that is materially harmful to
the Company. "Cause" shall also mean conviction of fraud or any
other crime
<PAGE>
Mr. Michael D. Harris -5- As of April 24, 1995
that would materially and adversely affect the Company's
reputation or ability to conduct its business. Cause
shall be established by the good faith determination of
the Board of Directors; and
(ii) "Change of Control" means the acquisition of
substantially all the Company's outstanding stock by a
single person or entity or by a group of persons and/or
entities acting in concert or the sale or transfer of
substantially all the Company's assets.
(f) Death. Upon your death this Agreement shall terminate. The
------
Company shall be obligated to make all Base Salary payments to you or your
legal representative accrued up to the date of death.
(g) Disability. In the event of your disability (whether total or
-----------
partial, and whether temporary or permanent) which prevents your
performing your duties hereunder, you shall be entitled to receive your
Base Salary hereunder pursuant to Section 5(a) for the period of
disability; provided, however, that if at any time after six months of
disability your disability is total and permanent, or your are, as a result
thereof, incapable of performing your duties under this Agreement, the
obligation of the Company to make payments to you pursuant to this
paragraph shall terminate from and after such date and this Agreement
shall terminate. Disability shall be determined by a physician selected by
mutual agreement of you or your personal representative and the Company.
(h) Limitations. Notwithstanding anything in this Agreement to the
------------
contrary, the maximum amount of cash and other benefits payable (whether on
a current or deferred basis and whether or not includible in income for
income tax purposes) under this Agreement (the "Contract Benefits") shall
be limited to the extent necessary to avoid causing any portion of such
Contract Benefits, or any other payment in the nature of compensation to
you, to be treated as a "parachute payment" with the meaning of Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended. Any adjustment
required to satisfy the limitation described in the preceding sentence
shall be accomplished first by reducing any cash payments that would
otherwise be made to you and then, if further reductions are necessary, by
adjusting other benefits as determined by the Company.
6. Insurance for the Benefit of the Company. You agree that the Company
-----------------------------------------
may at any time or times and for the Company's own benefit (or for a lender to
the Company) apply for and take out life, health, accident and other insurance
covering you, either independently or together with other, in any amount which
the Company may deem to be in its best interests.
<PAGE>
Mr. Michael D. Harris -6- As of April 24, 1995
The Company shall own all rights in such insurance and proceeds thereof and you
shall not have any right, title or interest therein. You agree to assist the
Company at the Company's expense in obtaining any such insurance by, among other
things, submitting to the customary examinations and correctly preparing,
signing and delivering such applications and other documents as reasonably may
be required.
7. Restrictive Covenants.
---------------------
(a) You agree that you will not, during your employment with the
Company and for a period of twelve (12) months after termination thereof,
engage (whether for compensation or without compensation) in any business
activity, either as principal, proprietor, consultant, partner, officer,
director, employee, agent or in any other capacity, which competes with any
business then being conducted or planned (at the time of such termination)
by the Company, its subsidiaries or affiliates in any geographic area in
which the Company, its subsidiaries or affiliates are then engaged in such
business. For purposes of this Section 7(a), the term "business activity"
shall mean any activity whether conducted for profit or not for profit by
an individual, partnership, firm, corporation, government or any other
entity which competes with the Company. For purposes of this Section 7(a)
"planned" shall refer to any business which has been actively discussed as
a potential new business for the Company during the twelve (12) months
prior to such termination.
(b) You agree that, except as required in the performance of your
duties hereunder, you will not at any time disclose to any person or entity
any trade secrets, secret processes or any other confidential information
belonging or relating to the Company, its business practices, personnel or
those of its subsidiaries or affiliates; provided, however, this
prohibition shall not apply to any such secret or confidential data which
becomes generally publicly known or is publicly disclosed through or by
persons other than you or is developed or otherwise lawfully acquired by
you prior to the date of this Agreement or without the aid or benefit of
any information obtained from the Company or is or later becomes lawfully
available from another source on a non-confidential basis. This Section
7(b) shall survive the termination of this Agreement.
(c) During your employment with the Company and for a period of twelve
(12) months after termination of your employment with the Company, you will
not, directly or indirectly, recruit or otherwise solicit employees of the
Company, its subsidiaries or affiliates or otherwise induce such employees
to leave the Company, its subsidiaries or affiliates and to join or
otherwise become employed by or associated with you or any company or
organization with which you may then be employed or associated.
<PAGE>
Mr. Michael D. Harris -7- As of April 24, 1995
(d) Upon the termination of this Agreement, all documents, records,
notebooks, computer programs, data systems and similar repositories
containing trade secrets or other confidential information, whether
prepared by you or others, will be left with the Company.
(e) You agree that any violation of the covenants in this Section 7
will cause the Company irreparable injury and agree that the Company may
enforce said covenants by seeking injunctive or other equitable relief (in
addition to any other remedies the Company may have at law for damages or
otherwise) from a court of competent jurisdiction. In the event such court
declares these covenants to be too broad to be specifically enforced, the
covenants shall be enforced to the largest extent for the Company's
protection as may be allowed by such court. You agree that to perform, any
of the covenants and obligations of the Company under this Agreement shall
relieve you of any of your obligations under this Section 7, and that in
the event of any such breach or failure of performance, you will seek no
remedy other than damages at law.
8. Other Benefits. You shall be eligible for four weeks of paid vacation
--------------
for each year of service under this Agreement. Upon termination of your
employment by the Company, you shall receive payment for any unused vacation
time. The Company will also provide you with all fringe benefits routinely
furnished to senior executives of the company at the date hereof and at any
time hereafter.
9. Representation by Employee. You represent and warrant that your
--------------------------
execution, delivery and performance of this Agreement will not violate, result
in a breach of or constitute a default under any agreement, understanding or
instrument to which you are a party or by which you are bound.
10. Miscellaneous.
-------------
(a) This Agreement shall be binding on and inure to the benefit
of the parties hereto and their respective heirs, legal representatives,
successors and assigns. You may not assign this Agreement to any person or
entity. In the event that the Company[ consolidates with or merges into
another corporation and the Company is not the surviving corporation, or
substantially all of the assets of the Company are sold to another
corporation, this Agreement and the obligations of the parties shall
survive such consolidation, merger or sale and shall bind the Company
and/or successor in interest of the Company, This Agreement may be modified
or amended only by a written agreement signed by the parties hereto.
<PAGE>
Mr. Michael D. Harris -8- As of April 24, 1995
(b) Each party hereby consents and submits to the jurisdiction of the
federal and state courts in and of the State of Delaware and will accept
service of process by registered or certified mail or the equivalent
directed to the addresses set forth herein or such other addresses as shall
have been furnished for this purpose by the parties or by whatever other
means are permitted by such court.
(c) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware (other than internal conflict of
law rules).
(d) The waiver of any breach of any term or condition of this
Agreement shall not be deemed to constitute a waiver of any other term or
condition hereof. If any term or provision of this Agreement or the
application thereof to any person or circumstance shall to any extent be
invalid or unenforceable, the remainder of this Agreement or the
application of such term or provision to persons or circumstances other
than those as to which it is held invalid or unenforceable shall not be
affected thereby, and each term and provision of this Agreement shall be
valid and enforceable to the fullest extent permitted by law.
(c) All notices pursuant to this Agreement shall be in writing and
shall be given by depositing said notices in the United States registered
or certified mails, return receipt requested, addressed to the parties
hereto at the addresses set froth below, or to such other addresses as may
hereafter be specified by notice in writing given in the same manner by any
party. Notice shall be deemed to have been given on the fifth (5th) day
after deposit in the United States mail as set forth above.
Notice to the Company:
Autotote Corporation
888Seventh Avenue
Suite 1808
New York, New York 10106
Attention: Chief Executive Officer
Notice to Employee:
Michael D. Harris
4120 Paran Pointe Drive
Atlanta, GA 30327-3127
<PAGE>
Mr. Michael D. Harris -9- As of April 24, 1995
(f) This Agreement constitutes the entire Agreement between the
parties and supersedes all prior communications, agreements and
understandings, written or oral, with respect to the terms of your
employment with the Company.
If you accept and agree to the foregoing, please so signify by signing
and returning a counterpart of this letter, whereupon this letter will become a
binding agreement between you and the Company as of the date first Written
above.
Very truly yours,
AUTOTOTE CORPORATION
By:/s/Larry J. Lawrence
-------------------------------
Larry J. Lawrence
Chairman, Executive Committee
of the Board of Directors
Accepted and Agreed to:
/s/Michael D. Harris
- -----------------------------
Michael D. Harris
<PAGE>
EXHIBIT 10.40
January 3, 1995
Mr. Martin E. Schloss
869 President Avenue
Brooklyn, NY 11215
Dear Marty:
This will confirm that in the event Autotote terminates your employment for
any reason, you will be entitled to receive severance pay, at the time of such
termination, of not less than one (1) year base salary plus all accrued but
unpaid bonus installments earned by you. Further, you will be permitted to
retain all unexercised Autotote stock options held by you at the time of such
termination. Such options will remain exercisable in accordance with their
terms.
Sincerely,
<PAGE>
EXHIBIT 21
AUTOTOTE CORPORATION SUBSIDIARIES
Autotote Management Corporation (Delaware) (100%)
Newark Holdings, Inc. (Delaware) (100%)
Autotote Systems, Inc. (Delaware) (100%)
Autotote International, Inc. (Delaware) (100%)
Autotote Canada, Inc. (Ontario) (100%)
Autotote Europe, Ltd. (Ireland) (100%)
Autotote Worldwide, Ltd. (Non-Resident Ireland) (99%, 1% NHI)
Autotote Worldwide Services, Ltd. (Ireland) (100%)
Autotote International, Ltd. (Ireland) (100%) (Inactive)
Autotote Products, Inc. (Delaware) (100%) (Inactive)
HTP, Inc. (Pennsylvania) (100%) (Inactive)
Autotote Enterprises, Inc. (Connecticut) (100%)
Autotote Keno Corporation (Nebraska) (100%)
Big Red Keno Ltd. (Nebraska) (40%)
Lincoln Big Red Keno Ltd. (Nebraska) (40%)
Grefnas Big Red Keno Ltd. (Nebraska) (40%)
Autotote Lottery Corporation (Delaware) (100%)
Autotote Lottery Canada, Inc. (Quebec) (100%)
Autotote Israel Ltd. (Israel) (80%)
Autotote UK Limited (UK) (100%)
The Enterprise Lottery Company Limited (U.K.) (22.6%)
Autotote CBS, Inc. (Nevada) (100%)
Megasports, Inc. (Nevada) (50%)
ETAG Electronic Totalisator AG (Switzerland) (100%)
TEK Tufelektronik GMBH (Germany) (100%)
Datek Toto Dienstielstung GMBH (Germany) (50%)
ETAG Electronic Totalisator GesMBH (Austria) (100%)
Tele Control Kommunikations und Computersysteme GesMBH (Austria) (100%)
Autotote Communication Services, Inc., formerly Autotote Simulcast
Corporation (Delaware) (100%)
Marvin H. Sugarman Productions, Inc. (New York) (100%)
SJC Video Corporation (California) (88.67%)
Racing Technology, Inc. (New York) (100%)
SOFINAX (France) (85%)
SEPMO (France) (100%)
REALM (France) (78%) (22% held by SOFINAX directly)
SASO (France) (100%)
Microdyne Flocam (France) (54%)
Autotote Mexico Ltd. (Delaware) (100%)
Autotote Manufacturing Corporation (Delaware) (100%)
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Autotote Corporation:
We consent to the incorporation by reference in the registration statements
(No's 33-82612, 33-464594 and 33-27737) on Form S-8 of Autotote Corporation of
our report dated December 11, 1995, except for Note 10 which is as of January
26, 1996, with respect to the consolidated balance sheets of Autotote
Corporation and subsidiaries as of October 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity, cash flows, and
financial statement schedule for each of the years in the three-year period
ended October 31, 1995, which report appears in the Form 10-K of Autotote
Corporation for the year ended October 31, 1995.
KPMG Peat Marwick LLP
New York, New York
January 29, 1996
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<PAGE>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AUTOTOTE CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
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<RECEIVABLES> 23,379
<ALLOWANCES> 1,679
<INVENTORY> 12,497
<CURRENT-ASSETS> 47,757
<PP&E> 186,005
<DEPRECIATION> 67,745
<TOTAL-ASSETS> 241,021
<CURRENT-LIABILITIES> 52,881
<BONDS> 40,000
0
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<COMMON> 306
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<TOTAL-LIABILITY-AND-EQUITY> 241,021
<SALES> 153,184
<TOTAL-REVENUES> 153,184
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<TOTAL-COSTS> 94,230
<OTHER-EXPENSES> 89,808
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<INTEREST-EXPENSE> 16,362
<INCOME-PRETAX> (47,216)
<INCOME-TAX> 2,673
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