AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 14, 1996
REGISTRATION NO. 333-3602
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
GTECH HOLDINGS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C>
DELAWARE 05-0450121
(STATE OR OTHER JURISDICTION (I.R.S EMPLOYER ID NUMBER)
OF INCORPORATION OR ORGANIZATION)
</TABLE>
55 TECHNOLOGY WAY
WEST GREENWICH, RHODE ISLAND 02817
(401) 392-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
CYNTHIA A. NEBERGALL, ESQ.
GTECH HOLDINGS CORPORATION
55 TECHNOLOGY WAY
WEST GREENWICH, RHODE ISLAND 02817
(401) 392-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE
OF AGENT FOR SERVICE)
---------------
COPIES TO:
<TABLE>
<CAPTION>
<S> <C>
JOHN C. BENNETT, JR., ESQ. JEFFREY SMALL, ESQ.
DRINKER BIDDLE & REATH DAVIS POLK & WARDWELL
1345 CHESTNUT STREET 450 LEXINGTON AVENUE
PHILADELPHIA, PA 19107 NEW YORK, NY 10017
</TABLE>
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ] ___________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
---------------
CALCULATION OF REGISTRATION FEE
==============================================================================
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock ............... 10,786,957 shares(1) $30.625(2) $330,350,558 (3)
=================================================================================================
</TABLE>
(1) Includes shares of Common Stock that may be sold pursuant to the
Underwriters' over-allotment option.
(2) Calculated pursuant to Rule 457(c) based upon the average of the high
and low prices reported in the New York Stock Exchange consolidated
reporting system on April 15, 1996.
(3) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus; one to be
used in connection with a United States and Canadian offering (the "U.S.
Prospectus") and one to be used in a concurrent international offering (the
"International Prospectus"). The two prospectuses will be identical in all
respects except for the front and back cover pages and the first page of
"Underwriting." The form of the U.S. Prospectus is included herein and the
form of the front and back cover pages and the first page of "Underwriting"
of the International Prospectus follow the pages of the U.S. Prospectus.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 14, 1996
PROSPECTUS
, 1996
9,806,000 SHARES
[LOGO]
GTECH HOLDINGS CORPORATION
COMMON STOCK
Of the 9,806,000 shares of Common Stock offered hereby, 7,844,800 shares
are being offered for sale in the United States and Canada by the U.S.
Underwriters (the "U.S. Offering") and 1,961,200 shares are being offered for
sale outside the United States and Canada in a concurrent offering by the
International Managers (the "International Offering" and, together with the
U.S. Offering, the "Offerings"). See "Underwriting."
All of the shares offered hereby are being sold by the Selling
Stockholders. See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale of shares offered hereby.
The Company's Common Stock is listed on the New York Stock Exchange
("NYSE") under the symbol "GTK." The reported closing price of the Company's
Common Stock on the NYSE on June 13, 1996 was $30.25 per share. See "Price
Range of Common Stock and Dividend Policy."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO THE
PRICE TO DISCOUNTS AND SELLING
THE PUBLIC COMMISSIONS(1) STOCKHOLDERS(2)
- -------------- ----------- ----------------- -----------------
<S> <C> <C> <C>
Per Share .... $ $ $
Total(3) ..... $ $ $
</TABLE>
(1) See "Underwriting" for information relating to indemnification of the
Underwriters.
(2) The Company has agreed to pay certain expenses of the Selling
Stockholders estimated at $575,000.
(3) The Selling Stockholders have granted to the U.S. Underwriters a 30-day
option to purchase up to an additional 980,957 shares of Common Stock
in the aggregate solely to cover over-allotments, if any. If all such
shares are purchased, the total Price to the Public, Underwriting
Discounts and Commissions and Proceeds to the Selling Stockholders will
be $ , $ and $ , respectively. See "Underwriting."
The shares are offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters and subject to various prior
conditions, including the right of the Underwriters to reject orders in whole
or in part. It is expected that delivery of the shares will be made in New
York, New York, on or about , 1996.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
<PAGE>
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
NO ACTION HAS BEEN OR WILL BE TAKEN BY THE COMPANY, ANY SELLING
STOCKHOLDER OR ANY UNDERWRITER THAT WOULD PERMIT A PUBLIC OFFERING OF THE
COMMON STOCK OR POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS IN ANY
JURISDICTION WHERE SUCH ACTION MAY BE REQUIRED, OTHER THAN IN THE UNITED
STATES.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified by the more detailed information
appearing elsewhere in this Prospectus. Statements relating to the lottery
industry contained or incorporated by reference in this Prospectus are based
on information compiled by the Company or derived from independent public
sources which the Company believes to be reliable. In general, there is less
publicly available information concerning the international lottery industry
than the lottery industry in the United States.
THE COMPANY
GTECH is the world's leading operator of computerized on-line lottery
systems. The Company currently operates on-line lottery systems for 26 of the
37 on-line lottery authorities in the United States and has supplied or
currently operates on-line lottery systems for 48 of the 74 international
on-line lottery authorities. The Company, seeking to develop growth
opportunities in addition to those available in the on-line lottery industry,
is actively involved in the emerging electronic benefits delivery industry
and in the pursuit of gaming opportunities other than on-line lottery such as
destination gaming and video lottery.
Since the establishment of the first on-line lottery in 1975, the on-line
lottery industry has experienced substantial growth, as governments have
increasingly relied on lotteries as a non-tax source of revenue. In 1995,
ticket sales in the on-line lottery industry were approximately $20.2 billion
in the United States. The Company believes the on-line lottery industry will
continue to grow, assuming, as anticipated, that additional international
jurisdictions implement on-line lotteries and international and United States
jurisdictions with existing on-line lotteries expand their lottery systems
and introduce new lottery products and games.
The Company's core business consists of providing on-line lottery services
and products to governmental lottery authorities and governmental licensees
worldwide. The Company offers its customers a full range of lottery services,
including the design, assembly, installation, operation, maintenance and
marketing of on-line lottery systems and instant ticket support services. The
Company's lottery systems consist of numerous lottery terminals located in
retail outlets, central computer systems, systems software and game software,
and communications equipment which connects the terminals and the central
computer systems.
Historically, the majority of the Company's lottery customers in the
United States have entered into long-term service contracts pursuant to which
the Company provides, operates and maintains the customers' on-line lottery
systems in return for a percentage of the gross lottery revenues. Many of the
Company's international lottery customers have purchased their on-line
lottery systems, although some, especially lottery authorities in Eastern
Europe and Latin America, have entered into long-term service contracts with
the Company. Over the last several years, there has been an industry movement
away from product sales in favor of long-term service contracts. In fiscal
1993, approximately 70% of the Company's lottery revenues were derived from
its portfolio of long-term on-line lottery service contracts with
substantially all of the remainder being derived from lottery product sales.
In each year since fiscal 1993, the percentage of the Company's lottery
revenues derived from on-line lottery service contracts has risen, and in
fiscal 1996, approximately 92% of the Company's lottery revenues were derived
from on-line lottery service contracts. While the Company believes that
product purchases by lotteries during each of the next two years are likely
to exceed the level experienced in fiscal 1996, it is likely that the
percentage of the Company's revenues attributable to product sales will
remain closer to the percentage level realized in fiscal 1996 than to the
fiscal 1993 level.
In recent years, lottery authorities have recognized that by offering new
games or products, lotteries are able to generate significant additional
revenues. An important part of the Company's strategy is to develop new
products and services for its customers in order to increase their lottery
revenues. The Company's principal on-line products and services introduced in
recent years consist of keno, instant ticket support services and
BingoVision(Trademark). Keno, an on-line lottery game which features drawings
as often as every five minutes, was first introduced by the Company and the
Lotteries Commission of South Australia in 1990 and subsequently has been
introduced successfully by the Company and lottery authorities in 15
additional jurisdictions on four continents. The Company currently provides
instant ticket support services, products and systems in 21 domestic
jurisdictions and 11 jurisdictions outside of
3
<PAGE>
the United States. BingoVision(Trademark), a televised bingo-based lottery
game developed by the Company, has been implemented in three jurisdictions.
See "Business -- Certain Products and Services."
The Company also has broadened its product lines outside of its core
business of providing on-line lottery services and products. In August 1993,
the Company acquired a benefits delivery business as part of its acquisition
of the parimutuel wagering business of General Instrument Corporation which
the Company conducted through its AmTote International, Inc. subsidiary
("AmTote"). The Company recently divested AmTote but continues to build upon
the benefits delivery operations. The Company's benefits delivery systems
provide secure, high volume transaction processing of food stamps, Aid to
Families with Dependent Children and other benefits on behalf of governmental
authorities. The Company, principally through its wholly-owned subsidiary,
Transactive Corporation ("Transactive"), currently provides to the State of
Texas benefits delivery systems and services and recently has been selected
by the State of Illinois Department of Public Aid to provide, subject to
obtaining necessary federal government approvals, similar systems and
services. The State of Texas currently operates the largest electronic
benefits delivery system in the United States.
In November 1994, the Company announced the formation of its Gaming Group
to pursue gaming opportunities other than on-line lottery, including video
lottery and destination gaming. In May 1995, the Company announced an
agreement with Full House Resorts, Inc. ("Full House") to finance and develop
Native American and casino gaming opportunities. One such opportunity, a
casino on Native American lands in Coos Bay, Oregon, became operational in
May 1995. In addition, in February 1996, the Company and Full House entered
into agreements with Delaware State Fair and Harrington Raceway, Inc.
respecting the financing and construction of a gaming facility at the
Delaware State Fairgrounds, Kent County, Delaware, and other opportunities
are being developed by the Company and Full House.
In fiscal 1996, the Company formed a subsidiary, GTECH Worldserv, Inc. to
provide network communications services to private sector clientele. This
business is still in its initial start-up phase. See "Business--Certain
Products and Services."
The Company's principal executive offices are located at 55 Technology
Way, West Greenwich, Rhode Island 02817, and its telephone number is (401)
392-1000.
THE OFFERINGS
<TABLE>
<CAPTION>
<S> <C>
Common Stock Outstanding 43,054,212(1)
Shares to be Sold by the
Selling Stockholders:
U.S. Offering ........... 7,844,800
International Offering . 1,961,200
---------------
Total ................... 9,806,000
===============
NYSE Symbol .............. GTK
</TABLE>
- ---------------------
(1) At June 1, 1996. Excludes an aggregate of approximately 21,808 shares
of Common Stock subject to outstanding unvested grants under the
Company's stock benefit plans and 1,332,500 unexercised stock options
outstanding under the Company's stock option plan.
---------------
As used in this Prospectus, unless the context indicates otherwise, the
"Company" or "GTECH" means GTECH Holdings Corporation and its direct and
indirect subsidiaries, including GTECH Corporation, the Company's
wholly-owned subsidiary, and "Common Stock" means the Common Stock of the
Company. Unless otherwise indicated, all information in this Prospectus
assumes no exercise of the U.S. Underwriters' over-allotment option.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Consolidated Financial Statements included in
the Company's fiscal 1996 Form 10-K which are incorporated herein by
reference and other financial information included and incorporated by
reference herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------------------------------
FEBRUARY 29, FEBRUARY 27, FEBRUARY 26, FEBRUARY 25, FEBRUARY 24,
1992 (A) 1993 1994 1995 1996
-------------- -------------- -------------- -------------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Services ............................................ $239,984 $343,213 $457,529 $547,767 $686,043
Sales of products ................................... 110,148 158,148 135,271 147,340 58,047
-------------- -------------- -------------- -------------- ------------
Total .............................................. 350,132 501,361 592,800 695,107 744,090
Gross Profit:
Services ............................................ 87,397 112,404 152,845 194,097 244,139
Sales of products ................................... 49,344 72,394 62,941 41,468 13,595
-------------- -------------- -------------- -------------- ------------
Total .............................................. 136,741 184,798 215,786 235,565 257,734
Operating income ..................................... 54,201 82,039 119,206 104,481(b) 117,983
Interest expense, net of interest income ............. 24,879 16,126 11,756 13,065 12,107
Income from continuing operations before dividends on
and accretion of Subsidiary Preferred Stock,
extraordinary charge and cumulative effect of
accounting change ................................... 18,534 40,400 66,473 52,319 66,627
Net income ........................................... 13,862 21,694(c) 56,150(d) 872(e) 66,627
PER SHARE DATA:
Earnings per common share from continuing operations $ 0.38 $ 0.92 $ 1.53 $ 1.20 $ 1.54
Earnings per common share ............................ 0.38 0.53(c) 1.29(d) 0.02(e) 1.54
Pro forma earnings per common share (f) .............. 0.64 1.02 1.29 0.02 1.54
Weighted average common shares outstanding (in
thousands) .......................................... 36,474 41,080 43,588 43,451 43,236
OTHER DATA:
Earnings before depreciation, amortization, interest,
taxes and other non-cash charges (g) ................ $113,248 $162,211 $213,756 $221,832 $273,570
Cumulative number of lottery terminals shipped (h) .. 126,994 164,180 221,254 261,287 280,897
Number of lottery terminals sold ..................... 14,053 19,078 17,557 12,282 3,658
Number of lottery customers at year-end .............. 56 59 67 72 74
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (deficit) ............................ $(21,629) $ 47,458 $ 25,364 $ 6,086 $ 21,414
Total assets ......................................... 385,268 516,893 665,250 779,254 859,380
Long-term debt, less current portion ................. 202,669 225,064 258,961 338,468 382,930
Redeemable Subsidiary Preferred Stock ................ 27,347 -- -- -- --
Shareholders' equity ................................. 30,715 168,055 232,329 232,931 296,725
</TABLE>
- ----------------------
(a) 53-week year.
(b) Includes an $11.1 million special charge consisting of a $6.1 million
charge in connection with the reduction of the Company's workforce and
relocation of certain operating functions and $5.0 million to write off
its video gaming-related inventory. See Note J to the Consolidated
Financial Statements.
(c) Includes an after-tax extraordinary charge on early extinguishment of
debt of $18.5 million, or $0.45 per share, relating to the Company's
July 1992 initial public offering of Common Stock and $2.4 million, or
$0.06 per share, of income relating to an accounting change.
(d) Includes AmTote after-tax operating losses of $10.3 million, or $0.24
per share.
(e) Includes AmTote after-tax operating losses of $6.6 million, or $0.15
per share, the after-tax loss on the disposal of AmTote of $43.4
million, or $1.00 per share, and an after-tax extraordinary loss of
$1.4 million, or $0.03 per share, relating to the early extinguishment
of debt.
(f) Assumes that the initial public offering of Common Stock in July 1992
and the early retirement of certain long-term debt had occurred at the
beginning of fiscal 1993 and 1992, respectively.
(g) Represents income before income taxes and (i) interest expense, (ii)
depreciation and amortization, (iii) non-cash stock compensation
expense, (iv) certain purchase accounting adjustments relating to the
acquisition of the Company in 1990 and (v) certain other non-cash
items.
(h) Terminals shipped represents lottery terminals sold under product sales
contracts and lottery terminals supplied under service contracts.
5
<PAGE>
RISK FACTORS
Prospective purchasers of the Common Stock should carefully consider the
risk factors set forth below, as well as the other information set forth in
this Prospectus.
This Prospectus contains statements which constitute forward looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. Those statements appear in a number of places in this Prospectus and
include statements regarding the intent, belief or current expectations of
the Company, its directors or its officers with respect to (i) the future
performance of its Transactive Corporation subsidiary, (ii) the future
performance of its Brazilian subsidiary, Racimec Informatica Brasileira S.A.,
(iii) future product sales levels, (iv) future operating performance of the
Company, and (v) the results and the effects of legal proceedings and
investigations. Prospective investors are cautioned that any such forward
looking statements are not guarantees of future performance and involve risks
and uncertainties, and that actual results may differ materially from those
in the forward looking statements as a result of various factors. The
accompanying information contained in this Prospectus, including without
limitation the information set forth below and the information under the
heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations" identifies important factors that could cause such
differences.
GOVERNMENTAL REGULATION
In the United States, lotteries are not permitted in a particular
jurisdiction unless expressly authorized by law in such jurisdiction. Once
authorized, the ongoing operation of a lottery is highly regulated. Lottery
authorities generally conduct an intensive investigation of the Company and
its employees prior to and after the award of a lottery contract and may
require removal of any employees deemed to be unsuitable. To date, the
Company has never been disqualified from receiving a lottery contract or
operating a lottery system as a result of any such investigation. Certain
jurisdictions also require extensive personal and financial disclosure and
background checks from persons and entities beneficially owning a specified
percentage (typically 5% 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. Transactive,
which is engaged primarily in providing computerized networks and services to
governments for electronic benefits transfers, is also subject to extensive
state as well as federal regulatory requirements.
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. As a result, the Company has found it
desirable in a number of instances to ally itself as a subcontractor or joint
venture partner with a local company in seeking international lottery
contracts.
MAINTENANCE OF BUSINESS RELATIONSHIPS AND CERTAIN LEGAL MATTERS
A significant portion of the Company's revenues and cash flow is derived
from its portfolio of long-term on-line lottery service contracts. The
Company's on-line lottery service contracts typically have an initial term of
five years and usually provide the customer with options to extend the
contract under the same terms and conditions for additional periods generally
ranging from one to five years. The Company's customers have generally
exercised the extension options under their contracts or negotiated
extensions on different terms and conditions. Upon the expiration of a
contract, lottery authorities may award new contracts through a competitive
procurement process. There can be no assurance that, in the future, the
Company's contracts will be extended or that it will be awarded new contracts
as a result of competitive procurement processes. The Company's lottery
contracts typically permit a lottery authority to terminate the contract at
any time for failure to perform and other specified reasons, and many of such
contracts permit the lottery authority to terminate the contract at will and
do not specify the compensation, if any, to which the Company would be
entitled were such termination to occur. To date, no lottery authority has
ever exercised its option to terminate a contract with the Company at will
during the contract term or has ever terminated a contract with the Company
for failure to perform. The termination or failure to renew one or more
lottery contracts could, depending upon the circumstances, have a material
adverse effect on the Company's business or prospects.
6
<PAGE>
The Company regularly engages public affairs and governmental relations
advisors, including lobbyists, in various jurisdictions to advise legislators
and the public in connection with lottery legislation, to monitor potential
lottery legislation and to advise the Company in connection with the
Company's lottery and benefits delivery contract proposals. The Company also
makes contributions to various political parties and associations but does
not make contributions to individual candidates or their campaigns. The
Company believes that it has complied with all applicable political
contribution and lobbying disclosure laws and regulations.
It has not been uncommon in the lottery industry for investigations of
various types, including federal grand jury investigations, to be conducted
by federal or state law enforcement and other officials into possible undue
influence, bribery or other improprieties or wrongdoing in connection with
efforts to obtain or the awarding of lottery contracts and related matters.
Some investigations in the past have involved the Company, or its
consultants, lobbyists or representatives, directly or indirectly, and the
Company is aware of federal grand jury investigations being conducted by the
U.S. Attorney in New Jersey, Georgia and Texas. The Company is cooperating
with such investigations by providing documents in response to subpoenas.
As previously publicly reported, in October 1994, it was announced by the
U.S. Attorney's Offices for the Western District of Kentucky and for the
District of New Jersey that separate indictments had been returned by federal
grand juries in those jurisdictions against J. David Smith, the former sales
manager of the Company (who resigned in early 1994 for reasons unrelated to
the indictments), and several other individuals who served as consultants or
suppliers to the Company. The indictments alleged essentially that,
unbeknownst to the Company, Mr. Smith received kickbacks from the consultants
and suppliers, which charges, if true, make the Company a victim. The
indictments do not charge the Company with any wrongdoing, and the actions
complained of did not affect the Company's Kentucky or New Jersey lottery
operations. On January 9, 1995 the trial of Mr. Smith commenced in Kentucky
and on January 12, 1995, the U.S. District Court for the Western District of
Kentucky granted the defendants' motion for judgment of acquittal and
dismissed all charges against Mr. Smith and the other defendant, a GTECH
supplier, at the conclusion of the Government's case. The Company understands
that the New Jersey trial of Mr. Smith is scheduled to commence in September
1996. The Company has cooperated and continues to cooperate with the U.S.
Attorney's Office by providing documents in response to subpoenas issued to
it.
No charges of wrongdoing have ever been brought against the Company by any
grand jury or other governmental authority. On two occasions in the past,
charges of wrongdoing were brought against lobbyists retained by the Company,
but neither lobbyist was found guilty of any activities relating to the
Company.
The Company does not believe that it has engaged in any wrongdoing in
connection with these matters. However, since the current investigations are
still underway and are conducted largely in secret, the Company lacks
sufficient information to determine with certainty their ultimate scope and
whether the government authorities will assert claims resulting from these or
other investigations that could implicate or reflect adversely upon the
Company. Because the Company's reputation for integrity is an important
factor in its business dealings with lottery and other governmental agencies,
if government authorities were to make an allegation of, or if there were to
be a finding of, improper conduct on the part of or attributable to the
Company in any matter, such an allegation or finding could have a material
adverse effect on the Company's business, including its ability to retain
existing contracts and to obtain new or renewal contracts.
The award of lottery contracts in the United States generally is subject
to competitive bidding, and it is not unusual for the award of such contracts
to be followed by protests being filed by the losing party or parties. The
recent award of a lottery contract to the Company in New Jersey currently is
being appealed in that state. See "Business -- Legal Proceedings." In
addition, it is not unusual for competitors or politicians (who may include
those opposed to gaming or the lottery business) to make allegations of undue
influence or other improprieties in the award of contracts or to call for
investigations of lottery authorities. On occasion, these allegations or
investigations may involve the Company directly or indirectly. As noted
above, no charges of wrongdoing have ever been brought against the Company.
7
<PAGE>
In December 1995, Richard Branson filed suit in the United Kingdom's High
Court of Justice (Queen's Bench Division) against GTECH U.K. Corporation, a
subsidiary of the Company, and Robert Rendine, its press spokesman, and in
January 1996, Mr. Branson filed suit in this same court against the Company's
Co-Chairman, Guy B. Snowden, alleging that the defendants had libelled Mr.
Branson in responding to certain allegations which had been made by Mr.
Branson. Mr. Branson, whose consortium in 1994 lost the bid to operate the
U.K. National Lottery, had alleged in a television program broadcast in the
U.K. in December 1995 that Mr. Snowden had offered him an inducement in
September 1993 not to bid for the U.K. lottery contract. Mr. Snowden and the
Company have categorically denied Mr. Branson's allegations and have formally
asked the Director General of the U.K. National Lottery to investigate these
allegations. Queens Counsel Anne Rafferty has been appointed by the Director
General to conduct the inquiry. The Company intends to cooperate fully with
the inquiry and to defend its Co-Chairman, subsidiary and press spokesman
vigorously in the legal proceedings brought by Mr. Branson. In addition, Mr.
Snowden filed suit on January 11, 1996 in the U.K. against Mr. Branson
alleging that Mr. Branson's televised allegations have libelled Mr. Snowden.
INVESTMENTS IN RACIMEC AND TRANSACTIVE
The Company has substantial investments in its subsidiaries, Transactive
and RACIMEC Informatica Brasileira S.A. ("Racimec"), which were not
profitable in fiscal 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for information concerning the
Company's investments in Transactive and Racimec.
The prospects for the Company's electronic benefits delivery business may
be adversely affected by an initiative of the Federal EBT Task Force (the
"Task Force"). At various times in 1995, the Task Force supported a
procurement process for electronic benefits delivery systems and services
which, in essence, would permit only certain large, federally-insured banks
to participate. In March 1995, the Department of Treasury's Financial
Management Services ("FMS") issued an Invitation to Express Interest by which
it solicited, in a manner consistent with the efforts of the Task Force, a
full range of electronic benefits delivery services on behalf of a coalition
of states known as the Southern Alliance of States (the "SAS"). In the fall
of 1995, Citibank was designated by FMS as the financial institution to
provide benefits on behalf of the SAS. In March 1995 Transactive sued the
United States and the Department of Treasury in the Federal District Court
for the District of Columbia, arguing, among other things, that the SAS
procurement violated various applicable federal procurement and other laws
and was arbitrary, capricious and without rational basis. In September 1995,
the court granted a motion made by the Department of Treasury for summary
judgment and Transactive has appealed this decision to the U.S. Court of
Appeals for the District of Columbia Circuit. The parties are currently
awaiting the court's decision on this appeal. While several states or
coalitions of states have invited bids respecting electronic benefits
delivery systems and services since the SAS, none have used the Invitation to
Express Interest process of the SAS. Nevertheless, if the Invitation to
Express Interest were to be widely adopted by other states, and if the
September 1995 decision is not overturned, the Company's ability to
participate directly in the electronic benefits business could be adversely
affected.
FLUCTUATION OF QUARTERLY OPERATING RESULTS
The Company has experienced and may continue to experience significant
fluctuations in operating results from quarter to quarter due to such factors
as the amount and timing of product sales, the occurrence of large jackpots
in lotteries (which increase the amount wagered and the Company's revenue)
and expenses incurred in connection with lottery start-ups and other new
ventures.
LIQUIDATED DAMAGES UNDER CONTRACTS
The Company's lottery and electronic benefits delivery contracts typically
permit termination of the contract at any time for failure of the Company to
perform and for other specified reasons and generally contain demanding
implementation schedules and performance schedules. Failure to perform under
such contracts may result in substantial monetary liquidated damages, as well
as contract termination. Many of the Company's lottery contracts permit the
lottery authority to terminate the contract at will and do not
8
<PAGE>
specify the compensation, if any, to which the Company would be entitled
should such termination occur. Certain of the Company's United States lottery
contracts have contained provisions for up to approximately $700,000 a day in
liquidated damages for late system start-up and provide for up to
approximately $10,000 or more in penalties per minute for system downtime in
excess of a stipulated grace period, and certain of the Company's
international customers (most notably the United Kingdom's National Lottery)
similarly reserve the right to assess substantial monetary damages in the
event of contract termination or breach. Although such liquidated damages
provisions are customary in the lottery industry and the actual liquidated
damages imposed are generally subject to negotiation, such provisions in the
Company's lottery contracts present an ongoing potential for substantial
expense. Liquidated damages are generally deducted directly from revenues the
Company has otherwise earned from the lottery authorities and are budgeted by
the Company on an annual basis. Liquidated damages paid or incurred by the
Company with respect to its lottery contracts equaled 0.25%, 0.42%, 0.53%,
0.50% and 0.23% of annual revenues in each of the five fiscal years ending
February 1992 through 1996, respectively. Lottery contracts generally require
the vendor (i.e., the Company) to post a performance bond, which in some
cases may be substantial, securing the vendor's performance under such
contracts.
Electronic benefits delivery contracts may also provide for significant
liquidated damages and termination penalties to be assessed against vendors
in certain circumstances. For example, Transactive's electronic benefits
delivery contract with the Texas Department of Human Services provides for
liquidated damages of up to $250,000 per day in certain circumstances.
RECENT DEVELOPMENTS
In May 1996, the Company and the Texas lottery authority extended the term
of their agreement for five years (from September 1, 1997 through August
2002) and amended it to provide for the Company to furnish the Texas lottery
authority with a new central system, additional terminals and other lottery
equipment and services. The amendment also annually reduces over its
five-year term the percentage rate of the Texas lottery's revenues which the
Company is to receive as compensation under its agreement with the Texas
lottery authority. However, the Company believes that the effect of the
reduction in the percentage rate will be more than offset by the addition of
more terminals, but there can be no assurance that this will be the case.
The Company's fiscal 1997 first quarter ended on May 25, 1996. Revenues
for the quarter were $211.2 million, of which $195.0 million was from
services and $16.2 million was from product sale revenues. This compares with
revenues of $179.4 million, composed of $165.3 of service revenues and $14.1
million of product sale revenues, for the first quarter of fiscal 1996. Net
income for the fiscal 1997 first quarter was $18.2 million, or $0.42 per
share, compared with $18.3 million, or $0.42 per share, for the same quarter
last year. These results, in the opinion of management, include all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation. For further information, refer to the Current Report
on Form 8-K filed by the Company with the Securities and Exchange Commission
on June 10, 1996 and incorporated herein by reference.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Common Stock by the Selling Stockholders in the Offerings.
9
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The principal United States market on which the Company's Common Stock is
traded is the New York Stock Exchange where it is traded under the symbol
"GTK."
The following table sets forth on a per share basis the high and low sale
prices of Common Stock for the fiscal quarters indicated, as reported on the
New York Stock Exchange Composite Tape.
<TABLE>
<CAPTION>
PRICE RANGE
OF COMMON
STOCK
-------------
YEAR ENDED FEBRUARY 25, 1995 HIGH LOW
- ---------------------------- ------ -----
<S> <C> <C>
1st Quarter ........................... $38 7/8 $22 3/8
2nd Quarter ........................... 23 3/4 15 1/8
3rd Quarter ........................... 23 3/4 17 7/8
4th Quarter ........................... 23 3/8 15 3/4
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 24, 1996 HIGH LOW
- ---------------------------- ------ -----
<S> <C> <C>
1st Quarter ........................... $26 $18 3/8
2nd Quarter ........................... 30 1/2 23 1/8
3rd Quarter ........................... 30 3/4 23 3/8
4th Quarter ........................... 31 1/2 24 1/8
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 22, 1997
- -----------------------------------
<S> <C> <C>
1st Quarter ........................ $33 1/2 $27 1/4
2nd Quarter (through June 13, 1996) 33 1/8 29 5/8
</TABLE>
The closing price of the Common Stock on the New York Stock Exchange as of
a recent date is set forth on the cover page of this Prospectus. As of April
1, 1996, there were approximately 1,700 holders of record of the Common
Stock.
The Company has never paid cash dividends on its Common Stock and does not
plan to do so in the foreseeable future. The current policy of the Company's
Board of Directors is to reinvest earnings in the operation and expansion of
the Company's business. Further, the Company is a holding company and the
operations of the Company are conducted through its subsidiaries.
Accordingly, the ability of the Company to pay dividends on its Common Stock
is dependent on the earnings and cash flow of its subsidiaries and the
availability of such cash flow to the Company. See Note G to the Consolidated
Financial Statements.
10
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and total
capitalization of the Company at February 24, 1996. The data in this table
should be read in conjunction with the Consolidated Financial Statements.
<TABLE>
<CAPTION>
AS OF FEBRUARY
24, 1996
--------------
(IN THOUSANDS)
<S> <C>
Current portion of long-term debt ........................................ $ 3,993
==============
Long-term debt (excluding current portion):
Credit Facilities ....................................................... $366,500
Other bank facilities ................................................... 16,430
--------------
382,930
Shareholders' equity (a):
Common Stock, par value $.01 per share, 43,021,839 shares outstanding
(b) ..................................................................... 437
Additional paid-in capital .............................................. 167,758
Equity carryover basis adjustment ....................................... (7,008)
Translation adjustment .................................................. (463)
Retained earnings ....................................................... 150,938
--------------
311,662
Less treasury stock ..................................................... (14,937)
--------------
Total shareholders' equity ............................................. 296,725
--------------
Total capitalization ................................................... $679,655
==============
</TABLE>
(a) The Company also has 20,000,000 shares of authorized preferred stock,
$.01 par value, with such rights and preferences as the Board of
Directors of the Company may establish from time to time. No shares of
such preferred stock have been issued.
(b) Does not include an aggregate of 43,443 shares of Common Stock subject
to outstanding unvested grants under the Company's stock benefit plans
and 1,214,150 unexercised stock options outstanding under the Company's
stock option plan.
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Consolidated Financial Statements and the
other financial information included and incorporated by reference herein.
The operating and balance sheet data in the table are derived from the
Consolidated Financial Statements which were audited by independent auditors.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------------------------------
FEBRUARY 29, FEBRUARY 27, FEBRUARY 26, FEBRUARY 25, FEBRUARY 24,
1992(A) 1993 1994 1995 1996
----------------- -------------- -------------- ------------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Services ........................................... $239,984 $ 343,213 $457,529 $547,767 $686,043
Sales of products .................................. 110,148 158,148 135,271 147,340 58,047
----------------- -------------- -------------- -------------- ----------
Total ............................................. 350,132 501,361 592,800 695,107 744,090
Gross Profit:
Services ........................................... 87,397 112,404 152,845 194,097 244,139
Sales of products .................................. 49,344 72,394 62,941 41,468 13,595
----------------- -------------- -------------- -------------- ----------
Total ............................................. 136,741 184,798 215,786 235,565 257,734
Operating income .................................... 54,201 82,039 119,206 104,481(b) 117,983
Interest expense, net of interest income ............ 24,879 16,126 11,756 13,065 12,107
Income from continuing operations before dividends
on and accretion of Subsidiary Preferred Stock,
extraordinary charge and cumulative effect of
accounting change .................................. 18,534 40,400 66,473 52,319 66,627
Loss from operations of AmTote ...................... -- -- (10,323) (6,583) --
Loss on disposal of AmTote .......................... -- -- -- (43,444) --
Dividends on and accretion of Subsidiary Preferred
Stock .............................................. (4,672) (2,604) -- -- --
Extraordinary charge ................................ -- (18,534)(c) -- (1,420) --
Cumulative effect of accounting change .............. -- 2,432 -- -- --
Net income .......................................... 13,862 21,694 56,150 872 66,627
PER SHARE DATA:
Earnings per common share
from continuing operations ......................... $ 0.38 $ 0.92 $ 1.53 $ 1.20 $ 1.54
Earnings per common share ........................... 0.38 0.53(d) 1.29 (e) 0.02 (f) 1.54
Pro forma earnings per common share (g) ............. 0.64 1.02 1.29 0.02 1.54
Weighted average common shares outstanding
(in thousands) ..................................... 36,474 41,080 43,588 43,451 43,236
OTHER DATA:
Earnings before depreciation, amortization,
interest, taxes and other non-cash charges (h) .... $113,248 $ 162,211 $213,756 $221,832 $273,570
Cumulative number of lottery terminals shipped (i) . 126,994 164,180 221,254 261,287 280,897
Number of lottery terminals sold .................... 14,053 19,078 17,557 12,282 3,658
Number of lottery customers at year-end ............. 56 59 67 72 74
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (deficit) ........................... $(21,629) $ 47,458 $ 25,364 $ 6,086 $ 21,414
Total assets ........................................ 385,268 516,893 665,250 779,254 859,380
Long-term debt, less current portion ................ 202,669 225,064 258,961 338,468 382,930
Redeemable Subsidiary Preferred Stock ............... 27,347 -- -- -- --
Shareholders' equity ................................ 30,715 168,055 232,329 232,931 296,725
</TABLE>
- ---------------------------
(a) 53-week year.
(b) Includes an $11.1 million special charge consisting of a $6.1 million
charge in connection with the reduction of the Company's workforce and
relocation of certain operating functions and $5.0 million to write off
its video gaming-related inventory. See Note J to the Consolidated
Financial Statements.
(c) Represents an after-tax extraordinary charge on the early
extinguishment of debt relating to the Company's July 1992 initial
public offering of Common Stock.
(d) Includes the after-tax extraordinary charge described in (c), $0.45 per
share, and $0.06 per share, of income relating to an accounting change.
(e) Includes after-tax operating losses of AmTote, $0.24 per share.
(f) Includes after-tax operating losses of AmTote, $0.15 per share, the
after-tax loss on disposal of AmTote, $1.00 per share, and an after-tax
extraordinary loss relating to early extinguishment of debt, $0.03 per
share.
(g) Assumes that the initial public offering of Common Stock in July 1992
and the early retirement of certain long-term debt had occurred at the
beginning of fiscal 1993 and 1992, respectively.
(h) Represents income before income taxes and (i) interest expense, (ii)
depreciation and amortization, (iii) non-cash stock compensation
expense, (iv) certain purchase accounting adjustments relating to the
acquisition of the Company in 1990 and (v) certain other non-cash
items.
(i) Terminals shipped represents lottery terminals sold under product sales
contracts and lottery terminals supplied under service contracts.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company has derived substantially all of its revenues from the
rendering of services and the sale or supply of computerized on-line lottery
systems and components to government-authorized lotteries. Service revenues
have been derived primarily from service contracts, which are typically of at
least five years' duration, and are generally based upon a percentage of a
lottery's gross on-line lottery sales, which typically falls within a range
of 1.5% to 5.0%. Product sales revenues have been derived primarily from the
installation of new on-line lottery systems and sales of lottery terminals
and equipment in connection with the expansion of existing lottery systems.
The size and timing of these transactions have resulted in variability in
product sales revenues from period to period. Over the past several years
there has been an industry movement toward service contracts and away from
product sales contracts. In fiscal 1993, approximately 70% of the Company's
lottery revenues were derived from its portfolio of long-term on-line lottery
service contracts with substantially all of the remainder being derived from
lottery product sales. In each year since fiscal 1993, the percentage of the
Company's lottery revenues derived from on-line lottery service contracts has
risen, and in fiscal 1996, approximately 92% of the Company's lottery
revenues were derived from on-line lottery service contracts. While the
Company believes that product purchases by lotteries during each of the next
two years are likely to exceed the level experienced in fiscal 1996, it is
likely that the percentage of the Company's revenues attributable to product
sales will remain closer to the percentage level realized in fiscal 1996 than
to the fiscal 1993 level.
The Company's lottery service contracts are generally subject to a new
competitive procurement process after the expiration of the contract term and
any extensions thereof. For fiscal 1996, 1995 and 1994, the aggregate
revenues from the State of Texas represented 19.6%, 16.1% and 15.9% of the
Company's consolidated revenues, respectively. No other customer accounted
for more than 10% of consolidated revenues in such years.
All references to years contained in this section refer to the Company's
fiscal year which ends on the last Saturday in February. Fiscal 1996 ended on
February 24, 1996.
All references to the Consolidated Financial Statements of the Company and
Notes thereto are to the Consolidated Financial Statements of the Company and
Notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended February 24, 1996, which is incorporated by reference into
this Prospectus and Registration Statement.
The Company's business is highly regulated, and the competition to secure
new government contracts is often intense. Awards of contracts to the Company
also, from time to time, are being challenged by competitors. Further, there
have been and continue to be investigations of various types, including
federal grand jury investigations, conducted by governmental authorities into
possible improprieties and wrongdoing in connection with efforts to obtain
and/or the awarding of lottery contracts and related matters. Although the
Company does not believe that it has engaged in any wrongdoing in connection
with these matters, certain investigations are still underway and are
conducted largely in secret. Accordingly, the Company lacks sufficient
information to determine with certainty their ultimate scope and whether the
government authorities will assert claims resulting from these or other
investigations that could implicate or reflect adversely upon the Company.
Because the Company's reputation for integrity is an important factor in its
business dealings with lottery and other governmental agencies, if government
authorities were to make an allegation of, or if there were to be a finding
of, improper conduct on the part of or attributable to the Company in any
matter, such an allegation or finding could have a material adverse effect on
the Company's business, including its ability to retain existing contracts
and to obtain new or renewal contracts. See Note H to the Consolidated
Financial Statements and "Risk Factors -- Maintenance of Business
Relationships and Certain Legal Matters" and "Business -- Legal Proceedings"
for further information concerning these matters and other contingencies.
13
<PAGE>
The following discussion should be read in conjunction with the table
below.
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------------------
FEBRUARY 26, FEBRUARY 25, FEBRUARY 24,
1994 1995 1996
------------------- ------------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Services ....................... $457,529 77.2% $547,767 78.8% $686,043 92.2%
Sales of products .............. 135,271 22.8 147,340 21.2 58,047 7.8
---------- ------- ---------- ------- ---------- -------
Total ......................... 592,800 100.0 695,107 100.0 744,090 100.0
Costs and expenses:
Costs of services (a) .......... 304,684 66.6 353,670 64.6 441,904 64.4
Costs of sales (a) ............. 72,330 53.5 105,872 71.9 44,452 76.6
---------- ------- ---------- ------- ---------- -------
Total ......................... 377,014 63.6 459,542 66.1 486,356 65.4
Gross profit .................... 215,786 36.4 235,565 33.9 257,734 34.6
Selling, general and
administrative ................. 71,834 12.1 91,960 13.2 110,212 14.8
Research and development ........ 24,746 4.2 28,024 4.1 29,539 4.0
Special charge .................. -- -- 11,100 1.6 -- --
---------- ------- ---------- ------- ---------- -------
Operating income ................ 119,206 20.1 104,481 15.0 117,983 15.8
Other income (expense):
Interest income ................ 1,715 0.3 5,120 0.7 12,124 1.6
Equity in earnings of
unconsolidated affiliates .... 1,853 0.3 1,872 0.3 8,060 1.1
Other income (expense) ......... 1,344 0.2 (689) (0.1) 939 0.1
Interest expense ............... (13,471) (2.2) (18,185) (2.6) (24,231) (3.2)
---------- ------- ---------- ------- ---------- -------
Income from continuing
operations before income taxes
and extraordinary charge ....... 110,647 18.7 92,599 13.3 114,875 15.4
Income taxes .................... 44,174 7.5 40,280 5.8 48,248 6.5
---------- ------- ---------- ------- ---------- -------
Income from continuing
operations before extraordinary
charge ......................... 66,473 11.2 52,319 7.5 66,627 8.9
Loss from operations of AmTote,
net of tax benefit ............. (10,323) (1.8) (6,583) (1.0) -- --
Loss on disposal of AmTote, net
of tax benefit ................. -- -- (43,444) (6.2) -- --
Extraordinary charge, net of tax
benefit ........................ -- -- (1,420) (0.2) -- --
---------- ------- ---------- ------- ---------- -------
Net income ...................... $ 56,150 9.4% $ 872 0.1% $ 66,627 8.9%
========== ======= ========== ======= ========== =======
</TABLE>
(a) Percentages are computed based on cost as a percentage of related
revenue.
14
<PAGE>
TRANSACTIVE CORPORATION
The Company's Transactive subsidiary, which commenced substantial
operations in fiscal 1996, has incurred significant operating losses and
currently expects to incur significant operating losses during fiscal 1997.
As of February 24, 1996, the Company had invested approximately $61.1 million
in systems, equipment and other assets to establish infrastructure to support
its current and future benefits delivery business. (See Note E to the
Consolidated Financial Statements.)
During the second half of fiscal 1996, the Company implemented a plan for
Transactive to enhance its existing revenue streams, reduce operating costs,
leverage its infrastructure within existing states with new applications and
win business with new states. The Company has confidence in this plan and is
monitoring its progress carefully. However, if adequate progress is not made
within a reasonable period of time, the Company may consider alternatives for
Transactive, including joint venturing with another entity. There can be no
assurance that these efforts will be successful, and if they are not
successful, the Company may be required to recognize a loss on a portion of
its investment in Transactive.
RACIMEC
On September 1, 1993, the Company acquired 41.5% of the voting common
stock and 41.5% of the non-voting preferred stock of Racimec, a Brazilian
company engaged in the lottery business (which lottery business includes the
pursuit of Brazil's national on-line lottery contract), for cash
consideration of approximately $6.9 million plus related expenses. On January
31, 1996, the Company acquired the remaining voting common stock and 37.7% of
non-voting preferred stock of Racimec (resulting in the Company owning 83% of
the total equity of Racimec) for cash consideration of $4.6 million plus
related expenses and the exchange by the Company of $9.4 million of notes and
related accrued interest receivable from a shareholder of Racimec. The
results of Racimec for fiscal 1996 are included in the financial statements
of the Company on the equity method of accounting through January 31, 1996.
Subsequent to January 31, 1996 the financial statements of Racimec have been
consolidated. At February 24, 1996, the Company's investment in Racimec
approximated $84.9 million. (See Note B to the Consolidated Financial
Statements.)
Racimec incurred significant operating losses during fiscal 1996 due
principally to start-up losses related to new on-line state lottery networks
which began operation during the year, along with pre-launch marketing costs.
On an unaudited pro forma basis as if the January 31, 1996 acquisition had
taken place at the beginning of fiscal 1996, the Company's earnings per share
would have been reduced to $1.25 per share. Pro forma results, however, do
not purport to represent what the Company's results would actually have been
had Racimec been acquired at the beginning of the fiscal year or to project
the Company's or Racimec's results for any future period. A revenue
enhancement and cost reduction plan for Racimec was implemented during the
fourth quarter of fiscal 1996, and management currently expects that
Racimec's pre-tax operating results for fiscal 1997 will substantially
improve over fiscal 1996. There can be no assurance that the Company's
efforts relating to Racimec will be successful, and if they are not
successful, the Company may be required to recognize a loss on a portion of
its investment in Racimec.
AMTOTE
In February 1995, the Board of Directors of the Company approved a plan to
dispose of the Company's AmTote subsidiary. AmTote, which was acquired by the
Company in fiscal 1994, was engaged in the parimutuel on-track services and
benefits delivery system businesses. In connection with the Company's
decision to dispose of AmTote, the Company recorded an after-tax charge of
$43.4 million, or $1.00 per share, in fiscal 1995. In addition, the results
of operations for AmTote for fiscal 1995 and 1994 were reported as losses
from discontinued operations net of income tax benefit. In February 1996, the
Company divested itself of AmTote and agreed to reimburse Mudge Acquisitions
Group, the acquirer, for certain liabilities of AmTote. (See Note D to the
Consolidated Financial Statements.)
15
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF FISCAL 1996 WITH 1995
Revenues for fiscal 1996 were $744.1 million, representing a $49.0
million, or 7.0%, increase over revenues of $695.1 million in fiscal 1995.
Service revenues in fiscal 1996 were $686.0 million, representing a $138.2
million, or 25.2%, increase over the $547.8 million of service revenues in
fiscal 1995. The increase in service revenues resulted primarily from higher
service revenues of $82.6 million from the Company's existing customer base
(due in part to higher jackpot activity and expanded services), $31.7 million
of higher service revenues from the United Kingdom lottery which became
operational in November 1994, $15.8 million of service revenues from
Transactive, $4.3 million of service revenues from Racimec for the month of
February 1996 and $3.8 million of service revenues from new on-line lottery
systems operated by the Company which commenced operations in fiscal 1996.
Product sales for fiscal 1996 were $58.0 million, representing an $89.3
million, or 60.6%, decrease from product sales of $147.3 million in fiscal
1995. This decrease resulted primarily from lower sales of component parts
and equipment ("OEM equipment") in connection with the United Kingdom
operations (which began during fiscal 1995) along with lower lottery terminal
and central system sales. The Company sold approximately 3,700 lottery
terminals during fiscal 1996, as compared to approximately 12,300 terminals
during fiscal 1995.
Gross margins on service revenues increased to 35.6% in fiscal 1996 from
35.4% in fiscal 1995 due principally to higher revenues earned from certain
jurisdictions (attributable primarily to higher jackpots and expanded
services) without a corresponding increase in the costs associated with
operating those lotteries. These higher margins were reduced by a significant
loss incurred by Transactive.
Gross margins on product sales fluctuate depending primarily on the mix
and timing of product sales contracts. Gross margins on product sales
decreased to 23.4% in fiscal 1996 from 28.1% in fiscal 1995. This decrease
was due primarily to a small loss incurred in connection with the sale of a
central system in fiscal 1996 that is expected to be more than offset in
fiscal 1997 as the Company completes the shipment of terminals under the
contract. This reduction in margin was partially offset by higher margins on
terminal sales.
Selling, general and administrative expenses in fiscal 1996 were $110.2
million, representing an $18.2 million, or 19.8%, increase from the $92.0
million incurred in fiscal 1995. This increase was primarily attributable to
higher administrative costs which were necessary to support expanded
operations (including Transactive) and increased sales and marketing
activity. In addition, the Company continued to spend in the area of
management information staff and new systems as part of its efforts to
improve its business information systems. As a percentage of revenues,
selling, general and administrative expenses were 14.8% and 13.2% during
fiscal 1996 and fiscal 1995, respectively.
Research and development expenses in fiscal 1996 were $29.5 million,
representing a $1.5 million, or 5.4%, increase from research and development
expenses of $28.0 million in fiscal 1995. These increases in expenses were
attributable to increased development activity for new lottery equipment and
software and new lottery games for the Company's increased number of service
customers. In addition, a lower level of software engineering cost was
capitalized to new on-line lottery system projects. As a percentage of
revenues, research and development expenses were 4.0% and 4.1% during fiscal
1996 and fiscal 1995, respectively.
Interest income in fiscal 1996 was $12.1 million, representing an increase
of $7.0 million from interest income of $5.1 million earned during fiscal
1995. This increase was due primarily to interest earned on loans to Racimec.
Equity in earnings of unconsolidated affiliates in fiscal 1996 was $8.1
million, representing an increase of $6.2 million from $1.9 million earned
during fiscal 1995. This increase was due primarily to higher earnings from
the Company's 22.5% investment in Camelot Group plc ("Camelot"), the
consortium which operates the United Kingdom lottery, partially offset by
losses from the Company's investment in Racimec.
16
APITAL PRINTING SYSTEMS]
<PAGE>
Interest expense in fiscal 1996 was $24.2 million, an increase of $6.0
million, or 33.3%, from interest expense of $18.2 million in fiscal 1995.
This increase was due primarily to higher average debt outstanding, along
with higher average interest rates.
The Company's effective income tax rate decreased to 42.0% in fiscal 1996
from 43.5% in fiscal 1995 due principally to the increase in equity in
earnings of unconsolidated affiliates which is reported on an after-tax
basis. The Company's effective income tax rate was greater than the statutory
rate due primarily to state income taxes and certain expenses that are not
deductible for income tax purposes.
COMPARISON OF FISCAL 1995 WITH 1994
Revenues for fiscal 1995 were $695.1 million, representing a $102.3
million, or 17.3%, increase over revenues of $592.8 million in fiscal 1994.
Service revenues in fiscal 1995 were $547.8 million, representing a $90.3
million, or 19.7%, increase over the $457.5 million of service revenues in
fiscal 1994. The increase in service revenues resulted primarily from higher
revenues of $36.2 million from the Company's existing customer base, due in
part to higher lottery jackpots, $17.3 million of higher revenues from the
Georgia on-line lottery system which became operational in August 1993, $18.1
million of higher revenues from the Company's lottery customer in New York,
primarily as a result of the Company providing services for the entire system
beginning in September 1993, $15.7 million of service revenues from new
on-line lottery systems operated by the Company which commenced operations in
fiscal 1995 and $3.0 million of service revenues from the Company's benefits
delivery business which was acquired from General Instruments in August 1993.
Product sales for fiscal 1995 were $147.3 million, representing a $12.0
million, or 8.9%, increase from product sales of $135.3 million in fiscal
1994. The higher product sales resulted from the sale of OEM equipment in
connection with the United Kingdom operations, partially offset by lower
terminal sales. The Company sold approximately 12,300 lottery terminals
during fiscal 1995, as compared to approximately 17,500 terminals during
fiscal 1994. The Company sold one new central lottery system in both fiscal
1995 and fiscal 1994.
Gross margins on service revenues increased to 35.4% in fiscal 1995 from
33.4% in fiscal 1994 due principally to higher lottery jackpots in fiscal
1995 without a corresponding increase in the costs associated with operating
those lotteries, along with expense reductions resulting from cost
improvement programs. Partially offsetting these factors was higher
depreciation expense on new on-line lottery systems installed in fiscal 1994
in California, Georgia, Ireland, New York and Ohio.
Gross margins on product sales fluctuate depending primarily on the mix
and timing of product sales contracts. Gross margins on product sales
decreased to 28.1% in fiscal 1995 from 46.5% in fiscal 1994 due primarily to
lower margin OEM equipment sales in connection with the United Kingdom
operations, lower margins on terminal sales and higher warranty provisions
relating to certain terminal sales. Revenues from the United Kingdom
operations made significant contributions to the Company's service and
product sales revenues in fiscal 1995, but did not have an impact sufficient
to offset the overall product sale margin decline.
Selling, general and administrative expenses in fiscal 1995 were $92.0
million, representing a $20.2 million, or 28.0%, increase from the $71.8
million incurred in fiscal 1994. These increases were primarily attributable
to higher administrative costs which were necessary to support expanded
operations (including Transactive), increased sales and marketing activity,
higher executive compensation and higher legal costs relating primarily to
previously disclosed protests, investigations and the shareholder class
action suit. In addition, the Company increased its resources in the area of
management information staff and new systems as part of its efforts to
improve its business information systems. These higher costs were partially
offset by lower stock compensation expense. As a percentage of revenues,
selling, general and administrative expenses were 13.2% and 12.1% during
fiscal 1995 and fiscal 1994, respectively.
Research and development expenses in fiscal 1995 were $28.0 million,
representing a $3.3 million, or 13.2%, increase from research and development
expenses of $24.7 million in fiscal 1994. These increases in expenses were
attributable to increased development activity for new lottery equipment and
software
17
<PAGE>
and new lottery games for the Company's increased number of customers
partially offset by a higher level of capitalized software engineering cost
for new on-line lottery system projects and the new benefits delivery system
in Texas. As a percentage of revenues, research and development expenses were
4.1% and 4.2% during fiscal 1995 and fiscal 1994, respectively.
In the fourth quarter of fiscal 1995, the Company recorded an $11.1
million pre-tax special charge ($6.7 million after-tax, or $0.15 per share)
consisting of a $6.1 million charge in connection with the elimination of 126
positions from the Company's worldwide workforce and the consolidation and
relocation of certain functions within domestic and international operations
and $5.0 million to write off its remaining video gaming-related inventory in
connection with its decision to discontinue manufacture of video terminals.
However, the Company is continuing to design, procure and provide software
and installation services with respect to video lottery terminals.
Interest income in fiscal 1995 was $5.1 million, representing an increase
of $3.4 million from interest income of $1.7 million earned during fiscal
1994. This increase was due primarily to interest earned on loans to Racimec,
on a sales-type lease of an on-line lottery system to a customer in Argentina
and on terminal sales with extended payment terms to the Company's lottery
customer in Poland.
Interest expense in fiscal 1995 was $18.2 million, an increase of $4.7
million, or 35.0%, from interest expense of $13.5 million in fiscal 1994.
This increase was due primarily to higher average debt outstanding, along
with higher average interest rates.
The Company's effective income tax rate increased from 39.9% in fiscal
1994 to 43.5% in fiscal 1995 primarily due to limitations on the
deductibility of certain expenses imposed by the Revenue Reconciliation Act
of 1993 and foreign operating losses which generated no income tax benefit.
These same factors, along with state income taxes, also were primarily
responsible for the Company's effective income tax rate of 43.5% for fiscal
1995 being greater than the statutory rate of 35.0%.
CHANGES IN FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1996, the Company generated $207.0 million of cash from
operations. This cash, together with $39.2 million of net borrowings, was
used primarily to fund the purchase of $184.0 million of systems, equipment
and other assets relating to contracts, $37.9 million of investments in
unconsolidated affiliates and the purchase of $10.3 million of property,
plant and equipment.
Current deferred income taxes decreased by $15.6 million from $41.3
million at February 25, 1995 to $25.7 million at February 24, 1996 due
primarily to the divestiture of AmTote.
The cost of systems, equipment and other assets relating to contracts
increased by $228.8 million from $658.4 million at February 25, 1995 to
$887.2 million at February 24, 1996. This increase reflects the consolidation
of approximately $56.7 million of Racimec assets along with the purchase of
the rights to a contract in California. In addition, the Company installed a
keno system in New York, installed new lottery networks in Colorado and the
District of Columbia, began the installation of a new lottery network in the
State of Washington, continued the installation of a benefits delivery system
in Texas and expanded lottery systems in several domestic and international
locations.
Goodwill increased by $26.5 million from $88.3 million at February 25,
1995 to $114.8 million at February 24, 1996 due primarily to the acquisition
of additional equity in Racimec.
Investments in and advances to unconsolidated affiliates decreased by
$38.5 million from $87.6 million at February 25, 1995 to $49.1 million at
February 24, 1996. This decrease resulted primarily from the consolidation of
Racimec assets and liabilities with the Company partially offset by the
Company's equity in earnings of Camelot and loans related to the Company's
agreements with Full House.
Other assets decreased by $11.4 million from $40.0 million at February 25,
1995 to $28.6 million at February 24, 1996, due primarily to scheduled
collections of long-term receivables.
Accrued employee compensation increased by $5.2 million from $19.7 million
at February 25, 1995 to $24.9 million at February 24, 1996, due primarily to
higher bonus and profit sharing accruals, reflecting certain improvements in
the financial performance of the Company, along with accruals associated with
the consolidation of Racimec.
18
<PAGE>
The accrual for discontinued operations decreased from $39.7 million at
February 25, 1995 to $5.7 million at February 24, 1996 due to the divestiture
of AmTote and the reclassification of $9.8 million of certain current
liabilities to other liabilities. These remaining accruals at February 24,
1996 represent estimated liabilities which the Company has agreed to
reimburse the acquirer in connection with the divestiture. (See Note D to the
Consolidated Financial Statements.)
The Company's business is capital-intensive. Although it is not possible
to estimate precisely, due to the nature of the business, the Company
currently anticipates that the level of capital expenditures for systems and
equipment and other assets relating to contracts required during fiscal 1997
will be lower than those expended in fiscal 1996. In addition, the Company
anticipates that the level of capital expenditures for property, plant and
equipment in fiscal 1997 will be lower than the fiscal 1996 levels. The
Company currently has a $500.0 million unsecured Credit Facility with a
syndicate of banks. At May 25, 1996, the Company had outstanding borrowings
of approximately $364.0 million and approximately $136.0 million was
available under this facility. The Company currently expects that its cash
flow from operations and available borrowings under its Credit Facility,
together, if necessary, with other sources of capital believed to be
available, will be sufficient to permit it to meet its anticipated working
capital and ordinary capital expenditure needs, to service its debt
obligations and to permit it to fund anticipated growth. However, the Company
is currently reviewing its debt structure and is considering refunding and/or
increasing its debt capacity. (See Note G to the Consolidated Financial
Statements.)
INFLATION, INTEREST RATES AND FOREIGN EXCHANGE FLUCTUATION
The impact of inflation on the Company's operations has not been
significant to date. While the Company believes that its business is not
highly sensitive to inflation, there can be no assurance that a high rate of
inflation in the future would not have an adverse effect on the Company's
operations.
The Company uses various interest rate hedging instruments to reduce the
risk associated with future increases in interest rates on its floating rate
long-term debt. On November 8, 1994, the Company entered into two interest
rate corridors with an aggregate notional amount of $165.0 million which
provide interest rate protection to November 8, 1996. The corridors
effectively entitle the Company to receive payments from the financial
institutions which are counterparties to the corridors should the three-month
London Interbank Offered Rates ("LIBOR") be between 6.75% and 8.75%. Should
LIBOR exceed 8.75%, the Company will receive a payment up to the 8.75%
ceiling but not above. At February 24, 1996, LIBOR was 5.25%.
On January 24, 1996, the Company entered into three interest rate swaps
with an aggregate notional amount of $125.0 million which provide interest
rate protection over the period January 26, 1996 to April 28, 1997. The swaps
effectively entitle the Company to receive payments from the financial
institutions which are counterparties to the swaps should LIBOR exceed
approximately 5.05%.
The Company attempts to manage its foreign exchange risk by securing
payment from its customers in U.S. dollars, by sharing risk with its
customers, by utilizing foreign currency borrowings, by leading and lagging
receipts and payments and by entering into forward foreign exchange
contracts. In addition, a significant portion of the costs attributable to
the Company's foreign currency revenues are incurred in the local currencies.
The Company, from time to time, enters into foreign currency exchange
contracts to hedge certain firm sales commitments, anticipated revenue
streams and certain assets and liabilities denominated in foreign currencies.
The effect of this practice is to minimize the impact of foreign exchange
rate movements on the Company's operating income. The Company does not engage
in currency speculation. Gains and losses on contracts which hedge specific
foreign currency commitments are deferred and accounted for as part of the
transaction being hedged. Contracts used to hedge anticipated revenue streams
and certain assets and liabilities are marked to market, and the resulting
transaction gain or loss is included in the determination of net income. As
of February 24, 1996, the Company had approximately $38.2 million of foreign
forward exchange contracts, primarily denominated in British Pounds, German
Deutschemarks and Irish Pounds.
For further information on the above, see Note P to the Consolidated
Financial Statements.
19
<PAGE>
BUSINESS
GTECH is the world's leading operator of computerized on-line lottery
systems. The Company currently operates on-line lottery systems for 26 of the
37 on-line lottery authorities in the United States and has supplied or
currently operates on-line lottery systems for 48 of the 74 international
on-line lottery authorities. The Company, seeking to develop growth
opportunities in addition to those available in the on-line lottery industry,
is actively involved in the emerging electronic benefits delivery industry
and in the pursuit of gaming opportunities other than on-line lottery such as
destination gaming and video lottery.
The Company's core business consists of providing on-line lottery services
and products to governmental lottery authorities and governmental licensees
worldwide. The Company offers its customers a full range of lottery services,
including the design, assembly, installation, operation, maintenance and
marketing of on-line lottery systems and instant ticket support services. The
Company's lottery systems consist of numerous lottery terminals located in
retail outlets, central computer systems, systems software and game software,
and communications equipment which connects the terminals and the central
computer systems.
Historically, the majority of the Company's lottery customers in the
United States have entered into long-term service contracts pursuant to which
the Company provides, operates and maintains the customers' on-line lottery
systems in return for a percentage of the gross lottery revenues. Many of the
Company's international lottery customers have purchased their on-line
lottery systems, although some, especially lottery authorities in Eastern
Europe and Latin America, have entered into long-term service contracts with
the Company. Over the last several years, there has been an industry movement
away from product sales in favor of long-term service contracts. In fiscal
1993, approximately 70% of the Company's lottery revenues had been derived
from its portfolio of long-term on-line lottery service contracts with
substantially all of the remainder being derived from lottery product sales.
In each year since fiscal 1993, the percentage of the Company's lottery
revenues derived from on-line lottery service contracts has risen, and in
fiscal 1996, approximately 92% of the Company's lottery revenues were derived
from on-line lottery service contracts. While the Company believes that
product purchases by lotteries during each of the next two years are likely
to exceed the level experienced in fiscal 1996, it is likely that the
percentage of the Company's revenues attributable to product sales will
remain closer to the percentage level realized in fiscal 1996 than to the
fiscal 1993 level.
ON-LINE LOTTERY CONTRACTS
The Company generally conducts its lottery business under one of three
types of contractual arrangements: Facilities Management Contracts, Operating
Contracts and Product Sales Contracts. Under a typical Facilities Management
Contract, the Company installs, operates and maintains a lottery system,
while retaining ownership of the lottery system. These contracts generally
provide for service fees directly from the lottery authority to the Company
based on a percentage of on-line lottery ticket sales. Under an Operating
Contract, the Company generally provides the same services as under a
Facilities Management Contract, but sells the lottery system and licenses the
computer software to the lottery authority. Ongoing service fees to the
Company under an Operating Contract are usually based on a percentage of
lottery ticket sales. Under a Product Sales Contract, the Company sells,
delivers and installs a turnkey lottery system or lottery equipment and
licenses the computer software for a fixed price, and the lottery authority
subsequently operates and maintains the lottery system. The purchase price
for products sold under Operating Contracts and Product Sales Contracts is
generally paid prior to or upon acceptance of the products.
The collection of lottery monies, the selection of winners, the financial
responsibility for the payment of prizes and the qualification of retail
sales agents are usually the sole responsibility of the lottery authority in
each jurisdiction in which the Company operates a lottery. The United
Kingdom's National Lottery provides an important exception to this general
rule. Camelot Group plc, a consortium of companies of which the Company is a
member, was licensed by the United Kingdom government to operate all aspects
of the National Lottery with the exception of proceeds allocation.
20
<PAGE>
FACILITIES MANAGEMENT CONTRACTS
The table below sets forth the lottery authorities with which the Company
had Facilities Management Contracts as of March 9, 1996 except as otherwise
noted. Unless otherwise indicated, the Company is the sole supplier of
central computers and terminals and services to each of the lottery
authorities listed below. The table also sets forth information regarding the
term of each contract and, as of March 9, 1996, the approximate number of
terminals installed in each jurisdiction.
FACILITIES MANAGEMENT CONTRACTS
<TABLE>
<CAPTION>
APPROXIMATE DATE OF DATE OF
NO. OF LOTTERY COMMENCEMENT EXPIRATION OF CURRENT
TERMINALS OF CURRENT CURRENT EXTENSION
JURISDICTION INSTALLED(1) CONTRACT CONTRACT TERM OPTIONS*
- --------------------------------- -------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
UNITED STATES:
Arizona(2) ....................... (2) (2) (2) --
California(3) .................... 13,170 10/93 10/98 5 one-year
Colorado ......................... 2,270 3/95 10/00 2 two-year
District of Columbia(4) .......... 620 5/95 11/99 --
Georgia .......................... 4,820 4/93 9/98 5 years
Illinois ......................... 6,270 2/89 10/97 3 one-year
Indiana .......................... 3,250 3/90 6/98 1 one-year
Iowa ............................. 1,500 4/91 6/01 1 two-year
Kansas ........................... 1,620 1/88 6/97 --
Louisiana ........................ 2,640 11/91 1/97 5 years
Maine(5) ......................... 1,070 7/90 6/00 --
Maryland(6) ...................... 3,920 4/91 7/96 --
Michigan ......................... 5,850 4/88 1/99 --
Missouri(7) ...................... 2,370 7/96 7/01 2 one-year
Nebraska ......................... 720 4/94 6/00 1 four-year
New Hampshire(5) ................. 890 7/90 6/00 --
New Jersey(8) .................... 5,120 7/84 5/96(8) 2 four-month
New York ......................... 10,510 2/93 2/99 3 one-year
Ohio ............................. 6,250 10/93 6/97 2 two-year
Oregon ........................... 2,670 8/85 5/97 1 three-month
Rhode Island ..................... 900 1/87 1/97 --
Texas(9) ......................... 12,340 3/92 8/02 --
Vermont(5) ....................... 450 7/90 6/00 --
Washington State ................. (10) 9/95 6/01 3 years
West Virginia .................... 1,250 2/92 6/00 2 one-year
Wisconsin ........................ 3,060 5/89 3/97 --
---------
Subtotal ..................... 93,530
INTERNATIONAL:
Barbados
-- T.L. Lotteries ............... 190 10/94 1/00 2 one-year
Brazil(11)
-- Minas Gerais ................. 620 10/94 10/00 (11)
-- Parana ....................... 750 8/94 8/98 (11)
-- Santa Caterina ............... 180 5/95 5/00 (11)
-- FGFS Sports Club ............. 40 11/94 11/99 (11)
Chile
-- Polla Chilena de
Beneficencia S.A. ............ 1,640 12/93 8/99 --
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE DATE OF DATE OF
NO. OF LOTTERY COMMENCEMENT EXPIRATION OF CURRENT
TERMINALS OF CURRENT CURRENT EXTENSION
JURISDICTION INSTALLED(1) CONTRACT CONTRACT TERM OPTIONS*
- --------------------------------- -------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Czech Republic
-- SAZKA ........................ 1,850 10/92 (12) (12)
Estonia
-- Ras Eesti Loto ............... 330 1/94 1/06 (13)
Ireland
-- An Post Nat'l Lottery Company 2,000 3/93 3/00 (14)
Lithuania
-- OLIFEJA ...................... 260 12/94 12/09 (15)
Mexico
-- Pronosticos para la
Assistencia Publica .......... 4,620 6/89(16) 4/96(14) (16)
Poland
-- Totalizator Sportowy ......... 3,060 3/91 (17) (17)
Puerto Rico
-- Loteria Electronica de Puerto
Rico ......................... 1,730 4/90 11/98 --
Slovakia
-- TIPOS, a.s. .................. 670 (18) (18) --
Spain
-- Loto Catalunya ............... 1,490 10/87 10/97 (14)
Trinidad & Tobago
-- National Lotteries Control
Board ........................ 490 12/93 7/99 5 one-year
United Kingdom
-- The National Lottery (19) ... 20,140 7/94 9/01 --
Venezuela (20)
-- Loteria de Caracas ........... 610 4/93 4/98 1 five-year
-- Loteria de Oriente ........... 6/89 6/99 (14)
-- Loteria de Zulia ............. 12/90 12/00 (14)
--------------
Subtotal ..................... 40,670
--------------
Total Terminals Installed ........ 134,200
==============
</TABLE>
- -----------------------------
* Reflects extensions available to the lottery authority under the same
terms as the current contract. Lottery authorities occasionally
negotiate extensions on different terms and conditions.
(1) Total does not include instant ticket validation terminals.
(2) In May 1996, the Company entered into a one-year agreement with the
Arizona lottery authority to provide on-line and instant ticket
lottery equipment and services. This agreement becomes effective upon
termination of Arizona lottery authority's agreement with its current
supplier, Automated Wagering International, Inc., which it is
anticipated will terminate in fiscal 1997. Subject to such
termination, the agreement calls for the Company to reinstall,
operate and maintain the equipment (including up to 2,500 terminals)
which the Company had supplied under its previous contract with the
Arizona lottery authority. The Company's previous contract commenced
in October 1988 and expired in October 1995. The Company's new
agreement provides for a term of one-year from commencement of sales
under the Company's system and for an indefinite number of 90-day
extensions at the lottery's option.
(3) In addition, the Company is a subcontractor to High Integrity
Systems, Inc. ("HISI"), which has a contract with the California
lottery authority to install and maintain 6,000 terminals using
HISI's proprietary dial-up technology for on-line and instant ticket
sales and validation.
22
<PAGE>
(4) Operated by Lottery Technology Enterprises, a joint venture in which
the Company has a 40% interest.
(5) The Maine, New Hampshire and Vermont lotteries share a central
computer system.
(6) At the end of the current contract term, the Company will be replaced
by a competitor.
(7) Reflects contract awarded to the Company in January 1996. The
Company's current contract with the Missouri lottery authority
commenced in December 1990.
(8) The New Jersey lottery authority selected the Company to provide a
new on-line system upon termination of the present contract. This
award is subject to approval by the New Jersey Department of Treasury
and the negotiation and execution of a contract and is the subject of
a protest by a competitor. See "Business -- Legal Proceedings."
(9) In May 1996, the Company and the Texas lottery authority extended the
term of their agreement for 5 years (from September 1, 1997 through
August 2002) and amended it to provide for the Company to furnish the
Texas lottery authority with a new central system, additional
terminals and other lottery equipment and services. See "Recent
Developments".
(10) The Company plans to commence operations in Washington in June 1996
with approximately 3,000 terminals.
(11) Operated by Racimec, a Brazilian company in which the Company owns
all voting stock. Each of the Brazilian agreements may be extended,
at the option of the respective lottery authority, for one extension
term not to exceed the duration of the base term.
(12) The contract with the Czech Republic lottery authority runs until
seven years after the installation of the 2,500th terminal or three
years after the installation of any terminals after the 3,000th
terminal, whichever is later.
(13) The Company's contract with Ras Eesti Loto provides for an automatic
three-year extension, in certain circumstances, and an indefinite
number of one-year extension options.
(14) The contracts with the lottery authorities of Ireland, Spain (Loto
Catalunya) and Venezuela (Loteria de Oriente and Loteria de Zulia)
may either be extended for any period mutually acceptable to the
Company and the respective lottery authority or continue indefinitely
until termination by the respective lottery authority.
(15) The Company's contract with the Lithuanian lottery authority
automatically extends from year-to- year unless either party gives
timely notice of non-renewal.
(16) Reflects the earliest contract still in effect. The Company has
several additional contracts with the Mexico lottery authority under
which the commencement of the initial five-year term will occur upon
installation of terminals. At the conclusion of the initial term of
each contract, ownership of the lottery system, including all
terminals, will pass to the Mexico lottery authority. To date, title
to approximately 2,500 of the terminals has passed to the Mexico
lottery authority. The Company does not operate the system in Mexico
but does maintain the system.
(17) The expiration date of the Company's contract with the Polish Lottery
authority is seven years from a rolling date that is determined by
reference to the installation of the final terminal under the
contract. The contract's term automatically renews for an indefinite
number of one-year extension periods thereafter unless either party
gives timely notice of non-renewal.
(18) The Company's agreement with SPORTNIKE a.s. expired in July 1995 upon
termination of SPORTNIKE'S license to conduct a lottery in Slovakia.
Since then, the Company has been operating the system for, and in
March 1996 entered into a definitive agreement with, TIPOS a.s., the
current license holder. The Company's contract with TIPOS expires
seven years after the installation of the 1,000th terminal on the
system.
(19) Operated by Camelot Group plc, a consortium in which the Company
holds a 22.5% equity interest, on a facilities management basis. The
Company also sells equipment to Camelot Group plc for use by The
National Lottery.
(20) The Venezuela lottery authorities share the same central computer
system.
23
<PAGE>
OPERATING CONTRACTS
The table below sets forth the lottery authorities with which the Company
had Operating Contracts as of March 9, 1996. Unless otherwise indicated, the
Company is the sole supplier of lottery equipment and services to each of the
lottery authorities listed below. The table also sets forth information
regarding the term of each contract and, as of March 9, 1996, the approximate
number of terminals installed in each jurisdiction.
OPERATING CONTRACTS
<TABLE>
<CAPTION>
APPROXIMATE NO. DATE OF DATE OF
OF LOTTERY COMMENCEMENT EXPIRATION OF CURRENT
TERMINALS OF CURRENT CURRENT EXTENSION
JURISDICTION INSTALLED(1) CONTRACT CONTRACT TERM OPTIONS*
- ------------------------------- --------------- -------------- --------------- ------------
<S> <C> <C> <C> <C>
UNITED STATES:
Idaho .......................... 600 3/90 2/99 1 one-year
Kentucky(2) .................... 2,710 10/89 (2) --
-----
Subtotal ...................... 3,310
INTERNATIONAL:
Argentina
-- Loteria National Sociedad
del Estado ................. 770 11/93 4/01 1 two-year
Denmark
-- Dansk Tipstjanst(3) ........ 2,780 9/95 1/00 --
The Netherlands
-- Stichting de Nationale
Sporttotalisator(5) ........ 2,610 12/91 2/97 (4)
Turkey
-- Turkish National Lottery .. (6) 2/96 (6) (6)
-----
Subtotal ...................... 6,160
-----
Total Terminals Installed ..... 9,470
=====
</TABLE>
- ------------------------
* Reflects extensions available to the lottery authority under the same
terms as the current contract. Lottery authorities occasionally
negotiate extensions on different terms and conditions.
(1) Total does not include instant ticket validation terminals.
(2) The Company's contract with the Kentucky lottery authority runs from
month-to-month through October 15, 1997. In October 1995, the
Kentucky lottery authority awarded to a competitor a new facilities
management contract to supply and maintain on-line lottery equipment
and provide services to the Kentucky lottery authority upon the
expiration of the Company's current Operating Contract.
(3) The Denmark lottery authority has exercised an option to assume
responsibility for the operation and maintenance of the lottery
system.
(4) The contract may either be extended for any period mutually
acceptable to the Company and the lottery authority or continues
indefinitely until termination by the lottery authority.
(5) The Company has entered into a Memorandum of Understanding with CGK
Computer Gesellschaft Konstanz mbH which has the contract with the
Netherlands lottery authority. The Netherlands lottery authority
operates the system and maintains all terminals. The Company performs
all software maintenance, except terminal application maintenance.
The Company also provides spare and repair parts.
(6) The Company's contract with Turkey's National Lottery Administration,
that was entered into in February 1996, provides that the Company
will sell up to 5,000 terminals and will provide comprehensive
services to the lottery authority. The contract terminates five years
after system start-up, currently scheduled for September 1996,
provided that the term of the contract will automatically renew for
successive one-year extension terms unless either party gives timely
notice of non-renewal. In addition, the Turkish lottery authority has
the option to assume responsibility for the provision of certain
lottery services at any time after the second anniversary of system
start-up.
24
<PAGE>
PRODUCT SALES CONTRACTS
The table below lists certain of the Company's direct and indirect
customers that have purchased lottery terminals and other on-line lottery
equipment from the Company since March 1, 1991. The Company has found the
size and timing of product sales often difficult to predict and has
experienced variability in product sales revenues from period to period.
<TABLE>
<CAPTION>
<S> <C>
Argentina -- National Lottery of Argentina
Argentina -- Provincial Lottery of Buenos Aires
Australia -- Lotteries Commission of South
Australia
Australia -- Tattersall Sweep Consultation
Australia -- Lotteries Commission of West
Australia
Austria -- Osterreichische Lotto Toto
Gesmbh
Belgium -- Loterie Nationale de Belgique
Canada -- Atlantic Lottery Corporation
Canada -- British Columbia Lottery
Corporation
Canada -- Ontario Lottery Corporation
Canada -- Western Canada Lottery
Corporation
Canada -- Saskatchewan Gaming Commission
Finland -- Oy Veikkaus AB
Germany -- Sachsiche Lotto-GmbH
Germany -- Lotterie Treuhandgesellschaft Mbh
Thuringen*
Iceland -- Islensk Getspa
Iceland -- Islenskar Getraunir
Malaysia -- Pan Malaysian Pools
Malaysia -- Lotteries Corporation (Sabah) Sdn.
Bhd.
Malaysia -- Sports Toto Malaysia Bhd.
New -- New Zealand Lotteries
Zealand Commission
Singapore -- Singapore Pools (Pte) Ltd.
Spain -- Sistemas Tecnicos de Loterias del
Estado
Sweden -- AB Tipstjanst
Switzerland -- Sport-Toto Gesellschaft
Switzerland -- Loterie de la Suisse Romande
United Kingdom -- The National Lottery
</TABLE>
- -----------------------
* Sale pending
CERTAIN PRODUCTS AND SERVICES
ON-LINE LOTTERY
In recent years, lottery authorities have recognized that by offering new
games or products, the lotteries are able to generate significant additional
revenues. An important part of the Company's strategy is to develop new
products and services for its customers in order to increase their lottery
revenues. The Company's principal on-line lottery products and services
introduced in recent years are keno, instant ticket support services and
BingoVision(Trademark). In addition, the Company has recently introduced its
ISYS(Trademark) series terminal and PRO:SYS(Trademark) software system to
enhance the functionality and appeal of its existing software and terminal
lines.
Keno. While new on-line jurisdictions offer growth by providing access to
new players, more mature markets, such as the United States, rely principally
upon the introduction of new games to provide growth. One such game
introduced by the Company is keno. In keno, players typically choose up to 10
numbers from a field of 80 and attempt to match their numbers against any 20
numbers which are randomly selected by a central computer system.
Alternatively, the player may choose up to 10 numbers and wager that none of
such numbers will match the 20 numbers randomly selected. This game combines
the multiple prize payouts of a lotto-type game with the immediacy of an
instant scratch-off lottery game. It is also unique in its play-style and
distribution, which decreases the risk that the game will cannibalize
existing on-line lottery revenues. Keno is more interactive than typical
on-line lottery games and is designed to be played in the company of others.
While most lotto and numbers games are found in convenience stores and
supermarkets, places visited frequently and often individually, keno outlets
are often located in restaurants, taverns and bowling alleys and other social
settings which tend to be visited by groups of people.
25
<PAGE>
From the Company's introduction in April 1990 of the first on-line keno
game for the Lotteries Commission of South Australia through the end of
fiscal 1995 on February 25, 1995, the Company assisted lottery authorities in
Belgium, Brazil (Parana and Minas Gerais), California, Iceland, Kansas,
Maryland, Oregon, Rhode Island, Catalunya (Spain), Switzerland (La Societe de
la Loterie de la Suisse Romande), West Virginia and Venezuela (Loteria de
Caracas) to introduce on-line keno games. During fiscal 1996, the Company
assisted the New York and Georgia lottery authorities in implementing keno
games. Based on the success of keno in these jurisdictions, the Company
believes keno will be adopted in other jurisdictions in the next few years.
Keno illustrates the impact that new games can have on lottery revenues.
Since the United States introduction of keno in 1991, United States keno
revenues have grown significantly, exceeding $1.3 billion and accounting for
more than 7% of total United States on-line lottery revenues in 1995. The
popularity of keno has led the Company to explore the development of new
games based upon keno. Most notably, the Company has developed Keno
Plus(Trademark), a new product that combines expanded keno game
characteristics with new hardware and enhanced product support.
Instant Ticket Support Services. The Company provides certain products,
systems and services to the instant ticket lottery industry. The Company's
on-line support systems for the instant ticket lottery business provide
comprehensive functionality, including: instant ticket validation; retailer
accounting; inventory control and tracking; ticket stock distribution;
electronic funds transfer; finance and sales tracking reports; and marketing
support.
In order to automate and increase the security of instant ticket
lotteries, the Company developed the GTECH Validation Terminal ("GVT"), a
point-of-sale device that facilitates instant ticket validation and provides
access to the Company's on-line instant ticket support systems for instant
ticket agents who are not part of a lottery's on-line lottery system. The
Company also offers add-on validation terminals which attach to its on-line
lottery terminals and provide the same functionality as the GVT, while using
the existing communications network.
The Company is providing marketing, distribution, on-line validation,
inventory control and accounting support services and equipment (but not the
printing of the instant tickets) for the Texas lottery's instant ticket
games. In addition, the Company currently provides instant ticket support
services to lottery authorities in Colorado, District of Columbia, Georgia,
Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland,
Michigan, Missouri, New Hampshire, New Jersey, New York, Ohio, Oregon, Rhode
Island, Texas and Wisconsin. Internationally, the Company currently supplies
lottery authorities in Australia, Belgium, Chile, Denmark, Finland, Ireland,
Netherlands, New Zealand, Spain and the United Kingdom with instant ticket
support services.
BingoVision(Trademark). The Company has recently developed
BingoVision(Trademark), a televised bingo-based lottery game, in which
players buy tickets from on-line lottery retailers and mark them while
following a live televised draw. The Company has implemented
BingoVision(Trademark) in Estonia, the Czech Republic and Lithuania and is
actively marketing the game to other lottery authorities.
The PRO:SYS(Trademark) Software System. PRO:SYS(Trademark) is the
Company's latest software system. Employing a user friendly interface,
lotteries can use PRO:SYS(Trademark) to manage all aspects of their gaming
environment, including on-line, instant ticket sales and accounting and video
games. Features such as promotions management and information analysis allow
lottery authorities to tailor the system to their individual needs.
PRO:SYS(Trademark) was first installed in September, 1994 for Societe de la
Loterie de la Suisse Romande, Switzerland. Since that time, the Company has
installed PRO:SYS(Trademark) in systems used by the lottery authorities of
Washington, D.C.; Colorado; Idaho; Ontario, Canada; and Sachsische Lotto-GmbH
in Leipzig, Germany and is in the process of installing PRO:SYS(Trademark) in
Washington State, Missouri, Denmark, and Sweden. In addition,
PRO:SYS(Trademark) was used as the base architecture for the electronic
benefits transfer system installed by the Company under its February 1994
contract with the Texas Department of Human Services. See "Benefits Delivery
Systems and Services."
The ISYS(Trademark) Terminal Series. During fiscal 1996, the Company
introduced its ISYS(Trademark) terminal series. ISYS(Trademark) is an
integral, single-unit terminal which features modular subassemblies, high
perfor-
26
<PAGE>
mance ticket printer and playslip reader subassemblies, an easy-to-use
design, and a host of new features and technologies. The Company believes
that ISYS(Trademark) improves upon previous terminal designs by featuring
simplified wager entry via intuitive keyboard and screen formats, improved
system status monitoring and the latest instant ticket validator technology.
BENEFITS DELIVERY SYSTEMS AND SERVICES
The Company in recent years has sought to build upon its expertise in
providing secure, high volume transaction processing systems and services for
governmental authorities through its involvement in the emerging government
benefits delivery industry. Through Transactive, the Company is active in the
business of providing government benefits delivery systems and services. In
October 1995, the Company completed full implementation of a computerized
system for the electronic delivery of food stamps and Aid to Families with
Dependent Children ("AFDC") benefits under its February 1994 contract with
the Texas Department of Human Services. The Texas electronic benefits
delivery system provides food stamps and AFDC benefits to approximately 1.1
million households and is the largest electronic benefits delivery system
currently operating in the United States.
In December 1995, the Company announced that Transactive had been selected
to negotiate a contract to supply equipment and services for an electronic
benefit transfer system to the Illinois Department of Public Aid. Transactive
has subsequently entered into a final contract with the Illinois Department
of Public Aid which contemplates that the system, when fully implemented,
will provide AFDC, food stamp and public assistance benefits to approximately
500,000 households.
The Company acquired a contract to provide an on-line system and services
for the distribution of public assistance funds and food stamps for the Human
Resources Administration of the City of New York ("HRA") in August 1993 as
part of its acquisition of the on-track and off-track parimutuel wagering
business and related assets of General Instrument Corporation that the
Company has recently divested. Transactive will continue to provide this
system and services to HRA through December 31, 1996 and is engaged in
discussions with HRA respecting an extension of this contract. The State of
New York recently declared its conditional intent to award a benefits
delivery contract to a competitor of Transactive. If this award becomes
final, HRA's program of delivering public assistance funds and food stamps
will likely be subsumed within the New York State program, and Transactive's
contract, which is profitable, with HRA will likely terminate as a result.
In July 1995, Transactive entered into an agreement with the Texas Parks
and Wildlife Department to provide an on-line system for the sale of fish and
game licenses and in September 1995, sales of fish and game licenses
commenced on this system. In August 1995, the Company entered into an
agreement with the Idaho lottery and the Idaho Department of Fish and Game
("IDFG") to provide equipment, software and services to permit the sale of
fish and game licenses for the IDFG utilizing, in part, the on-line lottery
system provided by the Company to the Idaho lottery authority.
In addition, during fiscal 1996 Transactive obtained required approvals
from the State of New York of its September 1994 subcontract with Continental
Currency Services, Inc. to provide equipment and related services for the
production and issuance of benefit identification cards. This contract has
not yet been implemented pending determination by the State of New York of
its requirements thereunder.
NON-LOTTERY GAMING PRODUCTS AND SERVICES
In November 1994, the Company announced the formation of its Gaming Group
to pursue gaming opportunities other than on-line lottery including video
lottery and destination gaming. During fiscal 1996, the Company entered into
agreements with Full House to share in the financing and development of
Native American and casino gaming ventures. Operations with respect to one
such venture, a casino in Coos Bay, Oregon, on Native American lands,
featuring approximately 850 video lottery terminals, assorted table games,
bingo and keno, commenced in May 1995. In addition, the Company and Full
House entered into agreements with Delaware State Fair, Inc. and Harrington
Raceway, Inc. in February 1996 to finance and construct a gaming facility at
the Delaware State Fairgrounds, Kent County, Delaware. It is anticipated that
the facility will house approximately 500 video lottery terminals and will
commence operations during fiscal 1997.
27
<PAGE>
The Company's video lottery systems combine the security and integrity of
the Company's traditional on-line lottery systems with entertainment-based
video games. The Company's video lottery systems include a controlling
central computer system, multiple video lottery terminals (which the Company
acquires from third-party manufacturers), the Company's ticket validation
terminals, and a self-diagnostic communications network. Games offered by the
Company's video lottery systems include poker, blackjack, keno and bingo and
other games. The Company entered the video lottery business during fiscal
1991 and currently provides video lottery products to lottery jurisdictions
in Alberta and Saskatchewan, Canada, Oregon and Rhode Island. Currently,
video lotteries are operated or are being implemented or tested in six
jurisdictions in the United States and ten international jurisdictions. There
can be no assurance as to how many jurisdictions will eventually legalize
video lottery systems.
COMMUNICATIONS NETWORK SERVICES
During fiscal 1996, the Company formed its wholly-owned subsidiary, GTECH
Worldserv, Inc., to offer network communications services principally to
private sector customers. This venture, which is in its initial start-up
phase, plans to offer wide area network design, installation, operation and
maintenance services and full local area network administration services,
among other services. GTECH Worldserv, Inc. has entered into contracts with
Xerox Corporation, The Gartner Group and Metropolitan Fiber Systems to
provide network communications and related services.
TOTALIZATOR SYSTEMS
The Company announced in February 1996 that it had completed the
divestiture of its wholly-owned subsidiary, AmTote, to Mudge Acquisitions
Group, Inc. AmTote had conducted the on-track and off-track parimutuel
wagering business that the Company acquired in August 1993 from General
Instrument Corporation. See "The Company."
COMPETITION
The on-line lottery business is highly competitive in both the United
States and internationally. Both in the United States and internationally,
price is an important, but usually not the sole criterion for selection.
Other significant factors that influence the award of lottery contracts are:
the ability to optimize lottery revenues through technical capability and
applications knowledge; the quality, dependability and upgrade capability of
the system; the marketing and gaming experience, financial condition and
reputation of the vendor; and the satisfaction of other requirements and
qualifications that the lottery authority may impose.
In the past year, the lottery authorities of Arizona, Kentucky and
Maryland announced the award of on-line lottery contracts to a competitor of
the Company upon expiration of their then current contracts with the Company.
In June 1995, the Company was selected to provide on-line lottery equipment
and services to the Washington State lottery upon expiration of the lottery
authority's present contract with the same competitor. In May 1996, the
Company entered into a one-year agreement with the Arizona lottery authority
to provide on-line and instant ticket lottery equipment and services, subject
to and effective upon termination of the Arizona lottery authority's contract
with its current supplier.
The Company's competitors in the on-line lottery business (and the number
of on-line lottery jurisdictions currently serviced worldwide by such
competitors) are as follows: Automated Wagering International, Inc. ("AWI"),
a subsidiary of Video Lotteries Technologies, Inc. ("VLT") (7; not counting
Kentucky and Maryland which it is anticipated will be serviced by AWI during
fiscal 1997, and Arizona which, while currently serviced by AWI, is
anticipated will terminate during fiscal 1997); Autotote Corporation (8)
("Autotote") (6 of these on-line jurisdictions are jointly serviced by
Autotote and International des Jeux); International Totalizator Systems, Inc.
(7); International des Jeux (Lotto France) (7) (6 of these on-line
jurisdictions are jointly serviced by Autotote and International des Jeux);
and Essnet/Alcatel (10). Electronic Data Systems Corporation ("EDS") and VLT
are parties to a strategic alliance in which EDS holds a 20% equity interest
in VLT.
The emerging government benefits delivery industry is also highly
competitive. Among the Company's competitors are banking institutions with
access to larger capital resources than the Company
28
<PAGE>
to invest in benefits delivery projects and, in some cases, with existing
automated teller machine infrastructures that can be utilized to deliver
government benefits. The primary competitors of the electronic benefit
transfer operations of the Company's Transactive subsidiary are Citibank EBT
Services, Deluxe Data Systems, Inc., EDS and First Security Processing
Services, Inc.
The Company's Gaming Group faces competition from numerous companies that
seek to finance, develop and manage destination gaming facilities, on and off
of Native American lands, as well as from technology providers. The principal
competitors providing video lottery technology in competition with the
Company include Autotote Systems, Inc., International Game Technology, Inc.,
Spielo Manufacturing, Inc., Video Lottery Technologies, Inc. and WMS Gaming,
Inc., some of which have supplied substantially more systems and terminals
than the Company.
LEGAL PROCEEDINGS
At the end of May 1994, several shareholder class action lawsuits were
brought against the Company and various of its executive officers (Messrs.
Snowden, Markowicz and Breakstone) in the U.S. District Court of Rhode Island
relating to the Company's May 25, 1994 announcement that earnings for its
1995 fiscal year could be at or below fiscal 1994 levels. On September 23,
1994, the plaintiffs in these actions filed an Amended Consolidated Class
Action Complaint which generally alleged that the defendants violated federal
securities laws in disseminating materially false and misleading statements
about the Company's prospects and failing to disclose on a timely basis the
fact that fiscal 1995 earnings were expected to be less than allegedly
anticipated by the public. The complaint sought to recover monetary damages
from the Company and the individual defendants. This complaint was eventually
dismissed for failing sufficiently to state a meritorious claim; and on May
23, 1995, the plaintiffs filed a Second Consolidated Amended Class Action
Complaint making essentially similar allegations. On June 9, 1995, the
Company announced that, in order to avoid the costs and disruptions of
further proceedings, it had reached a settlement of this lawsuit. Under the
terms of the settlement, which is subject to approval by The Federal District
Court of Rhode Island and several other contingencies, the Company and its
insurer have agreed to pay an aggregate of $1,250,000 in full settlement of
all claims against the Company and the other defendants.
A recent notice of intent to award a contract to the Company by the New
Jersey lottery authority has been challenged by a competitor of the Company.
On March 8, 1996, AWI filed an administrative protest of the intended
contract award to the Company with the Director of the state agency that
awarded the contract. AWI alleged that (i) there are questions regarding the
Company's integrity which will impair public confidence in the lottery and
(ii) the Company's proposal materially deviated from the requirements of the
request for proposals and, therefore, the Company's bid should be rejected.
On May 31, 1996, the hearing officer issued his Findings and Decision
respecting this administrative protest to the Director of the New Jersey
Department of Treasury Division of Purchase and Property, finding, in
essence, no merit to AWI's protest. The Director of the New Jersey Department
of Treasury Division of Purchase and Property, who has the authority to award
the contract, has not yet made an award of the contract. The Company believes
that the claims raised by AWI are without merit and intends to vigorously
oppose AWI's claims if there are any further proceedings in this matter.
The Company also is subject to certain other legal proceedings and claims.
See "Risk Factors -- Maintenance of Business Relationships and Certain Legal
Matters." Although it is not possible to determine the eventual outcome or
financial impact of these other proceedings and claims at this stage,
management believes, on the basis of information presently available to it,
that the disposition of these matters will not materially adversely affect
the Company's consolidated financial position or results of operations.
29
<PAGE>
DIRECTORS AND OFFICERS
The following table sets forth as of June 11, 1996, certain information
concerning the directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE OCCUPATION
- ---------------------- ----- --------------------------------------------------------------
<S> <C> <C>
Guy B. Snowden 50 Director, Co-Chairman, Chief Executive Officer and Member of
the Executive Operating Committee of the Company. Mr.
Snowden's present term of office as Director expires in 1998.
Mr. Snowden was a co-founder of GTECH and has been its Chief
Executive Officer since its inception in 1980. He served as
Chairman from 1987 to 1990 and was President from 1981 to 1987
and 1989 through December 1994. Mr. Snowden is a director of
Bugaboo Creek Steak House, Inc.
Victor Markowicz 51 Director, Co-Chairman and Member of the Executive Operating
Committee of the Company. Mr. Markowicz has been a Director
since GTECH's inception in 1980. His present term of office as
Director expires in 1996. Mr. Markowicz was a co-founder of
GTECH and served as Vice Chairman from 1987 to 1990, Senior
Vice President from 1988 to 1989 and Executive Vice President
and Secretary from 1981 to 1988.
Michael R. Chambrello 38 Vice President -- U.S. Operations, of the Company since 1991
and Member of the Executive Operating Committee of the Company
since December 1994. Prior to this, Mr. Chambrello served in
various positions since joining the Company in 1982.
Joel J. Cohen 58 Director of the Company since 1992. Mr. Cohen's present term
of office as Director expires in 1997. Mr. Cohen has been
Managing Director, Investment Banking Division, of Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJSC") since
October 1989. Previously, Mr. Cohen was a consultant from
February 1988 until October 1989; a Partner of Davis Polk &
Wardwell, attorneys, from 1969 until September 1987; and
General Counsel, Presidential Task Force on Market Mechanisms,
from November 1987 through January 1988. Mr. Cohen is also a
director of The Chubb Corporation, Maersk, Inc. and Maersk
Line, Limited.
Robert M. Dewey, Jr. 64 Director of the Company since 1995. Mr. Dewey's present term
of office as Director expires in 1998. Mr. Dewey is Chairman
of Autranet, Inc., a wholly-owned subsidiary of Donaldson,
Lufkin & Jenrette, Inc. ("DLJ"), an investment banking firm.
Mr. Dewey was Managing Director, Institutional Equities
Division, of DLJSC from 1983 through 1995.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
NAME AGE OCCUPATION
- ---------------------- ----- --------------------------------------------------------------
<S> <C> <C>
Burnett W. Donoho 56 Director of the Company since 1992 and from May 1990 to June
1991. Mr. Donoho's present term of office as Director expires
in 1997. Mr. Donoho has been a self-employed Retail Consultant
since December 1994. Previously, Mr. Donoho was the Vice
Chairman and Chief Operating Officer of Macy's East, a
division of R. H. Macy & Co., Inc., a department store chain,
from July 1992 until December 1994; Mr. Donoho was a member of
Ernst & Young's Great Lakes Management Consulting Group from
June 1991 to June 1992; consultant to the superintendent of
the Chicago Public Schools from November 1990 to May 1991; and
President of Marshall Field and Co., a department store chain,
from 1984 to June 1990. In January 1992, R. H. Macy & Co.,
Inc. filed a petition for protection under Chapter 11 of the
Federal bankruptcy laws. Mr. Donoho is also a director of
OfficeMax, Inc.
Carl H. Freyer 57 Director of the Company since May 1990 and from 1983 to
February 1990. Mr. Freyer's present term of office as Director
expires in 1996. Mr. Freyer is President of the investment
management firms of Freyer Corporation and Freyer Capital
Management, and has been Vice President of the investment
management firm of Caribbean Basin Capital Consultants, Inc.
since its organization February 1992.
Carl B. Menges 65 Director of the Company since 1992. Mr. Menges' present term
of office as Director expires in 1996. Mr. Menges is Vice
Chairman of DLJ and was formerly Managing Director and
Chairman, Financial Services Group, of DLJSC. Mr. Menges is
Chairman of Wood, Struthers & Winthrop, the investment
management division of DLJ; and Chairman of the Winthrop Focus
Funds.
The Rt. Hon. Lord 58 Director of the Company since 1992. Lord Moore's present term
Moore of office as Director expires in 1998. Lord Moore has been the
of Lower Marsh European Chairman and a director of The Monitor Company, a
strategic consulting company, since October 1990. Previously,
Lord Moore held various ministerial posts in the Government of
the United Kingdom, most recently as Secretary of State for
Social Security from July 1988 to July 1989 and as Secretary
of State for Health and Social Security from 1987 to 1988.
Lord Moore is also the Chairman and a director of Credit
Suisse Investment Management Group Limited, Credit Suisse
Investment Management Limited and Credit Suisse Asset
Management Limited; a director of BEA Associates, Inc., Blue
Circle Industries plc, CS First Boston Australia Investment
Management Limited, Marvin & Palmer Inc., Rolls-Royce plc, The
Central European Growth Fund plc and Camelot Holdings Limited;
a member of the supervisory board of ITT Automotive Europe
Gmbh; and the President of Energy Savings Trust Ltd., a
not-for-profit energy conservation organization.
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
NAME AGE OCCUPATION
- ---------------------- ----- --------------------------------------------------------------
<S> <C> <C>
William Y. O'Connor 52 Director of the Company since 1995. Mr. O'Connor's present
term of office as Director expires in 1997. Mr. O'Connor has
been President, Chief Operating Officer and Member of the
Executive Operating Committee of the Company since December
1994. Previously, Mr. O'Connor was the President and Chief
Executive Officer of Ascom Timeplex, a telecommunications
company, from 1992 to 1994, and prior to that was Corporate
Senior Vice President and President of the Broadband
Communications Group of Scientific Atlanta, Inc. from 1987 to
1992.
Thomas J. Sauser 52 Senior Vice President, Treasurer and Chief Financial Officer
of the Company and member of the Executive Operating Committee
since February 1, 1996. Mr. Sauser was Chief Financial Officer
and Senior Vice President of EG&G, Inc., a provider of
scientific equipment systems and services, from 1994 through
1995. Prior to this, Mr. Sauser was employed by IBM
Corporation where, from 1991 to 1994, he was Assistant General
Manager and Vice President, Finance.
</TABLE>
- ------------
Except as otherwise noted, the named individuals have had the occupations
indicated (other than directorships) for at least five years. The indicated
employment and directorship histories with the Company for periods prior to
the acquisition of GTECH Corporation by the Company in February 1990 refer to
positions held with GTECH Corporation. The Company was formed in 1989 for the
purpose of making such acquisition.
32
<PAGE>
VOTING AGREEMENTS
The Company and certain of its stockholders are parties to a Stockholders
Agreement dated as of July 20, 1992, as amended (the "Stockholders
Agreement"), which provides, among other things, for the nomination of and
voting for directors of the Company. The principal parties to voting
provisions of this agreement are: (i) Donaldson, Lufkin & Jenrette Capital
Corporation ("DLJCC"), a subsidiary of DLJ, and related persons (other than
the employees or former employees of DLJSC); (ii) Messrs. Snowden, Markowicz
and the certain other members of management of the Company; and (iii) Norwest
Bank Fort Wayne, N.A. (formerly known as Lincoln National Bank and Trust
Company of Fort Wayne), as trustee (the "Voting Trustee") under the Second
Amended and Restated Voting Trust Agreement, dated as of July 29, 1992 (the
"Voting Trust Agreement"), pursuant to which DLJCC and related persons have
deposited all of their shares of Common Stock in excess of 5% of the
Company's outstanding Common Stock. See "Principal and Selling Stockholders."
The applicable voting provisions of the Stockholders Agreement require
that each of the parties subject to such provisions who hold shares of voting
stock of the Company vote for the election to the Board of Directors of the
Company of the following individuals: (i) three individuals nominated by
DLJCC; (ii) three individuals nominated from among and by the management of
the Company; (iii) one individual nominated by the Voting Trustee; and (iv)
two individuals who are not affiliated with any of the current principal
stockholders.
The Voting Trustee has the sole power and discretion to act as and to
exercise the rights and powers of a shareholder with respect to the shares in
the Voting Trust, except that DLJCC and related persons are entitled to
receive dividends, distributions and payments in respect of their shares of
Common Stock held by the Voting Trustee, if and when the same are paid by the
Company (except that shares of Common Stock issued as a dividend,
distribution or other payment of the shares held by the Voting Trustee will
also be subject to the Voting Trust Agreement). The address of the Voting
Trustee is P.O. Box 2363, Fort Wayne, Indiana 46801.
Upon the successful consummation of the Offerings, the Voting Trust
Agreement and the voting provisions of the Stockholders Agreement will
terminate.
DIRECTOR AND MANAGEMENT CHANGES
It is anticipated that, assuming successful completion of the Offerings,
Messrs. Cohen, Dewey and Menges, the three directors nominated by DLJCC, will
resign from the Company's Board of Directors not later than the date of the
Company's 1996 Annual Meeting of stockholders (which has not yet been
scheduled). The future composition of the Board has not been determined but
is currently under consideration by the recently appointed Nominating
Committee of the Board consisting of Messrs. Snowden, Donoho and Moore.
It is not contemplated that there will be any significant changes in
management as a result of the Offerings. However, for some time the Company
has been making efforts to add to the strength of its management team and to
provide a source of qualified executives who can ultimately succeed to top
management positions. Toward this end, the Company hired Mr. O'Connor in late
1994 as President and Chief Operating Officer with the mutual contemplation
that he would, in time, become Chief Executive Officer, and Mr. O'Connor's
employment agreement provides that he is entitled to resign with specified
pay and benefits if he is not made Chief Executive Officer by December 1996.
33
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table provides, to the best of the Company's knowledge,
information as of April 23, 1996 and as adjusted to reflect the sale of
Common Stock offered hereby, as to the ownership of Common Stock by (i) each
director and executive officer of the Company and all directors and executive
officers as a group, (ii) each person who is believed by the Company to be
the beneficial owner of more than 5% of the Company's Common Stock based upon
the Company's records, and (iii) the principal Selling Stockholders.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OFFERINGS OWNED AFTER OFFERINGS(1)
------------------------ ------------------------
NUMBER OF % OF SHARES BEING NUMBER OF % OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES CLASS OFFERED(1) SHARES CLASS
- ----------------------------------------- --------------- ------- -------------- --------------- -------
<S> <C> <C> <C> <C> <C>
DLJCC and related persons ................ 9,730,783(2) 22.6% 8,700,750 1,030,033 2.4%
277 Park Avenue
New York, New York 10172
Tiger Management Corporation ............. 6,694,330 15.5 -- 6,694,330 15.5
101 Park Avenue
New York, New York 10178
Firstar Investment Research & Management
Co. ..................................... 2,461,200(3) 5.7 -- 2,461,200(3) 5.7
777 East Wisconsin Avenue,
Suite 1800
Milwaukee, Wisconsin 53202
Guy B. Snowden ........................... 1,560,423(4) 3.6 549,767 1,010,656 2.3 Co-Chairman and
Chief Executive Officer
Victor Markowicz ......................... 1,563,516(5) 3.6 549,768 1,013,748 2.4
Co-Chairman
Michael L. Chambrello .................... 15,000(6) * 2,188 12,812(6) *
Vice President
Joel J. Cohen ............................ 7,081(7) * 6,691 390 *
Director
Robert M. Dewey, Jr. ..................... 20,635(8) * -- 20,635(8) *
Director
Burnett W. Donoho ........................ 3,000 * -- 3,000 *
Director
Carl H. Freyer ........................... -- -- --
Director
Carl B. Menges ........................... 28,322(9) * 26,762 1,560 *
Director
The Rt. Hon. Lord Moore .................. 4,500 * -- 4,500 *
Director
William Y. O'Connor ...................... 54,250(10) * -- 54,250(10) *
Director, President & Chief Operating
Officer
Thomas J. Sauser ......................... -- -- --
Senior Vice President, Treasurer
and Chief Financial Officer
Other present and former employees of the
Company, who own less than 1% of the
class as a group, and none of whom is
selling more than 35% of his or her
shares (11 persons)(11) ................. 10,148 * 3,527 6,621 *
All directors and executive officers as a
group (11 persons) ...................... 3,256,727(12) 7.6 1,135,176 2,121,551(12) 4.9
</TABLE>
- ---------------------------
* less than 1%
(1) Assumes no exercise of the U.S. Underwriters' over-allotment option.
In the event such option is exercised in full, the Selling
Stockholders will sell up to an additional 980,957 shares.
(2) Includes shares beneficially owned by DLJCC and related persons as
follows: 5,751,442 shares by DLJCC; 258,700 shares by DLJSC; 165,953
shares by The Equitable Life Assurance Society of the United States
("Equitable Life"); 34,338 shares by Equitable Variable Life
Insurance Company ("Equitable Variable"); 1,092,500 shares by four of
The Sprout Group funds; and 2,427,850 shares held by DLJSC as
Custodian for the benefit of approximately 170 employees of DLJSC and
its affiliates (including Joel J. Cohen, Robert M. Dewey, Jr. and
Carl B. Menges, directors of the Company), none of whom holds as much
as 1% of the outstanding Common Stock, which shares were acquired
pursuant to certain DLJSC employee compensation arrangements. An
aggregate of 8,292,067 of the above shares are held in the Voting
Trust under the control of an independent Voting Trustee who holds
and exercises voting rights associated with such shares. See
"Directors and Officers
34
<PAGE>
-- Voting Agreements" DLJCC and DLJSC are both indirectly
majority-owned subsidiaries of The Equitable Companies Incorporated
("EQ"). Equitable Life is a wholly-owned subsidiary of EQ and
Equitable Variable is a wholly-owned subsidiary of Equitable Life.
The address of Equitable Life and Equitable Variable is 787 Seventh
Avenue, New York, New York 10019. The Sprout Group is a division of
DLJCC. AXA, a French holding company located at 23 Avenue Matignon,
75008 Paris, France, currently holds approximately 60.7% of
outstanding common stock as well as certain convertible preferred
stock of EQ. DLJCC disclaims beneficial ownership of the shares held
by Equitable Life and Equitable Variable and by the employees and
former employees of DLJSC. The Sprout Funds consist of four venture
capital funds under common control: Sprout Capital VI, L.P., Sprout
Growth, L.P., Sprout Growth, Ltd. and DLJ Venture Capital Fund II,
L.P. Excludes an aggregate of 25,000 shares held by DLJSC, as
nominee, 5,700 shares held by Alliance Capital Management L.P., a
majority-owned subsidiary of Equitable Life and 3,000 shares held by
Wood, Struthers & Winthrop Management Corp., a wholly-owned
subsidiary of DLJSC. These 33,700 shares are not being sold pursuant
to this prospectus. Certain employees of DLJSC who own an aggregate
of approximately 522,981 shares of Common Stock will not be Selling
Stockholders, however, such employees have agreed not to offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock
for a period of 90 days from the date of this Prospectus. See
"Underwriting."
(3) Includes 135,600 shares as to which Firstar Corporation shares voting
and dispositive power.
(4) Includes 89,619 shares held by five trusts established by Mr. Snowden
for the benefit of family members as to which he disclaims beneficial
ownership.
(5) Includes 607,645 shares held by a trust established by Mr. Markowicz
for the benefit of family members as to which he disclaims beneficial
ownership.
(6) Including 8,750 shares subject to vested but unexercised stock
options awarded under the Company's 1994 Stock Option Plan.
(7) Mr. Cohen is a Managing Director of DLJSC. The share ownership of Mr.
Cohen reflected in the table above consists of shares acquired
pursuant to the DLJSC employee compensation arrangements referred to
in footnote (2) above but does not otherwise include any of the
shares included in the table above as beneficially owned by DLJCC and
related persons (other than shares held for the benefit of Mr.
Cohen), as to which Mr. Cohen disclaims beneficial ownership.
(8) Mr. Dewey is Chairman of Autranet, Inc., a wholly-owned subsidiary of
Donaldson, Lufkin & Jenrette, Inc. The share ownership of Mr. Dewey
reflected in the table above consists of shares acquired pursuant to
the DLJSC employee compensation arrangements referred to in footnote
(2) above but does not otherwise include any of the shares included
in the table above as beneficially owned by DLJCC and related persons
(other than shares held for the benefit of Mr. Dewey), as to which
Mr. Dewey disclaims beneficial ownership.
(9) Mr. Menges is a Managing Director of DLJSC and Vice Chairman of
Donaldson, Lufkin & Jenrette, Inc. The share ownership of Mr. Menges
reflected in the table above consists of shares acquired pursuant to
the DLJSC employee compensation arrangements referred to in footnote
(2) above but does not otherwise include any of the shares included
in the table above as beneficially owned by DLJCC and related persons
(other than shares held for the benefit of Mr. Menges), as to which
Mr. Menges disclaims beneficial ownership.
(10) Includes 53,000 shares subject to vested but unexercised stock
options awarded under the Company's 1994 Stock Option Plan.
(11) Details with respect to such parties are included in an exhibit to
the Registration Statement of which this Prospectus forms a part.
(12) Excludes shares included in the table above for DLJCC and related
persons other than Messrs. Cohen, Dewey and Menges. Also excludes
approximately 13,750 shares subject to unvested awards under the
Company's stock benefit plans, and 600,250 shares subject to unvested
stock options awarded under the Company's 1994 Stock Option Plan.
35
<PAGE>
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
The authorized capital stock of the Company consists of 150,000,000 shares
of Common Stock, par value $.01 per share, and 20,000,000 shares of preferred
stock, par value $.01 per share. As of June 1, 1996, 43,054,212 shares of
Common Stock and no shares of such preferred stock were outstanding.
The holders of the Company's Common Stock are entitled to one vote per
share for each share held of record on all matters submitted to a vote of
stockholders. Subject to preferential rights with respect to any series of
preferred stock that may be issued, holders of the Company's Common Stock are
entitled to receive ratably such dividends as may be declared by the Board of
Directors on the Company's Common Stock out of funds legally available
therefor, and in the event of a liquidation, dissolution or winding-up of the
affairs of the Company, are entitled to share equally and ratably in all
assets and funds of the Company remaining after satisfaction of the Company's
liabilities. The holders of the Company's Common Stock have no preemptive
rights, cumulative voting rights, or rights to convert shares of the
Company's Common Stock into any other securities and are not subject to
future calls or assessments by the Company. All outstanding shares of the
Company's Common Stock are fully paid and nonassessable by the Company.
The Certificate of Incorporation provides for a classified Board of
Directors consisting of three classes as nearly equal in size as the then
authorized number of directors constituting the Board of Directors permits.
At each annual meeting of stockholders, the class of directors to be elected
at such meeting will be elected for a three-year term and the directors in
the other two classes will continue in office. Each class shall hold office
until the date of the third annual meeting for the election of directors
following the annual meeting at which such director was elected, except that
the initial terms of directors elected to fill vacancies in the Board of
Directors may be less than three years. As a result, one-third of the Board
of Directors will be elected each year. Moreover, under the Delaware General
Corporation Law (and the Company's Certificate of Incorporation and By-laws),
in the case of a corporation having a classified board, stockholders may
remove a director only for cause. This provision, when coupled with the
provision of the By-laws authorizing the Board of Directors to fill vacant
directorships, precludes a stockholder from removing incumbent directors
without cause and simultaneously gaining control of the Board of Directors by
filling the vacancies created by such removal with its own nominees.
The Board of Directors has the authority to issue preferred stock in one
or more classes or series and to fix the voting powers, preferences and
relative participating, optional or other special rights of such preferred
stock, without any further vote or action by the stockholders. The ability of
the Board of Directors to issue preferred stock, while providing flexibility
in connection with possible acquisitions and other corporate purposes, could
adversely affect the voting power of the holders of the Common Stock and
could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from acquiring, control of the
Company. The Company has no present plans to issue any of the preferred
stock.
The Bank of New York is the transfer agent and register for the Company's
Common Stock.
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-U.S. HOLDERS OF COMMON STOCK
The following discussion concerns certain United States federal income and
estate tax consequences of the ownership and disposition of Common Stock
applicable to Non-U.S. Holders of such Common Stock. For the purposes of this
discussion, a "Non-U.S. Holder" is any person or entity that, for United
States federal income tax purposes, is a non-resident alien individual, a
foreign corporation, a foreign partnership or non-resident fiduciary of a
foreign estate or trust. The discussion is based on current law which is
subject to change, does not address all aspects of federal income and estate
taxation that may be relevant to such Non-U.S. Holders in light of their
particular circumstances, and does not deal with foreign, state and local tax
consequences. Accordingly, prospective investors are urged to consult their
tax advisors regarding the United States federal, state, local and non-U.S.
income and other tax consequences of holding and disposing of shares of
Common Stock.
36
<PAGE>
Proposed United States Treasury Regulations were issued on April 15, 1996
(the "Proposed Regulations") which, if adopted, would affect the United
States taxation of dividends paid to a Non-U.S. Holder on Common Stock. The
Proposed Regulations are generally proposed to be effective with respect to
dividends paid after December 31, 1997, subject to certain transition rules.
The discussion below is not intended to be a complete discussion of the
provisions of the Proposed Regulations, and prospective investors are urged
to consult their tax advisors with respect to the effect the Proposed
Regulations would have if adopted.
Dividends. The Company does not currently intend to pay dividends on
shares of Common Stock. See "Price Range of Common Stock and Dividend
Policy." In the event that such dividends are paid to a Non-U.S. Holder, such
Holder will be subject to United States withholding tax at a 30% rate (or any
lower rate specified by an applicable tax treaty) unless the dividends are
either (a) effectively connected with a trade or business carried on by the
Non-U.S. Holder within the United States or (b) if a tax treaty applies,
attributable to a United States permanent establishment maintained by the
Non-U.S. Holder. Dividends effectively connected with such a trade or
business or attributable to such a permanent establishment will not be
subject to withholding if the Non-U.S. Holder files Form 4224 with the payor
of the dividend and will be subject to United States federal income tax at
the same rates applicable to U.S. Holders. In the case of a Non-U.S. Holder
that is a corporation, such effectively connected income also may be subject
to the branch profits tax at a rate of 30% (or any lower rate specified by an
applicable tax treaty). To determine the applicability of a tax treaty
providing for a lower rate of withholding, dividends paid to an address in a
foreign country are presumed under current Treasury regulations to be paid to
a resident of that country, absent knowledge that such presumption is not
warranted.
Under the Proposed Regulations, to obtain a reduced rate of withholding
under a treaty, a Non-U.S. Holder would generally be required to provide an
Internal Revenue Service Form W-8 certifying such Non-U.S. Holder's
entitlement to benefits under a treaty. The Proposed Regulations would also
provide special rules to determine whether, for purposes of determining the
applicability of a tax treaty, dividends paid to a Non-U.S. Holder that is an
entity should be treated as paid to the entity or those holding an interest
in that entity.
A Non-U.S. Holder eligible for a reduced rate of United States withholding
tax pursuant to a tax treaty may obtain a refund of any excess amounts
withheld by filing an appropriate claim for refund.
Sale of Common Stock. Generally, a Non-U.S. Holder will not be subject to
United States federal income tax on any gain realized upon the disposition of
his Common Stock unless (i) the Company is or has been a "U.S. real property
holding corporation" for federal income tax purposes (which the Company is
not and does not believe that it is likely to become) and, provided the
Common Stock is "regularly traded on an established securities market"
(within the meaning of the relevant provisions of the Code), the Non-U.S.
Holder held, directly or indirectly at any time during the five-year period
ending on the date of disposition, more than 5% of the Common Stock; (ii) the
gain is effectively connected with a trade or business carried on by the
Non-U.S. Holder within the United States or, if a tax treaty applies,
attributable to a permanent establishment maintained by the Non-U.S. Holder
in the United States; (iii) the Non-U.S. Holder is an individual who holds
the Common Stock as a capital asset and is present in the United States for
183 days or more in the taxable year of the disposition and certain other
conditions are met; or (iv) the Non-U.S. Holder is subject to tax pursuant to
the provisions of U.S. tax law applicable to certain United States
expatriates.
Estate Tax. Common Stock owned or treated as owned by an individual
Non-U.S. Holder at the time of death will be includible in such Holder's
gross estate for United States federal estate tax purposes, unless an
applicable tax treaty provides otherwise, and may be subject to United States
federal estate tax.
Backup Withholding and Information Reporting. The Company must report
annually to the Internal Revenue Service and to each Non-U.S. Holder the
amount of dividends paid to, and the tax withheld with respect to, each
Non-U.S. Holder. These reporting requirements apply regardless of whether
withholding was reduced or eliminated by an applicable tax treaty. Copies of
these information returns also may be made available under the provisions of
a specific treaty or agreement to the tax authorities in the country in which
the Non-U.S. Holder resides. United States back-up withholding tax
37
<PAGE>
(which generally is a withholding tax imposed at a rate of 31% on certain
payments to persons that fail to furnish the information required under the
United States information reporting requirements) will generally not apply to
dividends paid on Common Stock to a Non-U.S. Holder at an address outside the
United States.
The payment of the proceeds from the disposition of Common Stock to or
through the United States office of a broker will be subject to information
reporting and backup withholding unless the owner certifies, among other
things, its name, address and status as a Non-U.S. Holder, or otherwise
establishes an exemption. The payment of the proceeds from the disposition of
Common Stock to or through a non-U.S. broker will not be subject to backup
withholding and will generally not be subject to information reporting.
Unless the broker has documentary evidence in its files that the owner is a
Non- U.S. Holder, information reporting (but not backup withholding) will
apply, however, to a disposition through (i) a non-U.S. office of a U.S.
broker and (ii) a non-U.S. office of a non-U.S. broker that is either a
"controlled foreign corporation" for United States federal income tax
purposes or a person 50% or more of whose gross income from all sources for a
certain three-year period was effectively connected with a United States
trade or business.
The Proposed Regulations would, if adopted, alter the foregoing rules in
certain respects. Among other things, the Proposed Regulations would provide
certain presumptions under which a Non-U.S. Holder would be subject to backup
withholding and information reporting unless the Company receives
certification of non-U.S. status from the holder.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the U.S.
Internal Revenue Service.
38
<PAGE>
UNDERWRITING
Subject to certain conditions contained in the Underwriting Agreement, the
United States underwriters named below (the "U.S. Underwriters") and the
international managers named below (the "International Managers") (the U.S.
Underwriters and International Managers being hereinafter collectively
referred to as the "Underwriters") have severally agreed to purchase from the
Selling Stockholders 9,806,000 shares of Common Stock, of which 7,844,800
shares of Common Stock are being purchased by the U.S. Underwriters and
1,961,200 shares of Common Stock are being purchased by the International
Managers. The number of shares of Common Stock that each Underwriter has
agreed to purchase is set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITERS U.S. SHARES
- -------------------------------------------------------- -----------------
<S> <C> <C>
Donaldson, Lufkin & Jenrette Securities Corporation ....
Merrill Lynch, Pierce, Fenner & Smith Incorporated .....
Salomon Brothers Inc ....................................
U.S. Offering Subtotal ................................. 7,844,800
-----------------
NUMBER OF
INTERNATIONAL
INTERNATIONAL MANAGERS SHARES
- -------------------------------------------------------- -----------------
Donaldson, Lufkin & Jenrette Securities Corporation ....
Merrill Lynch International .............................
Salomon Brothers International Limited ..................
International Offering Subtotal ......................... 1,961,200
-----------------
Total ................................................. 9,806,000
=================
</TABLE>
The Underwriting Agreement provides that the several Underwriters will be
obligated to purchase all of the shares of Common Stock offered hereby (other
than the shares covered by the over-allotment option described below) if any
are purchased. The consummation of the U.S. and International Offerings are
contingent upon one another.
The Company and the Selling Stockholders have been advised by the
Underwriters that the Underwriters propose to offer the shares of Common
Stock to the public initially at the Price to the Public set forth on the
cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of $ per share; that the Underwriters may allow,
and such dealers may reallow, a discount of not in excess of $ per share
on sales to other dealers; and that the Price to the Public, concessions and
discounts to dealers may be changed by the Underwriters after the public
offering. The Underwriters will not confirm sales to accounts over which they
exercise discretionary authority without the prior written approval of the
customer.
The U.S. Underwriters have been granted an option, exercisable for 30 days
from the date of this Prospectus, to purchase up to 980,957 additional shares
of Common Stock from the Selling Stockholders at the initial Price to the
Public less underwriting discounts and commissions. The U.S. Underwriters may
exercise such right of purchase only for the purpose of covering
over-allotments, if any, incurred in connection with the sale of the shares
of Common Stock offered hereby. To the extent that the U.S. Underwriters
exercise such options, each of the U.S. Underwriters will become obligated,
subject to certain conditions, to purchase the same proportion of such
additional shares as the number of other shares to be purchased by that U.S.
Underwriter bears to the total number of shares being sold in the U.S.
Offerings on the same terms as those on which all shares are being sold in
the Offerings.
39
<PAGE>
In the Underwriting Agreement, the Company, the Selling Stockholders and
the Underwriters have agreed to indemnify each other against certain
liabilities under the Act.
The Company, all Selling Stockholders and certain other stockholders of
the Company have agreed not to offer, sell, contract to sell, or otherwise
dispose of any shares of Common Stock (other than in the Offerings) or any
securities convertible into or exchangeable for Common Stock for a period of
90 days from the date of this Prospectus without the prior written consent of
a majority of the U.S. Underwriters, subject to certain limited exceptions.
Affiliates of DLJSC own shares of Common Stock and are Selling
Stockholders in the Offerings. In addition, Joel J. Cohen and Carl B. Menges,
Managing Directors of DLJSC and Robert M. Dewey, Jr., formerly a Management
Director of DLJSC, were nominated as Directors of the Company pursuant to the
Stockholders Agreement. See "Directors and Officers." The provisions of
Schedule E to the by-laws of the National Association of Securities Dealers,
Inc. apply to the Offerings because DLJSC is deemed to be an affiliate of the
Company for purposes of Schedule E.
Pursuant to the Agreement between U.S. Underwriters and International
Managers dated the date hereof (the "Agreement Between"), each U.S.
Underwriter has agreed that, as part of the distribution of the Common Stock,
(i) it is not purchasing any Common Stock for the account of anyone other
than a United States or Canadian Person (as defined below) and (ii) it has
not offered or sold, and will not offer or sell, directly or indirectly, any
Common Stock or distribute this Prospectus outside the United States and
Canada or to anyone other than a United States or Canadian Person. Each
International Manager has agreed that, as part of the distribution of the
Common Stock (i) it is not purchasing any Common Stock for the account of any
United States or Canadian Person and (ii) it has not offered or sold, and
will not offer or sell, directly or indirectly, any Common Stock or
distribute this Prospectus in the United States or Canada or to any United
States or Canadian Person. The foregoing limitations do not apply to
stabilization transactions, to certain other transactions among the
International Managers and the U.S. Underwriters pursuant to the Agreement
Between or to purchases, offers or sales by a U.S. Underwriter who is also
acting as an International Manager or by an International Manager who is also
acting as a U.S. Underwriter. As used in this section, "United States" means
the United States of America, its territories, its possessions and all areas
subject to its jurisdiction and "United States or Canadian Person" means any
national or resident of the United States or Canada or any corporation,
pension, profit sharing or other trust or other entity organized under or
governed by the laws of the United States or Canada or of any political
subdivision thereof (other than a branch located outside the United States or
Canada of any United States or Canadian Person), and includes any United
States or Canadian branch of a person other than a United States or Canadian
Person.
Pursuant to the Agreement Between, sales may be made among the
International Managers and the U.S. Underwriters of such number of shares of
Common Stock to be purchased pursuant to the Underwriting Agreement as may be
mutually agreed. Unless otherwise agreed among the Underwriters, the price of
any shares so sold shall be the initial offering price less an amount not
greater than the selling concession and the currency of payment shall be U.S.
dollars.
Pursuant to the Agreement Between, each U.S. Underwriter has represented
that it has not offered or sold, and has agreed not to offer or sell any
Common Stock, directly or indirectly, in Canada in contravention of the
securities laws of Canada or any province or territory thereof and, without
limiting the generality of the foregoing, represents that any offer of shares
in Canada will be made only pursuant to an exemption from the requirement to
file a prospectus in the province or territory of Canada in which such offer
is made. Each U.S. Underwriter has further agreed to send to any dealer who
purchases from it any Common Stock a notice stating in substance that, by
purchasing Common Stock, such dealer represents and agrees that it has not
offered or sold and will not offer or sell, directly or indirectly, any such
Common Stock in Canada or to, or for the benefit of, any resident of Canada
in contravention of the securities laws of Canada or any province or
territory thereof and that any offer of Shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province of Canada in which such offer is made and that such dealer will
deliver to any other dealer to whom it sells any of such Common Stock a
notice to the foregoing effect.
40
<PAGE>
Pursuant to the Agreement Between, each International Manager has
represented and agreed that (i) it has not offered or sold and that it will
not offer or sell any shares of Common Stock in the United Kingdom by means
of any document (other than in circumstances which do not constitute an offer
to the public within the meaning of the Companies Act 1985 of Great Britain),
(ii) has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in relation
to the shares of Common Stock, in, from or otherwise involving the United
Kingdom, and (iii) it has only issued or passed on and will only issue or
pass on to any person in the United Kingdom any document received by it in
connection with the proposed offer or sale of the shares of Common Stock,
other than any document which consists of or forms part of listing
particulars, supplementary listing particulars or any other document required
or permitted to be published by listing rules under Part IV of the Financial
Services Act 1986, if that person is of a kind described in Article 8 of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) (No. 2)
Order 1995 or is a person to whom such document may otherwise lawfully be
issued or passed on.
LEGAL MATTERS
Drinker Biddle & Reath, Philadelphia, Pennsylvania, counsel for the
Company, will render an opinion as to the validity of the shares offered
hereby. Certain legal matters in connection with the Offerings will be passed
upon for the Underwriters by Davis Polk & Wardwell.
EXPERTS
The consolidated financial statements and schedule appearing in GTECH
Holdings Corporation's Annual Report (Form 10-K) for the fiscal year ended
February 24, 1996 have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and
incorporated herein by reference, which as to the fiscal years ended February
24, 1996, and February 25, 1995, is based in part on the reports of Price
Waterhouse, independent auditors, dated April 9, 1996, with respect to the
consolidated financial statements of Camelot Group plc as of February 3,
1996, and February 4, 1995, and for the year ended February 3, 1996, and for
the period from April 1, 1994, through February 4, 1995; and dated March 29,
1995, with respect to the financial statements of Racimec Informatica
Brasileira, S.A. as of and for the year ended February 28, 1995. The
consolidated financial statements and schedule of GTECH Holdings Corporation
referred to above are incorporated herein and in the Registration Statement
by reference in reliance upon such reports given upon the authority of such
firms as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC") relating to its business,
financial statements and other matters. Reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549-1004
and at the regional offices of the SEC located at 7 World Trade Center, New
York, N.Y. 10048, and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials may be obtained
from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549-1004. Such material may also be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov. Such material can also be inspected at the offices of the
New York Stock Exchange, 20 Broad Street, New York, New York 10005, on which
the Common Stock is listed.
The Company has filed with the SEC a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), for the
registration of the Common Stock offered hereby. This Prospectus omits
certain information contained in the Registration Statement, and reference is
made to the Registration Statement and the exhibits and schedules thereto for
further information with respect to the Company and the Common Stock to which
this Prospectus relates. Statements contained herein concerning the
provisions of any documents are not necessarily complete, and, in each
instance, reference is made to the copy of such document filed as an exhibit
to the Registration Statement. Each such statement is qualified in its
entirety by such reference.
41
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The following documents heretofore filed by the Company under the Exchange
Act with the Commission are incorporated herein by reference: (i) the
Company's Registration Statement on Form 8-A dated July 2, 1992; (ii) the
Company's Annual Report on Form 10-K for the year ended February 24, 1996, as
amended by Form 10-K/A filed on June 12, 1996; and (iii) the Company's
Current Report on Form 8-K filed on June 10, 1996.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the Offerings shall be deemed to be incorporated
by reference herein and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as
so modified or superseded, to constitute a part of this Prospectus.
The Company will provide, upon written or oral request, without charge to
each person to whom this Prospectus has been delivered a copy of any or all
of the documents referred to above which have been or may be incorporated by
reference herein other than exhibits to such documents (unless such exhibits
are specifically incorporated by reference therein). Requests for such copies
should be directed to GTECH Holdings Corporation, Investor Relations
Department, 55 Technology Way, West Greenwich,Rhode Island 02817, telephone
number (401) 392-4899.
42
<PAGE>
- ---------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, ANY SELLING STOCKHOLDER, ANY UNDERWRITER OR ANY OTHER PERSON. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO OR
SOLICITATION OF ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION SET FORTH HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary ......................... 3
Risk Factors ............................... 6
Recent Developments ........................ 9
Use of Proceeds ............................ 9
Price Range of Common Stock and Dividend
Policy ..................................... 10
Capitalization ............................. 11
Selected Consolidated Financial Data ...... 12
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................ 13
Business ................................... 20
Directors and Officers ..................... 30
Principal and Selling Stockholders ........ 34
Description of Capital Stock of the
Company ................................... 36
Certain United States Federal Tax
Consequences to Non-U.S. Holders of
Common Stock .............................. 36
Underwriting ............................... 39
Legal Matters .............................. 41
Experts .................................... 41
Available Information ...................... 41
Documents Incorporated by Reference ....... 42
</TABLE>
- ---------------------------------------------------------------------------
<PAGE>
- ---------------------------------------------------------------------------
9,806,000 SHARES
[GTECH LOGO]
GTECH HOLDINGS CORPORATION
COMMON STOCK
--------------
PROSPECTUS
--------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
, 1996
- ---------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES
LAWS OF ANY SUCH JURISDICTION.
SUBJECT TO COMPLETION, DATED JUNE 14, 1996
INTERNATIONAL PROSPECTUS
PROSPECTUS
, 1996
9,806,000 SHARES
GTECH HOLDINGS CORPORATION
COMMON STOCK
Of the 9,806,000 shares of Common Stock offered hereby, 1,961,200 shares
are being offered for sale outside the United States and Canada by the
International Managers (the "International Offering") and 7,844,800 shares
are being offered for sale in the United States and Canada in a concurrent
offering by the U.S. Underwriters (the "U.S. Offering" and, together with the
International Offering, the "Offerings"). See "Underwriting."
All of the shares offered hereby are being sold by the Selling
Stockholders. See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale of shares offered hereby.
The Company's Common Stock is listed on the New York Stock Exchange
("NYSE") under the symbol "GTK." The reported closing price of the Company's
Common Stock on the NYSE on June 13, 1996 was $30.25 per share. See "Price
Range of Common Stock and Dividend Policy."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO THE
PRICE TO DISCOUNTS AND SELLING
THE PUBLIC COMMISSIONS(1) STOCKHOLDERS(2)
- -------------- ----------- ----------------- -----------------
<S> <C> <C> <C>
Per Share ..... $ $ $
Total(3) ...... $ $ $
</TABLE>
(1) See "Underwriting" for information relating to indemnification of the
Underwriters.
(2) The Company has agreed to pay certain expenses of the Selling
Stockholders estimated at $575,000.
(3) The Selling Stockholders have granted to the U.S. Underwriters a 30-day
option to purchase up to an additional 980,957 shares of Common Stock
in the aggregate solely to cover over-allotments, if any. If all such
shares are purchased, the total Price to the Public, Underwriting
Discounts and Commissions and Proceeds to the Selling Stockholders will
be $ , $ and $ , respectively. See "Underwriting."
The shares are offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters and subject to various prior
conditions, including the right of the Underwriters to reject orders in whole
or in part. It is expected that delivery of the shares will be made in New
York, New York, on or about ,1996.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH INTERNATIONAL
SALOMON BROTHERS INTERNATIONAL LIMITED
<PAGE>
INTERNATIONAL PROSPECTUS
UNDERWRITING
Subject to certain conditions contained in the Underwriting Agreement, the
international managers named below (the "International Managers") and the
United States underwriters named below (the "U.S. Underwriters") (the U.S.
Underwriters and International Managers being hereinafter collectively
referred to as the "Underwriters") have severally agreed to purchase from the
Selling Stockholders 9,806,000 shares of Common Stock, of which 1,961,200
shares of Common Stock are being purchased by the International Managers and
7,844,800 shares of Common Stock are being purchased by the U.S.
Underwriters. The number of shares of Common Stock that each Underwriter has
agreed to purchase is set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL
INTERNATIONAL MANAGERS SHARES
- -------------------------------------------------------- -----------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation ....
Merrill Lynch International .............................
Salomon Brothers International Limited ..................
International Offering Subtotal ......................... 1,961,200
-----------------
NUMBER OF U.S.
U.S. UNDERWRITERS SHARES
- -------------------------------------------------------- -----------------
Donaldson, Lufkin & Jenrette Securities Corporation ....
Merrill Lynch, Pierce, Fenner & Smith Incorporated .....
Salomon Brothers Inc ....................................
U.S. Offering Subtotal .................................. 7,844,800
-----------------
Total ................................................. 9,806,000
=================
</TABLE>
The Underwriting Agreement provides that the several Underwriters will be
obligated to purchase all of the shares of Common Stock offered hereby (other
than the shares covered by the over-allotment option described below) if any
are purchased. The consummation of the U.S. and International Offerings are
contingent upon one another.
The Company and the Selling Stockholders have been advised by the
Underwriters that the Underwriters propose to offer the shares of Common
Stock to the public initially at the Price to the Public set forth on the
cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of $ per share; that the Underwriters may allow,
and such dealers may reallow, a discount of not in excess of $ per share
on sales to other dealers; and that the Price to the Public, concessions and
discounts to dealers may be changed by the Underwriters after the public
offering. The Underwriters will not confirm sales to accounts over which they
exercise discretionary authority without the prior written approval of the
customer.
The U.S. Underwriters have been granted an option, exercisable for 30 days
from the date of this Prospectus, to purchase up to 980,957 additional shares
of Common Stock from the Selling Stockholders at the initial Price to the
Public less underwriting discounts and commissions. The U.S. Underwriters may
exercise such right of purchase only for the purpose of covering
over-allotments, if any, incurred in connection with the sale of the shares
of Common Stock offered hereby. To the extent that the U.S. Underwriters
exercise such option, each of the U.S. Underwriters will become obligated,
subject to certain conditions, to purchase the same proportion of such
additional shares as the number of other shares to be purchased by that U.S.
Underwriter bears to the total number of shares being sold in the U.S.
Offerings on the same terms as those on which all shares are being sold in
the Offerings.
38
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, ANY SELLING STOCKHOLDER, ANY UNDERWRITER OR ANY OTHER PERSON. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO OR
SOLICITATION OF ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION SET FORTH HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary ......................... 3
Risk Factors ............................... 6
Recent Developments ........................ 9
Use of Proceeds ............................ 9
Price Range of Common Stock and Dividend
Policy ..................................... 10
Capitalization ............................. 11
Selected Consolidated Financial Data ...... 12
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................ 13
Business ................................... 20
Directors and Officers ..................... 30
Principal and Selling Stockholders ........ 34
Description of Capital Stock of the
Company ................................... 36
Certain United States Federal Tax
Consequences to Non-U.S. Holders of
Common Stock .............................. 36
Underwriting ............................... 39
Legal Matters .............................. 41
Experts .................................... 41
Available Information ...................... 41
Documents Incorporated by Reference ....... 42
</TABLE>
<PAGE>
INTERNATIONAL PROSPECTUS
9,806,000 SHARES
#############################################################################
GRAPHIC OMITTED
#############################################################################
GTECH HOLDINGS CORPORATION
COMMON STOCK
--------------
PROSPECTUS
--------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH
INTERNATIONAL
SALOMON BROTHERS
INTERNATIONAL LIMITED
, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses payable by the Registrant in
connection with this Registration Statement. All of such expenses are
estimates, other than the filing fees payable to the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc. The
Registrant is bearing the expenses of the Selling Stockholders in connection
with the Offerings, other than underwriting discounts and commissions:
<TABLE>
<CAPTION>
<S> <C>
FILING FEE -- SECURITIES AND EXCHANGE COMMISSION ............ $119,358
Filing Fee -- National Association of Securities Dealers,
Inc. ........................................................ 30,500
Fees and Expenses of Accountants ............................. 70,000
Fees and Expenses of Counsel ................................. 150,000
Printing Expenses ............................................ 155,000
Blue Sky Fees and Expenses ................................... 20,000
Miscellaneous Expenses ....................................... 30,142
----------
Total ...................................................... 575,000
==========
</TABLE>
- ------------
* To be completed.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant is a Delaware corporation. Reference is made to Section
102(b)(7) of the Delaware General Corporation Law the ("DGCL"), which enables
a corporation in its original certificate of incorporation or an amendment
thereto to eliminate or limit the personal liability of a director to the
Company or its stockholders for monetary damages for a breach of the
director's fiduciary duty, except (i) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) pursuant to Section 174 of the DGCL (providing for
liability of directors for unlawful payment of dividends or unlawful stock
purchases or redemptions) or (iv) for any transaction from which a director
derived an improper personal benefit. The Registrant's Certificate of
Incorporation, as amended, contains such a limitation on the personal
liability of directors.
Reference also is made to Section 145 of the DGCL, which provides that a
corporation may indemnify any persons, including officers and directors, who
were or are, or are threatened to be made, parties to any threatened, pending
or completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
such corporation), by reason of the fact that such person was an officer,
director, employee or agent of such corporation or is or was serving at the
request of such corporation as an officer, director, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise.
The indemnity may include expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding, provided such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests and, for criminal
proceedings, had no reasonable cause to believe that his conduct was
unlawful. A Delaware corporation may indemnify officers and directors in an
action by or in the right of the corporation under the same conditions,
except that no indemnification is permitted without judicial approval if the
officer or director is adjudged to be liable to the corporation. Where an
officer or director is successful on the merits or otherwise in the defense
of any action referred to above, the corporation must indemnify him against
the expenses that such officer or director actually and reasonably incurred.
The Registrant's Amended and Restated Bylaws provide that the Registrant
shall indemnify, to the full extent permitted under Delaware law, any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
II-1
<PAGE>
administrative or investigative, by reason of the fact that he is or was a
director or officer of the Registrant or while a director or officer of the
Registrant is or was serving at the request of the Registrant as a director
or officer of another corporation, partnership, joint venture, trust employee
benefit plan or other enterprise.
The directors and officers of the Company also are parties to
indemnification agreements with the Company providing for indemnification for
liabilities (including expenses) incurred in any legal proceedings in
connection with their present or past status as directors or officers of the
Company. The Company maintains directors' and officers' liability insurance
against claims made in the aggregate amount of $25,000,000 per occurrence
with an annual aggregate deductible of $500,000.
The Company agreed to indemnify DLJCC and its affiliates against
liabilities arising in connection with the acquisition, completed in February
1990, of GTECH Corporation in a leveraged buy-out (the "Acquisition"), the
financing of the Acquisition, and the July 1992, December 1992 and November
1993 public offerings and the Offerings. The Company, the Selling
Stockholders and the Underwriters also have agreed to indemnify each other
against certain liabilities under the Act.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
<S> <C>
1.1 Form of Underwriting Agreement.
4.1 Restated Certificate of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3.1 to the Form S-1 of the
Company and GTECH Registration No. 33-31867).
4.2 Certificate of Amendment to the Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 3.2 to the Form S-1 of
the Company, Registration No. 33-48264).
4.3 Amended and Restated By-Laws of the Company.*
5.1 Opinion of Drinker Biddle & Reath.
10.1 Second Amendment dated May 28, 1996 to the Contract for the Texas
Lottery Operator for the State of Texas.
23.1 Consent of Ernst & Young LLP.
23.2 Consents of Price Waterhouse.
23.4 Consent of Drinker Biddle & Reath (contained in Exhibit 5.1 above).
24.1 Powers of Attorney.*
99.1 Supplementary list of present and former Company employees who are
selling shareholders.
</TABLE>
- ------------
* Previously filed.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) as asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been
II-2
<PAGE>
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
THE UNDERSIGNED REGISTRANT HEREBY UNDERTAKES:
1. That for purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) under
the Act shall be deemed to be part of the registration statement as of the
time it was declared effective.
2. That for purposes of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
3. That for purposes of determining any liability under the Act, each
filing of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Exchange Act (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Exchange Act)
that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
4. To deliver or cause to be delivered with the Prospectus, to each person
to whom the Prospectus is sent or given, the latest annual report to security
holders that is incorporated by reference in the Prospectus and furnished
pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under
the Exchange Act, and, where interim financial information required to be
presented by Article 3 of Regulation S-X are not set forth in the Prospectus,
to deliver, or cause to be delivered to each person to whom the Prospectus is
sent or given, the latest quarterly report that is specifically incorporated
by reference in the Prospectus to provide such interim financial information.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, hereunto duly
authorized in the Town of West Greenwich, State of Rhode Island on the 14th
day of June, 1996.
GTECH HOLDINGS CORPORATION
By: /s/ William Y. O'Connor
----------------------------------------
Name: William Y. O'Connor
Title: President and Chief Operating
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
*
- ---------------------------- Director, Co-Chairman, Chief Executive June 14, 1996
Guy B. Snowden Officer (principal executive officer)
/s/William Y. O'Connor
- ---------------------------- Director, President & Chief Operating June 14, 1996
William Y. O'Connor Officer
/s/Thomas J. Sauser
- ---------------------------- Senior Vice President & Chief Financial June 14, 1996
Thomas J. Sauser Officer (principal financial officer)
*
- ---------------------------- Vice President and Corporate Controller June 14, 1996
Robert J. Plourde (principal accounting officer)
*
- ---------------------------- June 14, 1996
Victor Markowicz Director, Co-Chairman
*
- ---------------------------- June 14, 1996
Joel J. Cohen Director
II-4
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
*
- ---------------------------- June 14, 1996
Robert M. Dewey, Jr. Director
*
- ---------------------------- June 14, 1996
Burnett W. Donoho Director
*
- ---------------------------- June 14, 1996
Carl H. Freyer Director
*
- ---------------------------- June 14, 1996
Carl B. Menges Director
*
- ---------------------------- June 14, 1996
</TABLE>
The Rt. Hon. Lord Moore Director
*By: /s/ William Y. O'Connor
-----------------------
Name: William Y. O'Connor
Attorney-in-fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- --------
<S> <C> <C>
1.1 Form of Underwriting Agreement.
4.1 Restated Certificate of Incorporation of the Company, as amended (incorporated by
reference to Exhibit 3.1 to the Form S-1 of the Company and GTECH Registration
No. 33- 31867).
4.2 Certificate of Amendment to the Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.2 to the Form S-1 of the Company,
Registration No. 33-48264).
4.3 Amended and Restated By-Laws of the Company.*
5.1 Opinion of Drinker Biddle & Reath.
10.1 Second Amendment dated May 28, 1996 to the Contract for the Texas Lottery
Operator for the State of Texas.
23.1 Consent of Ernst & Young LLP.
23.2 Consents of Price Waterhouse.
23.4 Consent of Drinker Biddle & Reath (contained in Exhibit 5.1 above).
24.1 Powers of Attorney.*
99.1 Supplementary list of present and former Company employees who are selling
shareholders.
</TABLE>
- ------------
* Previously filed.
EXECUTION COPY
[ ] Shares
GTECH HOLDINGS CORPORATION
Common Stock
Underwriting Agreement
June , 1996
<PAGE>
[ ] Shares
GTECH HOLDINGS CORPORATION
Common Stock
UNDERWRITING AGREEMENT
June , 1996
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
SALOMON BROTHERS INC
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH INTERNATIONAL
SALOMON BROTHERS INTERNATIONAL LIMITED
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
Certain stockholders of GTECH Holdings Corporation, a Delaware
Corporation (the "Company"), named in Schedule III hereto (the "Selling
Stockholders" or the "Sellers") severally propose to sell to the several
Underwriters (as defined below) an aggregate of [ ] shares of Common Stock,
par value $.01 ("Common Stock") of the Company. The [ ] shares of Common
Stock to be sold by the Selling Stockholders are hereinafter called the Firm
Shares.
It is understood that, subject to the conditions hereinafter stated,
[ ] Firm Shares (the "U.S. Firm Shares") will be sold to Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJSC"), Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Salomon Brothers Inc as representatives of the
Underwriters named in Schedule I hereto (the "U.S. Underwriters") in
connection with the offering and sale of such U.S. Firm Shares in the United
States and Canada to
<PAGE>
United States and Canadian Persons (as such terms are defined in the Agreement
Between U.S. Underwriters and International Managers of even date herewith),
and [ ] Firm Shares (the "International Shares") will be sold to DLJSC,
Merrill Lynch International and Salomon Brothers International Limited as
representatives of the international managers named in Schedule II hereto (the
"International Managers") in connection with the offering and sale of such
International Shares outside the United States and Canada to persons other
than United States and Canadian Persons. The U.S. Underwriters and the
International Managers are hereinafter collectively referred to as the
Underwriters.
The Selling Stockholders also propose to sell to the several U.S.
Underwriters not more than an additional [ ] shares of Common Stock (the
"Additional Shares"), if requested by the U.S. Underwriters as provided in
Section 2 hereof. The Firm Shares and the Additional Shares are herein
collectively called the Shares.
1. Registration Statement and Prospectus. The Company has prepared
and filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively called
the "Act"), a registration statement on Form S-3 including a prospectus
relating to the Shares, which may be amended. The registration statement
contains two prospectuses to be used in connection with the offering and sale
of the Shares: the U.S. prospectus, to be used in connection with the offering
and sale of Shares in the United States and Canada to United States and
Canadian Persons, and the international prospectus, to be used in connection
with the offering and sale of Shares outside the United States and Canada to
persons other than United States and Canadian Persons. The international
prospectus is identical to the U.S. prospectus except for the outside front
and back cover pages and the first page of "Underwriting". The registration
statement as amended at the time when it becomes effective, including
information (if any) deemed to be part of the registration statement at the
time of effectiveness pursuant to Rule 430A under the Act, is hereinafter
referred to as the Registration Statement; and the U.S. prospectus and the
international prospectus in the respective forms first used to confirm sales
of Shares are hereinafter referred to as the Prospectus (including, in the
case of all references to the Registration Statement and the Prospectus,
documents incorporated therein by reference). If the Company has filed an
abbreviated registration statement to register additional shares of Common
Stock pursuant to Rule 462(b) under the
2
<PAGE>
Securities Act (the "Rule 462 Registration Statement"), then any reference
herein to the term Registration Statement shall be deemed to include such Rule
462 Registration Statement. Capitalized terms used but not defined in this
Agreement are used as defined in the Prospectus.
2. Agreements to Sell and Purchase. On the basis of the
representations and warranties contained in this Agreement, and subject to its
terms and conditions, each Selling Stockholder, severally and not jointly,
hereby agrees to sell to the several U.S. Underwriters the number of Firm
Shares that bears the same proportion to the number of shares set forth
opposite such Selling Stockholder's name in Schedule III hereto as the number
of U.S. Firm Shares bears to the total number of Shares, and each of the U.S.
Underwriters agrees, severally and not jointly, to purchase from such Selling
Stockholder at a price per share of $[ ] (the "Purchase Price"), the
respective number of U.S. Firm Shares (subject to such adjustments to
eliminate fractional shares as the U.S. Underwriters may determine) that bears
the same proportion to the number of U.S. Firm Shares to be sold by such
Selling Stockholder as the number of Firm Shares set forth in Schedule I
hereto opposite the name of such U.S. Underwriter bears to the total number of
Firm Shares set forth opposite the names of all U.S. Underwriters in Schedule
I hereto.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, each Selling Stockholder,
severally and not jointly, hereby agrees to sell to the several International
Managers the number of Firm Shares that bears the same proportion to the
number of shares set forth opposite such Selling Stockholder's name in
Schedule III hereto as the number of International Firm Shares bears to the
total number of Shares, and each of the International Managers agrees,
severally and not jointly, to purchase from such Selling Stockholder at the
Purchase Price the respective number of International Firm Shares (subject to
such adjustments to eliminate fractional shares as the International Managers
may determine) that bears the same proportion to the number of International
Firm Shares to be sold by such Selling Stockholder as the number of Firm
Shares set forth in Schedule II hereto opposite the name of such International
Manager bears to the total number of Firm Shares set forth opposite the names
of all International Managers in Schedule II hereto.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, (i) each Selling
Stockholder agrees, severally and
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not jointly, to sell to the U.S. Underwriters up to the number of Additional
Shares, if any, set forth opposite such Selling Stockholder's name in Schedule
III and (ii) the U.S. Underwriters shall have a one-time right to purchase,
severally and not jointly, up to [ ] Additional Shares from the Selling
Stockholders at the Purchase Price. Additional Shares may be purchased solely
for the purpose of covering over-allotments made in connection with the
offering of the Firm Shares. The U.S. Underwriters may exercise their right to
purchase any Additional Shares by giving written notice thereof to the Company
and DLJ Capital Corporation at any time within 30 days after the date of this
Agreement. The U.S. Underwriters shall give such notice and the notice shall
specify the aggregate number of Additional Shares to be purchased and the date
for payment and delivery thereof. The date specified in the notice shall be a
business day (i) no earlier than the Closing Date (as hereinafter defined) and
(ii) no later than ten business days after such notice has been given. If any
Additional Shares are to be purchased, (i) each Selling Stockholder agrees,
severally and not jointly, to sell the number of Additional Shares (subject to
such adjustments to eliminate fractional shares as the U.S. Underwriters shall
determine) which bears the same proportion to the total number of Additional
Shares set forth opposite such Selling Stockholder's name in Schedule III as
the total number of Additional Shares to be purchased bears to the total
number of Additional Shares set forth in Schedule III provided, however, that if
fewer than all of the Additional Shares are to be purchased, such Additional
Shares shall be purchased, first, proportionately from those Selling
Stockholders designated on Schedule III as "Management Selling Stockholders" up
to the maximum number of Additional Shares set forth opposite such Selling
Stockholder's name in Schedule III before any Additional Shares are purchased
from the other Selling Stockholders, and (ii) each U.S. Underwriter, severally
and not jointly, agrees to purchase from the Selling Stockholders the number of
Additional Shares (subject to such adjustments to eliminate fractional shares as
the U.S. Underwriters may determine) which bears the same proportion to the
total number of Additional Shares to be purchased from the Selling Stockholders
as the number of Firm Shares set forth opposite the name of such Underwriter in
Schedule I bears to the total number
of U.S. Firm Shares.
The Company hereby agrees not to offer, sell, contract to sell, grant
any option to purchase, or otherwise dispose of any Common Stock of the
Company or any securities convertible into or exercisable or exchangeable for
such Common Stock (except to the Underwriters pursuant to this Agreement), nor
to file a Registration Statement for a period of 90 days after the date of the
Prospectus without the prior written consent of a majority of the U.S.
Underwriters. Notwithstanding the foregoing, during such period the Company
may grant stock awards or issue stock pursuant to the Company's existing
employee and director stock plans, and the Company may file a Registration
Statement on Form S-8 with respect to the additional shares authorized for
issuance under
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its 1994 Stock Option Plan at the 1995 Annual Meeting of stockholders.
3. Terms of Public Offering. The Company and the Sellers are
advised by you that the Underwriters propose (i) to make a public offering of
their respective portions of the Shares as soon after the effective date of
the Registration Statement as in your judgment is advisable and (ii) initially
to offer the Shares upon the terms set forth in the Prospectus.
Each U.S. Underwriter hereby makes to and with the Company the
representations and agreements of such U.S. Underwriter contained in the fifth
paragraph of Section 3 of the Agreement Between U.S. Underwriters and
International Managers of even date herewith. Each International Manager
hereby makes to and with the Company the representations and agreements of
such International Underwriter contained in the seventh, eighth, ninth and
tenth paragraphs of Section 3 of such Agreement.
4. Delivery and Payment. Delivery to the Underwriters of and
payment for the Firm Shares shall be made at 10:00 A.M., New York City time,
on the third business day (the "Closing Date") following the date of the
initial public offering, at such place as you shall designate. The Closing
Date and the location of delivery of and the form of payment for the Firm
Shares may be varied by agreement among the U.S. Underwriters, the Company and
DLJ Capital Corporation.
Delivery to the Underwriters of and payment for any Additional Shares
to be purchased by the Underwriters shall be made at such place as the U.S.
Underwriters shall designate at 10:00 A.M., New York City time, on the date
specified in the exercise notice given by you pursuant to Section 2 (the
"Option Closing Date"). The Option Closing Date and the location of delivery
of and the form of payment for the Additional Shares may be varied by
agreement among the U.S. Underwriters, the Company and DLJ Capital
Corporation.
Certificates for the Shares shall be registered in such names and
issued in such denominations as you shall request in writing not later than
two full business days prior to the Closing Date or the Option Closing Date,
as the case may be. Such certificates shall be made available to you for
inspection not later than 9:30 A.M., New York City time, on the business day
next preceding the Closing Date or the Option Closing Date, as the case may
be. Certificates in definitive form evidencing the Shares shall be delivered
to you on the Closing Date or the Option Closing Date, as the case may be,
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<PAGE>
with any transfer taxes thereon duly paid by the respective Sellers, for the
respective accounts of the several Underwriters, against payment of the
Purchase Price therefor by certified or official bank checks payable in New
York Clearing House funds to the order of the applicable Sellers.
5. Agreements of the Company. The Company agrees with you:
(a) If necessary or advisable, to file (i) an amendment to the
registration statement relating to the Shares or (ii) a post-effective
amendment to the Registration Statement pursuant to Rule 430A under the
Act, as soon as practicable after the execution and delivery of this
Agreement and to use its best efforts to cause the registration statement
(as so amended, if applicable) or such post-effective amendment to become
effective at the earliest possible time.
(b) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) when the Registration Statement has become
effective and when any post-effective amendment to it becomes effective,
(ii) of any request by the Commission for amendments to the Registration
Statement or amendments or supplements to the Prospectus or for
additional information, (iii) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or
of the suspension of qualification of the Shares for offering or sale in
any jurisdiction, or the initiation of any proceeding for such purposes,
and (iv) of the happening of any event during the period referred to in
paragraph (e) below which makes any statement of a material fact made in
the Registration Statement or the Prospectus untrue or which requires the
making of any additions to or changes in the Registration Statement or
the Prospectus in order to make the statements therein not misleading. If
at any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, the Company will make every
reasonable effort to obtain the withdrawal or lifting of such order at
the earliest possible time.
(c) To furnish to you, without charge, three signed copies of the
Registration Statement as first filed with the Commission and of each
amendment to it, including all exhibits thereto and documents
incorporated by reference therein, and to furnish to you and each
Underwriter designated by you such number of conformed copies of the
Registration Statement as so filed and of each amendment
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<PAGE>
to it, without exhibits thereto and documents incorporated by reference
therein, as you may reasonably request. The terms "supplement" and
"amendment" or "amend" as used in this Agreement shall include all
documents subsequently filed by the Company with the Commission pursuant
to the Securities Exchange Act of 1934, as amended, (the "Exchange Act")
that are deemed to be incorporated by reference in the Prospectus.
(d) Not to file any amendment or supplement to the Registration
Statement, whether before or after the time when it becomes effective,
or, during the period specified in paragraph (e), to make any amendment
or supplement to the Prospectus of which you shall not previously have
been advised or to which you shall reasonably and promptly object; and to
prepare and file with the Commission, promptly upon your reasonable
request, any amendment to the Registration Statement or supplement to the
Prospectus which may be necessary or advisable in connection with the
distribution of the Shares by you, and to use its best efforts to cause
the same to become promptly effective.
(e) Promptly after the Registration Statement becomes effective, and
from time to time thereafter for such period as in the opinion of counsel
for the Underwriters a prospectus is required by law to be delivered in
connection with sales by an Underwriter or a dealer, to furnish to each
Underwriter and dealer as many copies of the Prospectus (and of any
amendment or supplement to the Prospectus) as such Underwriter or dealer
may reasonably request.
(f) If during the period specified in paragraph (e) any event shall
occur as a result of which, in the opinion of counsel for the
Underwriters it becomes necessary to amend or supplement the Prospectus
in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not
misleading, or if it is necessary to amend or supplement the Prospectus
to comply with any law, forthwith to prepare and file with the Commission
an appropriate amendment or supplement to the Prospectus so that the
statements in the Prospectus, as so amended or supplemented, will not in
the light of the circumstances when it is so delivered, be misleading, or
so that the Prospectus will comply with law, and to furnish to each
Underwriter and to such dealers as you shall specify, such number of
copies thereof as such Underwriter or dealers may reasonably request.
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(g) Prior to any public offering of the Shares, to cooperate with you
and counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several
Underwriters and by dealers under the state securities or Blue Sky laws
of such jurisdictions as you may reasonably request, to continue such
qualification in effect so long as reasonably required for distribution
of the Shares and to file such consents to service of process or other
documents as may be necessary in order to effect such registration or
qualification; provided that the Company shall not be required to
register or qualify as a foreign corporation or to take any action which
would subject it to the service of process in suits, other than as to
matters and transactions relating to the offer and sale of the
Securities, in any jurisdiction where it is not now so subject.
(h) To mail and make generally available to its stockholders as soon
as reasonably practicable an earnings statement covering a period of at
least twelve months after the effective date of the Registration
Statement (but in no event commencing later than 90 days after such date)
which shall satisfy the provisions of Section 11(a) of the Act and Rule
158 promulgated thereunder, and to advise you in writing when such
statement has been so made available.
(i) During the period of five years after the date of this Agreement,
(i) to mail as soon as reasonably practicable after the end of each
fiscal year to the record holders of its Common Stock a financial report
of the Company and its subsidiaries on a consolidated basis (and a
similar financial report of all unconsolidated subsidiaries, if any), all
such financial reports to include a consolidated balance sheet, a
consolidated statement of operations, a consolidated statement of cash
flows and a consolidated statement of shareholders' equity as of the end
of and for such fiscal year, together with comparable information as of
the end of and for the preceding year, certified by independent certified
public accountants, and (ii) to mail and make generally available as soon
as practicable after the end of each quarterly period (except for the
last quarterly period of each fiscal year) to such holders, consolidated
condensed financial statements (and similar financial reports of all
unconsolidated subsidiaries, if any) as of the end of and for such
period, and for the period from the beginning of such year to the close of
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<PAGE>
such quarterly period, together with comparable information for the
corresponding periods of the preceding year.
(j) During the period referred to in paragraph (i), to furnish to you
as soon as available a copy of each report or other publicly available
information of the Company mailed to the holders of Common Stock or filed
with the Commission and such other publicly available information
concerning the Company and its subsidiaries as you may reasonably
request.
(k) To pay all costs, expenses, fees and taxes incident to (i) the
preparation, printing, filing and distribution under the Act of the
Registration Statement (including financial statements and exhibits),
each preliminary prospectus and all amendments and supplements to any of
them prior to or during the period specified in paragraph (e), (ii) the
printing and delivery of the Prospectus and all amendments or supplements
to it during the period specified in paragraph (e), (iii) the printing
and delivery of this Agreement, the Agreement Among International
Managers, the Agreement between U.S. Underwriters and International
Managers, the International Dealer Agreement, the Preliminary and
Supplemental Blue Sky Memoranda and all other agreements, memoranda,
correspondence and other documents printed and delivered in connection
with the offering of the Shares (including in each case any disbursements
of counsel for the Underwriters relating to such printing and delivery),
(iv) the registration or qualification of the Shares for offer and sale
under the securities or Blue Sky laws of the several states (including in
each case the reasonable fees and disbursements of counsel for the
Underwriters relating to such registration or qualification and memoranda
relating thereto), (v) filings and clearance with the National
Association of Securities Dealers, Inc. in connection with the offering
(including the reasonable fees and disbursements of your counsel relating
to such clearance), (vi) any listing of the shares on the New York Stock
Exchange (the "NYSE"), (vii) furnishing such copies of the Registration
Statement, the Prospectus and all amendments and supplements thereto as
may be requested for use in connection with the offering or sale of the
Shares by the Underwriters or by dealers to whom Shares may be sold and
(viii) the performance by the Company and the Sellers of their other
obligations under this Agreement; provided that nothing herein shall
affect the rights and obligations as between the Company and the
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Selling Stockholders with respect to such costs, expenses, fees and
taxes.
(l) To use its best efforts, subject to its good faith reasonable
business judgment, to maintain the listing of the Shares on the NYSE for
a period of five years from the date hereof.
(m) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company
prior to the Closing Date or the Option Closing Date, as the case may be,
and to satisfy all conditions precedent to the delivery of the Shares.
(n) From and after the date the Registration Statement becomes
effective, if requested by DLJSC and if in the written opinion of your
counsel and for such period of time as in the opinion of your counsel a
prospectus is required by law to be delivered in connection with market
making activities of DLJSC or any of its affiliates (as defined in the
rules and regulations under the Act), the Company will (i) periodically
amend the Registration Statement so that the information contained in the
Registration Statement complies with the requirements of Section 10(a) of
the Act, (ii) amend the Registration Statement or supplement the
Prospectus when necessary to reflect any material changes in the
information provided therein, (iii) provide DLJSC and its affiliates with
copies of each amendment or supplement filed and such other documents,
including opinions of counsel and "comfort" letters, as DLJSC and its
affiliates may reasonably request and (iv) agree to indemnify DLJSC and
its affiliates in a manner substantially identical to that specified in
Section 8 hereof (with appropriate modifications).
6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by
the Commission.
(b) (i) Each document, if any, filed or to be filed pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and
incorporated by reference in the Prospectus complied or will comply when
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<PAGE>
so filed in all material respects with the Exchange Act and the
applicable rules and regulations of the Commission thereunder; (ii) the
Registration Statement and any amendments thereto will comply in all
material respects with the provisions of the Act and will not contain any
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 (iii) the Prospectus and any supplements thereto will
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading,
except that the representations and warranties contained in this
paragraph (a) shall not apply to statements or omissions in the
Registration Statement or the Prospectus (or any supplement or amendment
to them) based upon information relating to any Underwriter furnished to
the Company in writing by or on behalf of any Underwriter through you
expressly for use therein.
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or
filed pursuant to Rule 424 under the Act, complied when so filed in all
material respects with the Act.
(d) The Company and each of its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation (except as to good standing
for any subsidiary of the Company organized under the laws of a
jurisdiction in which the concept of good standing is inapplicable) and
has the corporate power and authority to carry on its business as it is
currently being conducted and to own, lease and operate its properties,
and each is duly qualified and is in good standing as a foreign
corporation authorized to do business in each jurisdiction in which the
nature of its business or its ownership or leasing of property requires
such qualification, except where the failure to be so qualified or in
good standing could not reasonably be expected to have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(e) All of the outstanding shares of capital stock of, or other
ownership interests in, each of the Company's subsidiaries have been duly
authorized and validly issued and are fully paid and non-assessable by
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the issuer thereof, and are owned directly or indirectly by the Company,
free and clear of any security interest, claim, lien, encumbrance or
adverse interest of any nature (each, an "Encumbrance") except where the
fact that the Company does not own such ownership interests or that such
Encumbrance exists could not reasonably be expected to have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
(f) All the outstanding shares of capital stock of the Company
(including the Shares to be sold by the Selling Stockholders) have been
duly authorized and validly issued and are fully paid and non-assessable
by the Company, and as of the Closing Date will not be subject to any
preemptive or similar rights, except such as may exist under the
Company's stock benefit plans and agreements and the Management Equity
Agreement dated as of January 23, 1990, as amended among the Company and
certain investors (the "Management Equity Agreement") which rights will
not apply to the Shares being sold by the Selling Stockholders and except
for any rights which may exist under any agreements between DLJSC, DLJ
Capital Corporation and their affiliates and the DLJSC Selling
Stockholders or others.
(g) The authorized capital stock of the Company, including the Common
Stock, conforms as to legal matters to the description thereof contained
in the Prospectus.
(h) This Agreement has been duly authorized, executed and delivered
by the Company.
(i) Neither the Company nor any of its subsidiaries is in violation
of its respective charter or by-laws or in default in the performance of
any obligation, agreement or condition contained in any bond, debenture,
note or any other evidence of indebtedness or in any other agreement,
indenture or instrument material to the conduct of the business of the
Company and its subsidiaries, taken as a whole, to which the Company or
any of its subsidiaries is a party or by which it or any of its
subsidiaries or their respective property is bound.
(j) The execution, delivery and performance by the Company and, to
the extent applicable, its subsidiaries of this Agreement and compliance
by the Company and, to the extent applicable, its subsidiaries with all
the provisions hereof and the consummation of the transactions
contemplated hereby will not:
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(A) require any consent, approval, authorization or other order
of any court, regulatory body, administrative agency or other
governmental body, including lottery authorities, which has not been
obtained (except as such may be required under the securities or Blue
Sky laws of the various states);
(B) conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the charter or by-laws of the
Company or any of its subsidiaries;
(C) require any consent or approval (which has not been
obtained) of the parties to, or conflict with or constitute a breach
of any of the terms or provisions of or a default or termination
under, (x) any contract for the provision of lottery services or
products between the Company or any of its subsidiaries and any U.S.
or international lottery authority (each a "Lottery Contract") or (y)
any other agreement, indenture or other instrument to which the
Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries or their respective property is bound that
is material to the Company and its subsidiaries taken as a whole; or
(D) violate or conflict with any laws, administrative
regulations or rulings or court decrees applicable to the Company,
any of its subsidiaries or their respective property, which violation
or conflict could reasonably be expected to have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(k) Except as otherwise set forth in the Prospectus, there are no
legal or governmental proceedings pending to which the Company or any of
its subsidiaries is a party or of which any of their respective property
is the subject (A) which could reasonably be expected to result in any
material adverse change in the condition, financial or otherwise, or the
earnings, affairs or business prospects, whether or not arising in the
ordinary course of business, of the Company and its subsidiaries, taken
as a whole, or which is otherwise required to be described in the
Prospectus and is not so described or (B) which in any manner draws into
question the validity of this Agreement or which would interfere with or
adversely affect the consummation
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<PAGE>
of the transactions contemplated hereby or thereby, and, to the best of
the Company's knowledge, no such proceedings are threatened or
contemplated.
(l) No contract or document of a character required to be described
in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement is not so described or filed as
required.
(m) Each of the Company and its subsidiaries is operating in
compliance with (and has not violated) all laws, regulations,
administrative orders or rulings or court decrees applicable to it or to
any of its property (including without limitation those relating to
lotteries, environmental, safety or similar matters, federal or state
laws relating to the hiring, promotion or pay of employees, the Employee
Retirement Income Security Act or the rules and regulations promulgated
thereunder), except for violations which could not reasonably be expected
to result in any material adverse change in the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
(n) Neither the Company nor any of its subsidiaries nor, to the best
knowledge of the Company, any affiliate of the Company or any other
person acting on its or their behalf has directly or indirectly (A) used
any corporate funds for any unlawful payment to any foreign or domestic
governmental or judicial officials or employees, (B) made any unlawful
payment (including any bribe, rebate, payoff, kickback or influence
payment) to any person or entity, private or public, whether in the form
of cash, property, services or otherwise, (C) violated or is in violation
of any provision of federal or state laws relating to corruption of
governmental officials or representatives, including the Foreign Corrupt
Practices Act of 1977 and similar laws, (D) established or maintained any
fund of monies or other assets for the purposes specified in clauses (A)
or (B) above or (E) made any false or fictitious entry on the books or
records of the Company or any of its subsidiaries relating to any payment
referred to in clause (A) or (B) above.
(o) Except as otherwise set forth in the Prospectus or such as could
not reasonably be expected to be material to the business, prospects,
financial condition or results of operation of the Company and its
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subsidiaries, taken as a whole, the Company and each of its subsidiaries
has good and marketable title, free and clear of all liens, claims,
encumbrances and restrictions except liens for taxes not yet due and
payable, to all property and assets described in the Registration
Statement as being owned by it. All leases to which the Company or any of
its subsidiaries is a party and all Lottery Contracts referred to in the
Prospectus to which the Company or any of its subsidiaries is a party are
valid and binding and except as described in the Prospectus no default on
the part of the Company or any of its subsidiaries has occurred or is
continuing thereunder, which might reasonably be expected to result in
the termination of any such Lottery Contract or in any material adverse
change in the business, prospects, financial condition or results of
operations of the Company and its subsidiaries taken as a whole.
(p) Ernst & Young LLP are independent public accountants with respect
to the Company as required by the Act.
(q) (A) The financial statements, together with related schedules and
notes forming part of the Registration Statement and the Prospectus (and
any amendment or supplement thereto), present fairly the consolidated
financial position, results of operations and changes in financial
position of the Company and its subsidiaries on the basis stated in the
Registration Statement at the respective dates or for the respective
periods to which they apply; (B) such statements and related schedules
and notes have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods
involved, except as disclosed therein; and (C) the other financial and
statistical information and data set forth in the Registration Statement
and the Prospectus (and any amendment or supplement thereto) is, in all
material respects, accurately presented and prepared on a basis
consistent with such financial statements and the books and records of
the Company.
(r) The Company and each of its subsidiaries has all material
permits, licenses, franchises and authorizations of governmental or
regulatory authorities, including lottery authorities, domestic and
foreign ("permits"), as are necessary to own, lease and operate its
respective properties and to conduct its business in the manner described
in the Prospectus, the Company and each of its subsidiaries has fulfilled
and performed all
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of its material obligations with respect to such permits and no event has
occurred which allows, or after notice or lapse of time would allow,
revocation or termination thereof or result in any other material
impairment of the rights of the holder of any such permit and, except as
described in the Prospectus, such permits contain no restrictions that
are materially burdensome to the Company or any of its subsidiaries.
(s) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(t) The Company has complied with all provisions of Section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida).
(u) No holder of any security of the Company has any right, not
effectively satisfied or waived, to require inclusion of shares of Common
Stock or any other security of the Company in the Registration Statement.
7. Representations and Warranties of the Selling Stockholders. Each
Selling Stockholder severally and not jointly represents and warrants to each
Underwriter that:
(a) Such Selling Stockholder is the lawful owner of the Shares to be
sold by such Selling Stockholder pursuant to this Agreement and has, and
on the Closing Date (and Option Closing Date, if applicable) will have,
good and clear title to such Shares, free of all restrictions on
transfer, liens, encumbrances, security interests and claims whatsoever,
except for those created hereunder or under the Stockholders Agreement,
the Management Equity Agreement or the Company's stock benefit plans or
agreements, and, in the case of a DLJ Selling Stockholder (as defined
below) the DLJ Custody Agreement (as defined in paragraph (f) below)
which either do not apply in the case of any sale to the Underwriters
hereunder or have been waived.
(b) Upon delivery of and payment for such Shares pursuant to this
Agreement, good and clear title to such Shares will pass to the
Underwriters, free of all restrictions on transfer, liens, encumbrances,
security interests and claims whatsoever.
(c) Such Selling Stockholder has, and on the Closing Date (and Option
Closing Date, if applicable)
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<PAGE>
will have, full legal right, power and authority to enter into this
Agreement and to sell, assign, transfer and deliver such Shares in the
manner provided herein and therein, and this Agreement has been duly
authorized, executed and delivered by or on behalf of such Selling
Stockholder.
(d) In the case of each Selling Stockholder that is a Management
Selling Stockholder (as indicated on Schedule III), the Custody Agreement
and Power of Attorney signed by such Selling Stockholder has been duly
authorized, executed and delivered by or on behalf of such Selling
Stockholder and is a valid and binding instrument of such Selling
Stockholder enforceable in accordance with its terms, and, pursuant to
such Custody Agreement and Power of Attorney, such Selling Stockholder
has authorized Thomas J. Sauser, Cynthia A. Nebergall and Brendan J.
Radigan or any of them, to execute and deliver on his, her or its behalf
this Agreement and any other document necessary or desirable in
connection with transactions contemplated hereby and to deliver or cause
the Custodian to deliver the Shares to be sold by such Selling
Stockholder pursuant to this Agreement.
(e) Such Selling Stockholder has not taken, and will not take,
directly or indirectly, any action designed to, or which might reasonably
be expected to, cause or result in stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of
the Shares pursuant to the distribution contemplated by this Agreement,
and other than as permitted by the Act, the Selling Stockholder has not
distributed and will not distribute any prospectus or other offering
material in connection with the offering and sale of the Shares.
(f) In the case of each Selling Stockholder that is an officer,
director, employee or former officer, director or employee of DLJSC (a
"DLJ Selling Stockholder"), the Custody Agreement dated as of December
15, 1992 between DLJSC, DLJ Capital Corporation and such Selling
Stockholder and the Letter Agreement dated April 19, 1996 between DLJSC
and such Selling Stockholder (together, the "DLJ Custody Agreement") has
been duly authorized, executed and delivered by or on behalf of such
Selling Stockholder and is a valid and binding instrument of such Selling
Stockholder enforceable in accordance with its terms, and, pursuant to
such DLJ Custody Agreement, such Selling Stockholder has authorized DLJSC
to execute and deliver on his, her or
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its behalf this Agreement and any other document necessary or desirable
in connection with transactions contemplated hereby and to deliver or
cause DLJSC, as Custodian to deliver the Shares to be sold by such
Selling Stockholder pursuant to this Agreement.
(g) The execution, delivery and performance of this Agreement by such
Selling Stockholder, compliance by such Selling Stockholder with all the
provisions hereof and the consummation of the transactions contemplated
hereby will not require any consent, approval, authorization or other
order which has not been obtained of any court, regulatory body,
administrative agency or other governmental body (except such as may be
required under the Act, state securities laws or Blue Sky laws) and will
not conflict with or constitute a breach of any of the terms or
provisions of, or a default under, organizational documents of such
Selling Stockholder, if not an individual, or any agreement, indenture or
other instrument to which such Selling Stockholder is a party or by which
such Selling Stockholder or property of such Selling Stockholder is
bound, or violate or conflict with any laws, administrative regulation or
ruling or court decree applicable to such Selling Stockholder or property
of such Selling Stockholder.
(h) Such parts of the Registration Statement which specifically
relate to such Selling Stockholder under the caption "Principal and
Selling Stockholders" do not, and will not on the Closing Date (and the
Option Closing Date, if applicable), contain any 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, in light of
circumstances under which they were made, not misleading.
(i) At any time during the period described in paragraph 5(e) hereof,
if there is any change in the information referred to in paragraph 7(h)
above, the Selling Stockholders will immediately notify you of such
change.
8. Indemnification. (a) The Company agrees to indemnify and hold
harmless each Underwriter and each person, if any, who controls any
Underwriter 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 judgments caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or the
Prospectus (as amended or supplemented if the
18
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Company shall have furnished any amendments or supplements thereto) or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or judgments are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information
relating to any Underwriters furnished in writing to the Company by or on
behalf of any Underwriter through you expressly for use therein; provided,
however, that the foregoing indemnity with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any such losses, claims, damages or liabilities purchased
Shares, or any person controlling such Underwriter, if a copy of the
Prospectus (as then amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) was not sent or given by or
on behalf of such Underwriter to such person, if required by law so to have
been delivered, at or prior to the written confirmation of the sale of the
Shares to such person, and if the Prospectus (as so amended or supplemented)
would have cured the defect giving rise to such losses, claims, damages or
liabilities.
(b) Each Selling Stockholder agrees, severally and not jointly, to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter 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 judgments caused by any untrue statement or alleged
untrue statement of a material fact contained in the 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
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only with reference to information relating to such Selling
Stockholder furnished by or on behalf of such Selling Stockholder in its
capacity as a Selling Stockholder expressly for use in the Registration
Statement or the Prospectus, any amendment or supplement thereto, or in any
preliminary prospectus; provided, however, that nothing in this subsection (b)
shall limit the obligation of the Company to indemnify the Underwriters in the
manner set forth in subsection (a) relating to information provided by any
Selling Stockholder acting in its capacity as an officer, director or employee
of the Company.
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(c) In case any action shall be brought against any Underwriter or
any person controlling such Underwriter, based upon any preliminary
prospectus, the Registration Statement or the Prospectus or any amendment or
supplement thereto and with respect to which indemnity may be sought against
the Company or any Selling Stockholder, such Underwriter shall promptly notify
the Company and the Selling Stockholders in writing and the Company and the
applicable Selling Stockholders shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such indemnified party
and payment of all fees and expenses. Any Underwriter or any such controlling
person shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Underwriter or such controlling person unless
(i) the employment of such counsel has been specifically authorized by the
Company, (ii) the Company and the Selling Stockholders have failed to assume
the defense and employ counsel or (iii) the named parties to any such action
(including any impleaded parties) include both such Underwriter or such
controlling person and the Company or any Selling Stockholder, as the case may
be, and such Underwriter or such controlling person shall have been advised by
such counsel that there may be one or more good faith legal defenses available
to it which are different from or additional to those available to the Company
or the Selling Stockholders, as the case may be, (in which case the Company
and the Selling Stockholders shall not have the right to assume the defense of
such action on behalf of such Underwriter or such controlling person, it being
understood, however, that the Company and the Selling Stockholders 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 fees and expenses of more than
one separate firm of attorneys (in addition to any local counsel) for all such
Underwriters and controlling persons, which firm shall be designated in
writing by DLJSC, and that all such fees and expenses shall be reimbursed as
they are incurred). Neither the Company nor any Seller shall be liable for any
settlement of any such action effected without the written consent of such
Seller but if settled with the written consent of such party, such party
agrees to indemnify and hold harmless any Underwriter and any such controlling
person from and against any loss or liability by reason of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in
respect of which any indemnified party is or was threatened to have been made
a party and indemnity could have been sought
20
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hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
(d) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement, any person controlling the Company within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act, each Selling
Stockholder and each person, if any, controlling such Selling Stockholder
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
to the same extent as the foregoing indemnity from the Sellers to each
Underwriter but only with reference to information relating to such
Underwriter furnished in writing by or on behalf of such Underwriter through
you expressly for use in the Registration Statement, the Prospectus or any
preliminary prospectus. In case any action shall be brought against the
Company, any of its directors, any such officer or any person controlling the
Company or any Selling Stockholder or any person controlling such Selling
Stockholder based on the Registration Statement, the Prospectus or any
preliminary prospectus and in respect of which indemnity may be sought against
any Underwriter, the Underwriter shall have the rights and duties given to the
Company and Sellers (except that if the Company or any Seller shall have
assumed the defense thereof such Underwriter 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 the expense of such
Underwriter), and the Company, its directors, any such officers and any person
controlling the Company and the Selling Stockholders and any person
controlling such Selling Stockholders shall have the rights and duties given
to the Underwriter, by Section 8(c) hereof.
(e) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party in respect of any losses, claims, damages,
liabilities or judgments 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 judgments in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other hand from the
offering of the Shares and the relative fault of the Company, the Selling
Stockholders and the Underwriters in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as
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well as any other relevant equitable considerations. The relative benefits
received by the Sellers and the Underwriters shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Sellers, and the total underwriting discounts and
commissions received by the Underwriters, bear to the total price to the
public of the Shares, in each case as set forth in the table on the cover page
of the Prospectus. The relative fault of the Company, the Selling Stockholders
and the Underwriters 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, the Selling Stockholders or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such statement or omission.
The Company, the Selling Stockholders and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section
8(e) were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities or judgments
referred to in the immediately preceding paragraph 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. Notwithstanding the provisions of this
Section 8, no Underwriter shall be required to contribute any amount in excess
of the amount by which the total price at which the Shares underwritten by it
and distributed to the public was offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission and no Selling Stockholder shall be required to contribute any amount
in excess of the amount by which the total price at which the Shares of such
Selling Stockholder were offered to the public exceeds the amount of any
damages which such Selling Stockholder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. 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. The Underwriters'
obligations to contribute pursuant to this Section 8(e) are
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several in proportion to the respective number of Shares purchased by each of
the Underwriters hereunder and not joint.
(f) Each Seller that is a Management Selling Stockholder hereby
designates Edwards & Angell, 750 Lexington Avenue, New York, New York,
authorized agent, upon which process may be served in any action, suit or
proceeding which may be instituted in any state or federal court in the State
of New York by any Underwriter or person controlling the Company or an
Underwriter asserting a claim for indemnification or contribution under or
pursuant to this Section 8, and each such Seller will accept the jurisdiction
of such court in such action, and waives, to the fullest extent permitted by
applicable law, any defense based upon lack of personal jurisdiction or venue.
A copy of any such process shall be sent or given to such Seller, at the
address for notices specified in Section 12 hereof.
(g) Each Seller that is a DLJSC Selling Stockholder acknowledges
that, pursuant to the DLJ Custody Agreement, it has designated DLJSC as its
authorized agent, upon which process may be served in any action, suit or
proceeding which may be instituted in any state or federal court in the State
of New York by the Company or any Underwriter or person controlling the
Company or an Underwriter asserting a claim for indemnification or
contribution under or pursuant to this Section 8, and each such Seller will
accept the jurisdiction of such court in such action, and waives, to the
fullest extent permitted by applicable law, any defense based upon lack of
personal jurisdiction or venue. A copy of any such process shall be sent or
given to such Seller, at the address for notices specified in Section 12
hereof.
9. Conditions of Underwriters' Obligations. The several obligations
of the Underwriters to purchase the Firm Shares under this Agreement are
subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company contained
in this Agreement shall be true and correct in all material respects on
the Closing Date with the same force and effect as if made on and as of
the Closing Date.
(b) The Registration Statement shall have become effective (or if a
post-effective amendment is required to be filed pursuant to Rule 430A
under the Act, such post-effective amendment shall have become effective)
not later than 10:00 A.M., New York City time, on the date of this
Agreement or at such later date and time as you may
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<PAGE>
approve in writing, and at the Closing Date no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be
pending before or contemplated by the Commission.
(c) (A) Since the date of the latest balance sheet included in the
Registration Statement and the Prospectus and except as disclosed
therein, there shall not have been any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, affairs or
business prospects, whether or not arising in the ordinary course of
business, of the Company, (B) since the date of the latest balance sheet
included in the Registration Statement and the Prospectus and except as
disclosed therein, there shall not have been any change, or any
development involving a prospective material adverse change, in the
capital stock or in the long-term debt of the Company from that set forth
or contemplated in the Registration Statement and Prospectus, (C) the
Company and its subsidiaries shall have no liability or obligation,
direct or contingent, which is material to the Company and its
subsidiaries, taken as a whole, other than those reflected or
contemplated in the Registration Statement and the Prospectus and (D) on
the Closing Date you shall have received a certificate dated the Closing
Date, signed by a Co-Chairman of the Board of Directors or the President
and by the Chief Financial Officer or Chief Accounting Officer, in their
capacities as officers of the Company, confirming the matters set forth
in paragraphs (a), (b) and (c) of this Section 9.
(d) All the representations and warranties of the Selling
Stockholders contained in this Agreement shall be true and correct in all
material respects on the Closing Date with the same force and effect as
if made on and as of the Closing Date and you shall have received a
certificate to such effect, dated the Closing Date, from each Selling
Stockholder.
(e) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing
Date, of Drinker Biddle & Reath, counsel for the Company, to the effect
that:
(i) the Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the State of
Delaware and has the
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corporate power and authority required to carry on its business as it
is currently being conducted and to own its properties;
(ii) the Company is duly qualified and is in good standing as
a foreign corporation authorized to do business (except as to good
standing under the laws of a jurisdiction in which the concept of
good standing is inapplicable) in each jurisdiction in the United
States which the nature of its business or its ownership or leasing
of property requires such qualification or good standing, except
where the failure to be so qualified or be in good standing could not
reasonably be expected to have a material adverse effect on the
Company and its subsidiaries, taken as a whole;
(iii) all the outstanding shares of Common Stock (including the
Shares to be sold by the Selling Stockholders) have been duly
authorized and validly issued and are fully paid, non-assessable by
the Company and not subject to any preemptive or similar rights
involving the Company, except for such as may exist under the
Company's stock benefit plans and agreements and the Management
Equity Agreement, which rights will not apply to the Shares being
sold by the Selling Stockholders and except for any rights which may
exist under any agreements between DLJSC, DLJ Capital Corporation and
their affiliates and the DLJSC Selling Stockholders or others;
(iv) this Agreement has been duly authorized, executed and
delivered by the Company;
(v) the authorized capital stock of the Company, including
the Common Stock, conforms as to legal matters to the description
thereof contained in the Registration Statement and the Prospectus;
(vi) the Registration Statement has become effective under the
Act, no stop order suspending its effectiveness has been issued and
no proceedings for that purpose are, to the knowledge of such
counsel, pending before or contemplated by the Commission;
(vii) the statements under the captions "Directors and
Officers - Voting Agreements" (other than statements relating to the
Voting Trust and the Voting Trustee), "Certain United States Federal
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Income Tax Consequences to Non-U.S. Holders of Common Stock" and
"Description of Capital Stock of the Company" in the Prospectus and
Item 15 of Part II of the Registration Statement, insofar as such
statements constitute a summary of legal matters or documents
referred to therein, fairly present the information called for with
respect to such legal matters or documents;
(viii) such counsel does not know of any existing violation on
the part of the Company of its charter or by-laws or of any default
on the part of the Company or any of its subsidiaries in the
performance of any obligation, agreement or condition contained in
any bond, debenture, note or any other evidence of indebtedness or in
any other agreement, indenture or instrument to which the Company or
any of its subsidiaries is a party or by which it or any of its
subsidiaries or their respective property is bound, except for any
such violation or default which could not reasonably be expected to
have a material adverse effect on the Company and its subsidiaries
taken as a whole;
(ix) the execution, delivery and performance by the Company of
this Agreement, compliance by the Company with all the provisions
hereof, and the consummation of the transactions contemplated hereby
will not (A) require any consent, approval, authorization or other
order which has not been obtained of any court, regulatory body,
administrative agency or other governmental body other than lottery,
non-lottery gaming, racing or benefits delivery authorities (and
other than may be required under the Act or other securities or Blue
Sky laws); (B) conflict with or constitute a breach of any of the
terms or provisions of, or a default under, the charter or by-laws of
the Company or GTECH Corporation; (C) require any consent or approval
which has not been obtained of the parties to, or conflict with or
constitute a breach of any of the terms or provisions of or a default
or termination under any agreement (other than agreements relating to
lottery and non-lottery gaming products and services, racing or
benefits delivery products or services), indenture or other
instrument known to such counsel to which the Company or GTECH
Corporation is a party or by which the Company or GTECH Corporation
or their respective property is bound or (D) violate or conflict with
26
<PAGE>
any laws, administrative regulations or rulings (other than laws,
regulations or rulings relating to the lottery, non-lottery gaming,
racing or benefits delivery businesses, as to which no opinion need
be expressed) or court decrees known to such counsel applicable to
the Company or GTECH Corporation or any of their respective
properties; except with respect to (A), (C) and (D), where the
failure to obtain such consent or approval or such violation or
conflict could not reasonably be expected to have a material adverse
effect on the Company and its subsidiaries, taken as a whole, or
impair the ability of the Company and its subsidiaries to consummate
the transactions contemplated hereby;
(x) such counsel does not know of any legal or governmental
proceeding pending or threatened to which the Company or any of its
subsidiaries is a party or to which any of their respective property
is subject which is required to be described in the Registration
Statement or the Prospectus and is not so described, or of any
contract or other document which is required to be described in the
Registration Statement or the Prospectus or is required to be filed
as an exhibit to the Registration Statement which is not described or
filed as required;
(xi) to the best of such counsel's knowledge, no holder of any
security of the Company has any right not effectively waived or
satisfied to require registration of shares of Common Stock or any
other security of the Company in the Registration Statement; and
(xii) (A) each document, if any, filed pursuant to the Exchange
Act and incorporated by reference in the Registration Statement and
the Prospectus (except for financial statements and the notes thereto
and other financial, statistical and accounting data incorporated by
reference in the Registration Statement and schedules included
therein as to which no view need be expressed) complied when so
filed, or where subsequently amended prior to the date hereof as to
form in all material respects with the Exchange Act, and the
applicable rules and regulations of the Commission thereunder; (B)
the Registration Statement and the Prospectus and any supplement or
amendment thereto (except for financial statements and the notes
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<PAGE>
thereto and other financial, statistical and accounting data included
in the Registration Statement and schedules included therein as to
which no view need be expressed) comply as to form in all material
respects with the Act, and (C) such counsel believes that (except for
financial statements and the notes thereto and other financial,
statistical and accounting data included in the Registration
Statement and schedules included therein, as aforesaid) the
Registration Statement and the prospectus included therein at the
time the Registration Statement became effective did not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and that the Prospectus, as amended or
supplemented, if applicable (except for financial statements and the
notes thereto and other financial, statistical and accounting data
included in the Registration Statement and schedules included
therein, as aforesaid) does not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading;
In giving such opinion with respect to the matters covered by clause
(xii) above, Drinker Biddle & Reath may state that their opinion and
belief are based upon their participation in the preparation of the
Registration Statement and Prospectus and any amendments or supplements
thereto and review and discussion of the contents thereof, but are
without independent check or verification except as specified.
(f) You shall have received on the Closing Date an opinion
(satisfactory to you and your counsel), dated the Closing Date, of
Cynthia A. Nebergall, Esq., General Counsel for the Company, to the
effect that:
(i) Each of the Company's Significant Subsidiaries (as that
term is defined in Rule 1-02 of Regulation S-X promulgated by the
Commission) is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation
(except as to good standing for any subsidiary organized under the
laws of a jurisdiction in which the concept of good standing is
inapplicable), and has the corporate power and
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authority to carry on its business as it is currently being
conducted;
(ii) each of the Company and its Significant Subsidiaries is
duly qualified to transact business and is in good standing as a
foreign corporation authorized to do business (except as to good
standing for any subsidiary organized under the laws of a
jurisdiction in which the concept of good standing is inapplicable),
in each jurisdiction in which the nature of its business or its
ownership or leasing of property requires such qualification, except
where the failure to be so qualified or to be in good standing could
not reasonably be expected to have a material adverse effect on the
Company and its subsidiaries taken as a whole;
(iii) neither the Company nor any of its subsidiaries is in
violation of its respective charter or by-laws and, to the best of
such counsel's knowledge after due inquiry, neither the Company nor
any of its subsidiaries is in default in the performance of any
obligation, agreement or condition contained in any Lottery Contract
or in any bond, debenture, note or any other evidence of indebtedness
or in any other agreement, indenture or instrument to which the
Company or any of its subsidiaries is a party or by which it or any
of its subsidiaries or their respective property is bound except when
such default could not reasonably be expected to have a material
adverse effect upon the Company and its subsidiaries, taken as a
whole;
(iv) all of the outstanding shares of capital stock of each
subsidiary of the Company have been duly authorized and validly
issued and are fully paid and nonassessable and, except for minimal
amounts of director qualifying shares, are owned directly or
indirectly by the Company free of all liens, encumbrances, security
interests and claims whatsoever;
(v) the execution, delivery and performance by the Company of
this Agreement, compliance by the Company with all the provisions
hereof, and the consummation of the transactions contemplated hereby
will not (A) require any consent, approval, authorization or other
order which has not been obtained of any court, regulatory body,
administrative agency or other governmental body
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<PAGE>
including lottery authorities, (except as such may be required under
the Act or other securities or Blue Sky laws); (B) conflict with or
constitute a breach of any of the terms or provisions of, or a
default under, the charter or by-laws of the Company or any of its
subsidiaries; (C) require any consent or approval of the parties to,
or conflict with or constitute a breach of any of the terms or
provisions of or a default or termination under any Lottery Contract
or any other agreement, indenture or other instrument to which the
Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries or their respective property is bound; or
(D) violate or conflict with any laws, administrative regulations or
rulings or court decrees applicable to the Company or any of its
subsidiaries or their respective properties; except with respect to
(A), (C) and (D), where the failure to obtain such consent or approval
or such violation or conflict could not reasonably be expected to have
a material adverse effect on the Company and its subsidiaries, taken
as a whole, or impair the ability of the Company and its subsidiaries
to consummate the transactions contemplated hereby;
(vi) to the best of such counsel's knowledge, after due
inquiry, each of the Company and its subsidiaries is operating in
compliance with (and has not violated) all laws, regulations,
administrative orders or rulings or court decrees applicable to it or
to any of its property (including without limitation those relation
to lotteries, environmental, safety or similar matters, federal or
state laws relating to discrimination in the hiring, promotion or pay
of employees, the Employee Retirement Income Security Act or the
rules and regulations promulgated thereunder), except for violations
which could not reasonably be expected to result in any material
adverse change in the business, prospects, financial condition or
results of operation of the Company and its subsidiaries, taken as a
whole.
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(vii) the Company and each of its subsidiaries has such
material permits, licenses, franchises and authorizations of
governmental or regulatory authorities including lottery authorities,
domestic and foreign ("permits"), as are necessary to own, lease and
operate its respective properties and to conduct its business in the
manner described in the Prospectus, subject to such qualifications as
may be set forth in the Prospectus; to the best of such counsel's
knowledge, after due inquiry, the Company and each of its
subsidiaries has fulfilled and performed all of its material
obligations with respect to such permits and no event has occurred
which allows, or after notice or lapse of time would allow,
revocation or termination thereof or results in any other material
impairment of the rights of the holder of any such permit, subject in
each case to such qualification as may be set forth in the
Prospectus; and, except as described in the Prospectus, such permits
contain no restrictions that are materially burdensome to the Company
or any of its subsidiaries;
(viii) the statements in the Prospectus under the caption "Risk
Factors - Governmental Regulation", "-- Maintenance of Business
Relationships and Certain Legal Matters" and "-- Liquidated Damages
Under Contracts" and "Business Legal Proceedings", insofar as such
statements constitute a summary of the legal matters, documents or
proceedings referred to therein, fairly present the information
called for with respect to such legal matters, documents and
proceedings; and
(ix) such counsel does not know of any legal or governmental
proceeding pending or threatened to which the Company or any of its
subsidiaries is a party or to which any of their respective property
is subject which is required to be described in the Registration
Statement or the Prospectus and is not so described, or of any
contract or other document which is required to be described in the
Registration Statement or the Prospectus or is required to be filed
as an exhibit to the Registration Statement which is not described or
filed as required.
(g) You shall have received the opinions (satisfactory to you and
your counsel), dated the Closing Date, of one or more counsel for the
Selling Stockholders
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reasonably satisfactory to you, with respect to each applicable Selling
Stockholder, to the effect that:
(i) this Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Stockholder;
(ii) such Selling Stockholder has full legal right, power and
authority, and any approval required by law (other than any approval
imposed by the applicable state securities and Blue Sky laws) to
sell, assign, transfer and deliver the Shares to be sold by him, her
or it in the manner provided in this Agreement;
(iii) each Selling Stockholder has good and clear title to the
certificates for the Shares to be sold by him and upon delivery
thereof to the Underwriters in accordance with this Agreement, the
Underwriters (assuming they have purchased the Shares in good faith
and without notice of any adverse claim, and assuming that there are
no events or circumstances peculiar to any individual Underwriter
that might result in any adverse claim), will acquire good title to
the Shares purchased by them from such Selling Stockholder, free and
clear of all liens, encumbrances, security interests, and claims
whatsoever.
(iv) in the case of any Management Selling Stockholder, the
Custody Agreement and Power of Attorney signed by such Selling
Stockholder appointing Thomas J. Sauser, Cynthia A. Nebergall and
Brendan J. Radigan or any of them, as his, her or its
attorney-in-fact to the extent set forth therein with regard to the
transactions contemplated hereby and by the Registration Statement
has been duly authorized, executed and delivered by or on behalf of
such Selling Stockholder and is a valid and binding instrument of
such Selling Stockholder enforceable in accordance with its terms,
and pursuant to such Custody Agreement and Power of Attorney such
Selling Stockholder has authorized Thomas J. Sauser, Cynthia A.
Nebergall and Brendan J. Radigan or any of them, to execute and
deliver on his or her behalf this Agreement and any other document
necessary or desirable in connection with transactions contemplated
hereby and to deliver the Shares to be sold by him, her or it
pursuant to this Agreement.
32
<PAGE>
(h) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing
Date, of Williams & Connolly, special counsel for GTECH Corporation
("GTECH") with respect to the governmental investigations and indictments
described in the statements referred to in clause (i) below to the effect
that:
(i) the statements in the third and fourth paragraphs under
the caption "Risk Factors Maintenance of Business Relationships and
Certain Legal Matters" in the Prospectus (the "Investigations and
Indictments"), insofar as such statements constitute a summary of
legal matters or proceedings referred to therein, fairly present the
information called for with respect to such legal matters and
proceedings;
(ii) in connection with such counsel's representation of GTECH,
such counsel has not found any evidence indicating that GTECH
violated any law (in connection with the award of lottery contracts
or otherwise) in connection with the Investigations and Indictments
and has not been advised by governmental authorities that GTECH is a
target of those Investigations and Indictments; and
(iii) except as set forth in the eighth paragraph under the
caption "Risk Factors Maintenance of Business Relationships and
Certain Legal Matters", such counsel does not know of any legal or
governmental proceeding pending or threatened to which GTECH or any
of its officers or employees is a party or to which any of the
property of GTECH is subject which is similar in nature to the
Investigations and Indictments; nor has such counsel been engaged by
the Company with respect to any other legal or governmental
proceeding pending or threatened to which the Company or any of its
officers or employees is a party or to which any of the property of
the Company is subject which is required to be described in the
Registration Statement or the Prospectus and which is not described.
(i) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing
Date, of Memery Crystal, special U.K. counsel for GTECH U.K. Corporation
("GTECH
33
<PAGE>
U.K.") and Mr. Guy B. Snowden with respect to the matter referred to in
clause (i) below to the effect that:
(i) the statements in the eighth paragraph under the caption
"Risk Factors - Maintenance of Business Relationships and Certain
Legal Matters" in the Prospectus (the "Branson Matter"), insofar as
such statements constitute a summary of legal matters or proceedings
referred to therein, fairly present the information with respect to
such legal matters and proceedings; and
(ii) in connection with such counsel's representation of GTECH
U.K. and Mr. Guy B. Snowden, such counsel has not found any evidence
indicating that GTECH U.K. or Mr. Guy B. Snowden violated any law (in
connection with the award of lottery contracts or otherwise) in
connection with the Branson Matter.
(j) You shall have received on the Closing Date an opinion, dated
the Closing Date, of Davis Polk & Wardwell, counsel for the Underwriters,
as to the matters referred to in clauses (i), (iv), (vi), (vii), (but
only with respect to the statements under the caption "Underwriting") and
items (2) and (3) of Clause (xii) of the foregoing paragraph (e). In
giving such opinion with respect to the matters covered by items (B) and
(C) of clause (xii) such counsel may state that their opinion and belief
are based upon their participation in the preparation of the Registration
Statement and Prospectus and any amendments or supplements thereto but
not documents incorporated by reference and review and discussion of the
contents thereof including documents incorporated therein by reference,
but are without independent check or verification except as specified.
(k) You shall have received a letter on and as of the Closing Date,
in form and substance satisfactory to you, from each of Ernst & Young
LLP, independent public accountants, with respect to the financial
statements and certain financial information contained in or incorporated
by reference into the Registration Statement and the Prospectus and
substantially in the form and substance of the letter delivered to you by
each of Ernst & Young LLP on the date of this Agreement.
(l) The Company and the Selling Stockholders shall not have failed at
or prior to the Closing Date to perform or comply in any material respect
with any of the
34
<PAGE>
agreements herein contained and required to be performed or complied with
by the Company at or prior to the Closing Date.
(m) The several obligations of the Underwriters to pay for Shares
being purchased from any Selling Stockholder who is not a U.S. Person are
subject to the receipt, on or prior to the Closing Date, of a certificate
of each such Selling Stockholder to the effect that such Selling
Stockholder is not a U.S. Person (as defined under applicable U.S.
federal tax legislation), which certificate may be in the form of a
properly completed and executed United States Treasury Department Form
W-8 (or other applicable form or statement specified by Treasury
Department regulations in lieu thereof).
The several obligations of the U.S. Underwriters to purchase
Additional Shares hereunder are subject to the satisfaction of the foregoing
conditions and delivery to the U.S. Underwriters on the Option Closing Date of
such documents as you may reasonably request with respect to the good standing
of the Company, the due authorization and issuance of the Additional Shares
and other matters related to the issuance of the Additional Shares.
10. Effective Date of Agreement and Termination. This Agreement
shall become effective upon the later of (i) execution of this Agreement and
(ii) when notification of the effectiveness of the Registration Statement has
been released by the Commission.
This Agreement may be terminated at any time prior to the Closing
Date by you by written notice to the Company and DLJ Capital Corporation if
any of the following has occurred: (i) since the respective dates as of which
information is given in the Registration Statement and the Prospectus, any
material adverse change or development involving a prospective material
adverse change in the condition, financial or otherwise, of the Company or any
of its subsidiaries or the earnings, affairs, or business prospects of the
Company or any of its subsidiaries, whether or not arising in the ordinary
course of business, which would, in your judgment, make it impracticable or
advisable to market the Shares on the terms and in the manner contemplated in
the Prospectus, (ii) any outbreak or escalation of hostilities or other
national or international calamity or crisis or change in economic conditions
or in the financial markets of the United States or elsewhere that, in your
judgment, is material and adverse and would, in your judgment,
35
<PAGE>
make it impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus, (iii) trading of any securities of the Company
or any of its subsidiaries shall have been suspended on any exchange or in any
over-the-counter market, (iv) the suspension or material limitation of trading
in securities on the New York Stock Exchange, the American Stock Exchange or
the NASDAQ National Market System or limitation on prices for securities on
any such exchange or National Market System, (v) any downgrading, or any
notice given of any intended or potential downgrading, in the rating accorded
any of the Company's or its subsidiaries' securities by any "nationally
recognized statistical rating organization," as such term is defined for
purposes of Rule 436(g)(2) under the Securities Act, (vi) the enactment,
publication, decree or other promulgation of any federal or state statute,
regulation, rule or order of any court or other governmental authority which
in your opinion materially and adversely affects, or will materially and
adversely affect, the business or operations of the Company and its
subsidiaries, taken as a whole (vii) the declaration of a banking moratorium
by either federal or New York State authorities or (viii) the taking of any
action by any federal, state or local government or agency in respect of its
monetary or fiscal affairs which in your opinion has a material adverse effect
on the financial markets in the United States.
If on the Closing Date or on the Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase the
Firm Shares or Additional Shares, as the case may be, which it or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or refused
to purchase is not more than one-tenth of the total number of Shares to be
purchased on such date by all Underwriters, each non-defaulting Underwriter
shall be obligated severally, in the proportion which the number of Firm
Shares set forth opposite its name in Schedule I bears to the total number of
Firm Shares which all the non-defaulting Underwriters, as the case may be,
have agreed to purchase, or in such other proportion as you may specify, to
purchase the Firm Shares or Additional Shares, as the case may be, which such
defaulting Underwriter or Underwriters, as the case may be, agreed but failed
or refused to purchase on such date; provided that in no event shall the
number of Firm Shares or Additional Shares, as the case may be, which any
Underwriter has agreed to purchase pursuant to Section 2 hereof be increased
pursuant to this Section 10 by an amount in excess of one-ninth of such number
of Firm Shares or Additional Shares, as the case may be, without the written
36
<PAGE>
consent of such Underwriter. If on the Closing Date or on the Option Closing
Date, as the case may be, any Underwriter or Underwriters shall fail or refuse
to purchase Firm Shares, or Additional Shares, as the case may be, and the
aggregate number of Firm Shares or Additional Shares, as the case may be, with
respect to which such default occurs is more than one-tenth of the aggregate
number of Shares to be purchased on such date by all Underwriters and
arrangements satisfactory to you and the applicable Sellers for purchase of
such Shares are not made within 48 hours after such default, this Agreement
will terminate without liability on the part of any non-defaulting Underwriter
and the applicable Sellers. In any such case which does not result in
termination of this Agreement, either you or the Sellers shall have the right
to postpone the Closing Date or the Option Closing Date, as the case may be,
but in no event for longer than seven days, in order that the required
changes, if any, in the Registration Statement and the Prospectus or any other
documents or arrangements may be effected. Any action taken under this
paragraph shall not relieve any defaulting Underwriter from liability in
respect of any default of any such Underwriter under this Agreement.
11. Agreements of the Selling Stockholders. Each Selling Stockholder
severally and not jointly agrees with you and the Company:
(a) To pay or to cause to be paid all transfer taxes with respect to
the Shares to be sold by such Selling Stockholder.
(b) To take all reasonable actions in cooperation with the Company
and the Underwriters to cause the Registration Statement to become
effective at the earliest possible time, to do and perform all things to
be done and performed under this Agreement prior to the Closing Date and
to satisfy all conditions precedent to the delivery of the Shares
pursuant to this Agreement.
(c) Not to offer, sell, contract to sell, grant any option to
purchase, or otherwise dispose of any common stock of the Company or any
securities convertible into or exercisable or exchangeable for such
common stock, except to the Underwriters pursuant to this Agreement, for
a period of 90 days after the date of the Prospectus without the prior
written consent of a majority of the U.S. Underwriters; provided that,
notwithstanding this clause (c), (i) DLJ Capital Corporation and any of
its affiliates who are Selling Stockholders and the DLJ Selling
Stockholders shall be permitted to offer, sell,
37
<PAGE>
contract to sell, grant options to purchase or otherwise dispose of
common stock of the Company to any person (a "DLJ Transferee") who is an
affiliate of such person or who is a director, officer or employee of DLJ
Inc. or any of its affiliates; provided that the DLJ Transferee shall be
bound by the provisions of this Section 11(c); and (ii) Management
Selling Stockholders shall be permitted to deliver shares the Company in
payment of all or part of the exercise price of options under the
Company's 1994 Stock Option Plan and to have shares withheld for the
payment of taxes under the Company's stock benefit plans.
12. Miscellaneous. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (a) if to the Company, to GTECH
Holdings Corporation, Attention: General Counsel's Office, 55 Technology Way,
West Greenwich, Rhode Island 02817, (b) if to DLJ Capital Corporation, any
Selling Stockholder that is an affiliate of DLJ Capital Corporation or any DLJ
Selling Stockholders, to DLJ Capital Corporation, 277 Park Avenue, New York,
New York 10172, Attn: General Counsel's Office, (c) if to any other Selling
Stockholder, to Thomas J. Sauser, Cynthia A. Nebergall and Brendan J. Radigan,
attorneys-in-fact, c/o Cynthia J. Nebergall, GTECH Holdings Corporation, 55
Technology Way, West Greenwich, Rhode Island 02817, and (d) if to any
Underwriter or to you, to you c/o Donaldson, Lufkin & Jenrette Securities
Corporation, 277 Park Avenue, New York, New York 10172, Attention: Syndicate
Department, or in any case to such other address as the person to be notified
may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Selling Stockholders, the Company, its
officers and directors and of the several Underwriters set forth in or made
pursuant to this Agreement shall remain operative and in full force and
effect, and will survive delivery of and payment for the Shares, regardless of
(i) any investigation, or statement as to the results thereof, made by or on
behalf of any Underwriter or by or on behalf of the Company, the Selling
Stockholders, the officers or directors of the Company or any controlling
person of any of the foregoing, (ii) acceptance of the Shares and payment for
them hereunder and (iii) termination of this Agreement.
If this Agreement shall be terminated by the Underwriters because of
any failure or refusal on the part of the Company or the Selling Stockholders
to comply with the terms or to fulfill any of the conditions of this
Agreement, the Company and the Selling Stockholders agree to reimburse
38
<PAGE>
the several Underwriters for all out-of-pocket expenses (including the
reasonable fees and disbursements of counsel) reasonably incurred by them.
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the Sellers,
the Underwriters, any controlling persons referred to herein and their
respective successors and assigns, all as and to the extent provided in this
Agreement, 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
a purchaser of any of the Shares from any of the several Underwriters merely
because of such purchase.
This Agreement shall be governed and construed in accordance with the
laws of the State of New York.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
39
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Stockholders and the several Underwriters.
Very truly yours,
GTECH HOLDINGS CORPORATION
By
-----------------------------------
Name:
Title:
40
<PAGE>
UNDERWRITING AGREEMENT
Signature Page for
Donaldson, Lufkin & Jenrette
Securities Corporation, as Custodian
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION,
as Custodian
By
------------------------------------
Name:
Title:
41
<PAGE>
UNDERWRITING AGREEMENT
Signature Page for
DLJ Capital Corporation
DLJ CAPITAL CORPORATION
By
------------------------------------
Name:
Title:
42
<PAGE>
UNDERWRITING AGREEMENT
Signature Page for
Norwest Bank Indiana, N.A.
(formerly known as
Lincoln National Bank and
Trust Company of Fort Wayne), as Trustee
NORWEST BANK INDIANA, N.A.,
as Trustee
By
------------------------------------
Name:
Title:
43
<PAGE>
UNDERWRITING AGREEMENT
Signature Page for
The Equitable Life Assurance Society
of the United States
THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
By
------------------------------------
Name:
Title:
<PAGE>
UNDERWRITING AGREEMENT
Signature Page for
Equitable Variable Life Insurance Company
EQUITABLE VARIABLE LIFE
INSURANCE COMPANY
By
------------------------------------
Name:
Title:
45
<PAGE>
UNDERWRITING AGREEMENT
Signature Page for the other
Selling Stockholders named in
Schedule III hereto
THE OTHER SELLING STOCKHOLDERS
NAMED IN SCHEDULE III HERETO
By
------------------------------------
Name:
Title:
46
<PAGE>
Accepted and agreed
June , 1996
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
SALOMON BROTHERS INC
By DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By
-----------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH INTERNATIONAL
SALOMON BROTHERS INTERNATIONAL LIMITED
By DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By
-----------------------------
47
<PAGE>
SCHEDULE I
----------
Number of Firm Shares
U.S. Underwriters to be Purchased
- ----------------- ---------------------
Donaldson, Lufkin & Jenrette
Securities Corporation
Merrill Lynch, Pierce, Fenner
& Smith Incorporated
Salomon Brothers Inc
--------
Total
<PAGE>
SCHEDULE II
-----------
Number of Firm Shares
International Underwriters to be Purchased
- -------------------------- ---------------------
Donaldson, Lufkin & Jenrette
Securities Corporation
Merrill Lynch International
Salomon Brothers International Limited
--------
Total
<PAGE>
SCHEDULE III
------------
Selling Stockholders
--------------------
Maximum
Number of
Number of Firm Additional
Name* Shares Being Sold Shares Being Sold
----- ----------------- -----------------
- ----------------
* Names marked with an asterisk are Management Selling Stockholders.
[DRINKER BIDDLE & REATH LETTERHEAD]
June 13, 1996
GTECH Holdings Corporation
55 Technology Way
West Greenwich, RI 02817
Ladies and Gentlemen:
We have acted as counsel to GTECH Holdings Corporation, a Delaware
corporation (the "Company"), in connection with the preparation and filing
with the Securities and Exchange Commission of a registration statement on
Form S-3 (No. 333-3602) under the Securities Act of 1933 (the "Registration
Statement") relating to 9,806,000 shares of the Company's common stock, par
value $.01 per share, plus up to an additional 980,957 shares to cover over-
allotments(collectively, the "Offered Shares"), to be sold by the Selling
Stockholders as referred to in the Registration Statement.
In this connection, we have examined the originals or copies,
certified or otherwise identified to our satisfaction, of the Certificate of
Incorporation and By-laws of the Company as amended to date, resolutions of
the Company's Board of Directors and stockholders, and such other documents
and corporate records relating to the Company and the issuance of the Offered
Shares as we have deemed appropriate. We express no opinion concerning the
laws of any jurisdiction other than the laws of the Commonwealth of
Pennsylvania, the federal law of the United States, and the General
Corporation Law of the State of Delaware.
On the basis of the foregoing, we are of the opinion that the Offered
Shares have been duly and validly issued and are fully paid and non-assessable
by the Company under the laws of the State of Delaware.
We hereby consent to the reference to our firm under the caption
"Legal Matters" in the prospectus included in the Registration Statement and
to the filing of this opinion as an exhibit to the Registration Statement. This
does not constitute a consent under Section 7 of
<PAGE>
the Securities Act of 1933 since we have not certified any part of the
Registration Statement and do not otherwise come within the categories of
persons whose consent is required under Section 7 of the rules and
regulations of the Securities and Exchange Commission.
Very truly yours,
/s/DRINKER BIDDLE & REATH
DRINKER BIDDLE & REATH
JCBjr:HSB
SECOND AMENDMENT
TO THE
CONTRACT FOR THE
TEXAS LOTTERY OPERATOR
FOR THE
STATE OF TEXAS
BETWEEN
COMPTROLLER OF PUBLIC ACCOUNTS - LOTTERY DIVISION
AND
GTECH CORPORATI0N
("CONTRACT")
WHEREAS, the Texas Lottery Commission ("Lottery") was created by the provisions
of HB 1587, 73rd Legislature, Regular Session and in accordance with HB 1587 the
Comptroller of Public Accounts transferred all obligations relating to the
administration and operation of the State Lottery to the Lottery; and
WHEREAS, the Contract was executed by the parties on March 7, 1992, with a term
ending on August 31, 1997, and was amended by that certain Amendment dated June
1, 1994; and
WEREAS, Section 3.14 of the Request for Proposals for Lottery Operator, ("RFP"),
Exhibit A to the Contract, provides that the Lottery may extend the Contract for
up to five (5) one (1) year periods; and
WHEREAS, Section VI of the Contract provides that the parties may by mutual
agreement modify the Contract; and
WHEREAS, the Lottery desires to reduce the rate contained in GTECH Corporation's
("GTECH") cost proposal; and
1
<PAGE>
WHEREAS, the Lottery and GTECH desire to amend the Contract to provide the
Lottery with six thousand (6,000) additional terminals; and
WHEREAS, the Lottery and GTECH desire to amend the Contract to provide the
Lottery with six thousand (6,000) additional play stations and five (5) new
trailers; and
WHEREAS, the parties desire to revise the liquidated damages language contained
in the RFP to reflect the current status of the Lottery; and
WHEREAS, the Lottery desires to amend the Contract to require GTECH to provide
one fully integrated computer system for both instant ticket and on-line ticket
operations; and
WHEREAS, the parties desire to amend the Contract to require the relocation of
the hot computer system backup site currently located in Irving, Texas; and
WHEREAS, the parties desire to allow greater flexibility, growth, throughput,
and cost effectiveness relating to the on-line telecommunications network
requirements by utilizing radio/satellite technology; and
WHEREAS, the Lottery desires to have GTECH locate a satellite hub in Texas for
the use of the aforementioned radio/satellite technology; and
WHEREAS, the Lottery wishes to ensure good faith efforts are made by GTECH to
obtain competitive proposals from minority vendors; and,
2
<PAGE>
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties agree as follows:
1. Pursuant to Section 3.14 of the RFP, Exhibit A to the Contract, the
Contract is hereby extended for five years, beginning September 1, 1997.
2. GTECH's cost proposal, Exhibit B-1 to the Contract, is amended as follows:
a. For the first year of the five year extension, September 1, 1997
through August 31, 1998, the rate is 3.781% of sales.
b. For the second year of the five year extension, September 1, 1998
through August 31, 1999, the rate is 3.657% of sales.
c. For the third year of the five year extension, September 1, 1999
through August 31, 2000, the rate is 3.361% of sales.
d. For the fourth year of the five year extension, September 1, 2000
through August 31, 2001, the rate is 3.151% of sales.
e. For the fifth year of the five year extension, September 1, 2001
through August 31, 2002, the rate is 3.050% of sales.
Any provision contained in the Contract, Exhibits to the Contract, or
Amendment to Contract, dated June 1, 1994, which is inconsistent or conflicts
with the foregoing language is hereby superseded.
3. GTECH will provide the Lottery with six thousand (6,000) additional on-line
terminals. In conjunction with the installation by GTECH of the additional
on-line terminals, GTECH will provide an installation schedule(s) to the Lottery
within thirty (30) days of receiving a list of the retailers approved for
installation by the Lottery. Such installation schedule(s) will include
terminals to be installed in accordance with the time
3
<PAGE>
frames set out in this Section and is subject to the written approval of the
Lottery, which shall not be unreasonably withheld.
Further, GTECH shall commence installation of terminals after the later of:
(a) ninety (90) days from receiving a list of retailers approved for
installation by the Lottery, and (b) the Lottery's approval of the installation
schedule. For each additional list of retailers provided by the Lottery to
GTECH, the provisions of Section 3 of this Second Amendment apply. GTECH will
conclude installation of on-line terminals within the time frame set out in each
installation schedule based on each corresponding list of retailers. In the
event however that successful completion is not accomplished, in accordance with
each installation schedule, as a direct cause of factors beyond GTECH's control
including, without limitation, (a) the telephone company's physical incapability
to install a terminal, and (b) the retailer's lack of cooperation and/or
inability to install a terminal, the time limitation for completion of such
terminals will be extended without penalty until the required number of
terminals on the corresponding installation schedule is installed. Failure to
install the on-line terminals in accordance with any installation schedule shall
result in the assessment of liquidated damages in the amount of $1,000 per
terminal not installed and additional liquidated damages of $100 per day, per
terminal.
During the installation of the terminals as set out in the aforementioned
installation schedule(s), damages shall not be assessed against GTECH for
terminal downtime of the terminals to be installed in accordance with the
corresponding installation schedule as a direct result of the terminal
installation and related solely to telecommunication failures of GTECH's
subcontractor(s). If such downtime occurs, GTECH will notify the Lottery of the
downtime within one (1) hour of GTECH becoming aware of the downtime. Within one
(1) business day of such notification, GTECH will provide such notification in
writing and include any additional information that is
4
<PAGE>
available at that time. Within one (1) business day of GTECH having sufficient
information to determine exact cause for the terminal downtime, GTECH will
provide documentation to the Lottery which establishes that the sole cause of
such downtime is telecommunication failures of GTECH's subcontractor(s) as a
result of the installation of the terminals. If GTECH fails to provide the
Lottery with the aforementioned documentation within one (1) week of such
notification or if the documentation does not, within the Lottery's sole
judgment, show that the sole cause of the terminal downtime is telecommunication
failure of GTECH's subcontractors due to the installation of terminals, the
Lottery shall assess liquidated damages against GTECH for such downtime. In the
event liquidated damages are assessed against GTECH, such damages will be
assessed using the methodology set out in Section 6b of the Amendment to the
Contract, dated June 1, 1994. The provisions of Section 6b of the Amendment to
the Contract, dated June 1, 1994 are not effective as to a particular
installation schedule until GTECH has received written approval by the Lottery
of the installation schedule and, said provisions of this paragraph shall
terminate as to each set of terminals installed related to a particular
installation schedule.
Any provision contained in the Contract, Exhibits to the Contract, or the
Amendment to the Contract, dated June 1, 1994 which is inconsistent or conflicts
with the foregoing language is hereby superseded and replaced with the foregoing
language. At a minimum, the Contract provisions which the parties acknowledge
are inconsistent and conflict with the foregoing language and hereby superseded
are: (1) the first sentence of the first paragraph of Section 6.12 of the RFP,
Exhibit A to the Contract, (2) the second sentence of the third paragraph of
Section 6.1 of the RFP, Exhibit A to the Contract, and (3) paragraph 3 of the
Amendment to the Contract, dated June 1, 1994.
5
<PAGE>
4. GTECH will install six thousand (6,000) additional play stations. GTECH
shall order the play stations for each list of new retailers referred to in
Section 3 of this Second Amendment and shall install such play stations within
ninety (90) days of the installation of the corresponding terminal.
Any provision contained in the Contract, Exhibits to the Contract, or
Amendment to Contract, dated June 1, 1994, which is inconsistent or conflicts
with the foregoing language is hereby superseded. At a minimum, the Contract
provision which the parties acknowledge is inconsistent and conflicts with the
foregoing language and hereby superseded is Section 5.25.1 of GTECH's Proposal,
Exhibit B to the Contract.
5. GTECH will supply the Lottery with five (5) new trailers indentical to the
existing trailers in their original condition within six (6) months after the
date of execution of this Second Amendment to this Contract and will refurbish
the five (5) existing trailers such that the refurbished trailers will be
returned to their original condition within six (6) months after the date of
execution of this Second Amendment.
Any provision contained in the Contract, Exhibits to the Contract, or
Amendment to Contract, dated June 1, 1994, which is inconsistent or conflicts
with the foregoing language is hereby superseded.
6. GTECH will provide the Lottery with a platform system provided by a single
vendor within three (3) years after the date of execution of this Second
Amendment to the Contract. GTECH will in good faith, use its best efforts to
provide such platform system earlier than three (3) years after the date of
execution of this Second Amendment. Such single platform will incorporate both
instant ticket operations and
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on-line ticket operations, will be fully operational, and shall be subject to
the approval of the Lottery which shall not be unreasonably withheld.
any provision contained in the Contract, Exhibits to the Contract, or
Amendment to Contract, dated June 1, 1994, which is inconsistent or conflicts
with the foregoing language is herby superseded.
7. GTECH will relocate the hot computer backup site, currently located in
Irving, Texas, to another site. The selection of such site is subject to the
approval of the Lottery.
Any provision contained in the Contract, Exhibits to the Contract, or
Amendment to Contract, dated June 1, 1994, which is inconsistent or conflicts
with the foregoing language is hereby superseded.
8. GTECH will maintain at least 12,000 on-line terminals on the leased line
network. GTECH may use radio/satellite technology, in lieu of the leased line
network, to install and maintain on-line terminals in excess of the previously
mentioned 12,000 terminals. Such installation of any terminal using
radio/satellite technology is subject to the approval of the Lottery which shall
not be unreasonably withheld. The Lottery acknowledges that the above-referenced
12,000 figure contemplates a terminal population well in excess of 12,000. In
the event the number of terminals is reduced by the Lottery in the future such
that there are less than 12,000 terminals on the leased line network, GTECH
shall not be obligated to convert any terminals using radio/satellite technology
to the leased line network in order to reach the 12,000 figure.
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In addition to the foregoing language, should the Lottery decide to
maintain terminals using radio/satellite technology, upon written request by the
Lottery, GTECH will transfer to the Lottery all licenses and permits it obtained
from the appropriate regulatory agencies, both federal and state, necessary to
use radio/satellite technology. The parties will cooperate with each other in
such efforts.
9. GTECH will place a satellite hub in Texas within one year after the date of
execution of this Second Amendment. The location in Texas and the use by GTECH
of the satellite hub is subject to the approval of the Lottery which shall not
be unreasonably withheld.
Any provision contained in the Contract, Exhibits to the Contract, or
Amendment to Contract, dated June 1, 1994, which is inconsistent or conflicts
with the foregoing language is hereby superseded.
10. GTECH will provide all required daily processing tapes on cartridge tape
media. The Lottery will return such tapes to GTECH in accordance with the
Lottery's retention schedule.
Any provision contained in the Contract, Exhibits to the Contract, or
Amendment to Contract, dated June 1, 1994, which is inconsistent or conflicts
with the foregoing language is hereby superseded.
11. GTECH will continue to make good faith efforts to reach and exceed its goal
of obtaining competitive proposals from minority vendors.
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Any provision contained in the Contract, Exhibits to the Contract, or
Amendment to Contract, dated June 1, 1994, which is inconsistent or conflicts
with the foregoing language is hereby superseded.
12. The following liquidated damages will apply to the operations under the
Contract and any Amendments to the Contract and supersede the liquidated damages
provisions set out in Section 3.36 of this Request for Proposals, Exhibit A to
the Contract. The provisions of sections 5 and 6 of the Amendment to the
Contract, dated June 1, 1994 relating to liquidated damages as a result of the
failure to provide incident reports and downtime, respectively, are in full
force and effect, and, are in addition to the following liquidated damages
provisions. Unless specified otherwise, the following liquidated damages
provisions will apply to both on-line and instant systems.
a. Failure to complete testing of all applications on the Lottery
Management Operating System: $25,000 per day.
b. Instant/Management system down-time that results in the inability to
perform required operational functions: $1,000.00 per minute, up to a
maximum of $100,000.00 per day.
c. Failure to provide the Lottery with required daily processing tapes on
cartridge tape media that are processable and correctly labeled:
$5,000.00 per tape per day.
d. Instant Ticket inventory shortage: $10,000.00 per incident plus the
face value of missing tickets.
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e. Failure to provide the Lottery with daily processing tapes before a
drawing : $25,000 per incident.
f. Failure to cut off a game at the proscribed time: $50,000.00 per
incident.
g. The failure of GTECH to perform any functions that lead to the delay
of implementing new games, or game modifications: $50,000.00 per day.
h. Allowing unauthorized access to GTECH's secured facilities: $500.00
per incident.
i. Allowing unauthorized software modifications: $50,000.00 per incident
and $5,000.00 per day if modifications are not removed.
j. Failure to provide system enhancements: $10,000.00 per day.
k. Failure to provide required reports or revised reports on a timely
basis or as scheduled: $1,000.00 per day.
l. Failure to deliver instant tickets within a 24-hour period: $100.00
per pack.
m. Failure to install off line bar code equipment at a retailer location
according to schedule: $50.00 per incident, per day.
n. Failure to repair off line bar code equipment at a retailer location
within a 24-hour period: $50.00 per day.
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o. If an employee (or an employee's family member residing in the same
principle place of residence) of GTECH claims any lottery prize:
$100,000.00 per incident.
p. Failure to visit a retailer twice a month: $25.00 per visit missed.
q. Failure to install a play station according to the Contract
provisions, including the Second Amendment to the Contract: $10.00
per day per item not installed.
13. The following language contained in Section 3.21 of the Request for
Proposals dated December 21, 1991 ("RFP"), Exhibit A to the Contract:
The Lottery reserves the right, for any reason whatsoever, to terminate
the contract, in whole or in part, by thirty (30) days advance written
notice to the Successful Proposer.
is amended to read as follows:
The Lottery reserves the right, for any reason whatsoever (including but
not limited to changed circumstances such as the passage of legislation
that would require additional terminals in excess of those terminals
referenced in the Contract documents and the failure of good faith
negotiations to obtian such additional terminals) to terminate the
contract, in whole or in part, upon no less than thirty (30) days advance
written notice to the Successful Proposer.
Any provision contained in the Contract, Exhibits to the Contract, or
Amendment to Contract, dated June 1, 1994, which is inconsistent or conflicts
with the foregoing language is hereby superseded.
14. Except as amended hereby, all of the terms of Contract, including the
Amendment to the Contract, dated June 1, 1994, remain in full force and effect.
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15. The terms of the Second Amendment to the Contract are effective as of the
date of execution except as otherwise provided herein.
IN WITNESS WHEREOF, the parties have executed this Second Amendment, as of
May 28, 1996.
TEXAS LOTTERY COMMISSION GTECH CORPORATION
/s/ NORA A. LINARES /s/ MICHAEL R. CHAMBRELLO
- --------------------------------- ---------------------------------
NORA A. LINARES MICHAEL R. CHAMBRELLO
EXECUTIVE DIRECTOR V.P. OPERATIONS
12
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 2 to the Registration Statement (Form S-3 No. 333-3602) and related
Prospectus of GTECH Holdings Corporation and to the incorporation by reference
therein of our report dated April 15, 1996, with respect to the consolidated
financial statements and schedule of GTECH Holdings Corporation included in its
Annual Report (Form 10-K) for the fiscal year ended February 24, 1996, filed
with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Providence, Rhode Island
June 11, 1996
[PRICE WATERHOUSE LETTERHEAD]
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of GTECH Holdings
Corporation, of our report dated March 29, 1995 with respect to the financial
statements of Racimec Informatica Brasileira S.A. as of and for the year ended
February 28, 1995, included in the Annual Report on Form 10-K of GTECH Holdings
Corporation for the fiscal year ended February 24, 1996. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
/s/ PRICE WATERHOUSE
Price Waterhouse
Auditores Independentes
CRC-SP-160-S-RJ
/s/ MICHAEL ALAN HOPKIN
Michael Alan Hopkin
Partner
Contador CRC-SP-106.766-S-RJ
Rio de Janeiro,
June 7, 1996
[PRICE WATERHOUSE LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of GTECH Holdings
Corporation, of our report date April 9, 1996 with respect to the consolidated
financial statements of Camelot Group PLC as of February 3, 1996 and February 4,
1995 and for the year ended February 3, 1996 and for the period from April 1,
1994 through February 4, 1995, included in the Annual Report on Form 10-K of
GTECH Holdings Corporation for the fiscal year ended February 24, 1996. We also
consent to the reference to us under the heading "Experts" in such Prospectus.
/s/ PRICE WATERHOUSE
Price Waterhouse
London, England
June 7, 1996
Exhibit 99.1
SUPPLEMENTARY LIST OF PRESENT AND FORMER EMPLOYEES
WHO ARE SELLING SHAREHOLDERS
The following present or former employees of the Company have exercised
their respective contractual rights under or pursuant to the Amended and
Restated Stockholders Agreement dated as of July 20, 1992 to participate in the
Offerings in the following amounts:
PRE-OFFERING
NAME SHARES SHARES OFFERED
Applegate, K. 669 234
Beason, S. 500 175
Bergeron, D. 335 117
Chillemi, C. 463 162
Friedman, J. 750 263
Henderson, R. 669 234
Kasman, L. 1,670 585
Klingman, R. 500 175
Radigan, B. 1,500 500
Supron, N. 2,500 875
Tiberio, J. 592 207
Total 10,148 3,527
