<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 26, 1996
REGISTRATION NO. 333-______
==================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
INTERNATIONAL LOTTERY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 7993 31-1297916
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Identification
organization) Classification Code Number)
Number)
6665 CREEK ROAD
CINCINNATI, OHIO 45242
(513) 792-7000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
L. ROGERS WELLS, JR.
6665 CREEK ROAD
CINCINNATI, OHIO 45242
(513) 792-7000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
THE COMMISSION IS REQUESTED TO SEND COPIES OF ALL COMMUNICATIONS TO:
M. HILL JEFFRIES, ESQ.
ALSTON & BIRD
ONE ATLANTIC CENTER
1201 WEST PEACHTREE STREET
ATLANTA, GEORGIA 30309-3424
(404) 881-7000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
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: [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=================================================================================================
Title of Shares to Amount Proposed Maximum Proposed Maximum Amount of
be Registered to be Registered Offering Price Per Aggregate Offering Registration
Share(1) Price(1) Fee(1)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01
par value per share 100,000 shares $9.6875 $968,750 $334.06
=================================================================================================
</TABLE>
(1) Pursuant to Rule 457(c), the proposed maximum offering price per share and
registration fee are based upon the average of the high and low prices of the
Registrant's Common Stock on July 25, 1996 as reported on the American Stock
Exchange.
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> 2
PROSPECTUS
100,000 Shares
INTERNATIONAL LOTTERY, INC.
Common Stock
-----------------------
This prospectus relates to the offering for resale of 100,000 shares (the
"Shares") of Common Stock, $.01 par value per share (the "Common Stock"), of
International Lottery, Inc., a Delaware corporation (the "Company"), for the
account of The American Trading Group, Inc., a Kentucky corporation (the
"Selling Stockholder"). The Company will not receive any proceeds from the
sale of the Shares by the Selling Stockholder.
The Common Stock is traded on the American Stock Exchange under the symbol
"ILI." On July 25, 1996, the closing sale price for the Common Stock on the
American Stock Exchange was $9.875 per share.
----------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
----------------------------------
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.
----------------------------------
All or a portion of the Shares may be offered by the Selling Stockholder
from time to time (i) in transactions (which may include block transactions) on
the American Stock Exchange or such other national securities exchange or
automated interdealer quotation system on which shares of the Company's Common
Stock are then traded, (ii) in negotiated transactions, or (iii) by a
combination of such methods of sale, at fixed prices, which may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices, or at negotiated prices. The Selling Stockholder may
effect such transactions by selling the Shares directly to purchasers or
through underwriters, agents or broker-dealers, and any such underwriters,
agents or broker-dealers may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholder and/or the purchasers
of the Shares for whom such underwriters, agents or broker-dealers may act as
agents or to whom they sell as principals, or both (which compensation as to a
particular underwriter, agent or broker-dealer might be in excess of customary
compensation). See "Selling Stockholder" and "Sale of Shares." L. Rogers
Wells, Jr., who sold the Shares to the Selling Stockholder and who is the
Company's Chairman of the Board, Chief Executive Officer and majority
stockholder, will bear all expenses in connection with the registration and
sale of the Shares being offered by the Selling Stockholder, other than
discounts, concessions or commissions to underwriters, agents or broker-dealers
and fees and expenses of counsel and other advisors to the Selling Stockholder.
The date of this Prospectus is July 26, 1996.
<PAGE> 3
DOCUMENTS INCORPORATED BY REFERENCE
The following documents have been filed by the Company with the Securities
and Exchange Commission ("Commission") pursuant to the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and are incorporated herein by
reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.
2. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1996.
3. The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A dated April 11, 1994.
In addition, all documents filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior
to the termination of the offering hereunder shall be deemed to be incorporated
by reference in this Prospectus and to be part hereof from the date of filing
of such documents. Any statement contained in a document incorporated by
reference herein shall be deemed to be modified or superseded for all purposes
to the extent that a statement contained herein or in any other subsequently
filed document which is deemed to be incorporated by reference herein modifies
or supersedes such statement. Any statement so modified or superseded shall
not be deemed, except as modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person, to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person,
a copy of any and all of the documents incorporated by reference (not including
the exhibits to such documents, unless such exhibits are specifically
incorporated by reference in such documents). Requests for such copies should
be directed to Mr. Jerome J. Cain, International Lottery, Inc., 6665 Creek
Road, Cincinnati, Ohio 45242, or by telephone at (513) 792-7000 or facsimile at
(513) 792-7001.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy and information
statements and other information with the Commission. Such reports, proxy and
information statements and other information filed by the Company with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549; and at the Commission's Northeast Regional Office, 7 World Trade
Center, Suite 1300, New York, New York 10048, and Midwest Regional Office,
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can also be obtained at prescribed rates
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington D.C. 20549. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants such as the Company that file electronically with the Commission.
Such reports, proxy and information statements and other information may be
found on the Commission's site address, http://www.sec.gov. In addition, such
reports, proxy and information statements and other information concerning the
Company may be inspected at the offices of the American Stock Exchange, 86
Trinity Place, New York, New York 10006-1881.
The Company has filed a Registration Statement on Form S-3 (together with
all amendments and exhibits filed or to be filed in connection therewith, the
"Registration Statement") with the Commission pursuant to the Securities Act of
1933, as amended (the "Securities Act"), of which this Prospectus forms a part.
This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Such additional information may
be obtained from the Commission's principal office in Washington, D.C.
Statements contained or incorporated by reference herein concerning the
provisions of documents are necessarily summaries of such documents, and each
statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission.
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IN CONNECTION WITH THIS OFFERING, ANY BROKERS OR DEALERS THAT MAY
PARTICIPATE IN THE OFFERING MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH
STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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<PAGE> 5
THE COMPANY
International Lottery, Inc. (the "Company") is engaged primarily in the
design, manufacture, sale, lease and service of instant lottery ticket vending
machines ("ITVMs"). ITVMs are used by public lotteries operated by states and
foreign public entities to dispense instant lottery tickets primarily in retail
locations such as supermarkets and convenience stores. Using the Company's
patented burster technology, the Company's ITVMs dispense instant lottery
tickets without the assistance of an employee of the lottery instant ticket
retailer or agent, thereby permitting the retailer or agent to sell tickets
without disrupting the normal duties of its employees.
As of June 30, 1996, the Company had sold or leased 9,286 under
agreements with 15 different state lotteries or their licensees or contractors.
The Company has been awarded contracts to provide ITVMs for eight of the last
ten state lotteries that have requested bid proposals and was the recipient of
all domestic ITVM contracts that were awarded in 1995 and through June 30,
1996. Additionally, lotteries in seven states and eight foreign jurisdictions
are currently testing the Company's ITVMs or have requested the Company to
provide ITVMs for testing.
The Company has recently developed and commenced initial deployments of a
prepaid phone card dispensing machine ("PCDM") that enables providers of long
distance telephone service to dispense prepaid telephone calling cards in
retail locations without the assistance of an employee of the retailer. The
Company's PCDM uses a dispensing process that incorporates a patented
technology to which the Company has acquired exclusive rights. Sales of the
Company's PCDMs began in the latter part of 1995. As of December 31, 1995 and
June 30, 1996, the Company had sold or leased a total of 149 and 222 PCDMs,
representing 2.1% and 1.3% of revenues, to 10 and 16 vendors of prepaid
telephone calling cards, respectively. Eight additional vendors currently are
testing the Company's PCDMs or have requested the Company to provide PCDMs for
testing.
The Company is a Delaware corporation that was incorporated in 1990. The
Company's Common Stock trades on the American Stock Exchange under the symbol
"ILI."
The Company's principal executive offices are located at 6665 Creek Road,
Cincinnati, Ohio 45242, and its telephone number is (513) 792-7000.
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the following information
relating to the Company and the Common Stock before making an investment in the
Common Stock offered hereby.
LIMITED OPERATING HISTORY; PREVIOUS OPERATING LOSSES
The Company has had a limited history of operations, having been founded
in February 1990, and it incurred net losses in three of the last five fiscal
years (the Company recorded net income (loss) of ($1,194,727), ($2,323,444),
$276,907, ($932,100) and $1,987,219 for the five fiscal years in the period
ended December 31, 1995). As a result, the Company remains subject to the
risks inherent in a new enterprise, including the absence of a lengthy
operating history and competition from more established businesses.
FLUCTUATION IN FINANCIAL RESULTS
The Company historically has experienced fluctuations in its financial
results due to its dependence upon a small number of major customers, the
unpredictable nature and results of the lotteries' contract bid and award
processes, and the Company's limited operating history. The Company's revenues
and capital expenditures can vary significantly because the Company's sales
cycle may be relatively long and because the amount and timing of revenues and
capital expenditures depend on factors such as the amount and timing of awarded
contracts, changes in customer budgets and demands, and general economic
conditions. Operating results may be affected by the lead times sometimes
required for business development opportunities to result in signed lease or
sales agreements,
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<PAGE> 6
working capital requirements associated with manufacturing ITVMs pursuant to
new orders, increased competition and the extended time that may elapse between
the award of a contract and the receipt of revenues from the sale or lease of
ITVMs. The effect of these delays can make it difficult to forecast revenues
and expenditures related to such bids over extended periods. Variable
financial results could limit the Company's ability to attract additional
financing and expand its operations. Due to all of the foregoing factors, it
is likely that in some future quarter the Company's operating results will be
below the expectations of public market analysts and investors. In such event,
the price of the Common Stock likely would be materially adversely affected.
No assurance can be given that the Company will maintain profitability on a
quarterly or annual basis in the future.
GROWTH DEPENDENT UPON MARKET ACCEPTANCE OF INSTANT TICKET VENDING MACHINES
ITVMs were first used by lotteries in 1991, and the market for ITVMs
remains relatively new and emerging. Because the Company's business currently
consists primarily of designing, manufacturing and marketing ITVMs, any decline
in market acceptance of ITVMs, as well as any other event that results in a
decrease in leasing or purchasing ITVMs by lotteries, would have an adverse
effect on the Company. Currently, 37 states and the District of Columbia have
lotteries, each of which includes the instant winner format. However, only 26
states and the District of Columbia utilize ITVMs as part of the normal instant
ticket distribution process, although 6 additional states and 9 foreign
jurisdictions are currently in the testing and evaluation phase or have
requested that the Company provide ITVMs for testing and evaluation. The
Company's ability to generate additional revenues and earnings will depend upon
orders for additional ITVMs by the 26 states and the District of Columbia that
currently utilize ITVMs, the implementation of programs that use ITVMs to
distribute tickets in the 11 additional states as well as foreign jurisdictions
that have instant ticket lotteries, and the approval of lotteries by the
remaining states and foreign jurisdictions. Future orders of ITVMs by
lotteries will depend in large part on continued market acceptance of ITVMs, of
which there can be no assurance. See "Risk of Industry and Technological
Changes" below. Accordingly, there can be no assurance that any significant
number of jurisdictions will implement or expand lottery programs that utilize
ITVMs.
DEPENDENCE UPON LIMITED CUSTOMER BASE
Substantially all of the Company's revenues are derived from its contracts
with a limited number of state lottery authorities or their representatives for
the lease, sale or service of ITVMs. During 1994, 1995 and the first six
months of 1996, agreements with the Ohio Lottery, the New York Lottery and
Scientific Games, Inc., the primary contract for the Georgia Lottery, accounted
for 83.3%, 66.0% and 72.5%, respectively, of the Company's revenues. The loss
of any of these contracts, or of more recent contracts for large numbers of
ITVMs such as those with the Texas and Iowa Lotteries, would have a material
adverse impact on the Company's financial condition, business operations and
prospects. In the near term, the Company will continue to be dependent upon a
limited number of lotteries for substantially all of its future revenues.
DEPENDENCE ON PROPRIETARY TECHNOLOGY; RISK OF INFRINGEMENT
The Company's success is heavily dependent on the dispensing technology
used in its ITVM and, to a lesser extent, in its PCDM. The Company seeks to
protect its proprietary technology through a patent on the burster technology
used in its ITVM that expires on December 31, 2007, a patent on the dispensing
process used in its PCDM that expires in August 2011, and certain
trademarks, trade secrets, copyrights and employee nondisclosure agreements,
which provide only limited protection. There can be no assurance that current
or future patents and other intellectual property rights will afford meaningful
protection of the Company's competitive position or that competitors may not
obtain patents of superior technology or independently develop substantial
equivalents of the Company's trade secrets or proprietary technologies. In
addition, the laws of some foreign countries do not protect the Company's
proprietary rights to as great an extent as the laws of the United States. The
Company is not aware that its products infringe the proprietary rights of third
parties. There can be no assurance, however, that third parties will not claim
infringement by the Company with respect to current or future products. Any
such claims, with or without merit, could be time-consuming, result in costly
and uncertain litigation, cause product shipment delays, require the Company to
enter into royalty or licensing agreements or cause the Company to discontinue
the use of the challenged technology, software, tradename or service mark at
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potentially significant expense to the Company associated with the development
or purchase of replacement technology or the marketing of a new name or mark,
all of which could have a material adverse effect on the Company. Such royalty
or licensing agreements, if required, may not be available on terms acceptable
to the Company, or at all, which could have a material adverse effect upon the
Company's business, operating results and financial condition.
RISK OF INDUSTRY AND TECHNOLOGICAL CHANGES
The instant ticket market and the ITVM market may face competition from
other types of lottery and gaming products. The market for the Company's
products is characterized by evolving industry practices, changing technology
and new legislation. The emergence of new industry practices, the introduction
of products embodying new technology or the adoption of new legislation could
render existing products obsolete and unmarketable. The Company's ability to
anticipate changes in industry practices, technology and law, as well as its
ability to successfully develop new and enhanced products on a timely basis,
will be crucial to its ability to grow and remain competitive.
RISK OF CONTRACT CANCELLATION AND DAMAGE ASSESSMENTS
The Company's contracts with lotteries, like most other types of state
contracts, generally can be terminated by the lotteries on 30 days' prior
notice to the Company. These contracts also generally impose demanding
installation and maintenance requirements, in addition to other performance
criteria, which, if not satisfied, could adversely affect the Company's
financial condition, business operations and prospects. The agreements
typically include liquidated damages and indemnification provisions which
present an ongoing risk of substantial expense if the Company fails to install
or repair its ITVMs in a timely manner. Failure to comply with these
provisions could subject the Company to significant damage assessments or
result in contract terminations. To date, no claims for liquidated damages or
indemnification have been asserted against the Company under any lottery
contracts, and none of the Company's lottery contracts has been canceled.
CONTROL BY PRINCIPAL STOCKHOLDER
Mr. L. Rogers Wells, Jr., who is the Chairman of the Board and Chief
Executive Officer of the Company, beneficially owns 50.74% of the Company's
Common Stock as of the date of this Prospectus. Mr. Wells therefore has
effective control over the Company through his ability to control the election
of directors and all other matters that require action by the Company's
stockholders. Such control by Mr. Wells may have the effect of preventing a
change in control of the Company which is opposed by Mr. Wells but which may be
favored by a majority of the remaining stockholders.
LONG-TERM FIXED-PRICE LEASE CONTRACTS
Lease revenues as a percentage of the Company's total revenues were 46.2%,
95.4%, 47.3% and 56.6% in 1993, 1994, 1995 and the first six months of 1996,
respectively. The Company has standard leases with ten states, one of which
expires in December 1996. The Standard Lease Agreements between the Company
and ten state lottery commissions provide that the lottery will pay a fixed
monthly price per machine for a specific period of time. These agreements
typically specify a number of years for the initial contract term, with
additional option periods at the election of the lottery. The lottery may
award a separate service contract for the maintenance of the machines,
incorporate the cost of service into the established monthly lease price or
perform machine service themselves. Because the lease payments are fixed in
most cases during the term of the agreement, the Company typically is unable to
pass along to the lottery any increase in its manufacturing and service costs
during the term of the typical Standard Lease Agreement. The Standard Lease
Agreements typically permit the lottery to order additional ITVMs at any time
during the lease term. If the lottery orders a significant number of ITVMs
near the end of the lease term, the Company would have to incur significant
manufacturing costs but may receive lease payments for only a relatively short
period of time through the remainder of the lease term. Additionally, in the
case of a Standard Lease Agreement which provides for a short initial term
(such as one year) with an option for the lottery to extend the lease term for
additional one year periods, if the lottery does not extend the initial lease
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<PAGE> 8
term the Company might incur a loss on the manufacture of the ITVMs leased
to the lottery under the initial lease agreement. It is uncertain whether the
Company would be able to re-lease or sell any ITVMs that may be returned to the
Company following the expiration or cancellation of a lease.
COMPETITION
The Company's ITVM competes primarily with an instant ticket vending
machine manufactured by Lottery Enterprises, Inc. Of the four ITVM competitors
in the United States, Lottery Enterprises, Inc. has the largest share of the
ITVM market in the United States, followed by the Company and two smaller
manufacturers. The competition between the Company and Lottery Enterprises,
Inc., and to a lesser extent the two smaller manufacturers, is intense for the
award of contracts to supply ITVMs to the various lotteries. In addition, the
ITVM market is a relatively new market that has grown rapidly, and additional
domestic and foreign companies, some of which have substantially greater
resources and experience in the domestic and international lottery markets, may
elect to enter the ITVM market if it continues to expand. The instant ticket
market also may face competition from other types of lottery and gaming
products, including particularly on-line lottery products. The Company
anticipates that it will continue its research and development efforts to
further enhance its products, and the Company also expects to continue its
efforts to lower the cost of its products through manufacturing efficiencies
and other cost saving measures in order to maintain a competitive price for its
products. These efforts, together with the Company's continuing sales and
marketing efforts, will be critical to the Company's future success. There can
be no assurance that the Company will be able to maintain or improve its
competitive position in the ITVM market.
DEPENDENCE UPON SUPPLIERS
The Company currently purchases certain components used in its ITVMs,
including components used in its burster mechanism and its bill acceptor
mechanism, from single suppliers. The purchase of components from outside
suppliers on a sole source basis subjects the Company to certain risks,
including the continued availability of suppliers, price increases, potential
quality assurance problems and leadtime considerations. Because other
suppliers exist that can duplicate these components should the Company elect or
be forced to use a different supplier, the Company does not believe that any
such change in suppliers would result in the termination of a production
contract. However, the Company could experience a delay of 30 to 60 days in
the production of ITVMs should it elect or be forced to use other suppliers for
these components. Any delay of more than 30 to 60 days could adversely affect
the Company's ability to make timely deliveries of ITVMs and to obtain new
contracts.
DEPENDENCE UPON KEY PERSONNEL
The Company's success depends to a large extent on the skills and efforts
of L. Rogers Wells, Jr. and Edmund F. Turek, its Chairman and Chief Executive
Officer and its President, respectively. The loss of the services of Mr. Wells
or Mr. Turek could have a material adverse effect on the Company. Mr. Wells
and Mr. Turek have entered into employment agreements with the Company which
expire in April 1997. Additionally, while the Company maintains key man life
insurance on Mr. Turek in the amount of $1,000,000, the Company does not
maintain key man life insurance on Mr. Wells. The Company's business also
requires that it continue to attract and retain additional personnel with a
variety of skills, especially with engineering and marketing expertise.
Significant competition exists for such personnel, and there can be no
assurance that the Company will be able to attract and retain personnel with
the skills and experience needed to achieve and manage growth.
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FOREIGN SALES AND OPERATION RISKS
The Company intends to increase its marketing activities in foreign
jurisdictions, including Canada, Australia, Europe and South America. The
Company's business in foreign markets will be subject to the risks customarily
associated with such activities, including expropriation, nationalization and
other economic, tax and regulatory policies of local governments, as well as
the laws and policies of the United States affecting foreign trade and
investment. In addition, the collection of receivables in foreign
jurisdictions may be more difficult and costly than in the United States.
MARKET ACCEPTANCE OF AND OTHER RISKS ASSOCIATED WITH PHONE CARD DISPENSING
MACHINES
The Company commenced initial deployments of its PCDM in late 1995 and has
made only an initial and limited penetration of the PCDM market to date. The
Company's ability to generate revenues and earnings from the deployment of its
PCDMs will depend substantially upon market acceptance of PCDMs. The Company
believes that the sale of prepaid long distance calling cards and the use of
PCDMs are in the early stages of market development in the United States and
anticipates the continued development of the market. However, any decline in
the popularity of prepaid telephone calling cards or in the market acceptance
of PCDMs would limit the Company's ability to generate revenues and earnings
from its PCDM. Additionally, the Company is aware of approximately 20
competitors in the PCDM market, of which Lottery Enterprises, Inc. is believed
to be the largest. The Company also purchases certain imported components of
its PCDM dispensing mechanisms from a single supplier and is therefore subject
to the various risks associated therewith, although other suppliers exist that
could duplicate these components if necessary. There can be no assurance that
the Company will be able to successfully develop the market for, manufacture
and profitably sell its PCDMs.
VOLATILITY OF MARKET PRICE FOR COMMON STOCK
From time to time there may be significant volatility in the market price
of the Common Stock. The stock market has periodically experienced significant
price and volume fluctuations, which may be unrelated to the operating
performance of particular companies. Factors such as actual or anticipated
operating results, growth rates, changes in estimates by analysts, market
conditions in the industry, announcements by competitors, regulatory actions
and general economic conditions will vary from period to period. As a result
of the foregoing, the Company's operating results and prospects from time to
time may be below the expectations of public market analysts and investors.
Any such event would likely result in a material adverse effect on the price of
the Common Stock. Additionally, future sales of substantial amounts of the
Common Stock could adversely affect the market price of the Common Stock. Mr.
L. Rogers Wells, Jr. is the beneficial owner of approximately 50.74% of the
Common Stock as of the date of this Prospectus, but Mr. Wells has advised the
Company that he has no firm plans with regard to the sale of any of his shares
of Common Stock as of the date of this Prospectus.
ANTI-TAKEOVER PROVISIONS OF THE ARTICLES OF INCORPORATION
Under the terms of the Company's Certificate of Incorporation, the members
of the Board of Directors are divided into three classes, each of which serves
a term of three years and may be removed only for cause by shareholder vote at
a special meeting. A classified Board of Directors may delay, defer or prevent
a takeover attempt that a shareholder of the Company might consider to be in
the interests of the Company and its shareholders. In addition, the
Certificate of Incorporation authorizes the Board of Directors to issue shares
of preferred stock from time to time in one or more designated series or
classes. The Board of Directors, without approval of the shareholders, is
authorized to establish voting, dividend, redemption, conversion, liquidation
and other provisions of a particular series or class of preferred stock. The
issuance of preferred stock could, among other things, adversely affect the
voting power or other rights of the holders of Common Stock and, under certain
circumstances, make it more difficult for a third party to acquire, or
discourage a third party from acquiring, control of the Company.
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SELLING STOCKHOLDER
The Shares offered hereby are owned by and offered for the account of The
American Trading Group, Inc., the Selling Stockholder. The Company will not
receive any of the proceeds from the sale of the Shares. The Selling
Stockholder acquired the Shares from Mr. L. Rogers Wells, Jr., the Company's
Chairman of the Board, Chief Executive Officer and majority stockholder, as
consideration for financial consulting services with regard to the Company that
were performed for Mr. Wells from 1992 to 1995 by the Selling Stockholder,
principally through John D. Kelly, who is the sole director, executive officer
and stockholder of the Selling Stockholder. If all 100,000 of the Shares
offered by the Selling Stockholder (which constitute 3.12% of the outstanding
Common Stock of the Company as of the date of this Prospectus) are sold,
neither the Selling Stockholder nor Mr. Kelly will have any beneficial
ownership of any shares of the Company's Common Stock.
SALE OF SHARES
The Shares may be sold from time to time by the Selling Stockholder, or by
pledgees, donees, transferees or other successors in interest. Such sales may
be made from time to time (i) in transactions (which may include block sales)
on the American Stock Exchange or such other national securities exchange or
automated interdealer quotation system on which shares of Common Stock are then
listed, (ii) in negotiated transactions, or (iii) through a combination of such
methods of sale, at fixed prices, which may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, or at negotiated prices. The Shares may be sold directly to purchasers
or through underwriters, agents or broker-dealers by one or more of the
following: (a) ordinary brokerage transactions and transactions in which the
broker solicits purchasers; (b) purchases by a broker or dealer as principal
and resale by such broker or dealer for its account pursuant to this
Prospectus; (c) a block trade in which the broker or dealer so engaged will
attempt to sell the Shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction; (d) an exchange
distribution in accordance with the rules of the exchange or automated
interdealer quotation system on which the Common Stock is then listed; and (e)
through the writing of options on the Shares. Any such underwriters, agents or
broker-dealers may receive compensation in the form of discounts, concessions
or commissions from the Selling Stockholder and/or the purchasers of the Shares
for which such underwriters, agents or broker-dealers may act as agents or to
whom they sell as principals, or both (which compensation as to an underwriter,
agent or particular broker-dealer will be negotiated prior to the sale and may
be in excess of customary compensation). If required by applicable law at the
time a particular offer of Shares is made, the terms and conditions of such
transaction will be set forth in a Prospectus Supplement to this Prospectus.
In addition, any Shares covered by this Prospectus which qualify for sale
pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather
than pursuant to this Prospectus.
The Selling Stockholder and any underwriters, agents or broker-dealers who
act in connection with the sale of the Shares hereunder may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act, and
any compensation received by them might be deemed to be underwriting discounts
and commissions under the Securities Act.
Under agreements that the Selling Stockholder and the Company may enter
into, underwriters, broker-dealers and/or agents who participate in the
distribution of the Shares may be entitled to indemnification by the Selling
Stockholder and the Company against certain liabilities, including liabilities
under the Securities Act. Pursuant to a Registration, Indemnification and
Contribution Agreement by and between the Company, Mr. Wells and the Selling
Stockholder, the Selling Stockholder and the Company have agreed to indemnify
each other against certain liabilities, including liabilities under the
Securities Act. Mr. Wells will bear all expenses in connection with the
registration and sale of the Shares being offered by the Selling Stockholder,
other than discounts, concessions or commissions to underwriters, agents,
brokers or dealers, fees and expenses of counsel and other advisors to the
Selling Stockholder, and all transfer or other taxes on the sale of the Shares.
Any underwriters, agents, brokers or dealers that may participate in the
offer and sale of the Shares may engage in passive market making transactions
in the Common Stock on the American Stock Exchange or other
-9-
<PAGE> 11
applicable securities trading facility in accordance with Rule 10b-6A under the
Exchange Act. Passive market making consists of, among other things,
displaying bids limited by the bid prices of independent market makers and
purchases limited by such prices and effected in response to order flow. Net
purchases by a passive market maker on each day are limited to a specified
percentage of the passive market maker's average daily trading volume in the
Common Stock during a specified prior period, and all possible market making
activity must be discontinued when such limit is reached. Passive market
making may stabilize the market price of the Common Stock at a level above that
which might otherwise prevail and, if commenced, may be discontinued at any
time.
LEGAL MATTERS
Certain legal matters in connection with the Common Stock offered hereby
will be passed upon for the Company by Alston & Bird, Atlanta, Georgia.
EXPERTS
The financial statements and schedule of International Lottery, Inc. as
of December 31, 1994 and 1995, and for each of the years in the three year
period ended December 31, 1995, have been incorporated by reference herein and
in the Registration Statement in reliance upon the report KPMG Peat Marwick
LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
-10-
<PAGE> 12
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING
STOCKHOLDER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DOCUMENTS INCORPORATED BY REFERENCE.............................. 2
AVAILABLE INFORMATION............................................ 2
THE COMPANY...................................................... 4
RISK FACTORS..................................................... 4
SELLING STOCKHOLDER.............................................. 9
SALE OF SHARES................................................... 9
LEGAL MATTERS.................................................... 10
EXPERTS.......................................................... 10
</TABLE>
100,000 Shares
[LOGO] INTERNATIONAL LOTTERY, INC.
INTERNATIONAL
LOTTERY, INC.
Common Stock
PROSPECTUS
July 26, 1996
<PAGE> 13
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses in connection with the distribution of the Common Stock are
set forth in the following table. All amounts except the Securities and
Exchange Commission registration fee are estimated. The expenses set forth
below will be borne by Mr. L. Rogers Wells, Jr., who is the Chairman of the
Board, Chief Executive Officer and majority stockholder of the Company. The
Selling Stockholder will pay all discounts, concessions or commissions to
underwriters, agents, brokers or dealers, all fees and expenses of its counsel
and other advisors, and all transfer or other taxes on the sale of the Shares.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee .................. $ 334
Legal fees and expenses............................................... 10,000
Accountants' fees and expenses........................................ 2,800
Miscellaneous......................................................... 1,866
-------
Total............................................................ $15,000
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Eight of the Company's Certificate of Incorporation provides for
the elimination of personal monetary liabilities of directors of the Company
for breaches of their fiduciary duties as directors, except that, as provided
by Section 102(b)(7) of the General Corporation Law of Delaware (the "GCL"),
such personal monetary liability of a director may not be eliminated with
regard to any breach of the duty of loyalty, failing to act in good faith,
intentional misconduct or knowing violation of law, payment of an unlawful
dividend, approval of an illegal stock repurchase, or obtainment of an improper
personal benefit. Such a provision has no effect on the availability of
equitable remedies, such as an injunction or rescission, for breach of
fiduciary duty.
Article Nine of the Company's Certificate of Incorporation provides for
indemnification of directors and officers of the Company to the extent
permitted by the GCL. Section 145 of the GCL provides for indemnification of
directors and officers from and against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement reasonably incurred by them in
connection with any civil, criminal, administrative or investigative claim or
proceeding (including civil actions brought as derivative actions by or in the
right of the corporation but only to the extent of expenses reasonably incurred
in defending or settling such action) in which they may become involved by
reason of being a director or officer of the corporation if the director or
officer acted in good faith and in a manner which he reasonably believed to be
in or not opposed to the best interest of the corporation and, in addition, in
criminal actions, if he had no reasonable cause to believe his conduct to be
unlawful. If, in an action brought by or in the right of the corporation, the
director of officer is adjudged to be liable for negligence or misconduct in
the performance of his duty, he will only be entitled to such indemnity as the
court finds to be proper. Persons who are successful in defense of any claim
against them are entitled to indemnification as of right against expenses
actually and reasonably incurred in connection therewith. In all other cases,
indemnification shall be made (unless otherwise ordered by a court) only if the
board of directors, acting by a majority vote of a quorum of disinterested
directors, independent legal counsel or holders of a majority of the shares
entitled to vote determines that the applicable standard of conduct has been
met. Section 145 also provides such indemnity for directors and officers of a
corporation who, at the request of the corporation, act as directors, officers,
employees or agents of other corporations, partnerships or other enterprises.
The Company maintains directors and officers liability insurance which
insures against liabilities that directors and officers of the Company may
incur in such capacities.
II-1
<PAGE> 14
Pursuant to a Registration, Indemnification and Contribution Agreement
between the Company, Mr. Wells and the Selling Stockholder, the Selling
Stockholder has agreed to indemnify the Company and its directors, officers and
controlling persons against all losses, claims, damages and liabilities that
arise out of or are based upon any alleged untrue statement of material fact in
this Registration Statement, or any alleged omission to state a material fact
required to be stated herein or necessary to make the statements herein not
misleading, but only with respect to information furnished in writing by or on
behalf of the Selling Stockholder for use in this Registration Statement.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------
<S> <C>
5 Opinion of Alston & Bird.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Alston & Bird (included in Exhibit 5).
24 Power of Attorney (included on signature page).
99 Form of Registration, Indemnification and Contribution Agreement
by and between the Company, L. Rogers Wells, Jr. and The American
Trading Group, Inc.
</TABLE>
ITEM 17. UNDERTAKINGS
A. RULE 415 OFFERING.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in the
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and
any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
Registration Statement;
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
II-2
<PAGE> 15
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new Registration Statement relating to the securities offered herein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
B. SUBSEQUENT DOCUMENTS INCORPORATED BY REFERENCE.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
C. INDEMNIFICATION OF OFFICERS, DIRECTORS AND CONTROLLING PERSONS.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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 Securities and Exchange
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) is 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 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.
II-3
<PAGE> 16
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, thereunto duly
authorized, in the City of Cincinnati, State of Ohio, as of July 26, 1996.
INTERNATIONAL LOTTERY, INC.
By: /s/ L. Rogers Wells, Jr.
-------------------------------------------------
L. Rogers Wells, Jr.
Chairman of the Board and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints L. Rogers Wells, Jr. and Jerome J. Cain, and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any or all amendments (including
post-effective amendments) to this Registration Statement, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of the, or their or his substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated as of July 26, 1996.
<TABLE>
<CAPTION>
Signatures Title
---------- -----
<S> <C>
/s/ L. Rogers Wells, Jr. Chairman of the Board and Chief Executive Officer
- -------------------------
L. Rogers Wells, Jr.
/s/ Edmund F. Turek President and Director
-----------------------
Edmund F. Turek
/s/ H. Jean Marshall Vice President - Marketing and Director
-----------------------
H. Jean Marshall
/s/ Gary S. Bell Secretary, Treasurer and Director
-----------------------
Gary S. Bell
/s/ Kazmier J. Kasper Director
-----------------------
Kazmier J. Kasper
/s/ John J. Wingfield Director
-----------------------
John J. Wingfield
/s/ W. Whitlow Wyatt Director
-----------------------
W. Whitlow Wyatt
/s/ Jerome J. Cain Chief Financial and Accounting Officer
-----------------------
Jerome J. Cain
</TABLE>
II-4
<PAGE> 17
Registration No. 333-_______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------------
EXHIBITS FILED WITH
REGISTRATION STATEMENT
ON FORM S-3
UNDER
THE SECURITIES ACT OF 1933
------------------------------------------
INTERNATIONAL LOTTERY, INC.
6665 CREEK ROAD
CINCINNATI, OHIO
(513) 792-7000
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
EXHIBIT NO. DESCRIPTION NO.
- ----------- ----------------------------------------------------------------- ----
<S> <C> <C>
5 Opinion of Alston & Bird. 19
23.1 Consent of KPMG Peat Marwick LLP. 22
23.2 Consent of Alston & Bird (included in Exhibit 5).
24 Power of Attorney (contained on signature page). 16
99 Form of Registration, Indemnification and Contribution Agreement 24
by and between the Company, L. Rogers Wells, Jr. and The American
Trading Group, Inc.
</TABLE>
<PAGE> 1
EXHIBIT 5
OPINION OF ALSTON & BIRD
<PAGE> 2
ALSTON & BIRD
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
404-881-7000
Fax: 404-881-7777 Telex: 54-2996
July 26, 1996
International Lottery, Inc.
6665 Creek Road
Cincinnati, Ohio 45242
Re: Form S-3 Registration Statement -- Resale of Stock on Behalf of The
American Trading Group, Inc.
Ladies and Gentlemen:
We have acted as counsel to International Lottery, Inc., a Delaware
corporation (the "Company"), in connection with the above referenced
Registration Statement on Form S-3 (the "Registration Statement") being filed
by the Company with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended, and covering 100,000 shares (the
"Shares") of the Company's common stock, $.01 par value ("Common Stock"), which
are being offered for the account of The American Trading Group, Inc. (the
"Selling Stockholder"). The Company will not receive any proceeds from the
sale of the Shares. The opinion hereinafter set forth is given to the
Commission at the request of the Company pursuant to Item 16 of Form S-3 and
Item 601(b)(5) of Regulation S-K.
This opinion letter is limited by, and is in accordance with, the January
1, 1992 edition of the Interpretive Standards Applicable to Legal Opinions to
Third Parties in Corporate Transactions adopted by the Legal Opinion Committee
of the Corporate and Banking Law Section of the State Bar of Georgia (the
"Interpretive Standards"), which Interpretative Standards are incorporated in
this opinion letter by this reference. Capitalized terms used in this opinion
letter and not otherwise defined herein shall have the meanings assigned to
such terms in the Interpretive Standards and in the Registration Statement.
In the capacity described above, we have considered such matters of law
and of fact, including the examination of originals or copies, certified or
otherwise identified to our satisfaction, of such records and documents of the
Company, certificates of public officials and such other documents as we have
deemed appropriate as a basis for the opinions hereinafter set forth. The
opinions set forth herein are limited to the General Corporation Law of the
State of Delaware.
Based upon the foregoing, it is our opinion that the Shares are legally
and validly issued, fully paid and nonassessable.
This opinion letter is provided to you for your benefit and for the
benefit of the Commission solely with regard to the Registration Statement, may
be relied upon by you and the Commission only in connection with the
Registration Statement, and may not be relied upon by any other person or for
any other purpose without our prior written consent.
601 Pennsylvania Avenue, N.W.
North Building, Suite 250
Washington, D.C. 20004-2601
<PAGE> 3
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and further consent to the use of our name wherever
appearing in the Registration Statement.
Sincerely,
ALSTON & BIRD
By: /s/ M. Hill Jeffries
-------------------------
A Partner
<PAGE> 1
EXHIBIT 23.1
CONSENT OF KPMG PEAT MARWICK LLP
<PAGE> 2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
International Lottery, Inc.:
We consent to the use of our reports incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
/s/ KPMG Peat Marwick LLP
Louisville, Kentucky
July 26, 1996
<PAGE> 1
EXHIBIT 99
REGISTRATION, INDEMNIFICATION AND
CONTRIBUTION AGREEMENT
<PAGE> 2
REGISTRATION, INDEMNIFICATION AND
CONTRIBUTION AGREEMENT
This Registration, Indemnification and Contribution Agreement (this
"Agreement") dated as of July 26, 1996, is by and between INTERNATIONAL
LOTTERY, INC., a Delaware corporation (the "Company"), L. ROGERS WELLS, JR., an
individual residing in the State of Kentucky ("Mr. Wells") and AMERICAN TRADING
GROUP, INC., a Kentucky corporation (the "Selling Stockholder").
WHEREAS, the Company has agreed to prepare, execute and file a
Registration Statement on Form S-3 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), in order to register
100,000 shares (the "Shares") of the Company's Common Stock currently owned by
the Selling Stockholder; and
WHEREAS, Mr. Wells has agreed to pay the costs of the registration and
sale of the Shares; and
WHEREAS, the Company and the Selling Stockholder desire to enter into an
agreement with regard to the registration of the Shares and certain liabilities
under the Securities Act in connection with the Registration Statement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, receipt of which is hereby acknowledged, the parties do
hereby agree as follows:
SECTION 1 THE COMPANY'S OBLIGATIONS IN REGISTRATION. The Company hereby
agrees that it will:
(a) prepare and file with the Securities and Exchange Commission (the
"Commission") the Registration Statement with respect to the Shares and use its
best efforts to cause the Registration Statement to become and remain effective
for a period of one year or such shorter period as may be required for the
distribution of all of the Shares;
(b) prepare and file with the Commission such amendments and supplements
to the Registration Statement and the prospectus used in connection therewith
as may be necessary to keep the Registration Statement effective for the period
specified in subsection (a) above and to comply with the provisions of the
Securities Act with respect to the disposition of the Shares covered by the
Registration Statement in accordance with the intended methods of disposition
set forth in the Registration Statement;
(c) furnish to the Selling Stockholder such numbers of copies of a
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as the Selling Stockholder may reasonably request in order to
facilitate the disposition of the Shares;
(d) use its best efforts to register or qualify the Shares under such
other securities or blue sky laws of such jurisdictions as the Selling
Stockholder shall reasonably request, and do any and all other acts and things
to so register or qualify which may be reasonably necessary or advisable to
enable the Selling Stockholder to consummate the disposition in such
jurisdictions of the Shares; and
(e) if the distribution of the Shares is to be underwritten, join with
the Selling Stockholder and the underwriter in the execution and delivery of an
underwriting agreement, which shall include such representations and warranties
and covenants of the Company and such other provisions as are customary at the
time in an underwriting agreement for an underwritten secondary offering.
<PAGE> 3
SECTION 2 PAYMENT OF REGISTRATION EXPENSES. The costs and expenses of
all registrations and qualifications under the Securities Act, and of all other
actions the Company is required to take or effect pursuant to this Agreement,
shall be paid by Mr. Wells (including, without limitation, all registration,
qualification and filing fees, printing expenses, expenses of distributing
prospectuses and other documents, fees and disbursements of counsel for the
Company and expenses of any special audits or other accounting or auditing
services incident to or required in connection with any such registration);
provided, however, that the Selling Stockholder shall be solely responsible for
the payment of all discounts, concessions or commissions to underwriters,
agents, brokers or dealers, all fees and expenses of counsel and other
advisors to the Selling Stockholder, and all transfer or other taxes on the
sale of the Shares.
SECTION 3 THE COMPANY'S INDEMNIFICATION. The Company hereby agrees to
indemnify and hold harmless the Selling Stockholder and any individual,
corporation, partnership, joint venture, association, joint stock company,
trust, estate, unincorporated organization or government (or any agency or
political subdivision thereof) (collectively a "Person"), if any, who controls
the Selling Stockholder within the meaning of the Securities Act and each other
Person (including underwriters) who participates in the offering of the Shares
against any losses, claims, damages or liabilities, joint or several, to which
the Selling Stockholder or such controlling Person or participating Person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or proceedings in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained, on the effective date thereof, in the Registration
Statement, in any preliminary prospectus or final prospectus contained therein,
or in any amendment or supplement thereto, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Selling Stockholder or such controlling Person or
participating Person in connection with investigating or defending any such
loss, claim, damage, liability or proceeding; provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon (i) an untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, said preliminary or final prospectus or said
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by the Selling Stockholder or such
controlling or participating person, as the case may be, specifically for use
in the preparation thereof or (ii) an untrue statement or alleged untrue
statement, omission or alleged omission in a prospectus if such untrue
statement or alleged untrue statement, omission or alleged omission is
corrected in an amendment or supplement to the prospectus which amendment or
supplement is delivered to the Selling Stockholder and the Selling Stockholder
thereafter fails to deliver such prospectus as so amended or supplemented prior
to or concurrently with the sale of the Shares to the Person asserting such
loss, claim, damage, liability or expense.
SECTION 4 SELLING STOCKHOLDER'S INDEMNIFICATION. The Selling Stockholder
agrees to indemnify and hold harmless the Company, each other Person referred
to in subparts (1), (2) and (3) of Section 11(a) of the Securities Act in
respect of the Registration Statement and each other Person, if any, which
controls the Company within the meaning of the Securities Act against any
losses, claims, damages or liabilities, joint or several, to which the Company,
or such other Person or such Person controlling the Company may become subject
under the Securities Act or otherwise, but only to the extent that such losses,
claims, damages or liabilities (or proceedings in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained, on the effective date thereof, in the Registration
Statement, in any preliminary prospectus or final prospectus contained therein
or in any amendment or supplement thereto, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
which, in each such case, has been made in or omitted from the Registration
Statement, said preliminary or final prospectus or said amendment or supplement
in reliance upon, and in conformity with, written information furnished to the
Company by the Selling Stockholder specifically for use in the preparation
thereof. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in the distribution, to
-2-
<PAGE> 4
the same extent as provided above, with respect to information with respect to
such Persons so furnished in writing by such Persons specifically for inclusion
in any prospectus or the Registration Statement.
SECTION 5 CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled to
indemnification hereunder will (i) give prompt written notice to the
indemnifying party of any claim with respect to which it seeks indemnification
and (ii) unless, in such indemnified party's reasonable judgment, a conflict of
interest may exist between such indemnified and indemnifying parties with
respect to such claim, permit such indemnifying party to assume the defense of
such claim with counsel reasonably satisfactory to the indemnified party.
Whether or not such defense is assumed by the indemnifying party, the
indemnifying party will not be subject to any liability for any settlement made
without its consent (but such consent will not be unreasonably withheld). No
indemnifying party will consent to the entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or litigation. An indemnifying party who is
not entitled to, or elects not to, assume the defense of the claim, will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in
the reasonable judgment of any indemnified party a conflict of interest may
exist between such indemnified party and any other such indemnified parties
with respect to such claim, in which event the indemnifying party shall be
obligated to pay the fees and expenses of such additional counsel or counsels.
If for any reason the indemnification provided for in this Agreement is
unavailable to an indemnified party as contemplated thereby, the indemnifying
party shall contribute to the amount paid or payable by the indemnified party
as a result of such loss, claim, damage or liability in such proportion as is
appropriate to reflect not only the relative benefits received by the
indemnified party and the indemnifying party, but also the relative fault of
the indemnified party and the indemnifying party, as well as any other relevant
equitable considerations. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any Person who was not guilty of fraudulent
misrepresentation.
SECTION 6 UNDERWRITING AGREEMENT INDEMNIFICATION PROVISIONS.
Notwithstanding the provisions of Sections 3 and 4 hereof, if an underwriting
agreement executed by the Company and the Selling Stockholder shall contain
indemnification, contribution and related procedural provisions in a form
customary to the underwriter which are substantially to the same effect as the
provisions provided for in Sections 3 and 4 hereof, the indemnification
provisions contained in such underwriting agreement shall control and shall
supersede the indemnification provisions set forth in Sections 3 and 4 hereof.
SECTION 7 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the law of the State of Delaware.
SECTION 8 HEADINGS. The headings of the Sections of this Agreement have
been inserted for convenience of reference only, and shall not be deemed to
constitute a part hereof.
SECTION 9 INDEPENDENCE OF COVENANTS. Each covenant made herein is
independent of each other covenant so made. The fact that the operation of any
such covenant permits a particular action to be taken or condition to exist
does not mean that such action or condition is not prohibited, restricted or
conditioned by the operation of the provisions of any other covenant herein.
SECTION 10 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
the parties hereto and their respective successors and assigns, and shall inure
to the benefit of and be enforceable by the parties hereto and their respective
successors and assigns permitted hereunder.
SECTION 11 AMENDMENT AND WAIVER. This Agreement may be amended or
supplemented, and the observance of any term hereof may be waived, with the
written consent of all of the parties hereto.
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SECTION 12 COUNTERPARTS. This Agreement may be executed and delivered
simultaneously in one or more counterparts, each of which shall be deemed an
original, but all such counterparts shall together constitute but one and the
same instrument.
IN WITNESS WHEREOF, the Company, Mr. Wells and the Selling Stockholder
have signed their names hereto, or have caused their names to be signed hereto
by the respective officers thereunto duly authorized, as of the day and year
first above written.
INTERNATIONAL LOTTERY, INC.
By: /s/ Edmund F. Turek
------------------------
Name: Edmund F. Turek
Title: President
/s/ L. Rogers Wells, Jr.
---------------------------
L. ROGERS WELLS, JR.
AMERICAN TRADING GROUP, INC.
By: /s/ John D. Kelly
-------------------------
Name: John D. Kelly
Title: President and
Chief Executive Officer
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