-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VPd414Yb2bFp2kdOp0Svj7r2T85QYY26dEXhnrt+rxxfhe8uaJ8VnE7rchaQ6pJL a6egGJLAFnNPqV/7zAa81A== 0001036050-98-001561.txt : 19980915 0001036050-98-001561.hdr.sgml : 19980915 ACCESSION NUMBER: 0001036050-98-001561 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980731 FILED AS OF DATE: 19980914 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AUTOTOTE CORP CENTRAL INDEX KEY: 0000750004 STANDARD INDUSTRIAL CLASSIFICATION: CALCULATING & ACCOUNTING MACHINES (NO ELECTRONIC COMPUTERS) [3578] IRS NUMBER: 810422894 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11693 FILM NUMBER: 98708666 BUSINESS ADDRESS: STREET 1: 100 BELLEVUE CITY: NEWARK STATE: DE ZIP: 19714 BUSINESS PHONE: 3027374300 MAIL ADDRESS: STREET 1: 100 BELLEVUE ROAD CITY: NEWARK STATE: NJ ZIP: 19714 FORMER COMPANY: FORMER CONFORMED NAME: UNITED TOTE INC DATE OF NAME CHANGE: 19920317 10-Q 1 FORM 10-Q FOR AUTOTOTE CORPORATION UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Form 10-Q {Mark One} [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: July 31, 1998 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition from ___________________________ to ________________________ Commission File number: 0-13063 AUTOTOTE CORPORATION (Exact name of registrant as specified in its charter) Delaware 81-0422894 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 750 Lexington Avenue, New York, New York 10022 ---------------------------------------------- (Address of principal executive offices) (Zip Code) (212)-754-2233 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock as of September 10, 1998: Class A Common Stock: 35,943,199 Class B Common Stock: None Page 1 of 20 AUTOTOTE CORPORATION AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND OTHER INFORMATION QUARTER ENDED JULY 31, 1998 Page PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: Balance Sheets as of July 31, 1998 and October 31, 1997 3 Statements of Operations for the Three Months Ended July 31, 1998 and 1997 4 Statements of Operations for the Nine Months Ended July 31, 1998 and 1997 5 Statements of Cash Flows for the Nine Months Ended July 31, 1998 and 1997 6 Notes to Consolidated Financial Statements 7-14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15-18 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8K 19 2 AUTOTOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts)
July 31, October 31, 1998 1997 --------------- -------------- ASSETS (Unaudited) Current assets: Cash and cash equivalents....................................................... $ 17,260 18,207 Restricted cash................................................................. 694 512 Accounts receivable, net........................................................ 13,824 13,560 Inventories..................................................................... 12,481 6,653 Prepaid expenses, deposits and other current assets............................. 2,918 2,276 --------------- -------------- Total current assets....................................................... 47,177 41,208 --------------- -------------- Property and equipment, at cost...................................................... 195,653 180,170 Less accumulated depreciation................................................... 115,947 103,781 --------------- -------------- Net property and equipment................................................. 79,706 76,389 --------------- -------------- Goodwill, net of amortization........................................................ 4,524 5,916 Operating right, net of amortization................................................. 15,098 15,848 Other assets and investments......................................................... 16,122 14,180 --------------- -------------- $ 162,627 153,541 =============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current installments of long-term debt.......................................... $ 4,254 2,609 Accounts payable................................................................ 12,709 8,698 Accrued liabilities............................................................. 30,085 24,411 --------------- -------------- Total current liabilities.................................................. 47,048 35,718 --------------- -------------- Deferred income taxes................................................................ 2,169 2,551 Other long-term liabilities.......................................................... 2,369 1,264 Long-term debt, excluding current installments....................................... 120,286 112,248 Long-term debt, convertible subordinated debentures.................................. 35,000 35,000 --------------- -------------- Total liabilities.......................................................... 206,872 186,781 --------------- -------------- Stockholders' equity (deficit): Preferred stock, par value $1.00 per share, 2,000 shares authorized, none outstanding.................................................................. -- -- Class A common stock, par value $0.01 per share, 99,300 shares authorized, 35,937 and 35,335 shares outstanding at July 31, 1998 and October 31, 1997, respectively........................................................... 360 354 Class B non-voting common stock, par value $0.01 per share, 700 shares authorized, none outstanding................................................. -- -- Additional paid-in capital...................................................... 149,091 148,238 Accumulated losses.............................................................. (193,024) (181,351) Treasury stock, at cost......................................................... (102) (102) Currency translation adjustment................................................. (570) (379) --------------- -------------- Total stockholders' equity (deficit)....................................... (44,245) (33,240) --------------- -------------- $ 162,627 153,541 =============== ==============
See accompanying notes to consolidated financial statements. 3 AUTOTOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended July 31, 1998 and 1997 (Unaudited, in thousands, except per share amounts)
1998 1997 ---------- ---------- Operating revenues: Services .............................................................. $ 34,862 32,525 Sales ................................................................. 3,933 3,293 ---------- ---------- 38,795 35,818 ---------- ---------- Operating expenses (exclusive of depreciation and amortization shown below): Services .............................................................. 22,790 19,675 Sales ................................................................. 2,835 1,787 ---------- ---------- 25,625 21,462 ---------- ---------- Total gross profit ............................................... 13,170 14,356 Selling, general and administrative expenses ............................... 6,310 6,298 Gain on sale of business ................................................... -- (1,566) Depreciation and amortization .............................................. 7,502 8,411 ---------- ---------- Operating income (loss) .......................................... (642) 1,213 Other deductions: Interest expense ...................................................... 3,838 3,410 Other income .......................................................... (141) (165) ---------- ---------- 3,697 3,245 ---------- ---------- Loss before income tax expense (benefit) and extraordinary items ...... (4,339) (2,032) Income tax expense (benefit) ............................................... 74 (320) ---------- ---------- Loss before extraordinary items ....................................... (4,413) (1,712) ---------- ---------- Extraordinary items: Write-off of deferred financing fees and expenses, net of gain on early retirement of subordinated debt ............... -- 426 ---------- ---------- Net loss ..................................................... $ (4,413) (2,138) ========== ========== Net loss per common share: Loss per basic share and diluted share before extraordinary items ..... $ (0.12) (0.05) Extraordinary loss per basic share and diluted share .................. -- (0.01) ---------- ---------- Net loss per basic share and diluted share ................... $ (0.12) (0.06) ========== ========== Weighted average number of shares used in per share calculation ............ 35,916 35,312 ========== ==========
See accompanying notes to consolidated financial statements. 4 AUTOTOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Nine Months Ended July 31, 1998 and 1997 (Unaudited, in thousands, except per share amounts)
1998 1997 ----------- ----------- Operating revenues: Services .................................................................................. $ 99,114 98,914 Sales ..................................................................................... 10,327 14,340 ----------- ----------- 109,441 113,254 ----------- ----------- Operating expenses (exclusive of depreciation and amortization shown below): Services .................................................................................. 62,798 59,513 Sales ..................................................................................... 6,594 9,220 ----------- ----------- 69,392 68,733 ----------- ----------- Total gross profit ................................................................... 40,049 44,521 Selling, general and administrative expenses ................................................... 19,155 20,994 Gain on sale of business ....................................................................... (684) (1,823) Depreciation and amortization .................................................................. 22,117 28,263 ----------- ----------- Operating loss ....................................................................... (539) (2,913) Other deductions: Interest expense .......................................................................... 11,492 10,724 Other income .............................................................................. (726) (33) ----------- ----------- 10,766 10,691 ----------- ----------- Loss before income tax expense and extraordinary items .................................... (11,305) (13,604) Income tax expense ............................................................................. 368 222 ----------- ----------- Loss before extraordinary items ........................................................... (11,673) (13,826) Extraordinary items: Write-off of deferred financing fees and expenses, net of gain on early retirement of subordinated debt ................................... -- 426 ----------- ----------- Net loss ......................................................................... $ (11,673) (14,252) =========== =========== Net loss per common share: Loss per basic share and diluted share before extraordinary items ......................... $ (0.33) (0.41) Extraordinary loss per basic share and diluted share ...................................... -- (0.01) ----------- ----------- Net loss per basic share and diluted share ....................................... $ (0.33) (0.42) =========== =========== Weighted average number of shares used in per share calculation ................................ 35,603 34,182 =========== ===========
See accompanying notes to consolidated financial statements. 5 AUTOTOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended July 31, 1998 and 1997 (Unaudited, in thousands)
1998 1997 -------------- -------------- Cash flows from operating activities: Net loss........................................................................ $ (11,673) (14,252) -------------- -------------- Adjustments to reconcile net loss to cash provided by operating activities: Depreciation and amortization.............................................. 22,117 28,263 Gain on sale of business................................................... (684) (1,823) Non-cash extraordinary items............................................... -- 426 Changes in operating assets and liabilities................................ 2,177 1,850 Other...................................................................... 792 2,514 -------------- -------------- Total adjustments..................................................... 24,402 31,230 -------------- -------------- Net cash provided by operating activities............................................ 12,729 16,978 -------------- -------------- Cash flows from investing activities: Capital expenditures............................................................ (1,568) (2,078) Wagering systems expenditures................................................... (18,484) (4,303) Cash acquired in business acquisition........................................... 2,177 -- Proceeds from sale of business and asset disposals, net of cash transferred..... -- 21,050 Increase in other assets and investments........................................ (5,974) (2,650) -------------- -------------- Net cash used in investing activities................................................ (23,849) 12,019 -------------- -------------- Cash flows from financing activities: Net repayments under revolving credit facilities................................ -- (10,500) Proceeds from the issuance of long-term debt, net of financing fees............. 12,000 105,623 Payments on long-term debt...................................................... (2,283) (118,428) Net proceeds from issuance of common stock...................................... 510 962 -------------- -------------- Net cash provided (used) by financing activities..................................... 10,227 (22,343) -------------- -------------- Effect of exchange rate changes on cash.............................................. (54) (285) -------------- -------------- Increase (decrease) in cash and cash equivalents..................................... (947) 6,369 Cash and cash equivalents, beginning of period....................................... 18,207 5,988 -------------- -------------- Cash and cash equivalents, end of period............................................. $ 17,260 12,357 ============== ============== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest........................................................................ $ 7,479 9,166 ============== ============== Income taxes.................................................................... $ 388 869 ============== ============== The Company issued 2,964 shares of Class A Common Stock during the 1997 period in connection with the settlement of its stockholder litigation.
See accompanying notes to consolidated financial statements. 6 AUTOTOTE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS July 31, 1998 (Unaudited, in thousands, except per share amounts) 1) Consolidated Financial Statements The consolidated balance sheet as of July 31, 1998 and the consolidated statements of operations for the three months and nine months ended July 31, 1998 and 1997, and the consolidated statements of cash flows for the nine months then ended have been prepared by the Company without audit. In the opinion of management, all adjustments necessary to present fairly the financial position of the Company at July 31, 1998 and the results of its operations for the three months and nine months ended July 31, 1998 and 1997 and its cash flows for the nine months ended July 31, 1998 and 1997 have been made. In the nine months ended July 31, 1998, the Company reversed reserves of $1.3 million in connection with the collection of receivables previously reserved due to concerns about their recoverability and for cost savings related to the refurbishment of certain terminals. During the third quarter of fiscal 1998, the Company completed the installation of approximately 3,200 new lottery terminals for the Connecticut State Lottery under a contract with an initial five-year term plus five one-year options to extend the contract through May 2008. Based on industry practice of lottery contracts and the Company's historical relationship with the Connecticut State Lottery for the past ten years, the Company expects to depreciate the terminals and installation costs on a straight-line method over their estimated useful lives of 10 years. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's 1997 Annual Report on Form 10-K (the "1997 10-K"). The results of operations for the period ended July 31, 1998 are not necessarily indicative of the operating results for the full year. Certain items in the prior year's financial statements have been reclassified to conform with the current year presentation. 2) Fiscal 1997 Sale of the European Lottery Business On April 15, 1997, the Company completed the sale of its European lottery business through the sale of its stock ownership of Tele Control Kommunikations und Computersysteme Aktien Gesellschaft ("Tele Control") for cash consideration of approximately $26,600, including contingent consideration of approximately $1,600. At closing, the Company provided the purchaser with a letter of credit to secure certain obligations under the sales agreement. At October 31, 1997, $1,500 remained outstanding under the letter of credit, which amount was reduced to $500 at April 30, 1998 and is scheduled to expire on October 15, 1998. In connection with the reduction of the letter of credit balance, the Company recorded an additional $684 gain on sale of business in the second quarter of fiscal 1998. The following unaudited information shows the revenues, expenses and operating income of the European lottery business that were included in the Company's Consolidated Statements of Operations for the nine months ended July 31, 1997. Interest and income tax expenses have not been included in the table below.
Nine Months Ended July 31, 1997 -------------------- Operating revenue....................................................................... $ 6,119 Operating expenses, including selling, general and administrative expenses, and depreciation and amortization expenses....................................... 6,181 -------------------- Operating loss.............................................................................. $ (62) ====================
7 AUTOTOTE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) July 31, 1998 (Unaudited, in thousands, except per share amounts) 3) Purchase of Netherlands Subsidiary On July 1, 1998, the Company completed the purchase of Hippo Toto B. V., which was renamed Autotote Netherlands B. V. This wholly-owned subsidiary holds an exclusive five-year license to operate all on-track and off-track pari-mutuel wagering in the Netherlands. The initial license, granted by the Dutch Ministry of Agriculture, extends through June 30, 2003. The purchase was for nominal consideration and the acquisition was recorded using the purchase method of accounting, and accordingly, the assets and liabilities of the acquired entities have been recorded at their estimated fair value at the date of acquisition. The operating results of Autotote Netherlands B. V. have been included in the consolidated statements of operations since the date of acquisition. 4) Inventories Inventories consist of the following:
July 31, October 31, 1998 1997 -------------- -------------- Parts and work-in-process.......................................... $ 11,588 5,762 Finished goods..................................................... 114 244 Ticket paper....................................................... 779 647 -------------- -------------- Total.............................................................. $ 12,481 6,653 ============== ==============
Inventory includes costs for equipment expected to be sold. At July 31, 1998, parts and work-in-process inventory increased due to the commencement of production under a terminal sales agreement with an Italian distributor. Costs incurred for equipment associated with specific wagering system service contracts not yet placed in service are classified as construction in progress in property and equipment. 5) Debt At July 31, 1998, the Company had approximately $22,005 available for borrowing under the Company's revolving Credit Facility (the "Facility"). There were no borrowings outstanding under the Facility at July 31, 1998, however, approximately $2,995 in letters of credit were issued under the Facility. On May 22, 1998, the Company and Autotote Lottery Corporation entered into a $12 million, three-year term loan arrangement (the "Term Loan") to finance the development and installation of a lottery system for the Connecticut State Lottery, including the manufacture of approximately 3,200 new lottery terminals. The Term Loan bears interest at a fixed rate of 8.87% payable quarterly and at maturity on February 15, 2001, with principal payments of $600 due quarterly through January 31, 2001 with a final principal payment of $6,000 due at maturity. In addition to scheduled principal payments, the Term Loan requires mandatory principal prepayments upon the occurrence of certain events, including asset sales, the incurrence of certain indebtedness, Recovery Events (as defined), and Autotote Lottery Corporation Excess Cash Flow (as defined), in each case, in excess of specified thresholds. The Term Loan was extended in conjunction with the July 28, 1997 revolving credit facility (the "Facility") and is subject to certain restrictive and financial covenants contained in the Facility. (See Note 7 to the Consolidated Financial Statements for the year ended October 31, 1997 included in the Company's 1997 Annual Report on Form 10-K.) Obligations under the Facility and Term Loan are jointly and severally guaranteed by substantially all of the Company's U.S. subsidiaries and are secured by (i) first priority security interests in substantially all tangible and intangible assets of the Company and its U.S. subsidiaries, and (ii) a first priority lien on all of the capital stock of the Company's U.S. subsidiaries and on 65% of the capital stock of the Company's non-U.S. subsidiaries. In addition, the Term Loan is secured by a first priority security interest in substantially all of the Connecticut lottery assets now owned or hereafter acquired. 8 AUTOTOTE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) July 31, 1998 (Unaudited, in thousands, except per share amounts) 6) Earnings per Share In February 1997, the FASB issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128") which the Company adopted in the first quarter of fiscal 1998. Under SFAS 128, the Company is required to present two earnings per share amounts for each period presented, and all prior period earnings per share amounts are required to be restated to conform with the provisions of SFAS 128. Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted earnings per share gives effect to all dilutive potential common shares that were outstanding during the period. Potential common shares are not included in the calculation of the dilutive net loss per share in the third quarter and first nine months of fiscal 1998 and the third quarter and first nine months of fiscal 1997, since their inclusion would be anti-dilutive. Basic and diluted net loss per common share for the third quarter and first nine months of fiscal 1998 and the restated net loss per common share for the third quarter and first nine months of fiscal 1997, therefore, are essentially the same. At July 31, 1998 and 1997, the Company had outstanding stock options, warrants, convertible subordinated debentures, Performance Accelerated Restricted Stock Units and deferred shares which could potentially dilute basic earnings per share in the future. Quarterly and year-to date computations of per share amounts are made independently; therefore, the sum of per share amounts for the quarters may not equal per share amounts for the year. 7) Financial Information for Guarantor Subsidiaries and Non-Guarantor Subsidiaries The Company conducts substantially all of its business through its domestic and foreign subsidiaries. In July 1997, the Company issued $110 million aggregate principal amount of Senior Notes bearing interest at an annual rate of 10 7/8% (the "Notes"). The Notes are jointly and severally guaranteed by substantially all of the Company's wholly-owned U.S. subsidiaries (the "Guarantor Subsidiaries"). Presented below is condensed consolidating financial information for Autotote Corporation (the "Parent Company") which includes the activities of Autotote Management Corporation, the Guarantor Subsidiaries and the wholly-owned foreign subsidiaries and the non-wholly owned domestic and foreign subsidiaries (the "Non-Guarantor Subsidiaries") as of July 31, 1998 (unaudited) and October 31, 1997 (audited) and for the three month and nine month periods ended July 31, 1998 and 1997 (unaudited). The condensed consolidating financial information has been presented to show the nature of assets held, results of operations and cash flows of the Parent Company, Guarantor Subsidiaries and Non-Guarantor Subsidiaries assuming the guarantee structure of the Notes was in effect at the beginning of the periods presented. Separate financial statements for Guarantor Subsidiaries are not presented based on management's determination that they would not provide additional information that is material to investors. The condensed consolidating financial information reflects the investments of the Parent Company in the Guarantor and Non-Guarantor Subsidiaries using the equity method of accounting. In addition, corporate interest and administrative expenses have not been allocated to the subsidiaries. 9 AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET July 31, 1998 (Unaudited, in thousands)
Non- Parent Guarantor Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated ------------ ------------ ----------- ------------ ------------ ASSETS Cash and cash equivalents............... $ 12,406 (250) 5,104 -- 17,260 Accounts receivable, net................ -- 11,711 2,113 -- 13,824 Other current assets.................... 860 11,611 3,928 (306) 16,093 Property and equipment, net............. 399 72,504 7,104 (301) 79,706 Investment in subsidiaries.............. 60,190 -- -- (60,190) -- Goodwill................................ 206 1,968 2,350 -- 4,524 Other assets............................ 5,494 26,569 660 (1,503) 31,220 ------------- ------------ ------------ ------------ ------------- Total assets............................ $ 79,555 124,113 21,259 (62,300) 162,627 ============= ============ ============ ============ ============= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities..................... $ 15,361 20,940 6,415 78 42,794 Current installments of long-term debt.. 1,250 2,710 307 (13) 4,254 Long-term debt, excluding current installments........................... 145,000 9,714 572 -- 155,286 Other non-current liabilities........... 952 1,836 1,750 -- 4,538 Intercompany balances................... (38,763) 40,992 (2,229) -- -- Stockholders' equity (deficit).......... (44,245) 47,921 14,444 (62,365) (44,245) ------------ ------------ ------------ ------------ ------------ Total liabilities and Stockholders' equity (deficit)......... $ 79,555 124,113 21,259 (62,300) 162,627 ============= ============ ============ ============ =============
AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET October 31, 1997 (Audited, in thousands)
Non- Parent Guarantor Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated --------- ------------ ------------ ------------ ------------ ASSETS Cash and cash equivalents............... $ 15,582 328 2,297 -- 18,207 Accounts receivable, net................ -- 10,547 3,013 -- 13,560 Other current assets.................... 711 6,223 2,791 (284) 9,441 Property and equipment, net............. 161 67,071 9,302 (145) 76,389 Investment in subsidiaries.............. 54,760 -- -- (54,760) -- Goodwill................................ 211 2,635 3,070 -- 5,916 Other assets............................ 5,937 24,895 528 (1,332) 30,028 ------------ ----------- ------------- ------------ ----------- Total assets............................ $ 77,362 111,699 21,001 (56,521) 153,541 ============ =========== ============= ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities..................... $ 14,812 14,515 3,921 (139) 33,109 Current installments of long-term debt.. 1,250 474 910 (25) 2,609 Long-term debt, excluding current installments........................... 145,000 323 1,925 -- 147,248 Other non-current liabilities........... 1,111 538 2,166 -- 3,815 Intercompany balances................... (51,571) 54,467 (3,112) 216 -- Stockholders' equity (deficit).......... (33,240) 41,382 15,191 (56,573) (33,240) ----------- ----------- ------------- ------------ ----------- Total liabilities and stockholders' equity (deficit)....................... $ 77,362 111,699 21,001 (56,521) 153,541 ============ =========== ============= ============ ===========
10 AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS Three Months Ended July 31, 1998 (Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated ------------ ------------ ------------- ----------- ------------- Operating revenues......................... $ -- 33,733 7,049 (1,987) 38,795 Operating expenses......................... -- 21,977 5,514 (1,866) 25,625 ------------ ------------ ------------- ----------- ------------- Gross profit............................ -- 11,756 1,535 (121) 13,170 Selling, general and administrative expenses.................................. 2,178 3,519 613 -- 6,310 Depreciation and amortization.............. 39 6,632 936 (105) 7,502 ------------ ------------ ------------- ----------- ------------- Operating income (loss)................. (2,217) 1,605 (14) (16) (642) Interest expense........................... 3,757 10 79 (8) 3,838 Other (income) expense..................... (79) (84) 14 8 (141) ------------ ------------ ------------- ----------- ------------- Income (loss) before equity in income of subsidiaries, and income taxes............ (5,895) 1,679 (107) (16) (4,339) Equity in income of subsidiaries........... 1,487 -- -- (1,487) -- Income tax expense......................... 5 -- 69 -- 74 ------------ ------------ ------------- ----------- ------------- Net income (loss).......................... $ (4,413) 1,679 (176) (1,503) (4,413) ============ ============ ============= =========== =============
AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS Three Months Ended July 31, 1997 (Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated ------------ ------------ ------------- ----------- ------------ Operating revenues......................... $ -- 31,262 5,007 (451) 35,818 Operating expenses......................... -- 18,946 2,961 (445) 21,462 ------------ ------------ ------------- ----------- ------------ Gross profit............................ -- 12,316 2,046 (6) 14,356 Selling, general and administrative expenses................................. 2,354 2,875 1,069 -- 6,298 Gain on sale of business................... (1,566) -- -- -- (1,566) Depreciation and amortization.............. 13 7,071 1,406 (79) 8,411 ------------ ------------ ------------- ----------- ------------ Operating income (loss)................. (801) 2,370 (429) 73 1,213 Interest expense........................... 3,230 73 47 60 3,410 Other (income) expense..................... 9 (105) (9) (60) (165) ------------ ------------ ------------- ----------- ------------ Income (loss) before equity in income of subsidiaries, income taxes and extraordinary items...................... (4,040) 2,402 (467) 73 (2,032) Equity in income of subsidiaries........... 950 -- -- (950) -- Income tax expense......................... (2) -- (318) -- (320) ------------ ------------ ------------- ----------- ------------ Net income (loss) before extraordinary items.................................... (3,088) 2,402 (149) (877) (1,712) Extraordinary items: (Write-off) of deferred financing fees and expenses, net of gain on early retirement of debt........................ 950 (1,376) -- -- (426) ------------ ------------ ------------- ----------- ------------ Net income (loss).......................... $ (2,138) 1,026 (149) (877) (2,138) ============ ============ ============= =========== ============
11 AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS Nine Months Ended July 31, 1998 (Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated ------------ ------------ ------------- ----------- ------------ Operating revenues......................... $ -- 97,897 18,175 (6,631) 109,441 Operating expenses......................... -- 62,544 13,019 (6,171) 69,392 ------------ ------------ ------------- ----------- ------------ Gross profit............................ -- 35,353 5,156 (460) 40,049 Selling, general and administrative expenses................................. 6,976 9,742 2,437 -- 19,155 Gain on sale of business................... (684) -- -- -- (684) Depreciation and amortization.............. 95 19,640 2,652 (270) 22,117 ------------ ------------ ------------- ----------- ------------ Operating income (loss)................. (6,387) 5,971 67 (190) (539) Interest expense........................... 11,280 57 180 (25) 11,492 Other (income) expense..................... (555) (144) (52) 25 (726) ------------ ------------ ------------- ----------- ------------ Income (loss) before equity in income of subsidiaries, and income taxes........... (17,112) 6,058 (61) (190) (11,305) Equity in income of subsidiaries.......... 5,596 -- -- (5,596) -- Income tax expense......................... 157 -- 211 -- 368 ------------ ------------ ------------- ----------- ------------ Net income (loss).......................... $ (11,673) 6,058 (272) (5,786) (11,673) ============ ============ ============= =========== ============
AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS Nine Months Ended July 31, 1997 (Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated ------------ ------------ ------------- ----------- ------------ Operating revenues......................... $ -- 91,438 23,486 (1,670) 113,254 Operating expenses......................... -- 56,793 13,570 (1,630) 68,733 ------------ ------------ ------------- ----------- ------------ Gross profit............................ -- 34,645 9,916 (40) 44,521 Selling, general and administrative expenses................................. 8,031 8,693 4,154 116 20,994 Gain on sale of business................... (1,823) -- -- -- (1,823) Depreciation and amortization.............. 38 21,110 7,378 (263) 28,263 ------------ ------------ ------------- ----------- ------------ Operating income (loss)................. (6,246) 4,842 (1,616) 107 (2,913) Interest expense........................... 10,632 88 158 (154) 10,724 Other (income) expense..................... (326) (511) 650 154 (33) ------------ ------------ ------------- ----------- ------------ Income (loss) before equity in income of subsidiaries, income taxes and extraordinary items...................... (16,552) 5,265 (2,424) 107 (13,604) Equity in income of subsidiaries........... 1,348 -- -- (1,348) -- Income tax expense (benefit)............... (2) 7 217 -- 222 ------------ ------------ ------------- ----------- ------------ Net income (loss) before extraordinary items.................................... (15,202) 5,258 (2,641) (1,241) (13,826) Extraordinary items: (Write-off) of deferred financing fees and expenses, net of gain on early retirement of debt....................... 950 (1,376) -- -- (426) ------------ ------------ ------------- ----------- ------------ Net income (loss).......................... $ (14,252) 3,882 (2,641) (1,241) (14,252) ============ ============ ============= =========== ============
12 AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS Nine Months Ended July 31, 1998 (Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated ----------- ------------ ------------- ----------- ------------ Net income (loss).......................... $ (11,673) 6,058 (272) (5,786) (11,673) Depreciation and amortization........... 95 19,640 2,652 (270) 22,117 Equity in income of subsidiaries........ (5,596) -- -- 5,596 -- Gain on sale of business................ (684) -- -- -- (684) Other non-cash adjustments.............. 996 (115) (89) -- 792 Changes in working capital.............. 870 1,803 (375) (121) 2,177 ----------- ------------ ------------- ----------- ------------ Net cash provided by (used in) operating activities............................... (15,992) 27,386 1,916 (581) 12,729 ----------- ------------ ------------- ----------- ------------ Cash flows from investing activities: Capital and wagering systems expenditures.......................... (294) (18,363) (1,821) 426 (20,052) Cash acquired in business acquisition... -- -- 2,177 -- 2,177 Other assets and investments............ (238) (5,830) (77) 171 (5,974) ----------- ------------ ------------- ----------- ------------ Net cash provided by (used in) investing activities............................... (532) (24,193) 279 597 (23,849) ----------- ------------ ------------- ----------- ------------ Cash flows from financing activities: Net proceeds from issuance of long-term debt.................................. -- 12,000 -- -- 12,000 Payments on long-term debt.............. -- (2,001) (294) 12 (2,283) Other, principally intercompany balances.............................. 13,343 (13,771) 974 (36) 510 ----------- ------------ ------------- ----------- ------------ Net cash provided by (used in) financing activities............................... 13,343 (3,772) 680 (24) 10,227 ----------- ------------ ------------- ----------- ------------ Effect of exchange rate changes on cash.... 5 1 (68) 8 (54) ----------- ------------ ------------- ----------- ------------ Increase/(decrease) in cash and cash equivalents.............................. (3,176) (578) 2,807 -- (947) Cash and cash equivalents, beginning of year..................................... 15,582 328 2,297 -- 18,207 ----------- ------------ ------------- ----------- ------------ Cash and cash equivalents, end of period... $ 12,406 (250) 5,104 -- 17,260 =========== ============ ============= =========== ============
13 AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS Nine Months Ended July 31, 1997 (Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated ------------ ------------ ------------- ----------- ------------ Net income (loss)......................... $ (14,252) 3,882 (2,641) (1,241) (14,252) Depreciation and amortization.......... 38 21,110 7,378 (263) 28,263 Equity in income of subsidiaries....... (1,348) -- -- 1,348 -- Gain on sale of business............... (1,823) -- -- -- (1,823) Non-cash extraordinary items........... (950) 1,376 -- -- 426 Other non-cash adjustments............. 2,962 40 (488) -- 2,514 Changes in working capital............. 2,374 (4,572) 4,079 (31) 1,850 ------------ ------------ ------------- ----------- ------------ Net cash provided by (used in) operating activities.............................. (12,999) 21,836 8,328 (187) 16,978 ------------ ------------ ------------- ----------- ------------ Cash flows from investing activities: Capital and wagering systems expenditures......................... (40) (4,457) (1,897) 13 (6,381) Proceeds from sale of business and asset disposals...................... 23,216 247 (2,413) -- 21,050 Other assets and investments........... (308) (1,171) (1,071) (100) (2,650) ------------ ------------ ------------- ----------- ------------ Net cash provided by (used in) investing activities.............................. 22,868 (5,381) (5,381) (87) 12,019 ------------ ------------ ------------- ----------- ------------ Cash flows from financing activities: Net borrowings under lines of credit... -- (10,500) -- -- (10,500) Net proceeds from issuance of long-term debt....................... 105,100 -- 523 -- 105,623 Payments on long-term debt............. (4,350) (113,480) (608) 10 (118,428) Other, principally intercompany balances............................. (102,963) 106,908 (3,260) 277 962 ------------ ------------ ------------- ----------- ------------ Net cash provided by (used in) financing activities.............................. (2,213) (17,072) (3,345) 287 (22,343) ------------ ------------ ------------- ----------- ------------ Effect of exchange rate changes on cash... 39 1 (312) (13) (285) ------------ ------------ ------------- ----------- ------------ Increase/(decrease) in cash and cash equivalents............................. 7,695 (616) (710) -- 6,369 Cash and cash equivalents, beginning of year.................................... 3,376 261 2,351 -- 5,988 ------------ ------------ ------------- ----------- ------------ Cash and cash equivalents, end of period.. $ 11,071 (355) 1,641 -- 12,357 ============ ============ ============= =========== ============
14 AUTOTOTE CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion addresses the financial condition of the Company as of July 31, 1998 and the results of its operations for the three month and nine month periods ended July 31, 1998, compared to the same periods last year. This discussion should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended October 31, 1997 ("fiscal 1997") included in the Company's 1997 Annual Report on Form 10-K. Three Months Ended July 31, 1998 Compared to Three Months Ended July 31, 1997
Third Quarter Fiscal 1998 Third Quarter Fiscal 1997 -------------------------------------------- --------------------------------------------- Pari- Pari- Mutuel Lottery Mutuel Lottery Operations Operations Total Operations Operations Total -------------- ----------- ---------- ------------ ----------- ----------- Revenues: Services $ 31,917 2,945 34,862 30,476 2,049 32,525 Sales 3,586 347 3,933 2,857 436 3,293 -------------- ----------- ---------- ------------ ----------- ----------- Total Revenues $ 35,503 3,292 38,795 33,333 2,485 35,818 ============== =========== ========== ============ =========== =========== Gross Profit (excluding depreciation and amortization) $ 12,196 974 13,170 13,324 1,032 14,356 ============== =========== ========== ============ =========== ===========
Third Quarter Revenue Analysis Revenues increased 8% or $3.0 million to $38.8 million in the third quarter of the fiscal year ending October 31, 1998 ("fiscal 1998") from $35.8 million in the third quarter of fiscal 1997. Pari-mutuel Operations service revenues of $31.9 million for the third quarter of fiscal 1998 improved $1.4 million or 5% compared to the third quarter of the prior year. $1.1 million of this improvement is due to the inclusion of revenue from the recently acquired Netherlands operations. The balance of the improvement reflects revenue increases resulting from the growth in handle in the Company's North American pari-mutuel and Off Track Betting operations. The growth in handle during the third quarter of fiscal 1998 compared to the third quarter of fiscal 1997 is attributable to the addition of four new racetracks and OTB sites, the addition of full card simulcasting at one North American racetrack customer, an increase in interface fees, the addition of three new simulcasting customers, the growth in video gaming and the increase in simulcasting in Germany. These increases were partially offset by lower revenues in the North American simulcasting operations due to lower ad hoc sales of satellite time following the reduction in number and realignment of leased transponders due to the failure of the Galaxy IV satellite, and the loss of a service contract in the Company's French operations. Pari-mutuel operations equipment sales revenues in the third quarter of fiscal 1998 of $3.6 million increased $0.7 million or 26% compared to the third quarter of the prior year due primarily to sales of terminals to the Company's international customers. Lottery Operations service revenues increased $0.9 million in the third quarter of fiscal 1998 to $2.9 million primarily because of the record Powerball Lottery sales in the period. Lottery equipment sales revenues decreased slightly in the third quarter of fiscal 1998 to $0.3 million from $0.4 million in the same period in fiscal 1997. Gross Profit Analysis The total gross profit of $13.2 million in the third quarter of fiscal 1998 decreased by $1.2 million, or 8%, compared to the third quarter of fiscal 1997. Lower margins were due to the loss of revenues coupled with higher transponder costs in the simulcasting business as the result of the renegotiation of transponder leases following the failure of the Galaxy IV satellite. Also contributing were lower margins due to additional supplies expenses related to the installation of the new Connecticut Lottery terminals, the loss of a French service contract and lower profit margins on North American equipment sales due to a change in product mix. These margin decreases were partially offset by margins contributed by the new Netherlands operation and improved margins due to the higher handle in the pari-mutuel and OTB service businesses. Gross profit as a percent of revenues in the Company's service businesses was 35% in the third quarter of fiscal 1998 compared to 40% in the third quarter of fiscal 1997 and the full fiscal year 1997. Gross profit 15 AUTOTOTE CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-(Continued) earned on equipment sales of $1.1 million in the third quarter of fiscal 1998 decreased by $0.4 million, or 27%, compared to the third quarter of fiscal 1997. Gross profit as a percent of equipment sales was 28% in the third quarter of fiscal 1998, compared to gross profit margins of 46% in the third quarter of fiscal 1997 as a result of a change in the mix of equipment and systems sold. Expense Analysis Selling, general and administrative expenses include marketing, sales, administrative, engineering and software development, finance, legal and other expenses. Selling, general and administrative expenses remained level with the third quarter of fiscal 1997 at $6.3 million. The expense of completing the test phase and the initial rollout of the NASRIN communication network and the inclusion of the new Netherlands business were offset by continuing cost reduction efforts, primarily in Europe. Depreciation and amortization expenses decreased 11% or $0.9 million to $7.5 million in the third quarter of fiscal 1998 compared to $8.4 million in the third quarter of fiscal 1997. The decrease results from the full amortization of certain intangible assets and lower depreciation on lottery assets, partially offset by the accelerated amortization of deferred transponder costs as a result of the failure of a Galaxy satellite. Interest expense of $3.8 million in the third quarter of fiscal 1998 increased $0.4 million over the third quarter of fiscal 1997, primarily reflecting higher interest rates and larger outstanding debt balances. Income Taxes Income tax expense was $0.1 million in the third quarter of fiscal 1998 compared to a benefit of $0.3 million in the fiscal 1997 third quarter. Income tax expense principally reflects foreign taxes, since no tax benefit has been recognized on domestic operating losses. Nine Months Ended July 31, 1998 Compared to Nine Months Ended July 31, 1997
Nine Months Fiscal 1998 Nine Months Fiscal 1997 -------------------------------------------- --------------------------------------------- Pari- Pari- Mutuel Lottery Mutuel Lottery Operations Operations Total Operations Operations Total -- ----------- ----------- ---------- ------------ ----------- ----------- Revenues: Services $ 91,924 7,190 99,114 87,393 11,521 98,914 Sales 9,014 1,313 10,327 6,052 8,288 14,340 -------------- ----------- ---------- ------------ ----------- ----------- Total Revenues $ 100,938 8,503 109,441 93,445 19,809 113,254 ============== =========== ========== ============ =========== =========== Gross Profit (excluding depreciation and amortization) $ 37,123 2,926 40,049 36,392 8,129 44,521 ============== =========== ========== ============ =========== ===========
Nine Month Revenue Analysis Revenues decreased 3% or $3.8 million to $109.4 million in the first nine months of the fiscal year ending October 31, 1998 from $113.3 million in the first nine months of the fiscal year ended October 31, 1997. Pari-mutuel Operations service revenues of $91.9 million for the first nine months of fiscal 1998 improved $4.5 million or 5% compared to the first nine months of the prior year. $1.1 million of this improvement reflects the inclusion of revenues from the recently acquired Netherlands operations. The balance of the improvement is due to the growth in handle in the Company's North American pari-mutuel and Connecticut OTB operations. The growth in handle during the first nine months of fiscal 1998 compared to the first nine months of fiscal 1997 is attributable to the addition of four new racetracks and OTB sites, the addition of full card 16 AUTOTOTE CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-(Continued) simulcasting at one North American racetrack customer, an increase in interface fees, the addition of nine new simulcasting customers, the commencement of simulcasting in Germany, the running of the Breeders' Cup in the first nine months of fiscal 1998 and the growth in video gaming. These increases were partially offset by lower revenues in the North American simulcasting operations due to lower sales of ad hoc satellite time and the loss of a service contract in the Company's French operation. Pari-mutuel equipment sales revenues in the first nine months of fiscal 1998 of $9.0 million increased $3.0 million or 49% compared to the first nine months of the prior year due primarily to the sales of terminals to the Company's international customers. Lottery Operations service revenues decreased $4.3 million in the first nine months of fiscal 1998 to $7.2 million primarily because of the absence of $5.2 million in revenues provided in the prior year period by the Company's European lottery business which was sold in April 1997. Lottery equipment sales revenues decreased to $1.3 million in the first nine months of fiscal 1998 from $8.3 million in the same period in fiscal 1997. This decrease is primarily attributable to the absence in fiscal 1998 of sales of $2.7 million of terminals to an Italian distributor for Italy's pari-mutuel lottery pool, $3.5 million of terminals to the Israel lottery, and $0.9 million in equipment sales provided by the Company's European lottery business. Gross Profit Analysis The total gross profit of $40.0 million in the first nine months of fiscal 1998 decreased by $4.5 million, or 10%, compared to the first nine months of fiscal 1997. Lower margins due to the absence of the Company's European lottery service revenue of $2.7 million, the loss of a service contract in the Company's French operation, coupled with the costs of the NASRIN startup, were partially offset by an increase in service margins earned on increased handle in the pari-mutuel business. Gross profit as a percent of revenues in the Company's continuing service businesses was 37% in the first nine months of fiscal 1998, down slightly from gross profit margins of 39% in the first nine months of fiscal 1997, reflecting, primarily, higher operating expenses in the lottery and communications businesses, higher signal fees in the OTB business and the NASRIN startup costs. Gross profit earned on equipment sales was $3.7 million in the first nine months of fiscal 1998 as compared to $5.1 million in the first nine months of fiscal 1997 due primarily to the absence of terminal sales to the Israel lottery and European lottery sales in fiscal 1998. Gross profit as a percent of equipment sales was 36% in the first nine months of fiscal 1998, equal to the gross profit margins in the first nine months of fiscal 1997. Expense Analysis Selling, general and administrative expenses include marketing, sales, administrative, engineering and software development, finance, legal and other expenses. Selling, general and administrative expenses decreased $1.8 million or 9% to $19.2 million in the first nine months of fiscal 1998, from $21.0 million in the first nine months of fiscal 1997. Expense reductions of $0.5 million resulting from the sale of the Company's European lottery business were complimented by the collection of receivables previously reserved due to concerns about their recoverability and cost reduction programs in Europe. These reductions were partially offset by the expense of completing the test phase and the initial rollout of the NASRIN communication network and increased contract proposal costs in lottery operations. Depreciation and amortization expenses decreased 22% to $22.1 million in the first nine months of fiscal 1998 compared to $28.3 million in the first nine months of fiscal 1997. The decrease results from the sale of the Company's European lottery business in April 1997, full amortization of certain intangible assets and lower depreciation on lottery assets in fiscal 1998, partially offset by the accelerated amortization of deferred transponder costs as a result of the failure of a Galaxy satellite. Interest expense of $11.5 million in the first nine months of fiscal 1998 increased $0.8 million over the first nine months of fiscal 1997, primarily reflecting higher interest rates. Income Taxes Income tax expense was $0.4 million in the first nine months of fiscal 1998 compared to $0.2 million in the first nine months of fiscal 1997. Income tax expense principally reflects foreign taxes, since no tax benefit has been recognized on domestic operating losses. 17 AUTOTOTE CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-(Continued) Liquidity and Capital Resources At July 31, 1998, the Company's available cash and borrowing capacity totaled $39.3 million compared to $41.3 million at October 31, 1997. Net cash of $12.7 million was provided by operating activities during the nine months ended July 31, 1998. Utilizing cash provided by operating activities and available cash, the Company invested $14.0 million principally in capital and contract expenditures and in software systems development. Additionally, the Company invested $11.8 million in the construction of approximately 3,200 new PROBE-L lottery terminals for the Connecticut State Lottery. This investment was funded by a $12.0 million term loan agreement. The Company also acquired $2.2 million of cash in connection with the acquisition of the company now known as Autotote Netherlands B. V., which amount will be used to pay current obligations. In addition to the previously described financing activities, the Company repaid $2.3 million in long-term debt and raised $0.5 million from the sale of common stock during the first nine months of fiscal 1998. As described above in Note 5 to the Consolidated Financial Statements included herein, the Company had $22.0 million of borrowing availability under its Facility at July 31, 1998. The Company believes that, although it expects to incur a net loss in fiscal 1998, its cash resources, anticipated cash flows from operations and borrowing availability under the Facility will provide sufficient liquidity to meet scheduled interest payments and anticipated capital expenditures during the next twelve months. The Company believes, however, that additional financing will be required to enable it to meet its debt service obligations under the Notes, the Facility and the Subordinated Debentures, and for capital expenditures thereafter. The Company has signed an agreement with an Italian distributor, Elettronica Ingegneria Sistemi, to sell up to 20,000 Extrema terminals, valued at approximately $64 million, to Sisal Sport Italia SpA for use in Italy's pari-mutuel lottery pool. The Company expects to manufacture the terminals in its Irish facility and expects to begin shipping the terminals in the fourth quarter of fiscal 1998 with shipments continuing through the year 2000. The Company expects to finance the working capital required to manufacture the terminals with cash advanced under the contract and cash available under the Facility. New Accounting Standard In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts. Under the standard, entities are required to carry all derivative instruments in the statement of financial position at fair value. SFAS 133 is effective beginning in the first quarter of the Company's fiscal year ending October 31, 2000. The Company has not determined the impact that SFAS 133 will have on its financial statements and believes that such determination will not be meaningful until closer to the date of initial adoption. In February 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 132, "Employer's Disclosures about Pensions and Other Postretirement Benefits" ("SFAS 132"). SFAS 132 revises employers' disclosures about pension and other postretirement benefit plans in order to standardize disclosure requirements to the extent possible and requires additional information on changes in the benefit obligations and fair values of plan assets that are intended to facilitate financial analysis. SFAS 132 does not change the measurement or recognition of those plans and is effective for the Company's fiscal year ending October 31, 1999. Adoption of this standard is expected to result in modification of and/or additional disclosures, but will not have an effect on the Company's financial position or results of operations. 18 AUTOTOTE CORPORATION AND SUBSIDIARIES Quarter Ended July 31, 1998 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.30 Term Loan Agreement dated May 22, 1998 by and among Autotote Corporation, Autotote Lottery Corporation, various financial institutions and Heller Financial, Inc., as agent. 10.31 Purchase Agreement between Autotote Corporation and Stichting Hippo Toto dated June 29, 1998. 27 Financial Data Schedule. No current reports on Form 8-K were filed during the third quarter of fiscal 1998. 19 AUTOTOTE CORPORATION AND SUBSIDIARIES Quarter Ended July 31, 1998 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AUTOTOTE CORPORATION -------------------- (Registrant) By: /s/ William Luke ----------------- Name: William Luke Title: Vice President & Chief Financial Officer Dated: September 14, 1998 20 EX-10.30 2 TERM LOAN AGREEMENT DATED MAY 22, 1998 Exhibit 10.30 ================================================================================ TERM LOAN AGREEMENT Dated as of May 22, 1998 By and Among AUTOTOTE CORPORATION, as Borrower, AUTOTOTE LOTTERY CORPORATION, as Borrower, VARIOUS FINANCIAL INSTITUTIONS as Banks, and HELLER FINANCIAL, INC., as Agent ================================================================================
TABLE OF CONTENTS ----------------- SECTION 1. AMOUNT AND TERMS OF TERM LOAN................................................1 1.1. Term Loan..........................................................................1 1.2. Minimum Amount of Each Advance.....................................................1 1.3. Notice of Borrowing; Fixed Rate Notice.............................................1 1.4. Advances...........................................................................2 1.5. Term Notes.........................................................................3 1.6. Conversions........................................................................3 1.7. Pro Rata Borrowing.................................................................3 1.8. Interest...........................................................................4 1.9. Interest Periods...................................................................5 1.10. Increased Costs, Illegality, etc..................................................6 1.11. Compensation......................................................................7 1.12. Change of Lending Office..........................................................8 1.13. Replacement of Banks..............................................................8 1.14. Closing Fee.......................................................................9 SECTION 2. PREPAYMENTS; PAYMENTS; TAXES.................................................9 2.1. Voluntary Prepayments..............................................................9 2.2. Mandatory Repayments...............................................................10 2.3. Method and Place of Payment........................................................12 2.4. Net Payments.......................................................................12 2.5. No Reborrowing.....................................................................14 SECTION 3. EXISTING CREDIT AGREEMENT; SECURITY..........................................14 SECTION 4. CONDITIONS PRECEDENT TO THE EFFECTIVE DATE...................................14 4.1. Execution of Agreement; Term Notes.................................................14 4.2. Fees, etc..........................................................................14 4.3. Opinions of Counsel................................................................15 4.4. Amendments to Credit Documents; Consents...........................................15 4.5. Proceedings; Agreements............................................................15 4.6. Subsidiaries Guaranty Reaffirmation................................................15 4.7. Connecticut Lottery Corporation....................................................15 4.8. Rescission of Collateral Release, Pledge of Intercompany Collateral................15 4.9. Adverse Change, etc................................................................15 4.10. Litigation........................................................................16 4.11. Closing Certificate...............................................................16 SECTION 5. CONDITIONS PRECEDENT TO ALL CREDIT EVENTS....................................16 5.1. No Default; Representations and Warranties.........................................17 5.2. Notice of Borrowing................................................................17
SECTION 6. REPRESENTATIONS AND WARRANTIES...............................................17 SECTION 7. AFFIRMATIVE COVENANTS........................................................18 7.1. Use of Term Loan Proceeds..........................................................18 7.2. Continuing Covenants...............................................................18 SECTION 8. NEGATIVE COVENANTS...........................................................18 SECTION 9. EVENTS OF DEFAULT...........................................................19 9.1. Payments...........................................................................19 9.2. Representations, etc...............................................................19 9.3. Covenants..........................................................................19 9.4. Event of Default Under Credit Agreement............................................19 9.5. Default Under Lottery Agreement....................................................19 SECTION 10. DEFINITIONS AND ACCOUNTING TERMS...........................................20 10.1. Defined Terms.....................................................................20 SECTION 11. AGENT......................................................................29 11.1. Appointment.......................................................................29 11.2. Nature of Duties..................................................................29 11.3. Lack of Reliance on Agent.........................................................29 11.4. Certain Rights of Agent...........................................................30 11.5. Reliance..........................................................................30 11.6. Indemnification...................................................................30 11.7. Agent in its Individual Capacity..................................................30 11.8. Holders...........................................................................31 11.9. Resignation by Agent..............................................................31 SECTION 12. MISCELLANEOUS.............................................................32 12.1. Payment of Expenses, etc..........................................................32 12.2. Right of Setoff...................................................................33 12.3. Notices...........................................................................33 12.4. Benefit of Agreement..............................................................33 12.5. No Waiver; Remedies Cumulative....................................................35 12.6. Payments Pro Rata.................................................................36 12.7. Calculations; Computations........................................................36 12.8. Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury Trial............37 12.9. Counterparts......................................................................38 12.10. Effectiveness....................................................................38 12.11. Headings Descriptive.............................................................38 12.12. Amendment or Waiver, etc.........................................................38 12.13. Survival.........................................................................39 12.14. Domicile of Loans................................................................39
-2- 12.15. Confidentiality..................................................................39 12.16. Register.........................................................................40 12.17. Consent to Forbearance Agreement.................................................41 12.18. Joint and Several Liability......................................................41 12.19. Effect of Certain Actions........................................................41
TERM LOAN AGREEMENT This Term Loan Agreement is dated as of May 22, 1998 and is entered into by and among Autotote Corporation, a Delaware corporation ("Parent"), Autotote Lottery Corporation, a Delaware corporation ("ALC"), and Heller Financial, Inc., a Delaware corporation (in its individual capacity "Heller") as a Bank and as agent for all financial institutions who are or hereafter become parties to this Agreement as Banks. R E C I T A L S: WHEREAS, Borrower desires that Banks extend a term loan facility to Borrower to finance the manufacture and installation of equipment and software for the Connecticut lottery and (ii) costs and expenses associated with this term loan facility; and WHEREAS, on the terms and conditions set forth herein, Banks have agreed to extend such term loan facility. NOW, THEREFORE, Borrower, Banks and Agent agree as follows: SECTION 1. AMOUNT AND TERMS OF TERM LOAN. ---------------------------------------- 1.1. Term Loan. --------- Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Borrower made pursuant hereto, each Bank severally agrees to lend to Borrower its Percentage of the aggregate sum of up to Twelve Million Dollars ($12,000,000) (the "Term Loan"). 1.2. Minimum Amount of Each Advance. ------------------------------ The Term Loan will be disbursed during the Disbursement Period in up to five (5) separate Advances, provided that the minimum amount of any aggregate Advance shall be the lesser of: (a) Two Million Dollars ($2,000,000) (plus integral multiples of One Hundred Thousand Dollars ($100,000)) and (b) the difference between Twelve Million Dollars ($12,000,000) and the aggregate amount of all previous Advances. 1.3. Notice of Borrowing; Fixed Rate Notice. -------------------------------------- (a) Whenever during the Disbursement Period Borrower desires an Advance, an Authorized Representative of Borrower shall give Agent at its Notice Office at least one (1) Business Day's prior written notice (or telephonic notice promptly confirmed in writing) of the Base Rate Portion, if any, and at least three (3) Business Days' prior written notice (or telephonic notice promptly confirmed in writing) of the Eurodollar Portion, if any, provided, that any such notice shall be deemed to have been given on a certain day only if given before (i) in the case of any Eurodollar Portion, 11:00 A.M. (New York time) on such day or (ii) in the case of Base Rate Portion, 12:00 Noon (New York time) on such day. Each such written notice or written confirmation of telephonic notice (each a "Notice of Borrowing"), except as otherwise expressly provided in Section 1.10, shall be irrevocable and shall be given by such Authorized Representative in the form of Exhibit A, appropriately completed to specify the aggregate principal Advance to be made pursuant to the Notice of Borrowing, the date of such Advance (which shall be a Business Day), and the amount of such Advance which will be a Base Rate Portion or a Eurodollar Portion and, if a Eurodollar Portion, the initial Interest Period to be applicable thereto. Agent shall promptly give each Bank notice of each such proposed Advance, of such Bank's Percentage thereof and of the other matters required by the immediately preceding sentence to be specified in the Notice of Borrowing. (b) Upon request of Borrower, Agent will advise Borrower of the Fixed Rate available for any Advance or applicable conversion of any Term Loan Portion to a Fixed Rate Portion if such Advance or conversion is made within two (2) Business Days after such advice. No later than five (5) Business Days before the expiration of the Disbursement Period, and provided that no Default or Event of Default then exists, Borrower will have the one-time option, the exercise of which shall be irrevocable, to elect to cause not less than Ten Million Dollars ($10,000,000) of the Term Loan principal balance (including any Advance to be requested concurrently with said election) to bear interest at the Fixed Rate until the Maturity Date. Once the Fixed Rate is elected pursuant to this Section 1.3(b), (i) neither the entire Fixed Rate Portion nor any amount of the Fixed Rate Portion shall be converted to another Type and (ii) no other Term Loan Portion may be converted to the Fixed Rate Portion. Borrower shall be responsible for any compensation due Banks under Section 1.11 resulting from an election to convert a Eurodollar Portion into all or part of the Fixed Rate Portion. 1.4. Advances. -------- Not later than 12:00 Noon (New York time) on the date specified in each Notice of Borrowing, each Bank will make available its Percentage portion of the Advance requested in the Notice of Borrowing. All such amounts shall be made available in Dollars and in immediately available funds at the Payment Office of Agent, and Agent will make available to Borrower at the Payment Office the aggregate of the amounts so made available by the Banks (prior to 1:00 P.M. on such day, to the extent of funds actually received by Agent prior to 12:00 Noon on such day). Unless Agent shall have been notified by any Bank prior to the date of such Advance that such Bank does not intend to make available to Agent such Bank's Percentage of the Advance to be made on such date, Agent may assume that such Bank has made such amount available to Agent on such date and Agent may (but shall not be obligated to), in reliance upon such assumption, make available to Borrower a corresponding amount. If such corresponding amount is not in fact made available to Agent by such Bank, Agent shall be entitled to recover such corresponding amount on demand from such Bank. If such Bank does not pay such corresponding amount forthwith upon Agent's demand therefor, Agent shall promptly notify Borrower and Borrower shall immediately pay such corresponding amount to Agent. Agent shall also be entitled to recover on demand from such Bank or Borrower, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by Agent to Borrower until the date such corresponding amount is recovered by Agent, at a rate per annum equal to (i) if recovered from such Bank, at the overnight Federal Funds Rate and (ii) if recovered from Borrower, the rate of interest applicable to such Advance, as determined pursuant to -2- Section 1.8. Nothing in this Section 1.4 shall be deemed to relieve any Bank from its obligation to make its required Advance or to prejudice any rights which Borrower may have against any Bank as a result of any failure by such Bank to make its required Advance. 1.5. Term Notes. ---------- Borrower shall execute and deliver to each Bank a Term Note (substantially in the form of Exhibit B, each a "Term Note") to evidence such Bank's share of the Term Loan, such Term Note to be in the principal amount of such Bank's Percentage of the aggregate principal amount of the Term Loan. In the event the Term Loan amount is less than Twelve Million Dollars ($12,000,000) or in the event of an assignment of a Term Loan Portion, Borrower shall, upon surrender, as applicable, of all Term Notes or the Term Note evidencing the assigned interest, issue a new Term Note or Term Notes to reflect, as applicable, the actual amount of the Term Loan or the interests of the assigning Bank and the Person to which interests are to be assigned. 1.6. Conversions. ----------- Except as provided in Section 1.3(b), Borrower shall have the option to convert, on any Business Day occurring after the Effective Date, Term Loan Portions of one Type equal to at least the applicable Minimum Borrowing Amount into a Term Loan Portion of another Type, provided that (i) except as otherwise provided in Section 1.10(b), a Eurodollar Portion may be converted into a Base Rate Portion only on the last day of an Interest Period applicable to the Eurodollar Portion being converted and no such partial conversion of a Eurodollar Portion shall reduce the outstanding principal amount of all Eurodollar Portions to less than the Minimum Borrowing Amount, (ii) Base Rate Portions may only be converted into Eurodollar Portions if no Default or Event of Default is in existence on the date of the conversion, and (iii) no conversion pursuant to this Section 1.6 shall result in more than six (6) Eurodollar Portions outstanding at any time. Each such conversion shall be effected by an Authorized Representative of Borrower giving Agent at its Notice Office prior to 11:00 A.M. (New York time) at least three (3) Business Days' prior notice (each a "Notice of Conversion") specifying the Term Loan Portions to be so converted, and, if to be converted into Eurodollar Portions, the Interest Period to be applicable thereto. Agent shall give each Bank prompt notice of any such proposed conversion affecting any of its Term Loan Portions. 1.7. Pro Rata Borrowing. ------------------ All Advances under this Agreement shall be made by the Banks pro rata on the basis of their Percentage. It is understood that no Bank shall be responsible for any default by any other Bank of its obligation to make disbursements hereunder and that each Bank shall be obligated to make disbursements provided to be made by it hereunder, regardless of the failure of any other Bank to make its disbursements hereunder. 1.8. Interest -------- (a) Borrower agrees to pay interest in respect of the unpaid amount of the Base Rate Portion from the date such Base Rate Portion is made available to Borrower or, as applicable, the date of conversion of such amount to a Base Rate Portion pursuant to Section 1.6 -3- until the earlier of (i) the Maturity Date and (ii) the conversion of all or any portion (to the extent of such conversion) of such Base Rate Portion to a Eurodollar Portion or a Fixed Rate Portion pursuant to Section 1.6 or 1.3(b), as applicable, at a rate per annum which shall be equal to the sum of two percent (2%) plus the Base Rate in effect from time to time. (b) Borrower agrees to pay interest in respect of the unpaid amount of each Eurodollar Portion from the date such Eurodollar Portion is made available to Borrower or, as applicable, date of conversion of such amount to a Eurodollar Portion pursuant to Section 1.6 until the earlier of (i) the Maturity Date and (ii) the conversion of all or any portion (to the extent of such conversion) of such Eurodollar Portion to a Base Rate Portion or a Fixed Rate Portion pursuant to Section 1.6, 1.3(b) or 1.10, as applicable, at a rate per annum which shall, during each Interest Period applicable thereto, be equal to the sum of three percent (3%) plus the Eurodollar Rate for such Interest Period. (c) Borrower agrees to pay interest in respect of the unpaid amount of the Fixed Rate Portion from the date such Fixed Rate Portion is made available to Borrower, or, as applicable, the date of conversion of such amount to a Fixed Rate Portion pursuant to Section 1.3(b) until the Maturity Date, at a rate per annum equal to the Fixed Rate. (d) Overdue principal and, to the extent permitted by law, overdue interest in respect of each of the Base Rate Portion, the Eurodollar Portion and the Fixed Rate Portion and any other overdue amount payable hereunder shall, in each case, bear interest at a rate per annum equal to the greater of (x) two percent (2%) per annum in excess of the rate otherwise applicable to Base Rate Portions from time to time and (y) the rate which is two percent (2%) in excess of the rate then borne by such Term Loan Portion, in each case with such interest to be payable on demand. (e) Accrued (and theretofore unpaid) interest calculated in accordance with (a) through (c) above shall be payable (i) in respect of the Base Rate Portion, (x) quarterly in arrears on each Quarterly Payment Date and (y) on the date of any repayment or prepayment thereof (on the amount repaid and prepaid), (ii) in respect of each Eurodollar Portion, (x) on the last day of each Interest Period applicable thereto, except that in the case of an Interest Period in excess of three months, on each date occurring at three month intervals after the first day of such Interest Period and (y) on the date of any repayment or prepayment thereof (on the amount repaid or prepaid), (iii) in respect of the Fixed Rate Portion, (x) quarterly in arrears on each Quarterly Payment Date and (y) on the date of any repayment or prepayment thereof (on the amount repaid or prepaid), and (iv) in respect of each Term Loan Portion, at maturity (whether by acceleration or otherwise) and, after such maturity, on demand. (f) Upon each Interest Determination Date, Agent shall determine the Eurodollar Rate for each Interest Period applicable to Eurodollar Portions and shall promptly notify Borrower and the Banks thereof. Each such determination shall, absent manifest error, be final and conclusive and binding on all parties hereto. 1.9. Interest Periods. ---------------- At the time it gives any Notice of Borrowing or Notice of Conversion in respect of the making of, or conversion into, any Eurodollar Portion (in the case of the initial Interest Period applicable thereto) or on the third Business Day prior to the expiration of an Interest -4- Period applicable to such Eurodollar Portion (in the case of any subsequent Interest Period), Borrower shall have the right to elect, by having an Authorized Representative of Borrower give Agent notice thereof, the interest period (each, an "Interest Period") to be applicable to such Eurodollar Portion, which Interest Period shall, at the option of Borrower, be a one, two, three or six-month period; provided that: -------- (i) the Eurodollar Portion of an Advance, if any, shall at all times have the same Interest Period; (ii) the initial Interest Period for any Eurodollar Portion shall commence on the date of the Advance in respect of such Eurodollar Portion (or the date of the initial conversion thereto from a Base Rate Portion) and each Interest Period occurring thereafter in respect of such Eurodollar Portion shall commence on the day on which the next preceding Interest Period applicable thereto expires; (iii) if any Interest Period relating to a Eurodollar Portion begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month; (iv) if any Interest Period for any Eurodollar Portion would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day, provided, -------- however, that if any Interest Period for a Eurodollar Portion would ------- otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (v) no Interest Period may be selected at any time when a Default or an Event of Default is then in existence; and (vi) no Interest Period shall be selected which extends beyond the Maturity Date. If upon the expiration of any Interest Period applicable to a Eurodollar Portion, Borrower has failed to elect, or is not permitted to elect, a new Interest Period to be applicable to such Eurodollar Portion as provided above, Borrower shall be deemed to have elected to convert such Eurodollar Portion into a Base Rate Portion effective as of the expiration date of such current Interest Period. 1.10. Increased Costs, Illegality, etc. -------------------------------- (a) In the event that any Bank shall have determined in good faith (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto but, with respect to clause (i) below, may be made only by Agent): (i) on any Interest Determination Date that, by reason of any changes arising after the Effective Date affecting the interbank Eurodollar -5- market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of Eurodollar Rate; or (ii) at any time, that such Bank shall incur material increased costs or material reductions in the amounts received or receivable hereunder with respect to any Eurodollar Portion because of (x) any change since the Effective Date in any applicable law or governmental rule, regulation, order, guideline or request (whether or not having the force of law) or in the interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation, order, guideline or request, such as, for example, but not limited to: (A) a change in the basis of taxation of payment to such Bank of the principal of or interest on such Eurodollar Portion or any other amounts payable hereunder (except for changes in the rate of tax on, or determined by reference to, the net income or profits of such Bank pursuant to the laws of the jurisdiction in which it is organized or in which its principal office or applicable lending office is located or any subdivision thereof or therein) or (B) a change in official reserve requirements, but, in all events, excluding reserves required under Regulation D to the extent included in the computation of the Eurodollar Rate and/or (y) other circumstances since the Effective Date affecting such Bank or the interbank Eurodollar market or the position of such Bank in such market; or (iii) at any time, that the making or continuance of any Eurodollar Portion has been made (x) unlawful by any law or governmental rule, regulation or order, (y) impossible by compliance by such Bank in good faith with any governmental request (whether or not having force of law) or (z) impracticable as a result of a contingency occurring after the Effective Date which materially and adversely affects the interbank Eurodollar market; then, and in any such event, such Bank (or Agent, in the case of clause (i) above) shall promptly give notice (by telephone confirmed in writing) to Borrower and, except in the case of clause (i) above, to Agent of such determination (which notice Agent shall promptly transmit to each of the other Banks). Thereafter (x) in the case of clause (i) above, Eurodollar Portions shall no longer be available until such time as Agent notifies Borrower and the Banks that the circumstances giving rise to such notice by Agent no longer exist, and any Notice of Borrowing or Notice of Conversion given by Borrower with respect to Eurodollar Portions which have not yet been incurred (including by way of conversion) shall be deemed rescinded by Borrower, (y) in the case of clause (ii) above, Borrower shall pay to such Bank, upon written demand therefor, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Bank in its sole discretion shall determine) as shall be required to compensate such Bank for such increased costs or reductions in amounts received or receivable hereunder (a written notice as to the additional amounts owed to such Bank, showing the basis for the calculation thereof, submitted to Borrower by such Bank in good faith shall, absent manifest error, be final and conclusive and -6- binding on all the parties hereto) and (z) in the case of clause (iii) above, Borrower shall take one of the actions specified in Section 1.10(b) as promptly as possible and, in any event, within the time period required by law. (b) At any time that any Eurodollar Portion is affected by the circumstances described in Section 1.10(a)(ii) or (iii), Borrower may (and in the case of a Eurodollar Portion affected by the circumstances described in Section 1.10(a)(iii) shall) either (x) if the affected Eurodollar Portion is then being advanced, cancel the respective Advance by giving Agent telephonic notice (confirmed in writing) on the same date that Borrower was notified by the affected Bank or Agent pursuant to Section 1.10(a)(ii) or (iii) or (y) if the affected Eurodollar Portion is then outstanding, upon at least three (3) Business Days' written notice to Agent, require the affected Bank to convert such Eurodollar Portion into a Base Rate Portion; provided that if more than one Bank is affected at any time, then all affected Banks must be treated the same pursuant to this Section 1.10(b). (c) If at any time after the Effective Date any Bank determines that the introduction of or any change in any applicable law or governmental rule, regulation, order, guideline, directive or request (whether or not having the force of law) concerning capital adequacy, or any change in interpretation or administration thereof by any governmental authority, central bank or comparable agency, will have the effect of increasing the amount of capital required or expected to be maintained by such Bank or any corporation controlling such Bank based on the existence of such Bank's commitments or obligations hereunder, then Borrower shall pay to such Bank, upon its written demand therefor, such additional amounts as shall be required to compensate such Bank or such other corporation for the increased cost to such Bank or such other corporation or the reduction in the rate of return to such Bank or such other corporation as a result of such increase of capital. In determining such additional amounts, each Bank will act reasonably and in good faith and will use averaging and attribution methods which are reasonable; provided that such Bank's reasonable -------- good faith determination of compensation owing under this Section 1.10(c) shall, absent manifest error, be final and conclusive and binding on all the parties hereto. Each Bank, upon determining that any additional amounts will be payable pursuant to this Section 1.10(c), will give prompt written notice thereof to Borrower, which notice shall show the basis for calculation of such additional amounts. 1.11. Compensation. ------------ (a) Borrower shall compensate each Bank, upon its written request (which request shall (x) set forth the basis for requesting such compensation and (y) absent manifest error, be final and conclusive and binding upon all the parties hereto), for all reasonable losses, expenses and liabilities (including, without limitation, any loss, expense or liability incurred by reason of the liquidation or reemployment of deposits or other funds required by such Bank to fund its Eurodollar Portions but excluding any loss of anticipated profit) which such Bank may sustain: (i) if for any reason (other than a default by such Bank or Agent) an Advance of, or conversion from or into, a Eurodollar Portion does not occur on a date specified therefor in a Notice of Borrowing or Notice of Conversion (whether or not withdrawn by Borrower or deemed withdrawn pursuant to Section 1.10(a)); (ii) if any repayment (including any mandatory repayment made pursuant to Section 2.2 or as a result of an acceleration of the Term Loan pursuant to Section 9) or conversion of any Eurodollar Portion occurs on a date which is not the last day of an Interest Period with respect thereto; (iii) if any prepayment of any Eurodollar -7- Portion is not made on the date specified in a notice of prepayment given by Borrower; or (iv) as a consequence of (x) any other default by Borrower of its obligation to repay the Term Loan when required by the terms of this Agreement or the Term Note held by such Bank or (y) any election made pursuant to Section 1.10(b). (b) Upon any prepayment, whether voluntary or upon the acceleration of the Maturity Date, with respect to any Fixed Rate Portion, Borrower shall pay each Lender with respect to the amount prepaid its Percentage of the Fixed Rate Breakage Fee. The Fixed Rate Breakage Fee shall not apply to any mandatory repayments under Section 2.2, but shall apply to any payment upon acceleration of the Maturity Date. 1.12. Change of Lending Office. ------------------------ Each Bank agrees that on the occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or (iii), Section 1.10(c) or Section 2.4 with respect to such Bank, it will, if requested by Borrower, use reasonable efforts (subject to overall policy considerations of such Bank) to designate another lending office for any Eurodollar Portions affected by such event; provided that -------- such designation is made on such terms that such Bank and its lending office suffer no economic, legal or regulatory disadvantage, with the object of avoiding the consequence of the event giving rise to the operation of such Section. Nothing in this Section 1.12 shall affect or postpone any of the obligations of Borrower or the right of any Bank provided in Sections 1.10 and 2.4. 1.13. Replacement of Banks. -------------------- (a) If any Bank (x) becomes a Defaulting Bank or (y) refuses to consent to certain proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved by the Required Banks as provided in Section 12.12(b), Borrower shall have the right in accordance with the requirements of Section 12.4(b), if no Default or Event of Default will exist immediately after giving effect to such replacement, to replace such Bank (the "Replaced Bank") with one or more other Eligible Transferees, none of which shall constitute a Defaulting Bank at the time of such replacement (collectively, the "Replacement Bank") and each of which shall be required to be acceptable to Agent and reasonably acceptable to Borrower; provided that: -------- (i) at the time of any replacement pursuant to this Section 1.13, the Replacement Bank shall enter into one or more Assignment and Assumption Agreements pursuant to Section 12.4(b) (and with all fees payable pursuant to said Section 12.4(b) to be paid by the Replacement Bank) pursuant to which the Replacement Bank shall acquire all obligations and Term Loan Portions of the Replaced Bank and, in connection therewith, shall pay to the Replaced Bank in respect thereof an amount equal to the principal of, and all accrued interest on, all outstanding Term Loan Portions of the Replaced Bank with all then unpaid interest with respect thereto at such time; and (ii) all obligations of Borrower owing to the Replaced Bank (including all obligations, if any, owing pursuant to Section 1.11, but excluding those specifically described in clause (i) above in respect of -8- which the assignment purchase price has been, or is concurrently being, paid) shall be paid in full to such Replaced Bank concurrently with such replacement. (b) Upon the execution of the respective Assignment and Assumption Agreements referred to in the immediately preceding clause (a), the payment of the amounts referred to in the immediately preceding clauses (a)(i) and (a)(ii) and, if so requested by the Replacement Bank, delivery to the Replacement Bank of the appropriate Term Note executed by Borrower, the Replacement Bank shall become a Bank hereunder and the Replaced Bank shall cease to constitute a Bank hereunder, except with respect to indemnification provisions under this Agreement (including, without limitation, Sections 1.10, 1.11, 2.4, 12.1 and 12.16), which shall survive as to such Replaced Bank. 1.14. Closing Fee. ----------- On the Effective Date, Borrower shall pay to Heller the fee specified in that certain letter agreement dated March 12, 1998 (the "Commitment Letter"). SECTION 2. PREPAYMENTS; PAYMENTS; TAXES. --------------------------------------- 2.1. Voluntary Prepayments. --------------------- Borrower shall have the right to prepay the Term Loan in whole or in part at any time and from time to time on the following terms and conditions: (a) Borrower shall give Agent prior to 12:00 Noon (New York time) at its Notice Office (x) at least one (1) Business Day's prior written notice (or telephonic notice promptly confirmed in writing) of its intent to prepay any Base Rate Portion and (y) at least three (3) Business Days' prior written notice (or telephonic notice promptly confirmed in writing) of its intent to prepay any Eurodollar Portion or Fixed Rate Portion, the total amount of such prepayment and the amount and Types of each Term Loan Portion to be prepaid and, in the case of Eurodollar Portions, the specific Eurodollar Portions to be prepaid, which notice Agent shall promptly transmit to each of the Banks; (b) each prepayment shall be in an aggregate principal amount of at least Two Hundred Fifty Thousand Dollars ($250,000); provided that if any -------- partial prepayment of a Eurodollar Portion shall reduce the outstanding Eurodollar Portion having the same Interest Period to an amount less than the Minimum Borrowing Amount applicable thereto, then such Eurodollar Portion may not be continued as a Eurodollar Portion and any election of an Interest Period with respect thereto given by Borrower shall have no force or effect; (c) prepayments of any Eurodollar Portion made pursuant to this Section 2.1 (other than pursuant to clause (e) below) may only be made on the last day of an Interest Period applicable thereto; (d) each prepayment in respect of any Term Loan Portion shall be applied pro rata among the Bank in proportion to their Percentages; and -------- -9- (e) in the event of certain refusals by a Bank as provided in Section 12.12(b) to consent to certain proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved by the Required Banks, Borrower may, upon five (5) Business Days' written notice to Agent at its Notice Office (which notice Agent shall promptly transmit to each of the Banks), repay all Term Loan Portions, together with accrued and unpaid interest, and other amounts owing to such Bank. 2.2. Mandatory Repayments. -------------------- (a) Borrower shall repay the Term Loan in quarterly installments (the "Scheduled Installments") each equal to one-twentieth (1/20th) of the principal balance of the Term Loan as of the expiration of the Disbursement Period (and after giving effect to all Advances). The first Scheduled Installment will be due on October 31, 1998 and a Scheduled Installment will be due every Quarterly Payment Date thereafter until the Maturity Date. The remaining unpaid principal balance of the Term Loan will be due on the Maturity Date. At the request of Agent at any time after the Disbursement Period expires, Borrower will execute an acceptance and acknowledgment of a schedule to be attached to each Term Note setting forth the actual original principal amount thereof and the amount and due date of each Scheduled Installment. (b) In addition to any other mandatory repayments pursuant to this Section 2.2, on each date on or after the Effective Date upon which Parent or ALC or any of their Subsidiaries receives proceeds from any incurrence by ALC or any of its Subsidiaries of Indebtedness for borrowed money (other than Indebtedness for borrowed money permitted to be incurred under Section 9.5 of the Credit Agreement), an amount equal to one hundred percent (100%) of the cash proceeds of the respective incurrence of Indebtedness (net of underwriting or placement discounts and commissions and other reasonable costs associated therewith) shall be due and payable and shall be first applied as a repayment of the Term Loan in the inverse order of maturity and the balance to any outstanding Indebtedness under the Credit Agreement to the extent required thereby. (c) In addition to any other mandatory repayments pursuant to this Section 2.2, on each date on or after the Effective Date upon which Parent or ALC or any of its Subsidiaries receives proceeds from any sale of ALC's or any of its Subsidiaries' capital stock or newly issued shares or assets (excluding (i) sales of inventory in the ordinary course of business, (ii) sales of equipment and related software to customers of ALC or any of its Subsidiaries in the ordinary course of business pursuant to the terms of the respective wagering systems equipment contracts or similar contracts to which such Person is a party, and (iii) sales of assets in the ordinary course of business), an amount equal to one hundred percent (100%) of the Net Sale Proceeds therefrom shall be due and payable and shall be first applied as a repayment of the Term Loan in the inverse order of maturity and the balance shall be applied to any outstanding Indebtedness under the Credit Agreement to the extent required thereby, provided that as long as no Default or Event of Default then exists, no such mandatory repayment shall be required to the extent that Borrower has delivered a certificate to Agent on or prior to such date stating that such proceeds shall be reinvested by Borrower in the assets of ALC and its Subsidiaries within nine months following the date of such sale of assets. (d) In addition to any other mandatory repayments pursuant to this Section 2.2, within ten (10) days following each date on or after the Effective Date upon which Borrower -10- or ALC or any of its Subsidiaries receives any proceeds from any Recovery Event, an amount equal to one hundred percent (100%) of the proceeds of such Recovery Event (net of reasonable costs and any taxes incurred in connection with such Recovery Event and any amounts required to be applied (and are applied) to the repayment of any other Indebtedness secured by a prior perfected security interest (to the extent permitted by this Agreement) in the property subject to such Recovery Event) shall be due and payable and applied (1) if the Recovery Event is with respect to the assets of ALC or its Subsidiaries, as a repayment of the Term Loan in the inverse order of maturity with any balance as a repayment of the Indebtedness then outstanding under the Credit Agreement to the extent required thereby and (2) if the Recovery Event is with respect to assets other than those of ALC or its Subsidiaries, as a repayment of the Indebtedness then outstanding under the Credit Agreement to the extent required thereby with any balance as a repayment of the Term Loan in inverse order of maturity, provided that so long as no Default or Event of Default then exists, no such - -------- mandatory repayment shall be required to the extent that Borrower has delivered a certificate to Agent on or prior to such date stating that such proceeds shall be used to replace or restore any properties or assets in respect of which such proceeds were paid within twelve months following the date of such Recovery Event (which certificate shall set forth the estimates of the proceeds to be so expended); and provided further, that (i) if the amount of such proceeds exceeds -------- ------- Five Million Dollars ($5,000,000) (other than as a result of a Recovery Event that has occurred with respect to property located at a racetrack or any other wagering facility, including but not limited to, property located at any CLC location, in which case such proceeds shall be applied as provided elsewhere in this Section 2.2(d) without regard to the terms of this subclause (i)), then an amount equal to the portion in excess of Five Million Dollars ($5,000,000) shall be applied as provided in this Section 2.2(d) and (ii) if all or any portion of such proceeds not required to be applied as provided in the immediately preceding proviso are not so used within twelve months after the date of the respective Recovery Event, then on the date which is the first anniversary of the respective Recovery Event an amount equal to the remaining portion of such proceeds not so used shall be applied as provided in this Section 2.2(d). (e) In addition to any other mandatory repayments pursuant to this Section 2.2, within one hundred (100) days after the end of each fiscal year of ALC, an amount equal to fifty percent (50%) of the amount by which ALC Excess Cash Flow for such fiscal year exceeds Five Hundred Thousand Dollars ($500,000) shall be due and payable and applied as a repayment of the Term Loan in the inverse order of maturity. (f) With respect to each repayment of the Term Loan required by this Section 2.2, Borrower may designate the Types and amount of each Term Loan Portion which is to be repaid and, in the case of Eurodollar Portions, the specific Eurodollar Portion to be repaid; provided that (i) repayments of -------- Eurodollar Portion pursuant to this Section 2.2 may only be made on the last day of an Interest Period applicable thereto unless all Eurodollar Portions with Interest Periods ending on such date of required repayment and all Base Rate Portions have been paid in full, and (ii) if any repayment of a Eurodollar Portion made pursuant to a single Advance shall reduce the outstanding Eurodollar Portion having the same Interest Period to an amount less than the Minimum Borrowing Amount, such Eurodollar Portion shall be converted at the end of the then current Interest Period into a Base Rate Portion. In the absence of a designation by Borrower as described in the preceding sentence, Agent shall, subject to the above, make such designation in its sole discretion. -11- (g) Notwithstanding anything to the contrary contained elsewhere in this Agreement, the then outstanding principal balance of the Term Loan shall be repaid in full on the Maturity Date. 2.3. Method and Place of Payment. --------------------------- Except as otherwise specifically provided herein, all payments under this Agreement or any Term Note shall be made to Agent for the account of the Bank or Banks entitled thereto not later than 12:00 Noon (New York time) on the date when due and shall be made in Dollars in immediately available funds at the Payment Office of Agent. Whenever any payment to be made, hereunder or under any Term Note shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest shall be payable at the applicable rate during such extension. 2.4. Net Payments. ------------ (a) All payments made by Borrower hereunder or under any Term Note will be made without setoff, counterclaim or other defense. Except as provided in Section 2.4(b), all such payments will be made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein with respect to such payments (but excluding, except as provided in the second succeeding sentence, any tax imposed on or measured by the net income or profits of a Bank pursuant to the laws of the jurisdiction in which it is organized or the jurisdiction in which the principal office or applicable lending office of such Bank is located or any subdivision thereof or therein) and all interest, penalties or similar liabilities with respect thereto (all such non-excluded taxes, levies, imports, duties, fees, assessments or other charges being referred to collectively as "Taxes"). If any Taxes are so levied or imposed, Borrower agrees to pay the full amount of such Taxes, and such additional amounts as may be necessary so that every payment of all amounts due under this Agreement or under any Term Note, after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for under this Agreement or under any Term Note. If any amounts are payable in respect of Taxes pursuant to the preceding sentence, Borrower agrees to reimburse each Bank, upon the written request of such Bank, for taxes imposed on or measured by the net income or profits of such Bank pursuant to the laws of the jurisdiction in which such Bank is organized or in which the principal office or applicable lending office of such Bank is located or under the laws of any political subdivision or taxing authority of any such jurisdiction in which such Bank is organized or in which the principal office or applicable lending office of such Bank is located and for any withholding of income or similar taxes imposed by the United States of America as such Bank shall determine are payable by, or withheld from, such Bank in respect of such amounts so paid to or on behalf of such Bank pursuant to the preceding sentence and in respect of any amounts paid to or on behalf of such Bank pursuant to this sentence. Borrower will furnish to Agent within forty-five (45) days after the date the payment of any Taxes is due pursuant to applicable law certified copies of tax receipts evidencing such payment by Borrower. Borrower agrees to indemnify and hold harmless each Bank, and reimburse such Bank upon its written request, for the amount of any Taxes so levied or imposed and paid by such Bank. -12- (b) Each Bank that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) agrees to deliver to Borrower and Agent on or prior to the Effective Date, or in the case of a Bank that is an assignee or transferee of an interest under this Agreement pursuant to Section 1.13 or 12.4 (unless the respective Bank was already a Bank hereunder immediately prior to such assignment or transfer), on the date of such assignment or transfer to such Bank, (i) two accurate and complete original signed copies of Internal Revenue Service Form 4224 or 1001 (or successor forms) certifying to such Bank's entitlement to a complete exemption from United States withholding tax with respect to payments to be made under this Agreement and under any Term Note, or (ii) if the Bank is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue Service Form 1001 or 4224 pursuant to clause (i) above, (x) a certificate substantially in the form of Exhibit E (any such certificate, a "Section 2.4(b)(ii) Certificate") and (y) two accurate and complete original signed copies of Internal Revenue Service Form W-8 (or successor form) certifying to such Bank's entitlement to a complete exemption from United States withholding tax with respect to interest payments to be made under this Agreement and under any Term Note. In addition, each Bank agrees that from time to time after the Effective Date, when a lapse in time or change in circumstances renders the previous certification obsolete or inaccurate in any material respect, it will deliver to Borrower and Agent two new accurate and complete original signed copies of Internal Revenue Service Form 4224 or 1001, or Form W-8 and a Section 2.4(b)(ii) Certificate, as the case may be, and such other forms as may be required in order to confirm or establish the entitlement of such Bank to a continued exemption from United States withholding tax with respect to payments under this Agreement and any Term Note, or it shall immediately notify Borrower and Agent of its inability to deliver any such Form or Certificate. Notwithstanding anything to the contrary contained in Section 2.4(a), but subject to Section 12.4(b) and the immediately succeeding sentence, (x) Borrower shall be entitled, to the extent it is required to do so by law, to deduct or withhold income or similar taxes imposed by the United States (or any political subdivision or taxing authority thereof or therein) from interest, fees or other amounts payable hereunder for the account of any Bank which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax purposes to the extent that such Bank has not provided to Borrower U.S. Internal Revenue Service Forms (and, if applicable, a Section 2.4(b)(ii) Certificate) that establish a complete exemption from such deduction or withholding and (y) Borrower shall not be obligated pursuant to Section 2.4(a) hereof to gross-up payments to be made to a Bank in respect of income or similar taxes imposed by the United States if (I) such Bank has not provided to Borrower the Internal Revenue Service Forms (and, if applicable, a Section 2.4(b)(ii) Certificate) required to be provided to Borrower pursuant to this Section 2.4(b) or (II) in the case of a payment, other than interest, to a Bank described in clause (ii) above, to the extent that such Forms do not establish a complete exemption from withholding of such taxes. Notwithstanding anything to the contrary contained in the preceding sentence or elsewhere in this Section 2.4 and except as set forth in Section 12.4(b), Borrower agrees to pay additional amounts and to indemnify each Bank in the manner set forth in Section 2.4(a) (without regard to the identity of the jurisdiction requiring the deduction or withholding) in respect of any amounts deducted or withheld by it as described in the immediately preceding sentence as a result of any changes after the Effective Date in any applicable law, treaty, governmental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or withholding of income or similar Taxes. -13- 2.5. No Reborrowing. -------------- No amount of the Term Loan repaid or prepaid may be reborrowed. SECTION 3. EXISTING CREDIT AGREEMENT; SECURITY. ---------------------------------------------- Parent, Heller, as Agent and as a Bank, and DLJ Capital Funding, Inc. ("DLJ"), as a Bank, are parties to a certain Credit Agreement dated as of July 18, 1997 (as amended by that certain Agreement dated December 31, 1997 among the parties to the Credit Agreement and as further amended and supplemented from time to time, the "Credit Agreement") pursuant to which Heller and the other Banks party thereto from time to time have agreed to make revolving loans to Borrower. The term loan facility described in this Agreement is being extended to Borrower in conjunction with the revolving credit facility described in the Credit Agreement, notwithstanding that the Banks (as defined in the Credit Agreement) may not be now or at one or more times in the future the same as Banks (as defined herein). It is the intention of the parties that the Obligations, as defined in the Credit Agreement, and the Obligations, as herein defined, be secured by the Collateral on a pari passu basis, except as provided in any intercreditor agreement among the parties to the Credit Agreement and this Agreement. SECTION 4. CONDITIONS PRECEDENT TO THE EFFECTIVE DATE. ----------------------------------------------------- The occurrence of the Effective Date pursuant to Section 12.10 and the obligation of each Bank to disburse its Percentage of the first Advance is subject at the time of such Credit Event (except as hereinafter indicated) to the satisfaction of each of the following conditions: 4.1. Execution of Agreement; Term Notes. ---------------------------------- On or prior to the Effective Date (i) this Agreement shall have been executed and delivered in accordance with Section 12.10 and (ii) there shall have been delivered to Agent for the account of each of the Banks the appropriate Term Note executed by Borrower, in each case in the amount, maturity and as otherwise provided herein. 4.2. Fees, etc. --------- On the Effective Date, Borrower shall have paid to Agent and the Banks all costs, fees and expenses (including, without limitation, reasonable legal fees and expenses, UCC filing fees and title insurance later date charges) payable to Agent and the Banks to the extent then due. 4.3. Opinions of Counsel. ------------------- On the Effective Date, Agent shall have received (i) from Kramer, Levin, Naftalis & Frankel, special counsel to Borrower and the other Credit Parties, an opinion addressed to Agent and each of the Banks and dated the Effective Date covering the matters incident to the transactions contemplated herein as Agent may reasonably request and (ii) from Martin E. Schloss, Esq., General Counsel of Parent and its Subsidiaries, an opinion -14- addressed to Agent and each of the Banks and dated the Effective Date covering the matters incident to the transactions contemplated herein as Agent may reasonably request. 4.4. Amendments to Credit Documents; Consents. ---------------------------------------- Borrower, as applicable, and all required parties to the Credit Documents, as defined in the Credit Agreement, have executed such amendments to the Credit Documents, and such intercreditor agreements, acknowledgments and consents as Agent and the Required Banks may reasonably require to effectuate the transactions described in this Agreement, including the granting and perfection of the security interests in the Collateral to secure the Obligations hereunder and under the Term Notes. 4.5. Proceedings; Agreements. ----------------------- All corporate and legal proceedings and all instruments and agreements in connection with the transactions contemplated by this Agreement and the other documents contemplated hereby shall be reasonably satisfactory in form and substance to Agent and the Required Banks, and Agent shall have received all information and copies of all documents and papers, including records of corporate proceedings, governmental approvals, good standing certificates and bring-down telegrams or facsimiles, if any, which Agent reasonably may have requested in connection therewith, such documents and papers where appropriate to be certified by proper corporate or governmental authorities. 4.6. Subsidiaries Guaranty Reaffirmation. ----------------------------------- On the Effective Date, each Subsidiary Guarantor shall have reaffirmed its Subsidiaries Guaranty as to the transactions described herein and the Subsidiaries Guaranty, shall be in full force and effect. 4.7. Connecticut Lottery Corporation. ------------------------------- CLC and Agent shall have entered into the Forbearance Agreement. 4.8. Rescission of Collateral Release, Pledge of Intercompany Collateral. ------------------------------------------------------------------- The Agreement dated as of January 6, 1998 among Borrower, Agent and DLJ Capital Funding, Inc. releasing the Collateral owned by ALC shall have been rescinded in writing. 4.9. Adverse Change, etc. ------------------- (a) On the Effective Date, nothing shall have occurred (and the Banks shall have become aware of no facts, conditions or other information not previously known) which Agent or the Required Banks shall determine has, or could reasonably be expected to have, a material adverse effect on the rights or remedies of Agent or the Banks, or on the ability of any Credit Party to perform their respective obligations to Agent and the Banks or which has, or could reasonably be expected to have, a material adverse effect on the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of Parent and its Subsidiaries taken as a whole. -15- (b) On or prior to the Effective Date, all necessary governmental (domestic and foreign) and third party approvals in connection with the transactions contemplated by the Credit Documents and otherwise referred to herein or therein shall have been obtained and remain in effect, and all applicable waiting periods shall have expired without any action being taken by any competent authority which restrains, prevents or imposes materially adverse conditions upon the consummation of the transactions contemplated by this Agreement. Additionally, there shall not exist any judgment, order, injunction or other restraint issued or filed or a hearing seeking injunctive relief or other restraint pending or notified prohibiting or imposing materially adverse conditions upon the consummation of the transactions contemplated by this Agreement. 4.10. Litigation. ---------- On the Effective Date, no litigation by any entity (private or governmental) shall be pending or, to the knowledge of Borrower, threatened with respect to this Agreement or any documentation executed in connection herewith or therewith, or the transactions contemplated hereby, or with respect to any material Indebtedness of Borrower or any of its Subsidiaries, or which Agent or the Required Banks shall determine could reasonably be expected to have a materially adverse effect on the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of Parent and its Subsidiaries taken as a whole. 4.11. Closing Certificate. ------------------- On the Effective Date, Agent shall have received a certificate signed by the Chairman of the Board, the President, any Vice President or the Treasurer of Borrower stating that all representations and warranties contained in the Credit Agreement and in this Agreement are true in all material respects and that no Default or Event of Default as defined in this Agreement or the Credit Agreement has occurred and is continuing. SECTION 5. CONDITIONS PRECEDENT TO ALL CREDIT EVENTS. ---------------------------------------------------- The occurrence of the Effective Date pursuant to Section 12.10 and the obligation of each Bank to maintain and/or make Advances (including Advances made on the Effective Date) is subject, at the time of each such Credit Event (except as hereinafter indicated), to the satisfaction of the following conditions: 5.1. No Default; Representations and Warranties. ------------------------------------------ At the time of each such Credit Event and also after giving effect thereto (i) there shall exist no Default or Event of Default hereunder or Default as defined in the Credit Agreement and (ii) all representations and warranties contained herein, in the other Credit Documents and in the Credit Agreement shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on the date of the making of such Credit Event (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date). -16- 5.2. Notice of Borrowing. ------------------- Prior to the making of each Advance, Agent shall have received a Notice of Borrowing required by Section 1.3(a). The occurrence of the Effective Date and the acceptance of the proceeds or benefits of each Credit Event shall constitute a representation and warranty by Borrower to Agent and each of the Banks that all the conditions specified in Section 4 and in this Section 5 and applicable to the Effective Date and such Credit Event exist as of that time. All of the Term Notes, certificates, legal opinions and other documents and papers referred to in Section 4 and in this Section 5, unless otherwise specified, shall be delivered to Agent at the Notice Office for the account of (and for delivery to) each of the Banks and, except for the Term Notes, in sufficient counterparts for each of the Banks and shall be in form and substance reasonably satisfactory to the Banks. SECTION 6. REPRESENTATIONS AND WARRANTIES. ----------------------------------------- In order to induce the Banks to enter into this Agreement and to maintain and/or make the Term Loan, as provided herein, Borrower makes each representation and warranty set forth in Section 7 of the Credit Agreement and, in addition, warrants and represents that the Lottery Agreement is in full force and effect without default by either party which would give the other party the right to terminate the Lottery Agreement, make any material set off against payments or withhold performance, all of which representations and warranties shall survive the execution and delivery of this Agreement and the Term Notes and the Advances, with the occurrence of the Effective Date and each Credit Event on or after the Effective Date being deemed to constitute a representation and warranty that the matters specified in this Section 6 and in Section 7 of the Credit Agreement are true and correct in all material respects on and as of the Effective Date and on the date of each such Credit Event (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date). SECTION 7. AFFIRMATIVE COVENANTS. -------------------------------- 7.1. Use of Term Loan Proceeds. ------------------------- Borrower covenants that the proceeds of the Term Loan will be used solely for the purpose of (a) reimbursing Borrower for the costs and expenses associated with this term loan facility and (b) manufacturing and installing equipment and software for use in connection with the Lottery Agreement. 7.2. Continuing Covenants. -------------------- Borrower hereby covenants and agrees that on and after the Effective Date and until the Term Loan, together with interest, fees and all other Obligations incurred hereunder, -17- are paid in full, Borrower will perform each of the covenants in effect as of the Effective Date set forth in Section 8 of the Credit Agreement as and when required by said Section 8 (whether or not the Credit Agreement is still in effect or such covenant has been waived or amended by the Agent or the Banks (as therein defined) under the Credit Agreement, unless such waiver or amendment has been approved pursuant to Section 12.12 hereof), and in addition thereto will furnish to each Bank: (a) Officer's Certificates. At the time of the delivery of the annual ---------------------- financial statements provided for in Section 8.01(c)(ii) of the Credit Agreement, a certificate (in the form of Exhibit C) of the chief financial officer of Parent showing a calculation of ALC Excess Cash Flow, if any, and the amount of any repayment due under Section 2.2(e). (b) Notice of Default Under Lottery Agreement. ----------------------------------------- Promptly, and in any event within three (3) Business Days after an officer of Parent or ALC obtains knowledge thereof, notice of any default under the Lottery Agreement which would give either party thereto a right as a result of such default to terminate the Lottery Agreement or withhold payment or services thereunder. SECTION 8. NEGATIVE COVENANTS. ----------------------------- Borrower hereby covenants and agrees that on and after the Effective Date and until the Term Loan, together with interest, and all other Obligations incurred hereunder, is paid in full; that it will observe all negative covenants in effect as of the Effective Date set forth in Section 9 of the Credit Agreement as and when required by said Section 9 (whether or not the Credit Agreement is still in effect or such covenant has been waived or amended by the Agent or the Banks (as therein defined) under the Credit Agreement, unless such waiver or amendment has been approved pursuant to Section 12.12 hereof), and, in addition thereto, ALC will not, without the consent of Agent, which consent will not be unreasonably withheld or delayed, modify, terminate or assign the Lottery Agreement. SECTION 9. EVENTS OF DEFAULT. ---------------------------- Upon the occurrence of any of the following specified events (each an "Event of Default"): 9.1. Payments. -------- Borrower shall (i) default in the payment when due of any principal of the Term Loan or any Term Note or (ii) default, and such default shall continue unremedied for five (5) or more Business Days, in the payment when due of interest on any Term Loan Portion or any Term Note, or any other amounts owing hereunder or thereunder; or 9.2. Representations, etc. -------------------- Any representation, warranty or statement made by any Credit Party herein or in any other Credit Document or in the Credit Agreement or in any certificate delivered -18- pursuant hereto or thereto shall prove to be untrue in any material respect on the date as of which made or deemed made; or 9.3. Covenants. --------- Borrower shall default in the due performance or observance of any other term, covenant or agreement contained in this Agreement and such default shall continue unremedied for a period of thirty (30) days after written notice to Borrower by Agent or any Bank; or 9.4. Event of Default Under Credit Agreement. --------------------------------------- An Event of Default as defined in the Credit Agreement occurs; or 9.5. Default Under Lottery Agreement. ------------------------------- Any default under the Lottery Agreement occurs pursuant to which CLC has given notice that the Lottery Agreement is or will be terminated by CLC and such termination becomes effective or ALC or its successor or assignee is replaced as a party thereto; then, and in any such event, and at any time thereafter, if any Event of Default shall then be continuing, Agent may (whether or not CLC has exercised its rights under the Forbearance Agreement), and upon the written request of the Required Banks, shall by written notice to Borrower, take any or all of the following actions, without prejudice to the rights of Agent, any Bank or the holder of any Term Note to enforce its claims against any Credit Party (provided that, if an -------- Event of Default specified in Section 10.05 of the Credit Agreement shall occur, the result which would occur upon the giving of written notice by Agent to Borrower as specified in clauses (i) and (ii) below shall occur automatically without the giving of any such notice): (i) declare the principal of and any accrued interest in respect of the Term Loan and the Term Notes and all Obligations owing hereunder and under the Term Notes to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Credit Party; (ii) terminate any obligation to make Advances hereunder; and (iii) enforce, subject to any intercreditor agreement, as Collateral Agent, any or all of the liens and security interests created pursuant to the Security Documents. SECTION 10. DEFINITIONS AND ACCOUNTING TERMS. -------------------------------------------- 10.1. Defined Terms. ------------- As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Additional Collateral" shall mean all property (whether real or personal) in which security interests are granted (or have been purported to be granted) (and continue to be in effect at the time of determination) pursuant to Section 8.11 of the Credit Agreement. -19- "Additional Security Documents" shall mean all mortgages, pledge agreements, security agreements and other security documents entered into pursuant to Section 8.11 of the Credit Agreement with respect to Additional Collateral. "Adjusted Certificate of Deposit Rate" shall mean, on any day, the sum (rounded to the nearest 1/100 of 1%) of (1) the rate obtained by dividing (x) the most recent weekly average dealer offering rate for negotiable certificates of deposit with a three-month maturity in the secondary market as published in the most recent Federal Reserve System publication entitled "Select Interest Rates," published weekly on Form H.15 as of the date hereof, or if such publication or a substitute containing the foregoing rate information shall not be published by the Federal Reserve System for any week, the weekly average offering rate determined by Agent on the basis of quotations for such certificates received by it from three certificate of deposit dealers in New York of recognized standing or, if such quotations are unavailable, then on the basis of other sources reasonably selected by Agent, by (y) a percentage equal to one hundred percent (100%) minus the stated maximum rate of all reserve requirements as specified in Regulation D applicable on such day to a three-(3) month certificate of deposit of a member bank of the Federal Reserve System in excess of One Hundred Thousand Dollars ($100,000) (including, without limitation, any marginal, emergency, supplemental, special or other reserves), plus (2) the then daily net annual assessment rate as estimated by Agent for determining the current annual assessment payable by Agent to the Federal Deposit Insurance Corporation for insuring three-month certificates of deposit. "Advance" shall mean, as the context requires: (a) an advance of a Term Loan Portion by a Bank and (b) with respect to all Banks, the aggregate advance of a Term Loan Portion, in each case pursuant to a Notice of Borrowing. "Affiliate" shall mean, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person; provided, however, in no event shall any Bank -------- ------- or any affiliate thereof be considered an Affiliate of Borrower or any of its Subsidiaries. A Person shall be deemed to control another Person if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise. "Agent" shall mean Heller Financial, Inc., in its capacity as Agent for the Banks hereunder, and shall include any successor to Agent appointed pursuant to Section 11.9. "Agreement" shall mean this Term Loan Agreement, as modified, supplemented, amended, restated, extended, renewed or replaced from time to time. "ALC" shall have the meaning provided in the first paragraph of this Agreement. "ALC Excess Cash Flow" shall mean the amount calculated as illustrated on Exhibit C. -20- "Assignment and Assumption Agreement" shall mean the Assignment and Assumption Agreement substantially in the form of Exhibit D (appropriately completed). "Authorized Representative" of Borrower shall mean any of the President, the Chief Financial Officer, the Treasurer or any Assistant Treasurer of Borrower (or any other officer of Borrower which is designated in writing to Agent by any of the foregoing officers of Borrower as being authorized to give such notices under this Agreement) with Borrower, by its execution and delivery of this Agreement, irrevocably appointing any of the foregoing officers of Borrower as its Authorized Representative hereunder with respect to delivering Notices of Borrowing, Notices of Conversion and similar notices. "Bank" shall mean each financial institution listed on Schedule I, as well as any Person which becomes a "Bank" hereunder pursuant to 12.4(b). "Bank Default" shall mean the refusal (which has not been retracted) of a Bank to make available its Percentage of any Advance, whether as a result of any takeover of such Bank by any regulatory authority or agency or otherwise. "Base Rate" at any time shall mean the higher of (i) 1/2 of 1% in excess of the Adjusted Certificate of Deposit Rate and (ii) the Prime Lending Rate. "Base Rate Portion" shall mean any or, as the context requires, that portion of the outstanding principal amount of the Term Loan designated or deemed designated as such by Borrower at the time of the Advance thereof or conversion thereto. "Borrower" means, individually and collectively (as the context requires), jointly and severally, Parent and ALC. "Borrowing" shall mean the borrowing of one Type of Term Loan Portion from all the Banks. "Business Day" shall mean (i) for all purposes other than as covered by clause (ii) below, any day except Saturday, Sunday and any day which shall be in Chicago, Illinois or the State of Pennsylvania a legal holiday or a day on which banking institutions are authorized or required by law or other government action to close and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, a Eurodollar Portion, any day which is a Business Day described in clause (i) above and which is also a day for trading by and between banks in the New York Interbank Eurodollar market. "CLC" shall mean the Connecticut Lottery Corporation, a Connecticut quasi-public agency. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and the rulings issued thereunder. Section references to Code are to the Code, as in effect at the date of this Agreement, and to any subsequent provision of the Code, amendatory thereof, supplemental or substituted therefor. "Collateral" shall mean all property (whether real or personal) with respect to which any security interests have been granted (or purported to be granted) pursuant to any Security Document. -21- "Collateral Agent" shall mean Agent acting as collateral agent for the Secured Creditors (as defined in the Security Documents) pursuant to the Security Documents. "Commitment Letter" shall have the meaning provided in Section 1.14. "Consolidated Subsidiaries" shall mean, as to any Person, all Subsidiaries of such Person which are consolidated with such Person for financial reporting purposes in accordance with generally accepted accounting principles. "Credit Agreement" shall have the meaning provided in Section 3. "Credit Documents" shall mean this Agreement, each Term Note, each Security Document, the Subsidiaries Guaranty and, after the execution and delivery thereof, each additional guaranty and Additional Security Document executed pursuant to Section 8.11 of the Credit Agreement. "Credit Event" shall mean (x) the occurrence of the Effective Date and (y) the making of any Advance. "Credit Party" shall mean Borrower and each Subsidiary Guarantor. "Default" shall mean any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default. "Defaulting Bank" shall mean any Bank with respect to which a Bank Default is in effect. Disbursement Period" shall mean the period ending on the earliest of: (i) sixty (60) days after the Effective Date, (ii) the date on which the fifth Advance is made and (iii) the date on which the total of all Advances equals Twelve Million Dollars ($12,000,000). "Dollars" and the sign "$" shall each mean freely transferable lawful money of the United States. "Domestic Subsidiary" shall mean each Subsidiary of Borrower incorporated or organized in the United States or any State or territory thereof. "Effective Date" shall have the meaning provided in Section 12.10. "Eligible Transferee" shall mean and include: (i) a commercial bank having total assets in excess of One Billion Dollars ($1,000,000,000) or (ii) any other financial institution or other "accredited investor" (as defined in Regulation D of the Securities Act), in each case approved by Borrower (which approval shall not be unreasonably withheld or delayed). "Environmental Claims" shall mean any and all administrative, regulatory or judicial actions, suits, demand letters, directives, written claims, liens, notices of noncompliance or violation, or proceedings relating in any way to any Environmental Law or any permit issued, or any written approval given, under any such Environmental Law (hereafter, "Claims"), including, without limitation, (a) any and all Claims by governmental or -22- regulatory authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and (b) any and all Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief in connection with alleged injury or threat of injury to health, safety or the environment due to the presence of Hazardous Materials. "Environmental Law" shall mean any applicable Federal, state, foreign or local statute, law, rule, regulation, ordinance, code, binding and enforceable guideline, binding and enforceable written policy and rule of common law now or hereafter in effect and in each case as amended, and any judicial interpretation thereof, including any judicial or administrative order, consent decree or judgment relating to the environment, public health or safety or Hazardous Materials, including, without limitation: CERCLA; RCRA; the Federal Water Pollution Control Act, 33 U.S.C, ss. 1251 et seq.; the Toxic Substances -- --- Control Act, 15 U.S.C, ss. 2601 et seq.; the Clean Air Act, 42 U.S.C, ss. 7401 -- --- et seq.; the Safe Drinking Water Act, 42 U.S.C, ss. 3803 et seq.; the Oil - -- --- -- --- Pollution Act of 1990, 33 U.S.C, ss. 2701 et seq.; the Emergency Planning and -- --- the Community Right-to-Know Act of 1986, 42 U.S.C. ss. 11001 et seq.; the -- --- Hazardous Material Transportation Act, 49 U.S.C. ss. 1801 et seq.; and the -- --- Occupational Safety and Health Act, 29 U.S.C. ss. 651 et seq. (to the extent it -- --- regulates occupational exposure to Hazardous Materials); and any state and local or foreign counterparts or equivalents, in each case as amended from time to time. "Eurodollar Portion" shall mean each portion of the outstanding principal amount of the Term Loan designated as such by Borrower at the time of the Advance thereof or conversion thereto, a Eurodollar Portion shall be that portion of the outstanding principal balance of the Term Loan bearing interest by reference to the Eurodollar Rate for an Interest Period commencing on a given date. "Eurodollar Rate" shall mean (a) the offered quotation to first-class banks in the New York interbank Eurodollar market by Chase Manhattan Bank for Dollar deposits of amounts in immediately available funds comparable to the outstanding principal amount of the Eurodollar Loan of Chase Manhattan Bank with maturities comparable to the Interest Period applicable to such Eurodollar Loan commencing two (2) Business Days thereafter as of 10:00 A.M. (New York time) on the date which is two (2) Business Days prior to the commencement of such Interest Period, divided (and rounded off to the nearest 1/16 of 1%) by (b) a percentage equal to one hundred percent (100%) minus the then stated maximum rate of all reserve requirements (including, without limitation, any marginal, emergency, supplemental, special or other reserves required by applicable law) applicable to any member bank of the Federal Reserve System in respect of Eurocurrency funding or liabilities as defined in Regulation D (or any successor category of liabilities under Regulation D). "Event of Default" shall have the meaning provided in Section 9. "Federal Funds Rate" shall mean for any period, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on -23- such transactions received by Agent from three Federal Funds brokers of recognized standing selected by Agent. "Fixed Rate" shall mean the rate determined by reference to the Commitment Letter upon Borrower's election to designate a Term Loan Portion as the Fixed Rate Portion. "Fixed Rate Breakage Fee" shall mean an amount equal to the present value, for each successive month in the remaining term of the Fixed Rate Portion, of (1) the yield as reported in the Federal Reserve statistical release H.15 (519) under the caption "U.S. Government Securities/Treasury Constant Maturities" (hereinafter "H.15 (519)") for a Treasury Note with a term equal to that remaining on the Fixed Rate Portion (which will be obtained by interpolating between the yield reported on the H.15 (519) for specific whole years) on the date the Fixed Rate Portion became effective less (2) the yield as reported on the date of such prepayment in the H.15 (519) for a Treasury Note with a term equal to that remaining on the Fixed Rate Portion (which will be obtained by interpolating between the yield reported on the H.15 (519) for specific whole years) on the date of such prepayment, multiplied by (a) the ------------- outstanding amount of the Fixed Rate Portion at the time of prepayment for purposes of calculating such amount for the month during which such prepayment occurs and by (b) the principal balance that would have been outstanding at the beginning of each successive month in the remaining term of the Fixed Rate Portion had the amortization schedule set forth for such Fixed Rate Portion been adhered to; provided, that the rate determined in (2) above will be used as the -------- discount rate in computing such present value. "Fixed Rate Portion" shall mean: (a) with respect to a Bank, the Term Loan Portion of such Bank designated by Borrower to bear interest at the Fixed Rate and (b) with respect to the Term Loan as a whole, from time to time, that portion of the outstanding principal balance of the Term Loan designated by Borrower to bear interest at the Fixed Rate. "Forbearance Agreement" means an agreement among Agent, CLC and Borrower substantially in the form of Exhibit F. "Foreign Subsidiary" shall mean any Subsidiary of Borrower that is not a Domestic Subsidiary. "Former Bank" shall have the meaning provided in Section 12.4(c). "Hazardous Materials" shall mean (a) any petroleum or petroleum products, radioactive materials, friable asbestos, urea formaldehyde foam insulation, transformers or other equipment that contain dielectric fluid containing levels of polychlorinated biphenyls, and radon gas; (b) any chemicals, materials or substances defined as or included in the definition of "hazardous substances," "hazardous waste," "hazardous materials," "extremely hazardous substances," "restricted hazardous waste," "toxic substances," "toxic pollutants," "contaminants," or "pollutants," or words of similar import, under any applicable Environmental Law; and (c) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any governmental authority under Environmental Laws. "Indebtedness" shall mean, as to any Person, without duplication, (i) all indebtedness (including principal, interest, fees and charges) of such Person for borrowed money or for the deferred purchase price of property or services, (ii) the maximum amount -24- available to be drawn under all letters of credit issued for the account of such Person and all unpaid drawings in respect of such letters of credit, (iii) all Indebtedness of the types described in clause (i), (ii), (iv), (v), (vi) or (vii) of this definition secured by any lien on any property owned by such Person, whether or not such Indebtedness has been assumed by such Person (to the extent of the value of the respective property), (iv) the aggregate amount required to be capitalized under leases under which such Person is the lessee, (v) all obligations of such person to pay a specified purchase price for goods or services, whether or not delivered or accepted, i.e., take-or-pay and similar --- obligations, (vi) all contingent obligations of such Person (other than endorsements of instruments for deposit or collection in the ordinary course of business) and (vii) all obligations under any Interest rate protection agreement or any other hedging agreement or under any similar type of agreement. "Interest Determination Date" shall mean, with respect to any Eurodollar Portion, the second Business Day prior to the commencement of any Interest Period relating to such Eurodollar Portion. "Interest Period" shall have the meaning provided in Section 1.9. "Leaseholds" of any Person means all the right, title and interest of such Person as lessee or licensee in, to and under leases or licenses of land, improvements and/or fixtures. "Lottery Agreement" shall mean that certain Memorandum of Understanding dated December 5, 1997 (including the exhibits thereto) between ALC and CLC. "Maturity Date" shall mean the earliest of: (a) February 15, 2001, (b) the date on which the Term Loan is declared to be due under Section 9, and (c) the date on which the Credit Agreement terminates by reason of all Revolving Loans and Letter of Credit Outstanding having been paid (or cash collateralized ) and the Total Revolving Loan Commitment having been permanently reduced to zero, unless, at the election of the Required Banks and on such terms (such as continued compliance with the affirmative and negative covenants set forth in the Credit Agreement) as the Required Banks shall impose, the Maturity Date is extended to a date no later than February 15, 2001. "Minimum Borrowing Amount" shall mean $500,000. "Mortgage" shall mean each of the mortgages executed and delivered pursuant to Section 8.11 of the Credit Agreement. "Net Sale Proceeds" shall mean for any sale of assets, the gross cash proceeds (including any cash received by-way of deferred payment pursuant to a promissory note, receivable or otherwise, but only as and when received) received from any sale of assets, net of reasonable transaction costs and payments of unassumed liabilities relating to the assets sold at the time of, or within thirty (30) days after, the date of such asset sale, the amount of such gross cash proceeds required to be used to repay any Indebtedness (other than Indebtedness of the Banks pursuant to this Agreement) which is secured by the respective assets which were sold, and the estimated marginal increase in income taxes which will be payable by Borrower's consolidated group with respect to the fiscal year in which the asset sale occurs as a result of such asset sale. -25- "Non-Defaulting Bank" shall mean and include each Bank other than a Defaulting Bank. "Notice of Borrowing" shall have the meaning provided in Section 1.3(a). "Notice of Conversion" shall have the meaning provided in Section 1.6. "Notice Office" shall mean the office of Agent located at 500 West Monroe Street, Chicago, Illinois 60661, Attention: Corporate Finance Group, Facsimile No.: 312/441-7367, or such other office as Agent may hereafter designate in writing as such to the other parties hereto. "Obligations" shall mean all amounts owing to Agent, the Collateral Agent or any Bank pursuant to the terms of this Agreement or any other Credit Document. "Parent" shall have the meaning provided in the first paragraph of this Agreement. "Payment Office" shall mean the office of Agent located at 500 West Monroe Street, Chicago, Illinois 60661, Attention: Corporate Finance Group, Facsimile No.: 312/441-7367, or such other office as Agent may hereafter designate in writing as such to the other parties hereto. "Percentage" shall mean the percentage of the Term Loan a Bank is obligated to advance and the percentage of the outstanding principal balance of the Term Loan owed to such Bank (as long as it is a Non-Defaulting Bank). "Person" shall mean any individual, partnership, joint venture, firm, corporation, association, trust or other enterprise or any government or political subdivision or any agency, department or instrumentality thereof. "Pledge Agreement" shall mean the Pledge Agreement, dated as of July 28, 1997, executed and delivered by Borrower and each Subsidiary Guarantor, as the same may be amended, modified or supplemented from time to time. "Prime Lending Rate" shall mean the rate which Chase Manhattan Bank announces from time to time as its prime lending rate, the Prime Lending Rate to change when and as such prime lending rate changes. The Prime Lending Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. "Quarterly Payment Date" shall mean the last Business Day of each January, April, July, and October. "Real Property" of any Person shall mean all the right, title and interest of such Person in and to land, improvements and fixtures, including Leaseholds. "Recovery Event" shall mean the receipt by Borrower or any of its Subsidiaries of any cash insurance proceeds or condemnation award payable (i) by reason of theft, loss, physical destruction or damage or any other similar event with respect to any property or -26- assets of Borrower or any of its Subsidiaries and (ii) under any policy of insurance required to be maintained by Borrower under the Credit Agreement. "Register" shall have the meaning provided in Section 12.16. "Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing reserve requirements. "Replaced Bank" shall have the meaning provided in Section 1.13. "Replacement Bank" shall have the meaning provided in Section 1.13. "Required Banks" shall mean at any time one or more Banks holding at least fifty-one percent (51%) of the Percentages held by the Banks, provided -------- that at any time when two or three Banks are party to this Agreement, Required Banks shall mean at least two Banks. "Scheduled Installments" shall have the meaning provided in Section 2.2(a). "Section 2.4(b)(ii) Certificate" shall have the meaning provided in Section 2.4(b). "Security Agreement" shall mean the Security Agreement, dated as of July 28, 1997, executed and delivered by each Subsidiary Guarantor, as the same may be amended, modified or supplemented from time to time. "Security Document" shall mean and include the Pledge Agreement, the Security Agreement, each Mortgage and, after the execution and delivery thereof, each Additional Security Document. "Subsidiary" shall mean, as to any Person, (i) any corporation more than fifty percent (50%) of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person and/or one or more Subsidiaries of such Person and (ii) any partnership, association, joint venture or other entity in which such Person and/or one or more Subsidiaries of such Person has more than a fifty percent (50%) equity interest at the time. Notwithstanding the above, the definition of "Subsidiary" shall not include (i) SJC Video Corporation, but only so long as the majority of the Board of Directors of such Person are not nominees of the Borrower or any of its Subsidiaries and (ii) any Person designated by the Board of Directors not to be a Subsidiary for purposes of this Agreement or any other Credit Document; provided that (w) at the time of such designation no Event of Default exists, (x) at the time of such designation the Company certifies to the Agent that the aggregate fair market value of the net assets of all such Persons so designated (determined at the time of designation) does not exceed $5,000,000, (y) any such Person so designated shall not own any equity securities of, or own or hold any Lien on any property of, the Borrower or any other Subsidiary of the Borrower that has not been so designated, and (z) each Person to be so designated and each of -27- its Subsidiaries has not at the time of such designation, and will not thereafter, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to any Indebtedness pursuant to which the lender has recourse to any of the assets of the Borrower or any Subsidiary of the Borrower not so designated. "Subsidiaries Guaranty" shall mean the Subsidiary Guaranty, dated as of July 28, 1997, executed and delivered by the Subsidiary Guarantors, as the same may be amended, modified or supplemented from time to time. "Subsidiary Guarantor" shall mean each Subsidiary of Borrower which is party to Subsidiaries Guaranty. "Taxes" shall have the meaning provided in Section 2.4(a). "Term Loan" shall have the meaning provided in Section 1.1. "Term Loan Portion" shall mean: (a) with respect to a Bank, the outstanding principal balance of the Term Loan owed to such Bank from time to time and (b) with respect to the various Types, that portion of the outstanding principal balance of the Term Loan of that Type. "Term Note" shall have the meaning provided in Section 1.5. "Type" shall mean the type of Term Loan Portion determined with regard to the interest option applicable thereto, i.e., the Base Rate Portion, a Eurodollar Portion or the Fixed Rate Portion. "United States" and "U.S." shall each mean the United States of America. "Withdrawal Period" shall have the meaning provided in Section 12.4(d). SECTION 11. AGENT. ----------------- 11.1. Appointment. ----------- The Banks hereby designate Heller as Agent (for purposes of this Section 11, the term "Agent" shall include Heller in its capacity as Collateral Agent pursuant to the Security Documents) to act as specified herein and in the other Credit Documents. Each Bank hereby irrevocably authorizes, and each holder of a Term Note by the acceptance of such Term Note shall be deemed irrevocably to authorize, Agent to take such action on its behalf under the provisions of this Agreement, the other Credit Documents and any other instruments and agreements referred to herein or therein and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. Agent may perform any of its duties hereunder by or through its respective officers, directors, agents, employees or affiliates. Each Bank acknowledges that Heller is Agent under the Credit Agreement and the Collateral Agent under the Security Documents and that at all times either the Banks party to this Agreement and the Banks (as defined in the Credit Agreement) may not be the same or the Percentage of a Bank under this Agreement may not be the same as the Percentage of such Bank under the Credit Agreement (each as defined in the Credit -28- Agreement). Nonetheless, each Bank agrees that Heller, as Collateral Agent, is authorized to act on behalf of all Banks (defined herein and in the Credit Agreement) subject and pursuant to any intercreditor agreement in effect from time to time. 11.2. Nature of Duties. ---------------- Agent shall not have any duties or responsibilities except those expressly set forth in this Agreement and in the other Credit Documents. Neither Agent nor any of its respective officers, directors, agents, employees or affiliates shall be liable for any action taken or omitted by it or them hereunder or under any other Credit Document or in connection herewith or therewith, unless caused by its or their gross negligence or willful misconduct. The duties of Agent shall be mechanical and administrative in nature; Agent shall not have by reason of this Agreement or any other Credit Document a fiduciary relationship in respect of any Bank or the holder of any Term Note; and nothing in this Agreement or any other Credit Document, expressed or implied, is intended to or shall be so construed as to impose upon Agent any obligations in respect of this Agreement or any other Credit Document except as expressly set forth herein or therein. 11.3. Lack of Reliance on Agent. ------------------------- Independently and without reliance upon Agent, each Bank and the holder of each Term Note, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of Borrower and its Subsidiaries in connection with the making of Advances and the taking or not taking of any action in connection herewith and (ii) its own appraisal of the creditworthiness of Borrower or any of its Subsidiaries and, except as expressly provided in this Agreement, Agent shall not have any duty or responsibility, either initially or on a continuing basis, to provide any Bank or the holder of any Term Note with any credit or other information with respect thereto, whether coming into its possession before the making of the Advances or at any time or times thereafter. Agent shall not be responsible to any Bank or the holder of any Term Note for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of this Agreement or any other Credit Document or the financial condition of Borrower or any of its Subsidiaries or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any other Credit Document, or the financial condition of Borrower or any of its Subsidiaries or the existence or possible existence of any Default or Event of Default. 11.4. Certain Rights of Agent. ----------------------- If Agent shall request instructions from the Required Banks with respect to any act or action (including failure to act) in connection with this Agreement or any other Credit Document, Agent shall be entitled to refrain from such act or taking such action unless and until Agent shall have received instructions from the Required Banks; and Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, no Bank or the holder of any Term Note shall have any right of action whatsoever against Agent as a result of Agent acting, or refraining from acting hereunder or under any other Credit Document in accordance with the instructions of the Required Banks. -29- - -------------------------------------------------------------------------------- 11.5. Reliance. -------- Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by any Person that Agent believed to be the proper Person, and, with respect to all legal matters pertaining to this Agreement and any other Credit Document and its duties hereunder and thereunder, upon advice of counsel selected by Agent. 11.6. Indemnification. --------------- To the extent Agent is not reimbursed and indemnified by Borrower, the Banks will reimburse and indemnify Agent, in proportion to their respective Percentages, for and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, costs, expenses or disbursements of whatsoever kind or nature which may be imposed on, asserted against or incurred by Agent in performing its respective duties hereunder or under any other Credit Document, in any way relating to or arising out of this Agreement or any other Credit Document; provided that no Bank shall be liable for any -------- portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from Agent's gross negligence or willful misconduct. 11.7. Agent in its Individual Capacity. -------------------------------- With respect to its obligation to make Advances, Agent shall have the rights and powers specified herein for a "Bank" and may exercise the same rights and powers as though it were not performing the duties specified herein; and the term "Banks," "Required Banks," "holders of Term Notes" or any similar terms shall, unless the context clearly otherwise indicates, include Agent in its individual capacity. Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with any Credit Party or any Affiliate of any Credit Party as if they were not performing the duties specified herein, and may accept fees and other consideration from Borrower or any other Credit Party for services in connection with this Agreement and otherwise without having to account for the same to the Banks. 11.8. Holders. ------- Agent shall deem and treat the payee of a Term Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment, transfer or endorsement thereof, as the case may be, shall have been filed with Agent. Any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is the holder of any Term Note shall be conclusive and binding on any subsequent holder, transferee, assignee or endorsee, as the case may be, of such Term Note or of any Term Note or Term Notes issued in exchange therefor. 11.9. Resignation by Agent. -------------------- (a) Agent may resign from the performance of all its functions and duties hereunder and/or under the other Credit Documents at any time by giving fifteen (15) Business -30- Days' prior written notice to Borrower and the Banks. Such resignation shall take effect upon the appointment of a successor Agent pursuant to clauses (b) and (c) below or as otherwise provided below. (b) Upon any such notice of resignation, the Required Banks shall appoint a successor Agent hereunder or thereunder who shall be a commercial bank or trust company reasonably acceptable to Borrower. (c) If a successor Agent shall not have been so appointed within such fifteen (15) Business Day period, Agent, with the consent of Borrower (which consent shall not be unreasonably withheld), shall then appoint a commercial bank or trust company with capital and surplus of not less than Five Hundred Million Dollars ($500,000,000) as successor Agent who shall serve as Agent hereunder or thereunder until such time, if any, as the Required Banks appoint a successor Agent as provided above. (d) If no successor Agent has been appointed pursuant to clause (b) or (c) above by the twentieth (20th) Business Day after the date such notice of resignation was given by Agent, Agent's resignation shall become effective and the Banks shall thereafter perform all the duties of Agent hereunder and/or under any other Credit Document until such time, if any, as the Required Banks appoint a successor Agent as provided above. SECTION 12. MISCELLANEOUS. ------------------------- 12.1. Payment of Expenses, etc. ------------------------ Borrower shall: (i) whether or not the transactions herein contemplated are consummated, pay all out-of-pocket costs and expenses of Agent (including, without limitation, the reasonable fees and disbursements of Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz, Ltd. and local counsel) in connection with the preparation, execution and delivery of this Agreement and the documents and instruments referred to herein and therein and any amendment, waiver or consent relating hereto or thereto, of Agent and in connection with its syndication efforts with respect to this Agreement and of Agent and, following and during the continuation of an Event of Default, each of the Banks in connection with the enforcement of this Agreement and the other Credit Documents and the documents and instruments referred to herein and therein (including, without limitation, the reasonable fees and disbursements of counsel for Agent and, following and during the continuation of an Event of Default, for each of the Banks); (ii) pay and hold each of the Banks harmless from and against any and all present and future stamp, excise and other similar taxes with respect to the foregoing matters and save each of the Banks harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to such Bank) to pay such taxes; (iii) indemnify Agent and each Bank, and each of their respective officers, directors, employees, representatives and agents from and hold each of them harmless against any and all liabilities, obligations (including removal or remedial -31- actions), losses, damages, penalties, claims, actions, judgments, suits, costs, expenses and disbursements (including reasonable attorneys' and consultants' fees and disbursements) incurred by, imposed on or assessed against any of them as a result of, or arising out of, or in any way related to, or by reason of, (a) any investigation, litigation or other proceeding (whether or not Agent or any Bank is a party thereto) related to the entering into and/or performance of this Agreement or any other document or the proceeds of the Term Loan or the consummation of any transactions contemplated herein or in any other Credit Document or the exercise of any of their rights or remedies provided herein or in the other Credit Documents, or (b) the actual or alleged presence of Hazardous Materials in the air, surface water or groundwater or on the surface or subsurface of any Real Property owned or at any time operated by Borrower or any of its Subsidiaries, the generation, storage, transportation, handling or disposal of Hazardous Materials at any location, whether or not owned or operated by Borrower or any of its Subsidiaries, the non-compliance of any Real Property with foreign, federal, state and local laws, regulations, and ordinances (including applicable permits thereunder) applicable to any Real Property, or any Environmental Claim asserted against Borrower, any of its Subsidiaries or any Real Property owned or at any time operated by Borrower or any of its Subsidiaries, including, in each case, without limitation, the reasonable fees and disbursements of counsel and other consultants incurred in connection with any such investigation, litigation or, other proceeding; and (iv) pay all fees and expenses (including costs of investigation and reasonable legal fees and expenses) incurred by any Bank in connection with any qualification (or exemption or waiver therefrom) of any Bank under, or compliance with, the gaming regulations of any jurisdiction to the extent that any such event arises in connection with this Agreement (but excluding any losses, liabilities, claims, damages or expenses to the extent incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified). To the extent that the undertaking to indemnify, pay or hold harmless Agent or any Bank set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, Borrower shall make the maximum contribution to the payment and satisfaction of each of the indemnified liabilities which is permissible under applicable law. 12.2. Right of Setoff. --------------- In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence of an Event of Default, each Bank is hereby authorized at any time or from time to time, without presentment, demand, protest or other notice of any kind to Borrower or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special) and any other Indebtedness at any time held or owing by such Bank (including, without limitation, by branches and agencies of such Bank wherever located) to or for the credit or the account of Borrower or any Subsidiary Guarantor against and on account of the Obligations and liabilities of Borrower or such Subsidiary Guarantor to such Bank under this Agreement or under any of the other Credit Documents, including, without limitation, all interests in Obligations purchased by such Bank pursuant to Section 12.6(b), and all other claims of any nature or description arising out of or connected with this Agreement or any other Credit Document, irrespective of whether or not such Bank shall have made any demand hereunder and although said Obligations, liabilities or claims, or any of them, shall be contingent or unmatured. -32- 12.3. Notices. ------- Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, telecopier or cable communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered: if to Borrower, at Parent's address specified opposite its signature below; if to any Bank, at its address specified on Schedule I or on the applicable assignment and assumption agreement; and if to Agent, at its Notice Office; or, as to any Credit Party or Agent, at such other address as shall be designated by such party in a written notice to the other parties hereto and, as to each Bank, at such other address as shall be designated by such Bank in a written notice to Borrower and Agent. All such notices and communications shall, when mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight courier, be effective when deposited in the mails, delivered to the telegraph company, cable company or overnight courier, as the case may be, or sent by telex or telecopier, except that notices and communications to Agent and Borrower shall not be effective until received by Agent or Borrower, as the case may be. 12.4. Benefit of Agreement. -------------------- (a) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto; provided, however, Borrower may not assign or transfer any of its -------- ------- rights, obligations or interest hereunder or under any other Credit Document without the prior written consent of the Banks and, provided further, that, -------- ------- although any Bank may transfer, assign or grant participations in its rights hereunder, such Bank shall remain a "Bank" for all purposes hereunder (and may not transfer or assign all or any portion of its obligations hereunder except as provided in Section 12.4(b)) and the transferee, assignee or participant, as the case may be, shall not constitute a "Bank" hereunder and, provided further, that -------- ------- no Bank shall transfer or grant any participation under which the participant shall have rights to approve any amendment to or waiver of this Agreement or any other Credit Document except to the extent such amendment or waiver would (i) extend the final scheduled maturity of the Term Loan, in which such participant is participating, or reduce the rate or extend the time of payment of interest thereon (except in connection with a waiver of applicability of any post-default increase in interest rates) or reduce the principal amount thereof, or increase the amount of the participant's participation over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default shall not constitute a change in the terms of such participation, and that an increase in the Term Loan shall be permitted without the consent of any participant if the participant's participation is not increased as a result thereof), (ii) consent to the assignment or transfer by Borrower of any of its rights and obligations under this Agreement or (iii) release all or substantially all of the Collateral under all of the Security Documents (except as expressly provided in the Credit Documents) supporting the Term Loan hereunder. In the case of any such participation, the participant shall not have any rights under this Agreement or any of the other Credit Documents (the participant's rights against such Bank in respect of such participation to be those set forth in the agreement executed by such Bank in favor of the participant relating thereto) and all amounts payable by Borrower hereunder shall be determined as if such Bank had not sold such participation. (b) Notwithstanding the foregoing, any Bank (or any Bank together with one or more other Banks) may (x) assign all or a portion of its obligation to make Advances to its parent company and/or any affiliate of such Bank which is at least fifty percent (50%) owned by -33- such Bank or its parent company or to one or more Banks or (y) assign all, or if less than all, a portion equal to at least Five Million Dollars ($5,000,000) in the aggregate for the assigning Bank or assigning Banks, of such Bank's or Banks' obligation to make Advances and such Bank's or Banks' Term Loan Portion to one or more Eligible Transferees, each of which assignees shall become a party to this Agreement as a Bank by execution of an Assignment and Assumption Agreement, provided, that: (i) at such time Schedule I shall be deemed modified to reflect the Percentages of such new Bank and of the existing Banks; (ii) upon surrender of the old Term Notes, new Term Notes will be issued, at Borrower's expense, to such new Bank and to the assigning Bank, such new Term Notes to be in conformity with the requirements of Section 1.5 (with appropriate modifications) to the extent needed to reflect the revised Percentages; (iii) the consent of Agent shall be required in connection with any such assignment (which consent shall not be unreasonably withheld); and (iv) Agent shall receive at the time of each such assignment, from the assigning or assignee Bank, the payment of a non-refundable assignment fee of Two Thousand Five Hundred Dollars ($2,500); and, provided further, that such transfer or assignment will not be -------- ------- effective until recorded by, Agent on the Register pursuant to Section 12.16 hereof. To the extent of any assignment pursuant to this Section 12.4(b), the assigning Bank shall be relieved of its obligations hereunder with respect to its assigned Percentage. At the time of each assignment pursuant to this Section 12.4(b) to a Person which is not already a Bank hereunder and which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes, the respective assignee Bank shall provide to Borrower and Agent the appropriate Internal Revenue Service Forms (and, if applicable, a Section 2.4(b)(ii) Certificate) described in Section 2.4(b) except to the extent that the assigning Bank was not, at the time of such assignment, entitled to such exemption. To the extent that an assignment of all or any portion of a Bank's Percentage pursuant to Section 1.13 or this Section 12.4(b) would, at the time of such assignment, result in increased costs under Section 1.10 or 2.4 from those being charged by the respective assigning Bank prior to such assignment, then Borrower shall not be obligated to pay such increased costs (although Borrower shall be obligated to pay any other increased costs of the type described above resulting from changes after the date of the respective assignment). (c) If the Nevada gaming authorities shall determine that any Bank does not meet the "Suitability Standards" under the Nevada gaming regulations or any other gaming authority with jurisdiction over the business of Borrower and its Subsidiaries shall determine that any Bank does not meet its suitability standards (in any such case, a "Former Bank"), Borrower shall have the right (but not the duty) to designate an Eligible Transferee (in each case, a "Substitute Bank," which may be any Bank or Banks that agree to become a Substitute Bank) reasonably acceptable to Agent and each Bank that has agreed to assume the rights and obligations of the Former Bank under this Agreement pursuant to an Assignment and Assumption Agreement, which assignment and assumption shall be required to comply with, and shall become effective in accordance with, the provisions of Section 12.4(b), provided that the purchase -------- price to be paid by the Substitute Bank to Agent for the account of the Former Bank for such assignment and assumption shall equal the unpaid principal amount of the Term Note held by the Former Bank plus accrued interest thereon, and, provided further, Borrower shall pay all obligations owing to the Former Bank - -------- ------- under the Credit Documents (including all obligations, if any, owing pursuant to Section 1.11, but excluding those amounts in respect of which the purchase price is being paid as provided above). Each Bank agrees that if it becomes a Former Bank, upon payment to it of all such amounts, if any, owing to it under the Credit Documents, it -34- will execute and deliver an Assignment and Assumption Agreement, upon payment of such purchase price. (d) Notwithstanding the provisions of subsection (c) of this Section 12.4, if any Bank becomes a Former Bank, and if Borrower fails to find a Substitute Bank pursuant to subsection (c) of this Section 12.4 within any time period specified by the applicable gaming authorities for the withdrawal of a Former Bank (the "Withdrawal Period"), Borrower shall, immediately (i) prepay in full the outstanding principal amount of the Term Note held by such Former Bank, together with accrued interest thereon to the earlier of (x) the date of payment or (y) the last day of any Withdrawal Period. (e) Nothing in this Agreement shall prevent or prohibit any Bank from pledging its Term Loan Portions and Term Note hereunder to a Federal Reserve Bank in support of borrowings made by such Bank from such Federal Reserve Bank. 12.5. No Waiver; Remedies Cumulative. ------------------------------ No failure or delay on the part of Agent or any Bank or any holder of any Term Note in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between Borrower or any other Credit Party and Agent or any Bank or the holder of any Term Note shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights, powers and remedies herein or in any other Credit Document expressly provided are cumulative and not exclusive of any rights, powers or remedies which Agent or any Bank or the holder of any Term Note would otherwise have. No notice to or demand on any Credit Party in any case shall entitle any Credit Party to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of Agent or any Bank or the holder of any Term Note to any other or further action in any circumstances without notice or demand. 12.6. Payments Pro Rata. ----------------- (a) Except as otherwise provided in this Agreement, Agent agrees that promptly after its receipt of each payment from or on behalf of Borrower in respect of any Obligations hereunder (other than Obligations payable solely to Agent), it shall distribute such payment to the Banks (other than any Bank that has consented in writing to waive its Percentage of any such payment) pro rata --- ---- based upon their respective Percentages, if any, of the Obligations with respect to which such payment was received. (b) Each of the Banks agrees that, if it should receive any amount hereunder (whether by voluntary payment, by realization upon security, by the exercise of the right of setoff or banker's lien, by counterclaim or cross action, by the enforcement of any right under the Credit Documents, or otherwise), which is applicable to the payment of the principal of, or interest on, the Term Loan, of a sum which with respect to the related sum or sums received by other Banks is in a greater proportion than the total of such Obligation then owed and due to such Bank bears to the total of such Obligation then owed and due to all of the Banks immediately prior to such receipt, then such Bank receiving such excess payment shall purchase for cash without recourse or warranty from the other Banks an interest in the Obligations of the respective -35- Credit Party to such Banks in such amount as shall result in a proportional participation by all the Banks in such amount; provided that if all -------- or any portion of such excess amount is thereafter recovered from such Bank, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. (c) Notwithstanding anything to the contrary contained herein, the provisions of the preceding Sections 12.6(a) and (b) shall be subject to the express provisions of this Agreement which require, or permit, differing payments to be made to Non-Defaulting Banks as opposed to Defaulting Banks. 12.7. Calculations; Computations. -------------------------- (a) The financial statements to be furnished to the Banks pursuant hereto shall be made and prepared in accordance with generally accepted accounting principles in the United States (or the equivalent thereof in any country in which a Foreign Subsidiary is doing business, as applicable) consistently applied throughout the periods involved (except as set forth in the notes thereto or as otherwise disclosed in writing by Borrower to the Banks). (b) All computations of interest hereunder shall be made on the basis of a year of three hundred sixty (360) days for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest is payable. (c) All determinations of any amount of Indebtedness and/or any other amount denominated in a currency other than Dollars shall be made by converting same into Dollars at the "official" exchange rate, if applicable, or the spot exchange rate for the currency in question in effect at the time of such determination. 12.8. Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury Trial. ---------------------------------------------------------------------- (a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL, EXCEPT AS OTHERWISE PROVIDED IN CERTAIN OF THE MORTGAGES, BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF ILLINOIS. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF ILLINOIS, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, BORROWER HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. BORROWER HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS CT CORPORATION SYSTEM, WITH OFFICES AT 1633 BROADWAY, NEW YORK, NEW YORK 10019, AS ITS DESIGNEE, APPOINTEE AND AGENT TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, BORROWER AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN NEW YORK CITY ON THE TERMS AND FOR THE PURPOSES OF THIS PROVISION -36- SATISFACTORY TO AGENT UNDER THIS AGREEMENT. BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO BORROWER AT ITS ADDRESS SET FORTH OPPOSITE ITS SIGNATURE BELOW, SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF AGENT UNDER THIS AGREEMENT, ANY BANK OR THE HOLDER OF ANY TERM NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY CREDIT PARTY IN ANY OTHER JURISDICTION. (b) BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. (c) BORROWER HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. 12.9. Counterparts. ------------ This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with Borrower and Agent. 12.10. Effectiveness. ------------- This Agreement shall become effective on the date (the "Effective Date") on which (i) each of Borrower, Agent and the Banks shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered the same to Agent at its Notice Office or, in the case of the Banks, shall have given to Agent telephonic (confirmed in writing), written or telex notice (actually received) at such office that the same has been signed and mailed to it and (ii) all conditions contained in Sections 4 and 5 are met to the satisfaction of Agent and the Banks. Unless Agent has received actual notice from any Bank that the condition described in clause (ii) of the preceding sentence has not been met to its satisfaction, upon the satisfaction of the conditions described in clause (i) of the immediately preceding sentence, the Effective Date shall be deemed to have occurred, regardless of any subsequent determination that one or more of the conditions thereto had not been met (although the occurrence of the Effective Date shall not release Borrower from any liability or prevent the existence of an Event of Default based upon failure to satisfy one or more of the -37- applicable conditions contained in Sections 4 and 5). Agent shall give Borrower and each Bank written notice of the occurrence of the Effective Date. 12.11. Headings Descriptive. -------------------- The headings of the several sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 12.12. Amendment or Waiver, etc. ------------------------ (a) Neither this Agreement nor any other Credit Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the respective Credit Parties party thereto and the Required Banks; provided, that no such -------- change, waiver, discharge or termination shall, without the consent of each Bank (other than a Defaulting Bank) (with Obligations being directly affected in the case of following clause (i)): (i) extend the final scheduled maturity of the Term Loan beyond February 15, 2001, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof (except to the extent repaid in cash); (ii) release all or substantially all of the Collateral (except as expressly provided in the Credit Documents) under all the Security Documents; (iii) amend, modify or waive any provision of this Section 12.12; (iv) reduce the percentage specified in the definition of Required Banks; or (v) consent to the assignment or transfer by Borrower of any of its rights and obligations under this Agreement; provided further, that no such change, -------- ------- waiver, discharge or termination shall (x) increase the obligation of any Bank to make Advances over the amount thereof then in effect without the consent of such Bank (it being understood that waivers or modifications of conditions precedent, covenants, Defaults or Events of Default shall not constitute an increase of the obligation of any Bank to make Advances); (y) without the consent of Agent, amend, modify or waive any provision of Section 11 as the same applies to Agent or any other provision as the same relates to the rights or obligations of Agent; or (z) without the consent of the Collateral Agent, amend, modify or waive any provision relating to the rights or obligations of the Collateral Agent. (b) If, in connection with any proposed change, waiver, discharge or termination to any of the provisions of this Agreement as contemplated by clauses (i) through (v), inclusive, of the first proviso to Section 12.12(a), the consent of the Required Banks is obtained but the consent of one or more of such other Banks whose consent is required is not obtained, then Borrower shall have the right, so long as all nonconsenting Banks whose individual consent is required are treated as described in either clauses (A) or (B) below, to either (A) replace each such non-consenting Bank or Banks with one or more Replacement Banks pursuant to Section 1.13 so long as at the time of such replacement, each such Replacement Bank consents to the proposed change, waiver, discharge or termination or (B) terminate such non-consenting Bank's obligation to make Advances, if any, and repay such non-consenting Bank's Term Loan Portion, provided, that unless the obligation to make Advances, if any, that are - -------- terminated, and Term Loan Portions that are repaid, pursuant to preceding clause (B) are immediately replaced in full at such time through the addition of new Banks or the increase of the obligation to make Advances, if any, of existing Banks (who in each case must specifically consent thereto), then in the case of any action pursuant to preceding clause (B) the Required Banks (determined before giving effect to the proposed action) shall specifically consent thereto; provided further, that in any event Borrower shall not have the right to replace - -------- ------- a Bank solely as a -38- result of the exercise of such Bank's rights (and the withholding of any required consent by such Bank) pursuant to the second proviso to Section 12.12(a). 12.13. Survival. -------- All indemnities set forth herein including, without limitation, in Sections 1.10, 1.11, 2.4, 12.1 and 12.16 shall survive the execution, delivery and termination of this Agreement and the Term Notes and the making and repayment of the Term Loan. 12.14. Domicile of Loans. ----------------- Each Bank may transfer and carry its Term Loan Portion at, to or for the account of any office, Subsidiary or Affiliate of such Bank. Notwithstanding anything to the contrary contained herein, to the extent that a transfer of Term Loan Portion pursuant to this Section 12.14 would, at the time of such transfer, result in increased costs under Section 1.10, 1.11 or 2.4 from those being charged by the respective Bank prior to such transfer, then Borrower shall not be obligated to pay such increased costs (although Borrower shall be obligated to pay any other increased costs of the type described above resulting from changes after the date of the respective transfer). 12.15. Confidentiality. (a) Subject to the provisions of clause (b) of this Section 12.15, each Bank agrees that it will use its best efforts not to disclose without the prior consent of Borrower (other than to its employees, auditors, advisors or counsel or to another Bank if the Bank or such Bank's holding or parent company in its sole discretion determines that any such party should have access to such information, provided such Persons shall be subject to the provisions of this Section 12.15 to the same extent as such Bank) any information with respect to Borrower or any of its Subsidiaries which is now or in the future furnished pursuant to this Agreement or any other Credit Document and which is designated by Borrower to the Banks in writing as confidential (it being understood that the Projections (as defined in the Credit Agreement) are hereby designated by Borrower as being confidential); provided, that any Bank may disclose any such -------- information (a) as has become generally available to the public, (b) as may be required or appropriate in any report, statement or testimony submitted to any municipal, state or Federal regulatory body having or claiming to have jurisdiction over such Bank or to the Federal Reserve Board or the Federal Deposit Insurance Corporation or similar organizations (whether in the United States or elsewhere) or their successors, (c) as may be required or appropriate in respect to any summons or subpoena or in connection with any litigation, (d) in order to comply with any law, order, regulation or ruling applicable to such Bank, (e) to Agent or the Collateral Agent and (f) to any prospective or actual transferee or participant in connection with any contemplated transfer or participation of any of the Term Notes or any interest therein by such Bank; provided, that such prospective transferee agrees with such Bank to abide by the provisions contained in this Section 12.15. (b) Borrower hereby acknowledges and agrees that each Bank may share with any of its affiliates any information related to Borrower or any of its Subsidiaries (including, without limitation, any nonpublic customer information regarding the creditworthiness of Borrower and its Subsidiaries, provided such Persons shall be subject to the provisions of this Section 12.15 to the same extent as such Bank). -39- 12.16. Register -------- Borrower hereby designates Agent to serve as Borrower's agent, solely for purposes of this Section 12.16, to maintain a register (the "Register") on which it will record the Percentage from time to time of each of the Banks, the Advances made by each of the Banks and each repayment in respect of the Term Loan Portion of each Bank. Failure to make any such recordation, or any error in such recordation shall not affect Borrower's obligations in respect of the Term Loan. With respect to any Bank, the transfer of the obligation to make Advances, if any, of such Bank and the rights to the principal of, and interest on, any Advances made by it shall not be effective until such transfer is recorded on the Register maintained by Agent with respect to ownership of such Percentage and Term Loan Portion and prior to such recordation all amounts owing to the transferor with respect to such Percentage and Term Loan Portion shall remain owing to the transferor. The registration of assignment or transfer of all or part of the Percentages and Term Loan Portions shall be recorded by Agent on the Register only upon the acceptance by Agent of a properly executed and delivered Assignment and Assumption Agreement pursuant to Section 12.4(b). Coincident with the delivery of such an Assignment and Assumption Agreement to Agent for acceptance and registration of assignment or transfer of all or part of a Percentage and Term Loan Portion, or as soon thereafter as practicable, the assigning or transferor Bank shall surrender the Term Note evidencing such Percentages and Term Loan Portions, and thereupon one or more new Term Notes in the same aggregate principal amount shall be issued to the assigning or transferor Bank and/or the new Bank. Borrower agrees to indemnify Agent from and against any and all losses, claims, damages and liabilities of whatsoever nature which may be imposed on, asserted against or incurred by Agent in performing its duties under this Section 12.16, except to the extent caused by Agent's gross negligence or willful misconduct. 12.17. Consent to Forbearance Agreement. -------------------------------- Borrower and each Bank hereby consents to and agrees to be bound by the terms of the Forbearance Agreement. 12.18. Joint and Several Liability. --------------------------- The liability of Parent and ALC under this Agreement and the Term Notes shall be joint and several, primary and not secondary. The remedies of Agent and the Banks hereunder may be exercised against Parent or ALC individually, against one or the other or jointly. 12.19. Effect of Certain Actions. ------------------------- Unless specifically provided otherwise, all requests, reports, certificates, notices, consents or approvals which Borrower is required or entitled to give or receive under this Agreement shall be effective against Parent and ALC if given to or received by Parent and given by or received from Parent in the manner required by this Agreement. -40- IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Agreement as of the date first above written. Address: - ------- 220 Continental Drive AUTOTOTE CORPORATION Suite 407 Newark, Delaware 19713 Telephone No.: (302) 737-4300 Telecopier No.: (302) 452-5382 By: Attention: Robert C. Becker --------------------------- Name: Title: with a copy to: Autotote Corporation 750 Lexington Avenue 25th Floor New York, New York 10022 Telephone No.: (212) 754-2233 Telecopier No.: (212) 754-2372 Attention: General Counsel Address: - ------- Autotote Lottery Corporation 220 Continental Drive AUTOTOTE LOTTERY CORPORATION Suite 407 Newark, Delaware 19713 Telephone No.: (302) 737-4300 Telecopier No.: (302) 452-5382 By: Attention: Robert C. Becker --------------------------- Name: Title: HELLER FINANCIAL, INC., as Agent and Bank By: ------------------------- Name: Title: -41- SCHEDULE I Bank Addresses and Percentages ------------------------------ Heller Financial, Inc. 500 West Monroe Street Chicago, Illinois 60661 Attn: Corporate Finance Group Facsimile: (312) 441-2367 ________% -42- EXHIBIT A to Term Loan Agreement Form of Notice of Borrowing --------------------------- Form of Notice of Borrowing --------------------------- [Date] Heller Financial, Inc., as Agent for the Banks party to the Loan Agreement referred to below 500 W. Monroe St. Chicago, Illinois 60661 Attention: -------------------- Gentlemen: The undersigned, an Authorized Representative of Autotote Corporation and Autotote Lottery Corporation (collectively, "Borrowers"), refers to the Term Loan Agreement, dated as of May ___, 1998 (as further modified, supplemented and amended from time to time, the "Loan Agreement", the terms defined therein being used herein as therein defined), among Borrowers, various Banks from time to time party thereto, and you, as Agent for such Banks, and hereby gives you notice on behalf of Borrowers, irrevocably, pursuant to Section 1.3(a) of the Loan Agreement, that Borrowers hereby request an Advance under the Loan Agreement, and in that connection sets forth below the information relating to such Advance (the "Proposed Advance") as required by Section 1.3 of the Loan Agreement: (i) The Business Day of the Proposed Advance is _____________, 19___./1/ (ii) The aggregate amount of the Proposed Advance is ____________________________ Dollars ($_____________). (iii) The Eurodollar Portion of the Proposed Advance is _________________________ Dollars ($____________). (iv) The Base Rate Portion of the Proposed Advance is ____________________________ Dollars ($_________). (v) The Fixed Rate Portion of the Proposed Advance is ____________________________ Dollars ($_________). - ----------------------------- /1/ Shall be a Business Day at least one (1) Business Day in the case of a Base Rate Portion, three (3) Business Days in the case of a Eurodollar Portion and ___________ (____) Business Days in the case of of the Fixed Rate Portion, in each case, after the date hereof. 2 To be included for a Proposed Advance of a Eurodollar Portion. (vi) The initial Interest Period for the Eurodollar Portion is _____________ (____) month(s)./2/ The undersigned hereby certifies on behalf of Borrowers that the following statements are true and correct on the date of the Proposed Advance: (A) the representations and warranties contained in the Loan Agreement and in the other Credit Documents are and will be true and correct in all material respects, both before and after giving effect to the Proposed Advance and to the application of the proceeds thereof, as though made on such date (it being understood and agreed that any representation or warranty which, by its terms, is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date); and (B) no Default or Event of Default has occurred and is continuing, or would result from such Proposed Advance or from the application of the proceeds thereof. Very truly yours, AUTOTOTE CORPORATION AUTOTOTE LOTTERY CORPORATION By: ----------------------------------------------- Authorized Representative of Borrowers Name: Title: - -------------------------------- /2/ To be included for a Proposed Advance of a Eurodollar Portion. EXHIBIT B to Term Loan Agreement Form of Term Note ----------------- EXHIBIT C to Term Loan Agreement Form of Excess Cash Flow Certificate ------------------------------------ EXHIBIT D to Term Loan Agreement Form of Assignment and Assumption --------------------------------- EXHIBIT E to Term Loan Agreement Form of Section 2.4(b)(ii) Certificate -------------------------------------- EX-10.31 3 PURCHASE AGREEMENT DATED JUNE 29, 1998 Exhibit 10.31 AGREEMENT FOR THE SALE AND PURCHASE OF THE ENTIRE ISSUED AND OUTSTANDING SHARE CAPITAL OF AUTOTOTE NEDERLAND B.V. by and between AUTOTOTE CORPORATION and STICHTING HIPPO TOTO INDEX ----- Artikel 1 Sale, Purchase, Initial Purchase Price 3 Artikel 2 Completion, Payment 3 Artikel 3 Initial Purchase Price Adjustments 4 Artikel 4 Further dealings in connection with completion 9 Artikel 5 Warranties 11 Artikel 6 Breach of warranties, non-fulfilment 12 Artikel 7 Further indemnification 13 Artikel 8 Convenants 14 Artikel 9 Secrecy 14 Artikel 10 Miscellaneous 14 AGREEMENT FOR THE SALE AND PURCHASE OF THE ENTIRE ISSUED -------------------------------------------------------- AND OUTSTANDING SHARE CAPITAL OF AUTOTOTE NEDERLAND B.V. -------------------------------------------------------- This agreement, hereinafter referred to as: the "Agreement", is made this 30th day of June 1998; by and between 1. AUTOTOTE CORPORATION, having its registered office at 220 Continental Drive, Suite 407, Newark, DE 19713, United States of America, herein represented by Mr M.W.F. Oosterhuis, its attorney-in-fact, hereinafter referred to as: the "Purchaser"; and 2. STICHTING HIPPO TOTO, having its registered office at Paleisstraat 5, 2514 JA, 's Gravenhage, the Netherlands, herein represented by its board consisting of Mr E.H. Hartman, Mrs. O.B. de Nooy-Bolwijn and Mr J.M.P.H. van der Zijden, hereinafter referred to as: the "Seller"; WHEREAS: - ------- (A) The Seller is the legal and beneficial owner of the entire issued and outstanding share capital of Autotote Nederland B.V. (the "Company"), a private company with limited liability whose registered office is at the Hague, the Netherlands, and whose share capital is divided into 4,000 ordinary shares, with a nominal value of NLG 1,000 each (hereinafter: the "Shares"). (B) The Company is the direct or indirect legal and beneficial owner of the entire issued and outstanding share capital of Hippo Toto Banen B.V. (hereinafter referred to as: the "Subsidiary") (the Company and the Subsidiary hereinafter collectively referred to as: the "Companies"). (C) The Seller wishes to sell and, in reliance upon, inter alia, the representations, warranties and undertakings in this Agreement as well as on the outcome of the due diligence investigations of the Companies which the Purchaser and its advisers have been permitted to carry out, the Purchaser wishes to purchase the Shares on the terms and conditions set out in this Agreement. IT IS HEREBY AGREED AS FOLLOWS: - ------------------------------ ARTICLE 1: SALE, PURCHASE, INITIAL PURCHASE PRICE - ------------------------------------------------- 1.1 Subject to the conditions set out in Article 4.1 hereof, the Seller hereby sells the Shares to the Purchaser and the Purchaser hereby purchases the Shares from the Seller free from any and all liens, charges, claims, third party rights and encumbrances and together with all rights attaching to them. 1.2 The initial consideration for the purchase of the Shares by the Purchaser shall be NLG 1,- (in words: one Dutch Guilder) (hereinafter: the "Initial Purchase Price") which Initial Purchase Price may be adjusted in accordance with the provisions of Article 3 of this Agreement. ARTICLE 2: COMPLETION, PAYMENT - ------------------------------ 2.1 Completion of the sale, purchase and transfer of the Shares (hereinafter: "Completion") will take place at the Rotterdam offices of Loeff Claeys Verbeke on June 30, 1998, or such later date as agreed upon between the Parties (hereinafter: the "Completion Date"). 2.2 The transfer of the Shares shall be carried out by means of a notarial deed, in accordance with the form attached hereto as Schedule 1, to be executed by Mr. D.F.M.M. Zaman, civil law notary ---------- in Rotterdam. Mr. Zaman is a civil law notary of Loeff Claeys Verbeke, the firm of the external legal advisors of the Purchaser. The Seller hereby acknowledges that it is aware of the provisions of Articles 9 and 10 of the "Guidelines concerning associations between civil law notaries (notarissen) and barristers/solicitors ---------- (advocaten)" as established by the Board of the Royal Association --------- of Civil Law Notaries (Koninklijke Notariele Beroepsorganisatie). ---------------------------------------- The Seller hereby explicitly agrees that Loeff Claeys Verbeke shall advise and act on behalf of the Purchaser with respect to this Agreement, any agreements resulting from this Agreement and/or any disputes resulting therefrom. 2.3 The Initial Purchase Price shall be paid by the Purchaser to the Seller on the Completion Date. ARTICLE 3: INITIAL PURCHASE PRICE ADJUSTMENTS - --------------------------------------------- 3.1 The Initial Purchase Price for the Shares has been agreed between the Parties on the basis that the net equity value of the Company as per the Completion Accounts shall be at least NLG 1,-- (in words: one Dutch Guilder) (hereinafter: the "Net Equity Value"), and that the tax losses ("fiscaal compensabele verliezen") of the Company shall be equal to an amount of approximately NLG 3,975,000 (in words: three million nine hundred seventy-five thousand Dutch Guilders), and in reliance on the representations and warranties set out in this Agreement and Schedule 2 hereto. ---------- 3.2 The Parties agree that one or more provisions ("voorzieningen") will be included in the Accounts of the Company on an annual basis in connection with the realisation of any fiscal benefit to the Company resulting from the reduction of its taxable income over the period between January 1, 1998 up to and including December 31, 2002, through the set-off of its tax losses ("fiscaal compensabele verliezen") as determined by the Company's final assessment for corporate income tax for the year 1997 ("definitieve aanslag vennootschapsbelasting 1997") against its aggregate results during such period. 3.3 The maximum amount of the provision(s) ("voorziening(en)") to be provided for in the Accounts of the Company during the period as from January 1, 1998 up to and including December 31, 2002, if any, shall be determined by the Purchaser's Accountants on the basis of the final assessment for corporate income tax for the year 1997 ("definitieve aanslag vennootschapsbelasting 1997") as established by the tax inspector on the basis of the 1997 return. This maximum amount will be calculated on the basis of the following formula: 20% x the corporate income tax rate (currently, 35%) x the final tax loss carry forward as determined by the tax inspector on the basis of the 1997 return (the "Tax Loss Carry Forward"). The actual provision(s) to be included in the Accounts of the Company for the period as from January 1, 1998 up to and including December 31, 2002 will be (re)calculated on the basis of the taxable results of the Company during the period as from January 1, 1998 up to and including December 31, 2002, and will be set at a maximum of the Tax Loss Carry Forward, and subject to a total maximum provision for the period as from January 1, 1998 up to and including December 31, 2002 of the amount of the Tax Loss Carry Forward plus interest accrued thereon from the end of each tax year in which the Company has realized taxable earnings until the date of set-off for any Negative Adjustment or payment as per article 3.12 to be calculated on the basis of the average rate paid by ABN-AMRO Bank N.V. on accounts for entrepreneurs ("ondernemersrekening"). This amount will be due subject to the adjustment(s) on the basis of article 3.10 (f). Interest will only be calculated on the (positive) balance of the provision(s). 3.4 The amount(s) of the provision(s) to be included in the Accounts of the Company for the period as from January 1, 1998 up to and including December 31, 2002, if any, shall serve as security for the proper performance by the Seller of any and all payment obligations that may arise pursuant to or in connection with this Agreement in the period as from the Completion Date up to and including December 31, 2002. Any payment(s) to be made by the Seller to the Purchaser as a result of the breach by the Seller of one or more of the representations and warranties given by the Seller under this Agreement and in Schedule 2 hereto will be ---------- set-off against the provision(s) to be included in the Accounts of the Company in the period as from January 1, 1998 up to and including December 31, 2002, if any. To the extent that on December 31, 2002 as to be evidenced by the 2002 Accounts of the Company- after settlement of any and all claims of the Purchaser against the Seller under this Agreement, any balance is left in the provision(s) included in the Accounts of the Company during the period as from January 1, 1998 up to and including December 31, 2002, such balance plus all interest accrued thereon shall be paid by the Purchaser to the Seller as an extra payment to the Initial Purchase Price for the Shares (the "Positive Adjustment"). 3.5 In the event that the Net Equity Value of the Company and its Subsidiary resulting from the balance sheet and profit and loss accounts of the Company and its Subsidiary as per the Completion Date (hereinafter: the "Completion Accounts") is less than NLG 1,-- (in words: one Dutch Guilder) (the "Negative Balance Sheet Adjustment") and/or certain of the representations and warranties set forth in Schedule 2 to this Agreement are not (yet) true and ---------- correct at the Completion Date or any date thereafter up to and including December 31, 2002 (the "Negative Warranties Adjustment"), the Parties have agreed that the Initial Purchase Price will be adjusted on a guilder-for-guilder basis to compensate the Purchaser for such failure on the part of the Seller (the Negative Balance Sheet Adjustment and the Negative Warranties Adjustment collectively referred to as the "Negative Adjustment"), under the condition, that any such Negative Adjustment can only be effected out of the monies present in the provision(s) ("voorziening(en)") to be included in the Accounts of the Company relating to the net fiscal benefit gained by the Company through the reduction of its taxable income, by setting-off its taxable income during the period as from January 1, 1998 up to and including December 31, 2002 against the (balance of its) tax losses ("fiscaal compensabele verliezen") resulting from the Company's final assesment for corporate income tax for the year 1997 ("definitieve aanslag vennootschapsbelasting 1997"), if any, and the total of any such Negative Adjustment(s) shall be limited to 20% of the corporate income tax that would have been due by the Company for the period as from January 1, 1998 up to and including December 31, 2002 when no loss carry forward would have been available to the Company as determined by the Company's final assessment for corporate income tax for the year 1997 ("definitieve aanslag vennootschapsbelasting 1997"), and subject to a total maximum provision for the period as from January 1, 1998 up to and including December 31, 2002 of the amount of the Tax Loss Carry Forward plus all interest accrued thereon to be calculated on the basis of the average rate paid by ABN-AMRO Bank N.V. on accounts for entrepreneurs ("ondernemersrekening") from January 1, 1998 through the end of each tax year in which the Company has realized taxable earnings until the date of set-off. No additional purchase price will be payable by the Purchaser to the Seller in the event the Net Equity Value of the Company and its Subsidiary as shown in the Completion Accounts is more than NLG 1,-- (in words: one Dutch Guilder). 3.6 To establish whether the Net Equity Value of the Company and its Subsidiary as per the Completion Date amounted to NLG 1,-- (in words: one Dutch Guilder) and whether the representations and warranties contained in sections 3 C.1 through C.4, D.1 through D.5, E.1 through E.6, F.4, H.1 and M.1 through M.5 contained in Schedule 2 hereto were true and correct on the Completion Date, ---------- and appropriate reservations have been made in the Completion Accounts of the Company for any liabilities resulting therefrom, including but not limited to a provision of NLG 150.000 (in words: one hundred fifty thousand Dutch Guilders) for moving costs, and an adequate provision for advisory costs (legal/accounting/tax), the Purchaser will immediately after the Completion Date instruct KPMG Accountants N.V. (hereinafter: the "Purchaser's Accountant) to prepare the Completion Accounts, thereby applying the same accounting principles as those applied for the preparation of the June 28, 1998 interim accounts of the Company attached hereto as Schedule 3. The Purchaser's Accountant shall deliver the ---------- Completion Accounts to the Seller ultimately within 1 month from the Completion Date. 3.7 In the event that the Net Equity Value of the Company and its Subsidiary is less than NLG 1,-- (say: one Dutch Guilder) as per the Completion Accounts and/or any one or more of the representations and warranties was not true as such and remains not met or untrue at the date of the report of the Purchaser's Accountant, the Purchaser's Accountant will include such information in the notes to the Completion Accounts and certify therein the amount of an Adjustment resulting therefrom. 3.8 The Completion Accounts (including the certificate referred to in the aforesaid article) shall be submitted to Seller by the Purchaser promptly after receipt. 3.9 The Seller shall have ten (10) days after receipt in which to notify the Purchaser in writing that it does not accept the Completion Accounts and/or the Negative Adjustment(s), failing which (if no such notice is given) it shall be deemed to have accepted the Completion Accounts and/or the Negative Adjustment(s). If such notice of non-acceptance is given, the Purchaser's and the Seller's accountants, Moret, Ernst & Young respectively, shall use their best endeavours to reach agreement on the Completion Accounts and the Negative Adjustment(s) (if any). 3.10 If, within the period of forty five (45) days after the date of Completion, neither the Purchaser and the Seller, nor their respective accountants, have reached agreement on the Completion Accounts, either of them may commence the following procedure in order to agree the Completion Accounts or to determine any Negative Adjustment(s), by giving written notice to the other that they elect to have such amounts determined by outside auditors (hereinafter: the "Accountant(s)"). (a) The Accountant(s) shall be such registered accountant(s) ("register- accountants") as the Purchaser and Seller may agree in writing or, failing agreement on the identity of the Accountant(s) within five (5) days of the notice of election to refer to independent accountants, such registered accountant(s) as may be appointed for this purpose on the application of either party by the chairman of Netherlands Institute of Registered Accountants ("NIVRA"). (b) The Accountant(s) shall act on the following basis: (i) the Accountant(s) will act as expert; (ii) his terms of reference shall be to determine the item or items in dispute, or the amount of the Adjustment(s), as notified to him in writing by either Seller or the Purchaser, within twenty (20) days of his appointment; (iii) Seller and the Purchaser shall provide the Accountant(s) with all information which he reasonably requires; (iv) the determination of the Accountant(s) shall be conclusive and binding on all Parties, save in the event of manifest error; (v) Seller and the Purchaser shall bear the costs of the Accountant(s) in such manner as shall be determined by the Accountant(s). (c) In preparing the final completion accounts (the "Final Completion Accounts"), or preparing the determination of the Negative Adjustment(s), if any, the same basis and accounting principles (and their particular application) shall be used as applied to the Annual Accounts 1997, and those applied for the preparation of the interim accounts of the Company as referred to under article 3.6 it being understood that the Final Completion Accounts shall include a provision of NLG 150.000 (in words: one hundred fifty thousand Dutch Guilders) for moving costs, and an adequate provision for advisory costs (legal/accounting/tax). 3.11 Any claim of the Purchaser against the Seller for a breach of one or more of the representations and warranties contained in this Agreement and Schedule 2 hereto shall result in the set-off of such ---------- claim against one or more of the provision(s) ("voorziening") included in the Accounts of the Company in relation to the net fiscal benefit gained by the Company through the reduction of its taxable income, by setting-off its taxable income in the period as from January 1, 1998 up to and including December 31, 2002 against the (balance of its) tax losses ("fiscaal compensabele verliezen") resulting from the Company's final assessment for corporate income tax for the year 1997 ("definitieve aanslag vennootschapsbelasting 1997"), if any, subject to the obligation of the Purchaser to duly substantiate such claim in a written notice to the Seller, and the right of the Seller to dispute such set-off within fourteen (14) days of the date of receipt of such notice, failing which the Purchaser shall be entitled to make the requested set-off for the amount of the claim involved to be increased with an amount for interest calculated on the basis of the average rate paid by ABN-AMRO Bank N.V. on accounts for entrepreneurs ("ondernemersrekening") for the period as from the date the claim has arisen until the actual date of set-off against the provision(s) contained in the Accounts of the Company. 3.12 An amount equal to the balance of the provision(s) ("voorziening (en)") (to be) included in the Accounts of the Company for the period as from January 1, 1998 up to and including December 31, 2002, in relation to the net fiscal benefit gained by the Company through the reduction of its taxable income during such period, by setting-off its taxable income earned during this period against the (balance of its) tax losses ("fiscaal compensabele verliezen") resulting from the Company's final assessment for corporate income tax for the year 1997 ("definitieve aanslag vennootschaps- belasting 1997"), if any, shall, after the Negative Adjustment(s) referred to under article 3.5 above has been effected, be payable by the Purchaser to the Seller as a Positive Adjustment to the Initial Purchase Price for the Shares within 14 (fourteen) days after the Company's Accounts for the year 2002 have been adopted, provided the warranty period for the tax representations and warranties has expired at that time, or, alternatively, within 14 (fourteen) days after the warranty period for the tax representations and warranties has expired, under the condition that the Seller shall forthwith transfer the Positive Adjustment, if any, to the account of the Stichting Nederlandse Draf- en Rensport ("NDR"). If no balance is left of the provision(s) (to be) included in the Company's Accounts for the year 2002 the Purchaser shall be under no obligation whatsoever to pay any Positive Adjustment to the Initial Purchase Price for the Shares to the Seller. 3.13 The Company shall keep the Seller or its successors informed of and will provide copies to the Seller of all tax returns and tax assesments relevant for the aforementioned purposes. 3.14 Subject to the due performance of the preceding paragraphs, if the Purchaser shall have any claim for a breach, indemnity claim or warranty claim against the Seller under this Agreement in respect of any liability or deficiency which is taken into account in the determination of the Negative Adjustment, the amount of such liability or deficiency so taken into account shall be deducted from the relevant provision(a) to be included in the Accounts of the Company for the period as from January 1, 1998 up to and including December 31, 2002, save as aforesaid, preparation and acceptance of the determination of the Negative Adjustment or the Completion Accounts shall be without prejudice to any claim which the Purchaser may have against the Seller under or in respect of any breach of this Agreement. ARTICLE 4: FURTHER DEALINGS IN CONNECTION WITH COMPLETION - --------------------------------------------------------- 4.1 At Completion the Seller shall deliver to the Purchaser: (a) a copy of the shareholders' register of the Company in which the transfer of shares will have been registered; (b) a copy of the resignation letter of the board of directors of the Company dated June 30, 1998 together with the duly completed forms of the Chamber of Commerce of the Hague to register such resignation; (c) a copy of the resignation letter of the board of directors of the Subsidiary dated June 30, 1998 together with the duly completed forms of the Chamber of Commerce of the Hague to register such resignation; (d) a copy of the consent of the representatives of the employees ("personeelsvertegenwoordiging") of the Company dated June 19, 1998; (e) a copy of the new totalisator license ("totalisatorbeschikking 1998") dated June 29, 1998 issued by the Ministry of Agriculture and Justice to the Company; (f) a copy of the letter of the Dutch social security board ("GAK") dated June 22, 1998 confirming that the franchisees ("wedkantoorbouders") of the Company are not considered as mandatory insured ("niet a verzekerden") under the Dutch social security laws in connection with the current exploitation agreement ("exploitatieovereenkornst") between the franchisees ("wedkantoorhouders") and the Company; (g) a copy of the letter of the Dutch tax authorities dated June 3, 1998 confirming its agreement with the fiscal unity created between the Company and its Subsidiary with retroactive effect as from December 12, 1996; (h) a copy of the letter of Moret, Ernst & Young, tax consultants of the Company, dated May 28, 1998 estimating the losses of the Company that may be set-off at an amount of NLG 3,975,000; (i) a copy of the letter of Moret, Ernst & Young, tax consultants of the Company, dated May 29, 1998, to the Dutch tax authorities signed by the latter for consent on June 6, 1998 confirming that the losses which may be set-off by the Company ("compensation verliezen") will follow from the tax returns of the Company over 1997; (j) a copy of the tax return filed by the Companies for the assessment of corporate income tax ("vennootschapsbelasting") due for the year 1996; (k) a copy of the duly executed Cooperation Agreement between the NDR ("a Nederlandse Draf- en Rensport") and the Company dated June 30, 1998; (l) a copy of the Annual Accounts 1997 of the Company and its Subsidiary; (m) a copy of the limited power of attorney granted by the Company to Mr a Ph. C.M. van Campen dated January 13, 1998; (n) a copy of the limited power of attorney granted by the Subsidiary to Mr a Ph. C.M. van Campen dated April 17, 1997; and (o) a copy of the Protocol executed between AbvaKabo and the Purchaser dated June 20, 1998. If for any reason the provisions of this clause are not fully complied with, the Purchaser may elect to rescind this Agreement or to fix a new date for Completion. 4.2 Seller will at the reasonable request of the Purchaser execute all documents and do all other acts and things as may reasonably be deemed necessary to give full effect to this Agreement and to the transfer the Shares. ARTICLE 5: WARRANTIES - --------------------- 5.1 Seller represents and warrants to the Purchaser that on the Completion Date each and every statement set out in Schedule 2 ---------- under the heading "Warranties" (hereinafter: the "Warranties Schedule") is true, complete, accurate and not misleading. 5.2 Any investigation carried out by the Purchaser and any information provided by the Seller to the Purchaser shall not discharge the Seller in any way from its obligations with respect to the warranties set out in the Warranties Schedule (hereinafter, collectively, the "Warranties"), unless specifically agreed otherwise. Each of the Warranties set out in the several paragraphs of the Warranties Schedule is separate and independent and is not limited by reference to any other paragraphs of the Warranties Schedule or by any other provision of this Agreement which is not expressly referenced to the Warranty concerned. 5.3 All information relating to the Company and its Subsidiary or to their respective assets or affairs which would be material to a purchaser for value of the Shares, undertakings or assets of the Company and/or the Subsidiary or which would have influenced the amount paid for the Shares and the provisions, conditions and Warranties set out in this Agreement is contained in this Agreement or in the schedules hereto and is true, accurate and fairly presented. 5.4 The Seller acknowledges that the Warranties are material and the accuracy of the Warranties in all respects is essential for the Purchaser's decision to enter into the Agreement. ARTICLE 6: BREACH OF WARRANTIES, NON-FULFILMENT - ----------------------------------------------- 6.1 In the event of breach of any of the Warranties by the Seller (hereinafter: "Breach") or non-fulfilment by the Seller of any other obligation contemplated by this Agreement (hereinafter: "Non-fulfilment"), the Seller shall indemnify the Purchaser and hold the Purchaser harmless from and against any and all damages and/or liabilities, without prejudice to any other remedies available to the Purchaser under Netherlands law. 6.2 The liability of the Seller for damages in connection with a Breach and/or any Non-fulfilment shall be fixed at the amount required to put the Purchaser - or, at the Purchaser's sole option, the Company or its Subsi-diary - in the position in which they (it) would have been if the relevant Breach and/or the relevant Non-fulfilment had not occurred. For the avoidance of doubt, it is hereby expressly agreed that the liability of the Seller shall include liability for all costs incurred by the Purchaser relating to the prevention or limitation of any loss or damage resulting from or arising as a result of any Breach and/or Non-fulfilment and in particular but without limitation shall include all legal and other similar costs incurred in instructing and using professional advisors. 6.3 The liability of the Seller in respect of the Warranties: shall continue indefinitely in respect of those Warranties set out in sections A.1 through A.2 and B.1 through B.5 of the Warranties Schedule (concerning the Companies, the Shares and the Subsidiary) but shall otherwise terminate: (i) on December 31, 2002, in respect of those Warranties set out in sections E.1 through E.5 of the Warranties Schedule (concerning Taxes); (ii) on June 30, 2000, the second anniversary of the Completion Date, in respect of all other Warranties set out in the Warranties Schedule; except in respect of any claim made by the Purchaser of which notice in writing is given to the Seller before the relevant date; If any claim of the Purchaser for breach of Warranty is as a result of or in connection with a liability or alleged liability of a third party, the Purchaser shall take such action as they reasonably consider necessary to prevent or limit to the extent possible any loss or damage for which the Seller may be liable (including taking such action to avoid, dispute or contest such liability as is reasonably practicable) and the Purchaser shall take into account the reasonable interests of the Seller in doing so. 6.4 The liability of the Seller pursuant to any Negative Adjustment, any indemnification or the representations and warranties set forth in this Agreement and the Warranties Schedule attached hereto and the liability of the Purchaser to pay the Positive Adjustment, if any, shall in no event exceed the aggregate of the provisions made in the Accounts of the Company in relation to the net fiscal benefit gained by the Company through the reduction of its taxable income, by setting-off its taxable income earned in the period as from the Completion Date up to and including December 31, 2002 against the (balance of its) tax losses ("fiscaal compensabele verliezen") resulting from the Company's final assessment for corporate income tax 1997 ("definitieve aanslag vennootschapsbelasting 1997"), if any, up to a maximum amount of the Tax Loss Carry Forward plus all interest accrued thereon to be calculated on the basis of the average rate paid by ABN-AMRO Bank N.V. on accounts for entrepreneurs ("ondernemersreke-ning") for the period as from January 1, 1998 through December 31, 2002. 6.5 The liability provisions set forth in this Agreement constitute the entirety of the rights and remedies to which the Purchaser shall be entitled and the Purchaser explicitly waives any and all claims it has or may appear to have based on the negotiation, entering into or carrying out of this Agreement against any of the members of the board of the Seller or any of the employees of the Companies personally. ARTICLE 7: FURTHER INDEMNIFICATION - ---------------------------------- The Seller shall indemnify the Purchaser, the Company and the Subsidiary and shall hold the Purchaser, the Company and the Subsidiary harmless against: (a) any and all liabilities, claims and costs incurred by the Company and/or the Subsidiary in connection with any guarantees, sureties, warranties and/or statements of (several) liability issued by the Company and/or the Subsidiary on behalf or in favour of third parties and any legal (wettelijke) or contractual liability for obligations (including tax obligations) of third parties, to the extent that no sufficient provision has been included in the consolidated annual accounts of the Company and the Subsidiary for the financial year 1997, and the Completion Accounts; (b) rights of recourse of third parties against the Company and/or the Subsidiaries, to the extent that no sufficient provision has been included in the Annual Accounts of the Company for the year 1997, and/or the Completion Accounts. ARTICLE 8: COVENANTS - -------------------- 8.1 The Parties agree that on or prior to the Completion Date the Company shall against payment of a purchase price of NLG 1 (one Dutch Guilder) sell and assign to the Seller the subordinated loan of NLG 1,800,000 (in words: one million eight hundred thousand Dutch Guilders) granted by the Company to the NDR and as to be written off to NLG 1,-- (one Dutch Guilder) in the 1997 Accounts of the Company. 8.2 The Seller agrees with the Purchaser that it will, at the direction of the Purchaser, present any claim against the SENS in relation to the Share Purchase Agreement concluded between the Seller and the Purchaser on December 31, 1997, if and in as far as any such claim will arise prior to July 16, 1998. The proceeds resulting out of any proceedings initiated by the Seller against the SENS prior to July 16, 1998 shall be for the benefit of the Purchaser. ARTICLE 9: SECRECY - ------------------ The Seller covenants and agrees with the Purchaser that it shall not (and shall procure that its respective officers and members of its boards of managing directors, the Subsidiary and the respective officers and members of the board of managing directors of the Subsidiary shall not) at any time divulge, furnish or make accessible to anyone: (a) any confidential or secret knowledge or information with respect to any aspect of the business of the Company and/or the Subsidiary; or (b) any customer or suppliers list or other information relating to the customers or suppliers of the Company and/or the Subsidiary or persons who have dealings with any of the Company and/or the Subsidiary whether or not confidential. ARTICLE 10: MISCELLANEOUS - ------------------------- 10.1 This Agreement represents the entire understanding and agreement between the Purchaser and the Seller with respect to the purchase and sale of the Shares and supersedes all previous agreements, both in writing and oral, including correspondence. 10.2 Headings are for ease of reference only and shall not affect the interpretation of this agreement. 10.3 Any notice or other communication in connection with this Agreement shall be in writing and be mailed to the following addresses or to such other addresses in the Netherlands as the parties shall have given notice of pursuant to this clause: Purchaser: --------- Name : Autotote Corporation Address : 220 Continental Drive, Suite 407 Newark, Delaware 19713 Fax : 00 1 302 452 5382 Attn. : Mr L.J. Corneck/Mr R. Weil Seller: ------ Name : Stichting Hippo Toto c/o De Brauw Blackstone Westbroek Address : Zuid-Hollandlaan 7 The Hague, 2509 LW Fax : 070 - 324 7997 Attn. : Mr E.D. Wiersma 10.4 Except as provided for in the Completion Accounts each party will bear its own costs and expenses in relation to the entry into, execution and performance of this Agreement, including all negotiations, preparations and investigations. 10.5 No party shall make or permit any person connected with him to make any announcement concerning this sale and purchase or any matter in connection with this Agreement before, on or after the Completion Date except as required by law or with the written approval of the other parties. 10.6 The Purchaser shall at any and all times be entitled to appoint another company within its group of companies to purchase the Shares. 10.7 This Agreement shall be governed by and construed in accordance with the laws of the Netherlands. 10.8 All disputes between the parties hereto arising under or in connection with this Agreement or further agreements resulting from this Agreement including all disputed claims for breach by either party or any representation, warranty, undertaking or covenant on its part under this Agreement, shall be resolved by arbitration in accordance with the rules of the Netherlands Arbitration Institute in Rotterdam, provided always that the parties have the right to settle any such dispute in summary proceedings and the right to obtain seizure. The arbitrator(s) shall decide according to the rules of the law. The arbitral proceedings shall be conducted in the English language. The place of arbitration shall be Rotterdam. IN WITNESS WHEREOF this Agreement has been executed by the parties hereto in duplicate on the date set out on page one. 1. AUTOTOTE CORPORATION - ------------------------------ By : Mr M.W.F. Oosterhuis Its : attorney-in-fact 2. STICHTING HIPPO TOTO - ------------------------ --------------------------------------- By : Mr E.H. Hartman By : Mrs. O.B de Nooy-Bolwijn Its : board member Its : board member - ----------------------------------------- By : Mr J.M.P.H. van der Zijden Its : board member EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF AUTOTOTE CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS OCT-31-1998 NOV-01-1997 JUL-31-1998 17,260 0 15,620 (1,796) 12,481 47,177 195,653 115,947 162,627 47,048 35,000 0 0 360 (44,605) 162,627 109,441 109,441 69,392 69,392 39,862 0 11,492 (11,305) 368 (11,673) 0 0 0 (11,673) (0.33) (0.33)
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