0001
 1   
 2   
 3   
 4   
 5   ******************************************************
 6   
 7                  TEXAS LOTTERY COMMISSION
 8                           MEETING
 9   
10                        MAY 17, 2006
11   
12   
13    ******************************************************
14   
15   
16   
17            BE IT REMEMBERED that the Texas Lottery
18   Commission meeting was held on the 17th day of May 2006
19   from 9:03 a.m. to 3:24 p.m., before David Bateman, RPR,
20   CSR in and for the State of Texas, reported by machine
21   shorthand, at the Offices of the Texas Lottery
22   Commission, 611 East 6th Street, Austin, Texas 78701,
23   whereupon the following proceedings were had:
24   
25   
0002
 1                    A P P E A R A N C E S
 2   
 3   Chairman:
 4            Mr. C. Tom Clowe, Jr.
 5   
 6   Commissioners:
 7            Mr. James A. Cox, Jr.
 8   
 9   
10   General Counsel:
11            Ms. Kimberly L. Kiplin
12   
13   Acting Executive Director:
14            Mr. Anthony Sadberry
15   
16   Charitable Bingo Operations Director:
17            Mr. Billy Atkins
18   
19   
20   
21   
22   
23   
24   
25   
0003
 1                          I N D E X
 2   
 3                                                    PAGE
 4   Appearances......................................   2
 5   
 6   
 7   AGENDA ITEMS
 8   Item Number I....................................   6
         Meeting called to order
 9   
     Item Number II................................... 170
10       Report, possible discussion and/or
         action on lottery sales and revenue, game
11       performance, new game opportunities, market
         research and trends
12   
     Item Number III.................................. 185
13       Report, possible discussion and/or action on
         transfers to the State
14   
     Item Number IV................................... 186
15       Report, possible discussion and/or action on
         the procurement of advertising services
16   
     Item Number V.................................... 186
17       Report, possible discussion and/or action on
         the Mega Millions game and/or contract
18   
     Item Number VI...................................   6
19       Report, possible discussion and/or action on
         GTECH Corporation, including proposed
20       acquisition of GTECH
21   Item Number VII..................................  //
         Consideration of and possible discussion and/or
22       action on the lottery operator contract,
         including whether the negotiation of the
23       lottery operator's contract in an open meeting
         would have detrimental effect on the commission's
24       position in negotiations of the lottery
         operator contract
25   
0004
 1   Item Number VIII................................. 193
         Report, possible discussion and/or action
 2       on the agency's contracts
 3   
     Item Number IX................................... 194
 4       Report and possible discussion of the agency's
         HUB performance, including the Texas Building
 5       and Procurement Commission's FY 2006 Semi-Annual
         HUB Report and/or the agency's Mentor Protege
 6       Program
 7   Item Number X.................................... 194
         Report, possible discussion and/or action on
 8       the 79th Legislature
 9   Item Number XI................................... 197
         Report, possible discussion and/or action on
10       the agency's strategic plan for 2007-2011
11   Item Number XII.................................. 115
         Consideration of and possible discussion and/or
12       action on external and internal audits and/or
         reviews, including the agency's lottery security
13       audit, relating to the Texas Lottery Commission
         and/or on the Internal Audit Department's
14       activities
15   Item Number XIII................................. 198
         Consideration of an possible discussion and/or
16       action on the appointment and employment of an
         executive director
17   
     Item Number XIV.................................. 123
18       Consideration of and possible entry of orders
         in A. Case No. 2006-1079 - Thompson Allstate
19       Bingo Supply and B. Moore Supplies, Inc.
20   Item Number XV................................... 198
         Report by the acting executive director and/or
21       possible discussion and/or action on the
         agency's operational status and FTE status
22   
     Item Number XVI.................................. 199
23       Report by Charitable Bingo Operations Director
         and possible discussion and/or action on the
24       Charitable Bingo Operations Division's activities
25   
0005
 1   Item Number XVII.................................  //
         Public comment
 2   
 3   Item Number XVIII................................ 168
         Executive session
 4   
 5   Item Number XIX.................................. 200
         Adjournment
 6   
 7   
     Reporter's Certificate........................... 202
 8   
 9   
10   
11   
12   
13   
14   
15   
16   
17   
18   
19   
20   
21   
22   
23   
24   
25   
0006
 1                      AGENDA ITEM NO. I
 2                 CHAIR CLOWE:  Today is May 17th, 2006.
 3   It's nine a.m.  Commissioner Cox is here.  My name is
 4   Tom Clowe.  We'll call this meeting of the Texas
 5   Lottery Commission to order.
 6                     AGENDA ITEM NO. VI
 7                 CHAIR CLOWE:  And I would like to take
 8   item number six up first, report, possible discussion
 9   and/or action on GTECH Corporation, including proposed
10   acquisition of GTECH.
11                 Mr. Sadberry, will you lead us in this
12   item?
13                 MR. SADBERRY:  Good morning,
14   commissioners.  For the record, my name is Anthony
15   Sadberry, acting executive director.
16                 Commissioners, this agenda item pertains
17   to the previously-announced proposed acquisition of
18   GTECH, the commission's lottery operator, by
19   Lottomatica, the operator of the Italian lottery.
20                 Following the announcement by GTECH in
21   January of the proposed acquisition, commission began a
22   due diligence review of the persons and entities
23   involved to determine their suitability to operate the
24   Texas lottery.
25                 Under the provisions of both the State
0007
 1   Lottery Act and the lottery operations and services
 2   contract, the commission has the authority to conduct
 3   such an investigation.
 4                 Additionally, the commission has the
 5   authority to require GTECH to reimburse the commission
 6   for costs in connection with such an investigation.
 7   And GTECH has done so.
 8                 The commission has sought assistance from
 9   the Office of Attorney General, retained outside
10   counsel, and entered into an interagency contract with
11   Department of Public Safety.
12                 All three entities have been actively
13   engaged in the review of the proposed ownership change
14   and are here today to report to you on their review.
15   Specifically, Patrick Thompson and Rod Edens with the
16   law firm of Graves, Dougherty, Hearon & Moody,
17   Lieutenant Mark Riordan and Sergeant Cliff Manning with
18   DPS and David Mattax, division chief of the Financial
19   Litigation Division of the Attorney General's Office
20   and Gaston Broyles, assistant Attorney General in the
21   Financial Litigation Division.
22                 At this time, I would ask them to report
23   to you on the review.
24                 CHAIR CLOWE:  Thank you, Mr. Sadberry.
25                 Rod and Patrick, will you-all come up
0008
 1   first?  Mark, you may want to just be comfortable where
 2   you are.  And we'll handle these gentlemen's comments
 3   and then ask you-all to come up.
 4                 Gentlemen, by way of creating a record in
 5   this matter that is clear and easy to understand, I'll
 6   ask you-all and everyone else who is going to give
 7   testimony today to please identify yourself clearly.
 8   And we'll try to not speak over each other and in any
 9   way disturb the record so that everybody is clearly
10   understood.  And we'll appreciate that.
11                 Rod, I believe you're going to begin.
12   Are you not?
13                 MR. EDENS:  Yes.
14                 CHAIR CLOWE:  Thank you.
15                 MR. EDENS:  Commissioners, I was asked to
16   give a brief background of my experience as an
17   attorney.  I've been practicing law in Austin for --
18                 CHAIR CLOWE:  And identify yourself
19   initially, if you would.
20                 MR. EDENS:  Yes.  I'm Rod Edens, Jr.  And
21   I've been practicing law in Austin for approximately 43
22   years.  My practice has been in primarily mergers and
23   acquisition, acquisition financing and securities work,
24   securities being offering stock and that sort of thing
25   by companies.
0009
 1                 And my experiences included dealing with
 2   transactions that involve international law matters
 3   where there are companies in foreign jurisdictions
 4   outside the United States that are involved.
 5                 So what I'd like to do now is give you a
 6   very brief presentation as to the structure of the
 7   parties that are involved in the acquisition of GTECH
 8   and I have a Powerpoint presentation that I'd like --
 9   if I can get it to -- here we go.
10                 CHAIR CLOWE:  And just before you begin,
11   Mr. Edens, your law firm is headquartered here in
12   Austin.
13                 MR. EDENS:  That's correct.
14                 CHAIR CLOWE:  You live in Austin.  And
15   your field of expertise is mergers and acquisitions
16   with particular emphasis on international transactions.
17                 MR. EDENS:  In recent years, I've had
18   considerable interest in international, yes.
19                 CHAIR CLOWE:  So you are what we would
20   consider an expert in looking at the type of
21   transaction that this commission is examining in regard
22   to GTECH Corporation at this time.
23                 MR. EDENS:  Well, if 43 years in this
24   area gives me some expertise, I guess that's correct.
25                 CHAIR CLOWE:  Nobody wants to be called
0010
 1   an expert, do they?
 2                 MR. EDENS:  Not on that basis, no.
 3                 CHAIR CLOWE:  Thank you.
 4                 MR. EDENS:  You bet.
 5                 To start with, I will go through very
 6   quickly the current ownership structure of GTECH.
 7   GTECH Holdings Corporation is a New York Stock Exchange
 8   listed company.  Its shares are publicly-traded.  So it
 9   is owned by public stockholders.
10                 And it has a wholly-owned subsidiary
11   called GTECH Corporation, which is the company that has
12   the contract with Texas Lottery Commission.
13                 See out to the right there that the
14   acquisition, which I'll describe in a little bit more
15   detail in a minute, involves the payment to the public
16   stockholders of 35 dollars per share cash.
17                 And there are approximately 132.8 million
18   fully-diluted shares, which means that that includes
19   shares that are covered by options to purchase common
20   stock.  And so the approximate equity value of the
21   transaction is about 4.648 billion dollars.
22                 Lottomatica, which is the group or
23   company that is proposing to acquire GTECH, has the
24   ownership structure that's set out here.  The control
25   entity of Lottomatica is De Agostini.  And De Agostini,
0011
 1   in turn, has currently approximately 23 shareholders in
 2   four or five family groups.
 3                 De Agostini historically has been
 4   involved in publishing and other activities and owns a
 5   58-percent interest in Lottomatica.  Lottomatica has no
 6   other significant stockholder.
 7                 Other than De Agostini, I think there's
 8   one institutional investor, Fidelity International,
 9   which is an affiliate of the Fidelity Investment Funds
10   that we're familiar with here in the United States.
11   And it has approximately a three-percent interest,
12   although that may be greater now.  But it's -- and
13   again, it's not a substantial shareholder in relation
14   to De Agostini.
15                 Lottomatica, in turn, will own and does
16   own today 75 percent of a company called Gold Holding
17   Company or Gold Holding Co.  And it also owns a hundred
18   percent interest in Nova Prima, which is shown off to
19   the left.  And that entity, in turn, owns a hundred
20   percent of Invest Games.
21                 The plan, upon the closing of the
22   acquisition of GTECH, will be for Nova Prima to merge
23   into Lottomatica with a result that Invest Games will
24   be wholly-owned by Lottomatica which will, in turn, own
25   25 percent of Gold Holding Company.
0012
 1                 So you can see from the chart that
 2   Lottomatica will directly and indirectly own a hundred
 3   percent of Gold Holding Company.  And I'll explain the
 4   structure of Gold Holding Company in a minute, as far
 5   as its relationship to GTECH.
 6                 Invest Games is a Luxembourg company that
 7   enjoys tax benefits under Luxembourg law with a result
 8   that sale of stock or assets by Invest Games will not
 9   be subject to any capital gains tax.
10                 So the purpose of that entity, just very
11   briefly, is to gain the tax benefits that are offered
12   by a Luxembourg company.  Another country or group of
13   countries that have similar tax shelter benefits are in
14   the Netherlands.  So this is quite frequently found in
15   structures where you're dealing with international and
16   European companies, in particular.
17                 Gold Holding Co. owns a hundred percent
18   of Gold Acquisition Corp.  And Gold Acquisition Corp.
19   is the company that will merge with and into GTECH
20   Holdings in the event that the transaction is
21   consummated.
22                 In this chart, I'll start from the bottom
23   first.  Gold Holding Co. is shown, which we just
24   discussed.  Gold Acquisition has disappeared in this
25   chart and has become merged into GTECH Holdings
0013
 1   Corporation, which was formerly the publicly-traded
 2   GTECH Holdings and is now owned indirectly by
 3   Lottomatica.
 4                 GTECH Corporation is still in existence.
 5   Following the closing, there are some further mergers
 6   that may occur.  Gold Acquisition Corp. is gone.  And
 7   there is the possibility that GTECH Holdings
 8   Corporation will merge into GTECH Corporation.  And
 9   GTECH Corporation will be the only entity left in what
10   is the current owned structure of GTECH.
11                 Gold Holding Company will probably be
12   renamed GTECH Holdings, I think.  There's some
13   change -- let's see.  Yes.  So that the Gold name will
14   disappear and the structure will be Gold Holding
15   Company, now named GTECH Holdings, and GTECH
16   Corporation.
17                 I think most of the other parts on this
18   chart I've discussed.  This shows the ownership above
19   De Agostini which is, again, the control entity of
20   Lottomatica.  And this is the proposed ownership at or
21   following the acquisition of GTECH.
22                 The plan is that they will cause to be
23   formed a company called B&D Holding di Marco Drago.
24   And it is -- the counterpart in the United States to
25   this entity is a limited partnership.
0014
 1                 But it's a partnership with shares and
 2   they talk about the equity ownership in terms of
 3   shares.  So they will have seven general shareholders,
 4   although that number again may be adjusted slightly
 5   based on some indirect information that we have, but
 6   not a material issue.
 7                 The limited shareholders, there will be
 8   approximately 18 of those.  And this really reflects
 9   the way we have been told the ownership of De Agostini
10   works today, that there are basically going to be five
11   family members who are active today who will continue
12   to be active in the management of the affairs of De
13   Agostini.
14                 And they also are going to bring in one
15   or two independent directors who will also be nominal
16   shareholders.  And all seven of these general
17   shareholders will have unlimited liability just like a
18   general partner of a limited partnership under the laws
19   of Texas or Delaware or other states in the U.S.
20                 The limited shareholders have limited
21   liability and, accordingly, have limited rights and
22   involvement in the day-to-day management of the company
23   and overall control of the company.
24                 The identity of these people I'm not
25   really familiar with.  But others who will present
0015
 1   today can give you more information about these
 2   shareholders if you desire that.
 3                 The -- this is a chart that's designed to
 4   show the management structure starting with De Agostini
 5   and going down through Lottomatica.  And this is post
 6   acquisition of GTECH.
 7                 The plan is for the De Agostini board of
 8   directors to establish an executive committee.  And
 9   there is an executive committee already in existence.
10   But it is to have what we've been told will be complete
11   and unlimited authority to make all decisions with
12   respect to gaming and lottery holdings.
13                 So it's going to be calling the shots, as
14   far as Lottomatica/GTECH group is concerned post
15   acquisition.  Lottomatica, of course, will have a board
16   of directors.  But they'll be determined by the
17   executive committee of De Agostini.
18                 And the management team that is proposed,
19   based on our current information from the
20   Lottomatica/GTECH group will be Bruce Turner as CEO,
21   Jaymin Patel as chief financial officer and Marco Sala,
22   who will be the managing director of the Italian
23   division of Lottomatica.
24                 The funds to make this acquisition are
25   coming from several different sources.  The first is
0016
 1   Lottomatica will have cash on hand of approximately 480
 2   million dollars.
 3                 They will raise an additional 1.7 million
 4   dollars through a rights offering to its shareholders
 5   which, of course, is predominantly De Agostini.  And
 6   they have committed to fund their portion of that.
 7                 The next strip of funding will be a
 8   subordinated debt offering of 750 million Euros.  That
 9   offering was placed on May 10th and is scheduled to
10   close today and probably already has closed today.
11                 And then the next layer is the senior
12   loans that will be made to Gold Acquisition Corp.
13   which, of course, will merge into GTECH Holdings upon
14   consummation of the acquisition.  And that's a $2.3
15   billion senior loan financing.
16                 And that number, by the way, probably
17   moves around for two reasons.  One, of course, the --
18   it's a loan in Euros and you have an exchange rate
19   adjustment there to an amount.  There's also some
20   strips that are part of the senior loan that are not
21   actually used for the acquisition of GTECH, which will
22   be in the nature of evolving credit for 250 million and
23   a guarantee facility for a similar amount.
24                 The senior loan was oversubscribed by
25   institutional lenders by some four times the amount
0017
 1   that they needed.  The subordinated debt offering
 2   similarly was oversubscribed, indicating good market
 3   acceptance by institutional investors of the financing
 4   plan of Lottomatica.
 5                 Credit Suisse, First Boston and Goldman
 6   Sachs are the underwriters for the rights offering and
 7   the subordinated debt.  And they have provided the
 8   senior loan, which I think is already signed up and is
 9   ready to go.
10                 This chart for Lottomatica and the chart
11   for GTECH reflect a couple of things, I think.  On the
12   left, the Lottomatica stock prices are shown starting
13   with December.  The acquisition of GTECH was announced,
14   I believe, January 10th of this year.
15                 And you can see that, since that time
16   through May 12th, the stock of Lottomatica has gone up.
17   So it's been received -- the proposed acquisition seems
18   to have been pretty well received by the investment
19   community.
20                 The GTECH chart is for a much shorter
21   period of time.  It really is a one-month period just
22   to show that, as we get closer to the proposed closing
23   of the GTECH acquisition, the stock price for -- is
24   traded on the New York stock exchange and approaching
25   the 35-dollar merger price.
0018
 1                 That's -- that's it.
 2                 CHAIR CLOWE:  Any questions?
 3                 COMMISSIONER COX:  No, sir.
 4                 CHAIR CLOWE:  Mr. Edens, in your
 5   examination of this transaction, did you find anything
 6   that struck you as being unusual or out of the
 7   ordinary?
 8                 MR. EDENS:  No, I did not.  I found the
 9   Lottomatica/De Agostini disclosures that we reviewed to
10   be business as usual for companies that like to operate
11   with transparency.  They were very open and, in my
12   discussions with representatives of De Agostini and
13   Lottomatica, I found them to be cooperative and willing
14   to answer any questions.
15                 CHAIR CLOWE:  Did you go to Italy to
16   interview those individuals that you contacted
17   personally or did you talk with people that represented
18   the company by telephone?
19                 MR. EDENS:  By telephone, e-mail.
20                 CHAIR CLOWE:  And --
21                 MR. EDENS:  But no, the answer is I did
22   not go to Italy.
23                 CHAIR CLOWE:  And did you --
24                 MR. EDENS:  I'd be happy to go,
25   commissioner.
0019
 1                 CHAIR CLOWE:  Did you find those
 2   individuals that you spoke with to be responsive and
 3   open and forthcoming in regard to the questions that
 4   you asked?
 5                 MR. EDENS:  I did.
 6                 CHAIR CLOWE:  Is the control of
 7   publicly-held corporations in the country of Italy
 8   similar or dissimilar to the control that we are more
 9   familiar with in this country relative to SEC
10   regulations?
11                 MR. EDENS:  They have a very similar
12   regulatory scheme.  It's not identical by any means.
13   They have to report their financial information on a
14   annual basis certainly.  There are some bases for being
15   exempt for quarterly reports.
16                 But by and large, they have to report
17   significant events in a timely manner.  Here in the
18   United States, since the enactment of Sarbanes-Oxley
19   legislation, U.S. companies have to report more
20   quickly, within a shorter time frame than it is the
21   case perhaps anywhere in the world, certainly in Italy.
22                 CHAIR CLOWE:  Did the differences in
23   language appear to be a problem in your contacting
24   representatives of these companies?
25                 MR. EDENS:  No, and I don't speak
0020
 1   Italian.  So the people I talked to were very
 2   conversant-speaking English.  They publish, by the way,
 3   their information both in Italian and in English.
 4                 CHAIR CLOWE:  The point of that question
 5   is that, in my experience in the past in business in
 6   doing business in some foreign countries, I have felt
 7   that I did not fully understand the answer to a
 8   question or I did not understand the question that was
 9   being posed to me.
10                 And in a business transaction, I was less
11   than sure that both parties were communicating
12   effectively.  You didn't have that feeling in regard to
13   your part in this report?
14                 MR. EDENS:  I did not.  I won't say that
15   there were some occasions that I had to ask my question
16   in a different way to get the answer so that I
17   understood what I needed to understand, but we always
18   got there.
19                 CHAIR CLOWE:  Although to a person who is
20   not acquainted with mergers and acquisitions, this
21   might seem to be a complex transaction.  You mentioned
22   that the Gold Acquisition tool might go away and become
23   GTECH Holding.
24                 That sort of a protocol is not unusual in
25   achieving this kind of a merger acquisition.  Is it
0021
 1   not?
 2                 MR. EDENS:  That's correct.  It's not at
 3   all unusual.  The Gold Acquisition entity in this case
 4   was used primarily to locate the funding of the cash so
 5   that it could turn and have that cash available in
 6   connection with the merger to pay the GTECH Holdings
 7   shareholders.
 8                 And that -- that sort of structure in an
 9   acquisition I didn't find at all unusual.
10                 CHAIR CLOWE:  To the extent that you have
11   knowledge, is De Agostini practice in acquisitions,
12   have they been a company that has done acquisitions in
13   the past and has grown and expanded?
14                 Do they have some knowledge and
15   experience of how to acquire a company successfully or
16   not?
17                 MR. EDENS:  I would say, even if they had
18   not done other transactions, which they have, and just
19   based on this one transaction alone, I'd say they were
20   extremely knowledgeable.
21                 They retained competent investment
22   bankers to provide advice to them and to their
23   stockholders.  They used Credit Suisse, First Boston
24   and Golden Sachs.
25                 And I believe that both of those firms
0022
 1   rendered opinions to Lottomatica that the transaction
 2   is fair, from a financial point of view, to the
 3   stockholders of Lottomatica.
 4                 GTECH, of course, had their own
 5   investment banking firms render similar opinions with
 6   respect to the fairness, from a financial point of
 7   view, to the shareholders of GTECH.
 8                 CHAIR CLOWE:  And you visited in length
 9   with the GTECH officers and officials.  Did you not?
10                 MR. EDENS:  No, I have not visited with
11   them.
12                 CHAIR CLOWE:  And has Mr. Thompson done
13   that?
14                 MR. THOMPSON:  No, sir.  The -- the
15   face-to-face interviews with representatives and
16   executives with GTECH, De Agostini and Lottomatica were
17   conducted by Sergeant Manning and Lieutenant Riordan.
18                 And we were -- they were our eyes and
19   ears for the purpose of direct interviews with those
20   representatives.
21                 CHAIR CLOWE:  So we'll -- we'll have some
22   questions for them relative to GTECH?
23                 MR. THOMPSON:  Yes, sir.
24                 CHAIR CLOWE:  All right.  And Mr. Edens,
25   before we -- before I conclude my questions to you, let
0023
 1   me ask you this:
 2                 At this point in time, based on what
 3   you've done in this process, do you see that anything
 4   that, in your opinion based on your knowledge, renders
 5   this acquisition unsuitable or unfit in regard to our
 6   contract with GTECH?
 7                 MR. EDENS:  No.  I see nothing that would
 8   lead me to conclude that it's an unsuitable
 9   transaction.  I would think, based on my observation of
10   the De Agostini/Lottomatica group and how they run
11   their business, it could be only characterized in my
12   judgment as a favorable transaction.
13                 CHAIR CLOWE:  Anything --
14                 COMMISSIONER COX:  No, sir.
15                 CHAIR CLOWE:  -- commissioner?  Mr.
16   Thompson, do you have comments for us, please?
17                 MR. THOMPSON:  Yes, commissioner.  I'm
18   Patrick Thompson.  I'm from the Austin firm of Graves,
19   Dougherty, Hearon & Moody.  Along with Rod Edens,
20   another attorney from our office, Debbie Ramirez,
21   assisted us in this matter, especially when it came to
22   familiarizing us with formerly unfamiliar matters such
23   as financial security laws in the country of Luxembourg
24   and SEC type filing requirements in Italy.
25                 I have practiced law in Austin for 24
0024
 1   years.  During that time period, my focus of my
 2   practice has been almost exclusively on the
 3   relationship between corporations and Texas state
 4   agencies.
 5                 On occasion, I represent the
 6   corporations.  On occasion, I've represented the
 7   agency.  And that's true in litigation, administrative
 8   matters and contract negotiations.
 9                 I incurred the -- my career started at
10   the Railroad Commission while I was still continuing my
11   education in Austin.  I was there for four years, left
12   as the adviser to the chairman and then spent 17 years
13   with Vinson & Elkins in the Austin office and this last
14   three years with Graves Dougherty continuing my
15   practice of administrative law.
16                 The -- I encouraged Graves Dougherty to
17   seek appointment to this position to assist the Lottery
18   Commission because -- primarily because of two prior
19   experiences I had being part of a legal team that
20   provided services to the Texas Lottery Commission.
21                 The first was when Commissioners Miers
22   and Sadberry and Hill voted to accept new proposals for
23   the lottery operator position, which resulted in the
24   lottery operator suing the Lottery Commission.  And I
25   represented the Lottery Commission in court.
0025
 1                 And the second was when the current
 2   contract with GTECH was drafted and negotiated, I was
 3   part of the team that drafted and negotiated that
 4   contract.
 5                 And so when this opportunity to be a part
 6   of continuing to provide services to the Lottery
 7   Commission on its relationship with the lottery
 8   operator, a very important relationship, I was very
 9   eager to be a part of the team.
10                 This process started back in January.
11   And as Rod indicated, the Lottomatica, De Agostini and
12   GTECH announced to the world on January 10th that this
13   acquisition was planned.
14                 The team that was assembled by the
15   Lottery Commission included, of course, your own legal
16   staff led by general counsel Kim Kiplin.  And then the
17   primary legal staff attorney on this matter was Andy
18   Marker who, among many other tasks in this case, acted
19   as our traffic director for the flow of enormous
20   amounts of information between the various other parts
21   of the team.
22                 And the team also included two attorneys
23   from the Attorney General's Office, Mr. Dave Mattax and
24   Mr. Gaston Broyles.
25                 Two absolutely invaluable members of the
0026
 1   team, as you will find out, are Lieutenant Mark Riordan
 2   and Sergeant Cliff Manning, who led the DPS
 3   investigative team which actually went to Italy and
 4   were responsible for collecting enormous volumes of
 5   information that were invaluable in the performance of
 6   this due diligence investigation.
 7                 The investigation began with the
 8   preparation of a very detailed request for information
 9   and like 19-page disclosure form, which was prepared
10   with the participation of DPS, the Attorney General's
11   Office, your legal staff and my firm.
12                 That request for information was sent to
13   GTECH I believe on February 10th and -- and asked for a
14   lot of information regarding financial issues, prior
15   litigation issues, disciplinary style actions involving
16   regulatory agencies, and other issues.
17                 The -- and then those -- the responses to
18   those questions led to other requests for information
19   and also to on-the-ground, live interviews by the DPS
20   investigators in Italy with many executives with
21   Lottomatica, De Agostini and owners of interest in the
22   De Agostini company.
23                 These days when you hire a private
24   investigative firm to perform an investigation, very
25   often what you will have to show at the end of it,
0027
 1   after you spend a great deal of money, is a room full
 2   of three-ring binders full of documents downloaded from
 3   the Internet.
 4                 And I don't mean to discredit the
 5   usefulness of the Internet as a tool.  This
 6   investigation was different.  That was for a large
 7   number of reasons, most importantly the DPS's standard
 8   method of operation.  I was very happy to see that.
 9                 A few years ago, I was asked by a partner
10   to review a memo that was prepared by a first-year
11   associate regarding the acquisition by a pipeline
12   company of a number of assets.
13                 And the associate had written in the memo
14   that, though they had been informed at the beginning
15   that a Railroad Commission form called the T-4 would be
16   significant, they couldn't find a T-4 on the Internet.
17   So they assumed that the person meant P-4 and a blank
18   P-4 was attached to the memo.
19                 The associate was dead wrong.  As you
20   know, commissioner, the form T-4 is extremely important
21   to any company involved in operation of pipelines in
22   Texas.  And after that, I try to make a point in
23   dealing with first-year associates to impress upon them
24   that the fact that you can't find something on the
25   Internet doesn't mean that it doesn't exist and it
0028
 1   certainly doesn't mean that it's unimportant.
 2                 This investigation was done with full
 3   knowledge of that.  The DPS investors here certainly
 4   know how to use the Internet and how to use it as a
 5   tool.  But they did not rely on it exclusively for the
 6   performance of their task.
 7                 The DPS enter -- the DPS investigators
 8   conducted face-to-face interviews.  They made
 9   unannounced visits.  They dogged lawyers and executives
10   for months for documents and information.
11                 They required lawyers to leave the room
12   during interviews.  They reviewed voluminous records in
13   English and, with the assistance of translators, in
14   Italian.  They built relationships and they built
15   trust.
16                 The individuals that they interviewed
17   were identified to us through the process of the
18   response for information.  And the position that we
19   took is that, if an individual was identified in
20   response to a question, such as identify all of the
21   owners of interest in the De Agostini group or identify
22   all executives of the GTECH Corporation and owners of
23   three percent or more of the publicly-traded stock,
24   then that person went on a list of people who then had
25   to be interviewed and investigated by the DPS.
0029
 1                 Compliance by the three companies was
 2   very good.  De Agostini and Lottomatica were very
 3   forthcoming.
 4                 Among the red flags that you might look
 5   for in investigation of this type would be large gaps
 6   or significant gaps in the documentary information or
 7   refusals by the respondents to comply with what would
 8   appear to be reasonable requests.  We did not encounter
 9   either of those.
10                 There were some areas where we had to
11   negotiate with the companies in order to obtain the
12   information that we thought was necessary to complete
13   our investigation.
14                 But in each of those areas, it was clear
15   that the company was operating from the standpoint that
16   the original request was extremely burdensome and
17   perhaps not ultimately beneficial rather than because
18   of any apparent attempt to conceal information.
19                 One example would be that one of our
20   requests apparently would have generated over 10
21   thousand documents.  And the company made a reasonable
22   proposal to select those documents which would most
23   likely be pertinent and relevant to our investigation
24   and promptly provided those.
25                 De Agostini and Lottomatica were very
0030
 1   forthcoming even on issues that would not reflect
 2   favorably on the company, and there were very few of
 3   those.
 4                 The most significant was a finding by the
 5   Italian antitrust regulator that certain activities and
 6   behavior by Lottomatica and certain agreements that
 7   Lottomatica had with a competitor in Italy constituted
 8   violations of Italian antitrust regulations.
 9                 Lieutenant Riordan may discuss that event
10   in greater detail.  But Lottomatica and De Agostini
11   were very forthcoming in addressing our questions about
12   the event.  And we're satisfied that they made no
13   effort to hide any facts from us with respect to what
14   transpired and the issues that were involved.
15                 Even with this degree of cooperation,
16   however, there are some disadvantages that the proposed
17   transaction will create for you, as a customer of
18   GTECH.  Those disadvantages are primarily the result of
19   three facts.
20                 The first is that the owner of the
21   lottery operator will no longer a U.S. publicly-traded
22   corporation.  The second is that up to 25 percent of
23   the lottery operator will be owned by a Luxembourg
24   company.  And the third is that the owner of the
25   lottery operator will be a company that operates
0031
 1   primarily in a foreign language.
 2                 With respect to the first of those, you
 3   presently deal with a company that is traded on the New
 4   York Stock Exchange.  As such, it is subject to SEC
 5   regulations and filing requirements.
 6                 And that provides you with a wealth of
 7   information regarding structure, ownership and the
 8   liabilities and the activities of that company.  This
 9   will end when this transaction is completed and GTECH
10   will be delisted from the New York Stock Exchange.  You
11   will no -- they will no longer be required to make
12   regular filings with the SEC.
13                 GTECH's new owner, Lottomatica, is traded
14   on the Milan Stock Exchange and it is subject to
15   regulation by CONSOB, the Italian Securities Exchange
16   Commission.  CONSOB has a number of reporting
17   requirements that are similar to U.S. SEC requirements.
18   And those will, we understand, be available to you in
19   English.
20                 Secondly, as Rod explained, up to 25
21   percent of the company will be owned by or pass through
22   a Luxembourg company, Invest Games.  In addition to
23   distinguishing itself by virtue of having very, very
24   favorable tax treatment laws for capital gains,
25   Luxembourg distinguishes itself as a company (sic) with
0032
 1   very strict privacy laws for financial information.
 2                 And so having a portion of the lottery
 3   operator owned by or passing through a Luxembourg
 4   corporation creates special issues with respect to your
 5   ability to track ownership of the company.
 6                 And finally, Lottomatica and De Agostini
 7   are Italian entities.  They conduct their business
 8   primarily in Italian.  And while many of their
 9   corporate documents are routinely produced in both
10   Italian and English, the versions that are legally
11   controlling and binding on Lottomatica are, of course,
12   the versions in Italian.
13                 Your ability to audit, investigate and
14   monitor the lottery operator and its owners will be
15   affected by this language issue.  And translation
16   services of the caliber necessary to conduct audits and
17   conduct investigations will be expensive.
18                 Now taking all this into consideration,
19   your contract with GTECH does give you very broad
20   rights of access to information about GTECH and its
21   owners.
22                 We, as your outside counsel, the Attorney
23   General's office and your legal staff, believe that
24   those contractual rights can be exercised to address
25   and largely overcome these disadvantages that I just
0033
 1   described.  Mr. Mattax from the Attorney General's
 2   Office is going to discuss that in greater detail.
 3                 Lastly, I'd like to point out that this
 4   investigation was conducted with full awareness of the
 5   fact that there are many individuals who hold a lot of
 6   preconceived notions and prejudices about Italian
 7   businesses.
 8                 But unlike the authors of popular
 9   fiction, our job is to inform you, not to entertain you
10   and -- and certainly not to entertain ourselves.  And I
11   can assure you that, when Sergeant Manning was slogging
12   through day after day and hour after hour of reviewing
13   corporate minutes and executive committee minutes with
14   a translator, he was not entertained.
15                 For anyone who still puts stock in those
16   old prejudices and preconceived notions about Italian
17   businesses, I would encourage them to take a look, a
18   hard look, at what has been going on in Europe over the
19   last five to 10 years.
20                 They should look at the level of
21   transparency required by the European Economic Union
22   for participation by businesses and institutions, a
23   level of transparency that some business analysts will
24   tell you is equal to or greater than that required in
25   the United States.
0034
 1                 And they should look at how Italian
 2   businesses and institutions have embraced those
 3   requirements and have been accepted as part of the
 4   European Economic Union.
 5                 Lastly, if anyone doubts that we're
 6   currently operating in a global economy, they probably
 7   should have been on the plane when six Texas Department
 8   of Public Safety officers headed off to Milan and Rome,
 9   Italy to get acquainted with the prospective new owners
10   of the Texas lottery operator.
11                 And I should close by telling you that
12   they did an amazing job.  At the beginning of this
13   task, it was apparent that the DPS investigators were a
14   little out of their element as we talked about reverse
15   mergers and earnings before interest, taxes,
16   depreciation and amortization.
17                 But within hours of hitting the ground in
18   Italy, they quickly became the go-to guys for
19   everything that we needed to know.  If you wanted to
20   know what happened to the executive stock options after
21   the closing, you call Mark.
22                 If you want to know who was going to be
23   included on the board of directors once De Agostini
24   underwent its reorganization, call Mark.  They did
25   frankly an amazing job of, in a very short amount of
0035
 1   time, very quickly familiarizing themselves with, not
 2   only the framework within which these companies
 3   operate, but the people who actually operate them.
 4                 They actually now have personal
 5   relationships with a number of the people who are
 6   associated with De Agostini.  Their investigation is
 7   the critical heart of this overall investigation and I
 8   think one that should give you confidence that the job
 9   was well done.
10                 I frankly wish that I had Sergeant
11   Manning and Lieutenant Riordan available to me whenever
12   I needed to perform an investigation, but I guess
13   that's a privilege that's only afforded to the state
14   agencies.
15                 With that, I think that we're going to
16   now pass this over to Lieutenant Riordan and Cliff
17   Manning.  And they're going to explain to you the
18   investigation that they performed, unless you have
19   questions for me.
20                 CHAIR CLOWE:  Please.  Thank you, Mr.
21   Thompson.
22                 COMMISSIONER COX:  Patrick, excellent
23   report and thank you very much.  I had a couple of
24   things that I'm not sure I heard clearly.
25                 First, let me ask.  You said you -- said
0036
 1   you requested large amounts of information.  Was there
 2   any significant information that any of the companies
 3   could not or would not produce?
 4                 MR. THOMPSON:  Sir, on a regular basis, I
 5   kept a thing called the -- going called the exception
 6   report because, as you can guess given the large volume
 7   of information that we asked for, it didn't all come in
 8   at once.
 9                 And what we would get is regular reports.
10   There's an attorney named Jeremy Kleinman, who was
11   acting as the U.S. legal representative for De Agostini
12   and Lottomatica.  Mr. Kleinman kept us informed as to
13   what documents could be promptly produced and which
14   ones were forthcoming.
15                 And then Denise Ogilvie with GTECH
16   Corporation was the representative keeping us informed
17   about what they would provide.  We did get a little bit
18   of push back on some documents.
19                 The -- probably the two most significant
20   areas that lasted all the way to the conclusion of the
21   investigation had to do with access to certain
22   individuals who are owners of significant interest in
23   De Agostini and the issue of corporate minutes.
24                 I believe we're on the verge of
25   successfully resolving the issue with respect to the
0037
 1   corporate minutes.  There again, we did not get any
 2   impression that there was any effort to withhold
 3   minutes for the purposes of concealing information.
 4                 In fact, there the issue was primarily
 5   one of the sensitivity of the information contained in
 6   some of the corporate minutes.  Both De Agostini and
 7   GTECH operate at a level where some very large and
 8   significant financial transactions are discussed by
 9   their board members.
10                 And so a great deal of negotiation had to
11   take place with respect to the way that we could access
12   those minutes and whether we would end up with copies
13   of those minutes.  We also had to deal with the
14   translation issue.
15                 I can tell that with -- we did get access
16   to a significant volume of corporate minutes with
17   respect to the GTECH Corporation.  Those dealt
18   primarily with issues involving the acquisition of
19   stock or the trading of stock.
20                 The -- and with respect to Lottomatica,
21   we received the minutes, though in Italian.  And that
22   presented a challenge.  But -- but we made our way
23   through it.
24                 And with respect to De Agostini, where
25   things stand today is that the -- certain minutes were
0038
 1   produced to the DPS investigator for his review and
 2   summary.  And I have reviewed those summaries.
 3                 There were executive sessions for which
 4   the minutes were not included in the report.  If they
 5   were kept, they were not included in the report
 6   provided to our DPS investigator.  And my understanding
 7   today is that Mr. Kleinman is working and will very
 8   shortly have available to us descriptions of the events
 9   discussed in those executive committee meetings that
10   will assist us in evaluating whether the reasons for
11   not producing them was justified.
12                 So De Agostini and Lottomatica continue
13   to be forthcoming with respect to how we can resolve
14   the issue of information that may be too sensitive to
15   make a public record and still adequately perform our
16   investigation.
17                 With respect to the access to the
18   individuals, as Rod indicated, the De Agostini group is
19   actually a group of family members, essentially the
20   Drago family members and the Boroli family members.
21   They are cousins, I believe.
22                 And they are very dramatically divided,
23   in terms of those family members who have been actively
24   involved in running the corporation and those who have
25   not.  And as Rod explained, that relationship is going
0039
 1   to be formalized with the creation of B&D Holdings and
 2   the creation of a system of limited shareholders.
 3                 The way we wrote our original request for
 4   information required the respondents to identify anyone
 5   who owns any interest in De Agostini.  We made a
 6   distinction between publicly-traded corporations and
 7   private corporations.
 8                 With respect to a publicly-traded
 9   corporation like Lottomatica or GTECH, only directors,
10   officers and persons who own three percent or more of
11   the stock were required to be identified and were then
12   subject to investigation by the DPS.
13                 With respect to the one public --
14   privately-held company of the group De Agostini, we
15   asked that all owners of any interest be identified.
16   That caused those persons to automatically go on to a
17   list that we required to produce disclosure forms and
18   were subject to investigation.
19                 The position of the De Agostini group was
20   that a number of those individuals, because they have
21   -- they are not actively involved in the company, have
22   not actively been involved in the company and in the
23   future will actually, in fact, be legally constrained
24   so that they cannot be involved in corporate governance
25   issues, that those persons should not be subject to
0040
 1   investigation.
 2                 One of the issues that we had to consider
 3   there was whether a logical explanation was being given
 4   to us for why those persons would not be subject to
 5   full investigation by the DPS or whether there was, for
 6   some reason, an effort to hide information from the
 7   lottery.
 8                 My conclusion is that the explanations
 9   offered were logical and were made in good faith and
10   that the compromise is a -- is a solid one that was
11   reached between the investigative team and De Agostini
12   on that issue.
13                 The representations made by De Agostini
14   regarding the participation of those family members
15   were independently verified by a number of other
16   records.  The De Agostini group is being forthcoming
17   and direct with the Lottery Commission when they
18   represent that a number of the individuals who hold an
19   interest, maybe even a significant interest in De
20   Agostini, do not participate in the daily affairs of
21   the company.
22                 So those are the two issues where we
23   received some push back.  I am not concerned about
24   them.  You -- Lieutenant Riordan was more directly
25   involved in the negotiations about what would be
0041
 1   produced and what wouldn't and what we would do in lieu
 2   of the information that we sought.
 3                 But -- and he can express his opinion on
 4   how he feels about it.  But I am not concerned that
 5   what occurred was actually a conscious effort to
 6   conceal relevant information.
 7                 COMMISSIONER COX:  So I hear you say it's
 8   not a conscious effort.  Notwithstanding it not being
 9   conscious, do you think that the things that you did
10   not receive significantly affected the scope of your
11   work?
12                 MR. THOMPSON:  To be honest with you,
13   sir, at the beginning, I did.  And -- but that's not
14   the conclusion that I hold today.
15                 When I first heard that many of the
16   people who own an interest in De Agostini, in fact,
17   some people who owned a significant interest, were not
18   going to be subject to our full investigation, I was
19   very concerned.
20                 And -- but at that time, I guess I was
21   more suspicious and thought that what could be
22   motivating that would be a desire to just, you know,
23   prevent the Lottery Commission from finding out things
24   about those people that De Agostini did not want the
25   Lottery Commission to know.
0042
 1                 I haven't found anything that backed up
 2   that suspicion.  And the representation by the
 3   representatives of De Agostini regarding the way the
 4   company works, as I said, have been independently
 5   verified by other documents and other sources.
 6                 So no, I don't -- I don't believe that
 7   what happened has compromised this investigation from
 8   the standpoint of determining whether the transaction
 9   is unduly harmful to the Lottery Commission or whether
10   the new owners of the lottery operator will be
11   unsuitable.
12                 I don't believe that those compromises
13   with respect to the access to information have
14   significantly negatively affected our ability to
15   perform our evaluation.
16                 COMMISSIONER COX:  I heard you say at one
17   point that the three companies had been cooperative.
18   And then after that, I heard you specifically say De
19   Agostini and Lottomatica were very cooperative.
20                 Would it be fair to read into that that
21   GTECH was not always so cooperative?
22                 MR. THOMPSON:  Sir, that -- that -- that
23   was very observant of you and that was intentional on
24   my part.
25                 But the reason that I worded it that way
0043
 1   is that today I think that the various parts of or
 2   members of your team can tell you confidently that they
 3   have basically concluded their reviews of De Agostini
 4   and Lottomatica but not of GTECH.
 5                 And so the reason for the hold back there
 6   was just that I don't believe that the -- we regard the
 7   review of GTECH as being complete.  From my standpoint,
 8   the volume of documents produced by GTECH was
 9   considerable.
10                 It's a very large company with a number
11   of dealings around the world.  And not surprisingly,
12   our request for information generated a very large
13   volume of documents.  And the DPS investigators, I
14   believe, still have some interviews and investigations
15   left to perform with respect to GTECH.
16                 So the reason that I did not specifically
17   address GTECH in that comment is that the report is not
18   done and I cannot -- well, I can tell you today that we
19   have received very good cooperation with respect to
20   producing information, including large volumes of
21   information.
22                 I'm not yet able to evaluate the total
23   performance of GTECH in response to our investigation.
24                 COMMISSIONER COX:  And finally, with
25   respect to your expression of concern about the
0044
 1   25-percent ownership of the Luxembourg corporation, are
 2   you or is the Attorney General going to address how we
 3   deal with that?
 4                 MR. THOMPSON:  Yes, sir.  And -- and my
 5   understanding is that Lottomatica has already made
 6   certain commitments with respect to a way to address
 7   that.  If, in fact, those commitments are made and
 8   upheld, I believe that they would be very effective in
 9   overcoming the issues that I identified with respect to
10   Luxembourg.
11                 In Luxembourg, my understanding is that
12   issues of stock can be -- can be issued in bare form,
13   which is among the many laws in Luxembourg that might
14   make it difficult to track ownership of a company by
15   the traditional means.
16                 However, as I stated, you have very broad
17   rights under your contract with GTECH to access to
18   information regarding, not only GTECH, but its owners.
19   And we believe that you can exercise those contractual
20   rights to overcome the problems created by the
21   corporation in Luxembourg of the owner of a portion of
22   GTECH stock.
23                 COMMISSIONER COX:  Thank you, Mr.
24   Chairman.
25                 CHAIR CLOWE:  Thank you for those
0045
 1   answers, Mr. Thompson.  They were good questions and
 2   very complete answers.
 3                 And I would ask you the same question I
 4   asked Mr. Edens if, in your opinion, at this point
 5   based on the work that you've done in this
 6   investigation, you have found anything that in your
 7   mind takes this proposed transaction to a level of
 8   being unsuitable or unfit.
 9                 MR. THOMPSON:  No, sir.  I didn't find
10   anything of that sort.
11                 CHAIR CLOWE:  You have, as individuals
12   and as representatives of your law firm, been engaged
13   in this activity as employees of the Attorney General.
14   Your firm has been employed with the Attorney General.
15                 You've had numerous meetings with I'm
16   sure a great many people.  In this process, has anyone
17   inside or outside of the Lottery Commission, including
18   the commissioners, approached you and in any way
19   attempted to influence your investigation and the
20   outcome, your resulting report?
21                 MR. THOMPSON:  No, sir.  Commissioner,
22   I'm very happy to report that nothing like --
23   absolutely nothing like that ever happened.  No one has
24   ever approached me during this process with any attempt
25   I think to improperly influence me.
0046
 1                 Everyone was very helpful with
 2   information.  And no one that I spoke to ever appeared
 3   to be -- to have an agenda or a direction in which they
 4   were trying to push my firm or our conclusions.
 5                 CHAIR CLOWE:  Mr. Edens, your answer
 6   would be the same?
 7                 MR. EDENS:  Yes, it is.  And I'll also
 8   add that the commissioners have urged us to make a very
 9   thorough investigation and perform a very thorough due
10   diligence in connection with this acquisition.  We have
11   tried to do that job.
12                 CHAIR CLOWE:  Mr. Mattax, I'd like to
13   talk to you for a moment about this law firm.  Each of
14   these gentlemen have qualified themselves as experts,
15   whether they wanted to be known by that title or not.
16                 How did we come to choose this law firm?
17                 MR. MATTAX:  Thank you.  Let me introduce
18   myself.  My name is David Mattax.  I'm chief of the
19   Financial Litigation Division of the Office of the
20   Attorney General.  I've been chief of that division for
21   about nine years.  I've been with the Attorney General
22   since 1992.
23                 Prior to that, I was in private practice
24   with a law firm called Hunt and William engaged in
25   corporation litigation, including litigation involving
0047
 1   nuclear power plants.
 2                 I'm the attorney for the Lottery
 3   Commission.  My division is assigned to represent the
 4   Lottery Commission.  And let me tell you the approach I
 5   took in this investigation prior and then I'll get to
 6   directly answering your question.
 7                 I felt my role would be to be the lawyer
 8   for the Lottery Commission and to provide advice to the
 9   commission with respect to this transaction.
10                 However, I took it upon myself to also
11   operate in a different role.  And that would be more of
12   a role sort of as a, if you will, supervisory role and
13   just sort of looking over all the transaction to see if
14   I thought things were being organized or if anything
15   additional could be done to make sure that we had the
16   proper resources and the proper investigations going
17   on.
18                 And I concluded that we, in fact, did.
19   One of the things that the Attorney General decided was
20   -- when this transaction first started, was that it
21   would be appropriate to get experience in mergers and
22   acquisitions.
23                 Although my division does do financial
24   litigation, something of this magnitude we thought it
25   would be appropriate to go hire an outside counsel to
0048
 1   look at the transaction from a mergers and acquisitions
 2   standpoint.
 3                 And as you heard today, the attorneys
 4   involved in this investigation from Graves Dougherty
 5   are, in fact, experts in mergers and acquisitions.
 6                 Therefore, we discussed with the Lottery
 7   Commission, with the executive director, hiring an
 8   outside counsel to do that.  And the commission
 9   actually was the person who did hire them.  They were
10   approved by the Attorney General, but the commission
11   did hire them.
12                 And that's how that -- that came about.
13   And so I think that, as you can tell from the
14   thoroughness of the report, they've been able to
15   analyze the transaction, basically concluded it's not
16   an unusual transaction.  The market seems to think it's
17   sound.  And that's basically how they became involved.
18                 CHAIR CLOWE:  So in your opinion, they
19   were the right firm and had the right individuals with
20   the right experience and the right knowledge to do the
21   job that they've done.
22                 MR. MATTAX:  Yes, I believe that's true.
23                 CHAIR CLOWE:  And I believe it was your
24   additional task to oversight their billings and
25   oversight the payment of monies to them.
0049
 1                 MR. MATTAX:  That's correct.
 2                 CHAIR CLOWE:  And at this point in time,
 3   approximately how much money have they billed for their
 4   services?
 5                 MR. MATTAX:  I don't have that figure
 6   with me right now, but I can certainly provide that to
 7   the commission.
 8                 CHAIR CLOWE:  At some point in time in
 9   the future, I'd like to make that part of this public
10   record.
11                 MR. MATTAX:  Correct.  And to follow up,
12   my reviews of the billing showed nothing that I found
13   to be unusual.  I thought that they were very
14   reasonable.  I don't have any issues with their
15   billings.
16                 CHAIR CLOWE:  Well, just to have it all
17   in the open, because someone will ask sooner or later.
18                 MR. MATTAX:  And I should note, again, I
19   think it was mentioned that, as part of this
20   investigation, we made it clear to GTECH that they
21   would be paying for it.
22                 And so we are being reimbursed or the
23   Lottery Commission is being reimbursed for this money.
24   So our -- and I am, in fact, paying those bills as if
25   we were paying them ourselves and making sure they are
0050
 1   accurate and reasonable.
 2                 But ultimately, GTECH is reimbursing the
 3   commission for those funds.
 4                 CHAIR CLOWE:  Well, I'd like for you to
 5   expand on that.  How did that funding come about?
 6                 MR. MATTAX:  Well, when this
 7   investigation started, the Lottery Commission
 8   approached GTECH and explained that, since this was
 9   something that we had to do with respect to getting the
10   transaction, doing a suitability review, that this
11   would obviously encompass some expense but it should
12   not be an expense borne by the taxpayers of Texas.
13                 This was something that GTECH wanted to
14   do and Lottomatica wanted to do.  And therefore, it
15   was, in our view, incumbent upon GTECH to fund the
16   suitability review that we would be required to
17   perform.  And GTECH, in fact, agreed to do that.
18                 And what has happened is they have placed
19   money with the Lottery Commission to be used for this
20   investigation.  And that would be to reimburse the
21   expenses of and the cost of the Department of Public
22   Safety, as well.
23                 And then, as -- as we get bills in, then
24   we submit those to GTECH.  And then they replenish that
25   fund.  So we continue to have that money there.
0051
 1                 And there has not been an issue with
 2   respect to that.  GTECH certainly understands that we
 3   have to do the suitability review for this contract to
 4   continue.  And they've been willing to pay to get that
 5   done.
 6                 But I should make it very clear that they
 7   have no control whatsoever.  The fact that they are
 8   providing the money is for -- is in the nature of
 9   reimbursement.  In other words, they're not directly
10   paying anyone's bills.
11                 They're simply reimbursing the commission
12   for that fund.  GTECH has absolutely zero control over
13   anything that anyone has done here.  This has been a
14   completely independent investigation.
15                 CHAIR CLOWE:  I appreciate the abundance
16   of information regarding that.  And my understanding --
17   and you correct me if I'm wrong -- is, if this is GTECH
18   and Lottomatica's deal, it's their cost.
19                 And we would not allow the taxpayers of
20   Texas to pay for the expertise that was needed to be
21   brought to bear in the outside counsel and the
22   Department of Public Safety.  So you have monitored the
23   expenses and controlled that aspect of it.  But the
24   state of Texas has not paid any monies.
25                 MR. MATTAX:  That's correct.  And we will
0052
 1   be reimbursed for any expenses.
 2                 CHAIR CLOWE:  Further, Mr. Thompson, you
 3   stated that you had worked for the Lottery Commission,
 4   your firm had, at times in the past.
 5                 MR. THOMPSON:  Yes, sir.
 6                 CHAIR CLOWE:  And I want to state for the
 7   record -- and Commissioner Cox, you'll remember this --
 8   that, at a point in time, I was employed by the State
 9   Bar of Texas.  And I sought legal counsel at that time
10   to ascertain if, in fact, my employment by the State
11   Bar, while I was serving as a commissioner, in any way
12   constituted a conflict of interest.
13                 And legal counsel gave me legal advice
14   that that was not a conflict.  At that point in time, I
15   think it was late 2003 or early 2004, I engaged your
16   firm to represent me in those employment negotiations.
17                 I was employed as a management adviser.
18   And you did, for a period of time -- to my knowledge,
19   you were not representing the Lottery Commission on
20   other matters at that time and there was no conflict
21   between my sitting as a commissioner and your
22   representation of me, as an individual, going into
23   employment of the State Bar of Texas.
24                 Further, we concluded that employment
25   arrangement.  You billed me.  I paid you in full.  And
0053
 1   that relationship came to an end.
 2                 MR. THOMPSON:  Yes, sir.
 3                 CHAIR CLOWE:  And that relationship that
 4   we had as attorney/client has in no way entered into
 5   any other relationship between your firm and myself,
 6   either in my public or my private position.
 7                 MR. THOMPSON:  No, sir.  That -- all of
 8   that is correct.  I was -- I was personally involved in
 9   that matter because of the experience that I had had
10   before negotiating contracts between private
11   individuals or corporations and governmental agencies
12   and the experience dealing with some conflict issues
13   involving state agencies.
14                 You're correct that that representation
15   did precede this.  It did not occur simultaneous with
16   any representation of the Lottery.  In each instance
17   where I have represented the Lottery, it was pursuant
18   to a contract that was entered into between the Lottery
19   Commission and my firm.
20                 The two occasions before were Vinson &
21   Elkins.  This time it's Graves, Dougherty, Hearon &
22   Moody.  The way -- Mr. Mattax didn't mention this
23   detail.
24                 But the way that process worked is that
25   we learned that the Lottery Commission was seeking
0054
 1   proposals from outside -- from firms to provide legal
 2   counsel in these areas.  In each of those instances, my
 3   firm submitted a proposal.
 4                 It's not exactly a competitive bidding
 5   process because it's a contract for professional
 6   services.  And the cost information was submitted
 7   separate from the information regarding the
 8   qualifications of the firm.
 9                 I don't know how many different law firms
10   submitted proposals this time around, but I do know
11   that we were in competition with other firms.  I also
12   understand that you were not involved, commissioner, in
13   the selection of the successful bidder in that process.
14                 After we were notified by the Lottery
15   Commission that we had presented the proposal with the
16   best set of qualifications, the Lottery Commission
17   started negotiating with us on price.  And the Lottery
18   Commission, as usual, came to discounted rate.
19                 And -- and so that is the means by which
20   I'm here today and by which Graves Dougherty is
21   providing outside legal services to you today.
22                 CHAIR CLOWE:  Very good.  Any questions,
23   Commissioner Cox?
24                 COMMISSIONER COX:  No, sir.
25                 CHAIR CLOWE:  Anything further from you
0055
 1   gentlemen at this point in time?
 2                 MR. EDENS:  No.
 3                 CHAIR CLOWE:  Thank you both very much.
 4   Let's take a short five-minutes recess, if we may.  And
 5   then we'll ask the lieutenant and sergeant with the
 6   Department of Public Safety to come forward.
 7                 (Recess from 10:08 a.m. to 10:16 a.m.)
 8                 CHAIR CLOWE:  We'll come back to order.
 9   Gentlemen, we're happy to have you here with us this
10   morning and we look forward to your report.  I see by
11   your identification that you are both commissioned
12   police officers.
13                 And lieutenant, I believe -- will you
14   lead off and give us your background and history,
15   please?
16                 MR. RIORDAN:  Yes, sir.  Thank you for
17   allowing us to come before you this morning.  My name
18   is Mark Riordan.  I'm a lieutenant with the Department
19   of Public Safety Criminal Intelligence Service.  I've
20   been employed by the department some 31 years.  I'm an
21   Austin native Houston resident.
22                 MR. MANNING:  Cliff Manning.  I'm a
23   sergeant with the DPS Criminal Intelligence Service.
24   I've been so employed for over 12 years, stationed in
25   Houston.  And I'm not a Houstonian.
0056
 1                 MR. RIORDAN:  I do have a written version
 2   of our summary that we're going give you this morning
 3   that I would like to pass on to you.  I won't be
 4   reading from it.  We'll be referring to it, however.
 5                 The -- my new Dell Computer crashed on
 6   Monday.  And Sergeant Johnnie Jezierski spent all day
 7   yesterday getting this ready for me today.  I want to
 8   thank him for that.
 9                 The Department of Public Safety began
10   this -- this background investigation, this
11   administrative investigation in late January at the
12   request of the Lottery Commission.
13                 And we have historically had the task of
14   doing background investigations for state -- state
15   agencies, for governor appointments, for our own
16   agency, for other agencies that are highly regulated,
17   such as the Racing Commission.
18                 And we have -- my agency or my service,
19   actually, the Criminal Intelligence Service, has been
20   the go-to agency for those criminal -- those
21   administrative background investigations.  And we've
22   done many, many, many over the years both on
23   individuals and on corporations, brand new corporations
24   and long-term, existing corporations.
25                 And so we have that experience locally
0057
 1   and are perfectly comfortable doing these.  We do them
 2   all the time.
 3                 However, it was true what Patrick said
 4   and that was, at the beginning of this assignment, it
 5   was a huge, daunting task because, with only a very few
 6   exceptions, we have not done anything such -- in such a
 7   global nature.  We have not done anything of such size.
 8                 And we, in fact, were tasked with doing
 9   this on, not only Lottomatica, but also its parent
10   company, De Agostini, the other company, Invest Games,
11   that you heard about, and GTECH.  And so it has been
12   and continues to be a huge task.
13                 But through the expertise of Patrick's
14   group, through the expertise of Ms. Kiplin and her
15   office, of David Mattax with the Attorney General's
16   Office, who have all made this task much easier and
17   also through the expertise of five of the best
18   investigators my department has to offer, we've done
19   you an excellent job.
20                 And I'm happy to say that most of them
21   are in the audience today behind me to stand behind
22   this interim report.
23                 As I said, we began this task in late
24   January in addition to our normal organized crime
25   investigations, counterterrorism investigations.  This
0058
 1   has not been a full-time assignment for most of the
 2   investigators.
 3                 Initially and -- initially, myself -- I
 4   was brought on board to begin the process.  But as I
 5   said, we assigned five of the best investigators my
 6   agency has to offer.
 7                 Sergeant Cliff Manning, who works with me
 8   in Houston was assigned as our case agent.  Sergeant
 9   Johnnie Jezierski also is in Houston, Sergeant David
10   Jones of San Angelo, Sergeant Mark Leger in Beaumont,
11   Sergeant Carlton Scott in Austin, and then Jennifer
12   Miears, our crime analyst in Houston, and Rita Monk, my
13   administrative assistant in Houston.
14                 All are tops in their games, tops in
15   their field and the best we have to offer, a combined
16   investigative and law enforcement experience of some
17   145 years.  And so we put together a quality team.
18                 Since the end of January, we have -- as a
19   team, we have covered some 2,700 hours of time spent on
20   this investigation.  And we began by calling every
21   state in the United States that GTECH has a contract
22   with and many of the foreign countries.
23                 And we developed early reputation -- not
24   reputation but relationships with state police
25   investigators and with other lottery investigators in
0059
 1   these other states.  And those relationships continue
 2   to this day.
 3                 And we -- we knew early on, even though
 4   we were tasked with doing this independently, that we
 5   had a huge task ahead of us.  But we also knew early on
 6   we were going to need some advice, some assistance from
 7   people all over the United States and now, in fact, all
 8   over the world.
 9                 And I'm happy to tell you that we -- we
10   are continuing to work with many, many of those
11   investigators, state police investigators, to provide
12   you the very best -- very best that you've asked for.
13                 In addition to state -- state police
14   agents and lottery investigators in the United States,
15   we've also made contact with and worked with federal
16   investigators here.  We've made contact with foreign
17   diplomats, with law enforcement in many foreign
18   countries, with business people in foreign countries
19   that are not related in any way, shape or form to the
20   gaming industry.
21                 And, again, we continue those
22   relationships.  And those people have been invaluable
23   in this investigation.
24                 We have traveled extensively.  We sent
25   four investigators to Milan, Italy in that area to
0060
 1   investigate De Agostini.  Also, the majority of the
 2   board members of Lottomatica live in and around and
 3   work in and around Milan.
 4                 We sent two investigators to Rome.
 5   Myself and Sergeant Jezierski went to Rome and
 6   interviewed and practically lived at Lottomatica for
 7   several days but also interviewed many government
 8   officials in Italy, as well as our Milan team, many
 9   foreign diplomats, American diplomats at the American
10   embassies and business people in Italy and elsewhere.
11                 We have traveled in the United States to,
12   of course, Rhode Island and Massachusetts, New York,
13   Pennsylvania, Minnesota, Nevada, and many other states
14   in the Northeast and the Midwest in the furtherance of
15   this investigation.
16                 And as our investigation continues,
17   particularly in concluding our look at GTECH, we have
18   more travel ahead of us and are prepared to do it.
19                 I think it would be safe to say that, up
20   until now in the past few months, we've interviewed
21   hundreds of people in the furtherance of this
22   investigation worldwide.  As I said, however, we are
23   continuing.
24                 We're here today to provide you with
25   information on Lottomatica and on De Agostini and
0061
 1   Invest Games that we were tasked to do which, in the
 2   initial meetings, was the character and ethics of the
 3   companies involved and of the people involved.
 4                 And we are continuing an investigation of
 5   GTECH.  And we'll be very happy to provide that report
 6   in the future to you.
 7                 An interesting dynamic today because,
 8   while I have rehearsed this -- this statement today and
 9   this presentation, I brought Sergeant Manning to sit
10   next to me, who has not rehearsed it and who is fresh
11   and is much more apolitical and will be available to
12   answer your questions.  And perhaps questions you
13   haven't even heard of, he knows the answer to, haven't
14   even thought of.
15                 But anyway, I intend to give a summary
16   and then we'll both be available for questioning.  And
17   as I said, my -- most of my team is in the audience.
18   So I'm sure they'll be ready to step up to the plate.
19                 CHAIR CLOWE:  Would you point them out to
20   us, please?
21                 MR. RIORDAN:  Yes, sir.  I sure will.
22   Sergeant David Jones from San Angelo, Rita Monk, my
23   administrative assistant, and Sergeant Johnnie
24   Jezierski.
25                 CHAIR CLOWE:  Very good.  Thank you all
0062
 1   for being here.
 2                 MR. RIORDAN:  The -- we begin by
 3   explaining or giving you information on De Agostini.
 4   And before I start, I have to say that we -- we -- a
 5   lot of what we do is in trying to piece together
 6   information.
 7                 And some of the things that we find
 8   important are not -- are what is not said, what's not
 9   provided, in other words, what's kept from us.  Some of
10   the things we find important also is what's told or
11   found by one group.  And we compare and contrast that
12   to what we find out.
13                 And so we have kept somewhat separate
14   from Patrick and Rod, who just gave their presentation,
15   on purpose.  Even though we worked with them, we needed
16   information from them, they needed information from us,
17   we specifically did not really work closely together
18   because, frankly, I wanted to see what they were
19   getting and contrast that to what we were getting.
20                 And I have to tell you before I start
21   that -- that their presentation looked good to me.  And
22   I didn't see anything that we didn't also learn and
23   aren't able to confirm.  So good job.
24                 However, the interesting dynamic in this
25   is that they are looking at the business transaction
0063
 1   and the very specific, minute details of the money
 2   transactions.
 3                 And we really didn't concern ourselves
 4   with that at all because our concern was what we
 5   were -- is what we were tasked for, and that is the
 6   ethics and character of the company and the people
 7   involved, the history, which you can find a lot about
 8   ethics and character in the history.
 9                 We looked at those transactions as far as
10   not necessarily how they're being made, but who is
11   making them and who is behind them.  And so that's
12   the -- that's the dynamic that we bring to the table to
13   this -- of this administrative look.
14                 And so I'd like to start with De
15   Agostini.  And the reason we start with De Agostini is
16   because, even though the news media has -- has referred
17   to this as a reverse merger where the small company,
18   Lottomatica, buys the large company, GTECH, in fact, in
19   the -- in the -- when you're talking about the
20   financial foundation of this transaction, this is a De
21   Agostini transaction.
22                 De Agostini is a much larger company than
23   GTECH.  I believe their annual revenue is some five or
24   six times that of GTECH.  They are the parent company
25   of Lottomatica, own the majority portion of
0064
 1   Lottomatica.
 2                 Members of De Agostini's board of
 3   directors are a majority of the board of directors of
 4   Lottomatica.  And I believe they are expected to remain
 5   so, if this planned acquisition goes through.
 6                 And we've been told that, for instance,
 7   at Lottomatica, no major company decision is made
 8   without first going through De Agostini.  And so this
 9   is very much a De Agostini-orchestrated acquisition,
10   even though it is through their subsidiary,
11   Lottomatica, or by their subsidiary, Lottomatica.
12                 De Agostini is headquartered in Novara,
13   Italy.  It was originally founded in the very start of
14   the 20th century, in the early 1900s by Giovanni De
15   Agostini.  His -- he kept the company.  His -- his
16   family kept the company.
17                 It was a publishing business, maps and
18   encyclopedias.  It was purchased by the Boroli family
19   in the mid 1940s, 1946 I believe.  And through the
20   years, their foundation has been their publishing arm.
21                 And as I said, maps, textbooks,
22   encyclopedias.  They did door-to-door sales.  They have
23   been very well-known, very well-respected in Italy this
24   entire time and remain so to this day.
25                 They are very much into children's texts.
0065
 1   And they understand there that publishing is one of the
 2   foundations of their company, one of the -- what they
 3   call the four pillars of their company.
 4                 They have, however, branched out over the
 5   years.  And the biggest expansion has come since the
 6   1990s.  And they have entered into many business
 7   transactions up until this day where they own many,
 8   many companies in a broad spectrum of business sectors.
 9                 They employ some two thousand people or
10   so.  They have field offices in many cities and conduct
11   business in some 33 countries.
12                 As I said, they have set their company up
13   probably informally, would you say, into four pillars.
14   And that is:
15                 Publishing, which is what they -- what
16   they cut their teeth on and what their company got
17   started with;
18                 Insurance, which can be -- the publishing
19   part of that can be represented through De Agostini
20   Editore, their insurance company, which is Toro
21   Assicurazioni, which is their insurance company that
22   they own;
23                 De Agostini Invest which is, of course,
24   as you can imagine, their acquisitions and holdings
25   company;
0066
 1                 And then Lottomatica.
 2                 I have to say that their primary
 3   financial foundation is expected to be Toro and
 4   Lottomatica and especially with -- if this acquisition
 5   occurs, the new Lottomatica.  The insurance company and
 6   their gaming industry will be their financial
 7   foundations.
 8                 But they consider their personal -- what
 9   people know them as most of all is the publishing end
10   of their company.  De Agostini Editore, as I said, is
11   their -- their publishing part of their company.  They
12   have many divisions under that.
13                 They're involved in many, many different
14   things in their publishing industry.  They publish in
15   13 languages and in 30 countries.  They do so through
16   direct sales of published items, through, as I said,
17   door-to-door sales.
18                 They have periodicals of various and
19   sundry subjects.  They have textbooks.  Maps is a big
20   part of their country.  I believe they're excited about
21   China and Russia and those burgeoning business arenas
22   who will need that type of product.
23                 Toro, the insurance company, is a rather
24   large insurance company in Italy.  That's the fourth
25   largest insurer in Italy.  They purchased that company
0067
 1   from Fiat which is, of course, the automobile
 2   manufacturer.
 3                 They are -- the insurance company itself
 4   is very old.  It's -- it had its start in the early
 5   1800s.  So it is a very well-established, very old
 6   insurance company in Italy, very well-known.
 7                 They have a network of some 1,100
 8   agencies all over the country in that insurance.
 9   Recently, they've been publicly-listed on the Milan
10   Stock Exchange.
11                 De Agostini Invest is the investments end
12   of the company.  They focus on high-growth industry
13   that they purchase, innovation, new companies.  They
14   are -- they also invest in financial -- the financial
15   sector, as well, and industrial products in Italy.
16                 They are very much or they very much
17   monitor the launch of new companies in order to, you
18   know, further their business and acquire new companies.
19   A very -- that's a very active arm of their company.
20                 Lottomatica, as I said, is one of their
21   four pillars and is to be one of their financial
22   foundations for their company for the future.
23   Lottomatica itself began operations in 1993 when they
24   were awarded the contract -- which, in Italy, is called
25   a concession -- with the government, with the Italian
0068
 1   Finance Ministry.
 2                 And they were awarded that concession to
 3   run the Italian National Online Lottery known as Lotto.
 4   Lotto itself, the game, is known through hundreds of
 5   years of Italian history.  The modern computerized
 6   version of it, however, can get its start back to 1993.
 7                 When I say the word online, I want to --
 8   I want to clarify that.  In Italy, online means it's
 9   computerized and on a network, not that it's on the
10   Internet.
11                 Lotto, the -- this concession, this
12   mainstay of their gaming, brings in about or accounts
13   for about 80 percent of their revenue.  So the Lotto
14   game is their bread and butter.  They -- they are very
15   proud of that game.  I can tell you that.
16                 De Agostini moved in and purchased
17   Lottomatica in about -- well, in 2002 or thereabouts,
18   right at the start of 2002.  Prior to De Agostini's
19   purchase, Lottomatica had the concession for Lotto.
20                 But the company was not very
21   well-managed.  Plans for the future were not very
22   complete.  And their network and their -- their
23   terminals were not as up-to-date as they could be.
24                 De Agostini and those individuals that
25   they hired to come on board at that time are very proud
0069
 1   of the fact that they have created a very current, very
 2   successful management process.  They have updated and
 3   -- the computer network and made it a very secure
 4   network.  They manage -- in contrast to Texas's
 5   terminals, they have some 44 thousand terminals
 6   throughout Italy that they have networked.
 7                 And for them, it's a very successful
 8   operation.  They're very, very proud of that fact.
 9   The -- the terminals in Italy are -- and you'll hear
10   the term and understand the term Tobacconist.  In
11   Italy, that is their convenient store.
12                 That would be the American or the Italian
13   equivalent of our convenient store, not to be confused
14   perhaps with, in America, our convenient store is
15   always associated with gas pumps and the like.  And
16   that's not necessarily the case in Italy.
17                 They are corner shops, corner convenient
18   stores on every street corner.  On every street might
19   have one or two or three.  And they're called
20   Tobacconists.  And their terminals are in those.
21                 They consist of or they provide three
22   main services to Italian citizens:  Lottery, the Lotto.
23   They also have scratch-offs as -- as we do; they also
24   do sports betting and they do those through those
25   terminals; and then they provide commercial services.
0070
 1                 Commercial services run the gamut from
 2   government services, like collecting of taxes, car
 3   taxes, car licenses, television taxes.  You can go to
 4   the -- to the Lottomatica terminals in these
 5   Tobacconist shops and purchase all of those and pay for
 6   all of those through the terminal.
 7                 For the purpose of their network, it's my
 8   understanding that those are perhaps separate --
 9   separate terminals in these Tobacconist shops but some
10   of them may be combined.
11                 They also provide concert ticket sales
12   and sports ticket sales through these terminals.
13   That's one of their -- one of their big business.  They
14   see the commercial service as being one of the growth
15   areas of their industry in -- in Italy.
16                 And frankly, should this planned
17   acquisition occur, they see the opportunity, the
18   potential for those commercial services to be spread
19   all over the United States and in those countries where
20   GTECH -- GTECH offers some of those same commercial
21   services in other areas.
22                 Lottomatica very much believes that the
23   spread of those commercial services throughout is one
24   of their financial futures.
25                 Lottomatica is -- has a very small
0071
 1   portion of the video gaming industry, our crude term
 2   perhaps, slot machine industry.  Their video gaming
 3   industry is just getting off the ground, just being
 4   networked through their network so that they can
 5   guarantee the security of the industry.
 6                 And they're very proud of the fact that
 7   they are putting that network into place.  And they
 8   hope to -- they -- they believe and very strongly --
 9   and when I say they, we interviewed many, many -- many,
10   many people.
11                 And I can tell you that we were surprised
12   that their company -- internally, I mean, they -- they
13   love their company and what they've been able to do.
14   They believe, by increasing their presence in all these
15   Tobacconist shops, by creating this network, by
16   creating this huge -- this huge number of terminals,
17   that they have been very instrumental in diminishing,
18   and in some places completely wiping out, the black
19   market in gaming and scratch-off tickets and all of
20   that.
21                 They believe that, because they have done
22   that in the Tobacconist shops, they've also diminished,
23   in a lot of areas completely ended, the black market in
24   cigarettes and -- counterfeit cigarettes, counterfeit
25   taxes.  They believe they've been instrumental in doing
0072
 1   that.
 2                 And they very much look forward to doing
 3   that with the video gaming industry in Italy and
 4   bringing that same kind of security and that same kind
 5   of end to those illegal operations in Italy by -- by
 6   their secure networks and their secure machines.
 7                 About two years ago, the Lottomatica
 8   management -- at the urging of De Agostini, who had a
 9   tremendous amount of investment cash available to their
10   investments, Lottomatica officials began looking at the
11   purchase of -- of companies with the eye towards moving
12   global.
13                 Their operation, as it currently stands,
14   is in Italy.  They have made a couple of attempts over
15   the years to move outside of Italy that didn't pan out
16   because of the economy at the time.  And -- but they
17   very much realize that expanding globally is important
18   to them.
19                 They also very much realize that
20   expanding their company beyond what they have in Italy
21   is important because this concession to operate the
22   Italian lottery ends in 2016.  And, at the completion
23   of that, there's obviously no guarantee that they'll
24   continue to be that provider for that contract.
25                 And so that very much is an end date for
0073
 1   them that they -- that they have got to handle in their
 2   future planning.
 3                 The -- on a trip, a business trip to
 4   GTECH -- and I believe it was for their video gaming.
 5   They were looking at their video gaming.  Lottomatica
 6   officials began the idea -- began kicking around the
 7   idea to purchase GTECH.
 8                 And over the past two years, that has
 9   been a transaction that's been ongoing and, of course,
10   as you know, culminated with the offer that's currently
11   on the board.
12                 As De Agostini is a very well-respected
13   company in Italy, so is Lottomatica.  We literally
14   went -- everywhere we went, everyone knew Lottomatica
15   and respected Lottomatica.
16                 One of the reasons that we were able to
17   glean from our discussions with even people on the
18   street was that they have a government contract.  And
19   in Italy, that's a very important thing for a business
20   to have a government contract.  And it means to the
21   citizens of Italy that they are a notch above, a cut
22   above the regular Italian companies.
23                 The -- upon their purchase of -- upon De
24   Agostini's purchase of Lottomatica, they did also buy
25   into a company problem that has been mentioned.  And
0074
 1   that has culminated in an antitrust suit that was filed
 2   against the company.
 3                 There were some complaints to the
 4   Competition Authority in Italy concerning an agreement
 5   between Lottomatica and Sisal, which is a competitor of
 6   theirs, that, even though Lottomatica had the exclusive
 7   right to Lotto, the other games are -- they have no
 8   such exclusive right.  And so they do have competitors
 9   in that business in that industry.
10                 Lottomatica and Sisal were entering into
11   an agreement for various parts of their -- I don't
12   recall off the top of my head the actual product that
13   they were providing.  But they entered into this
14   agreement with Sisal.
15                 And as a part of this agreement, there
16   were some other companies perhaps that were left out of
17   the ability to be able to -- to also be a part of this
18   contract and be a part of this particular entry.  They
19   complained to the Competition Authority and the
20   investigation was begun by the Competition Authority in
21   July of 2003.
22                 And once again, it involved the claim of
23   collusion between Lottomatica and Sisal.  And
24   ultimately, they were found guilty of having entered
25   into an anti-competitive agreement.  Sisal was fined
0075
 1   2.8 million Euro and Lottomatica was fined eight
 2   million Euro.
 3                 They appealed.  I say they.  Lottomatica
 4   appealed this conviction and the conviction was upheld
 5   or the decision of the suit was upheld.  And they are
 6   now in the middle of their second and final appeal for
 7   this.
 8                 They -- Lottomatica officials represent
 9   this as -- as being a condition that occurred prior to
10   De Agostini's purchase of the company.  However, there
11   were agreements with Sisal just as there are
12   agreements -- as Lottomatica explained to us, just as
13   there are agreements with other companies to do
14   business and they enter into agreements with other
15   companies to do business.
16                 There were agreements with Sisal that
17   perhaps they failed to follow the letter of the law.
18   And, in particular, I think one that they -- they
19   failed to file within the appropriate time limit with
20   the -- with the state agency that oversees them.
21                 And ultimately, it's possible that this
22   conviction will be upheld and that the fine will stand.
23   But to explain to the commission at this time, that has
24   not been ultimately decided.
25                 CHAIR CLOWE:  Did they pay the fine?
0076
 1                 MR. RIORDAN:  They have already paid the
 2   fine, yes, sir, as is their practice over there.  It's
 3   -- they're awaiting the final judgment.
 4                 COMMISSIONER COX:  So the eight million
 5   was a fine and not a judgment in a civil suit?  It was
 6   a criminal sanction?
 7                 MR. RIORDAN:  The --
 8                 MR. THOMPSON:  It's administrative.
 9                 MR. RIORDAN:  It's an administrative
10   sanction.
11                 COMMISSIONER COX:  Okay.
12                 MR. RIORDAN:  It's not -- no, sir.  It's
13   not a criminal charge.  It would be -- it's an
14   administrative sanction with an administrative agency.
15                 It's an agency in -- in -- the
16   Competition Authority in Italy is kind of an
17   all-inclusive agency.  They have -- they're
18   administrators.  They're investigators.  They also have
19   administrative judges.  And so it's -- it's within that
20   realm that this was done.
21                 The appeal -- the second appeal, as I
22   recall -- is that to the criminal?  The second appeal
23   also is an administrative appeal.
24                 COMMISSIONER COX:  So there --
25                 MR. RIORDAN:  It is a final appeal.
0077
 1                 COMMISSIONER COX:  There are no criminal
 2   charges or criminal renditions, if you will, involved
 3   here.  This is strictly an administrative matter?
 4                 MR. RIORDAN:  That's correct.  That's
 5   correct.
 6                 The transaction, as -- as you've heard
 7   from the law firm before us, involves Invest Games.
 8   And we wanted to look at Invest Games very closely.
 9                 As I said, the dynamic we bring to the
10   table is we have -- we have different reasons for
11   needing to know things about these companies and one of
12   which is how can we in law enforcement after the fact
13   obtain information.
14                 So that's how we entered into this.  As
15   an example, we wanted know how we in law enforcement
16   can get information on these Italian companies.  And so
17   one of the things that we did was visited with CERVED
18   at the urging of the American embassy, which is the
19   Italian version of Dun & Bradstreet.
20                 It's a business reporting agency.  A lot
21   of public information is available that perhaps we are
22   used to getting from one source, maybe the SEC, may be
23   available in Italy but from many different sources.  So
24   it makes it a bit more difficult.
25                 In the -- in the realm of Invest Games,
0078
 1   we were very concerned because this is a Luxembourg
 2   corporation.  We know that international business
 3   routinely uses -- routinely has holding companies or
 4   paper companies in countries that have favorable tax
 5   laws.
 6                 And the implications to that, frankly,
 7   don't concern us if they're following those tax laws.
 8   The implications for us and that we looked at were on
 9   the availability of information.  So we went at Invest
10   Games with that in mind.
11                 We've been told that, if this planned
12   acquisition occurs, that Invest Games will ultimately
13   own 25 percent of this newly-created company,
14   Lottomatica, this overall company which -- which, in
15   our consideration, is a substantial portion of the
16   company.  It's a major -- it's a major part of the
17   ownership.
18                 In our interviews, we were told that the
19   purpose for this company was to divest assets due to
20   the favorable tax laws concerning selling assets,
21   divesting assets in Luxembourg.
22                 They were quick to tell us that no such
23   sales are planned or thought of, but it's there should
24   it need to be done, whether it be to sell off a portion
25   of one of these companies that is not profitable or to
0079
 1   sell off a portion of one of these companies, perhaps
 2   to finance the transaction and pay off some debt that
 3   was incurred.
 4                 Invest Games has told us -- and through
 5   that, I mean the board of directors, those that are
 6   going to be on Invest Games -- that Invest Games
 7   itself, the company, will not be involved in the
 8   day-to-day operation of the new company and it has not
 9   been involved in the acquisition of GTECH.
10                 They have told us that they will provide
11   an annual statement.  And that annual statement will be
12   available through Luxembourg through the agency in
13   Luxembourg that handles those annual financial
14   statements.
15                 They've also told us that -- or I say
16   they.  Lottomatica officials have told us that all of
17   Invest Games will be reported on a consolidated
18   financial statement.  The financial statements that
19   they provide through the company, Lottomatica, will be
20   consolidated statements and will include everything
21   there is to know about Invest Games.  They've told us
22   that verbally.
23                 GTECH officials have also told us
24   verbally that everything that they will be doing will
25   be reported.  And that's a verbal statement to us.
0080
 1                 We believe ultimately, based upon what
 2   we've seen, that the financial statement information
 3   that we're used to seeing and used to getting will be
 4   available through Lottomatica.
 5                 But once again, that's a verbal statement
 6   to us backed up by some of the things that they've
 7   already done that I'll explain in a few minutes.  And
 8   so that remains a concern for us and we're bringing
 9   that up.
10                 Some important points that I want to --
11   that I want to bring forward to you before I go over
12   some serious -- not serious but major considerations
13   that we have that we wanted to point out to you, this
14   is a financial purchase of GTECH by Lottomatica through
15   the financial foundation and power of De Agostini.
16                 But to put this planned company into
17   proper perspective, GTECH officials will manage this
18   overall company.  Their CEO will be the CEO of a
19   newly-combined company.
20                 It's been explained to us -- and nothing
21   from any of our interviews has found anything
22   different -- that the current structure and operation
23   of GTECH will remain as it currently is and the current
24   structure of Lottomatica, which is an Italian company
25   operating completely within Italy, will remain in that
0081
 1   respect under the operation of or under the -- under
 2   the guise or the -- not guise but management of Marco
 3   Sala, as their chief operating officer.
 4                 So Lottomatica -- the current Lottomatica
 5   will remain a wholly Italian company for several
 6   reasons.  One is the importance of that concession or
 7   contract that's ongoing.  They want to make sure
 8   there's nothing that will jeopardize that.
 9                 But also, they recognize and they've told
10   us -- and they being De Agostini officials and
11   Lottomatica officials have told us that the management
12   expertise of GTECH in handling a global corporation is
13   already in place and it makes good business sense to
14   then leave that in place.
15                 The -- we've also been told -- and we
16   really tried to get this answer confirmed through
17   numerous interviews.  We've been told that currently no
18   operation of Lottomatica, as it currently stands, will
19   be brought over and affect in any way what's happening
20   in Texas.
21                 So in the foreseeable future, in other
22   words, in the immediate future, nothing that
23   Lottomatica does currently in Italy will pertain to
24   what happens here in Texas.  This will still be run by
25   the GTECH operation that's -- that's currently in
0082
 1   place.
 2                 We want to bring about to you some major
 3   issues that we've uncovered in our investigation.  And
 4   once again, be aware of our -- our background in this.
 5                 We're concerned about the availability of
 6   information.  We are also concerned, as we were
 7   directed, about the character and ethics of the people
 8   involved.  And so that was two major areas for us that
 9   we wanted to look into.
10                 We visited with CONSOB.  CONSOB, the
11   initials C-O-N-S-O-B, is the SEC counterpart in Italy.
12   We visited with them.  And they currently require --
13   it's a new requirement of theirs -- that company
14   reports be provided to them, those that are required to
15   be provided to CONSOB, will be provided in English, as
16   well as Italian, which I think you can understand the
17   change in the global economy and how they recognize
18   that that's just something that has to be.
19                 However, what's important to us is that
20   CONSOB considers the Italian version of all these
21   documents to be the one the companies are held
22   accountable to in Italy.  And so for legal purposes,
23   the Italian version of these documents is what's --
24   what applies, not the translated version into English.
25                 And so I think that creates an issue that
0083
 1   perhaps we wanted to bring forth to you to possibly
 2   address at some point in the future.  The language
 3   version of this is important.
 4                 In a related consideration to that, the
 5   cost of translating documents is extremely expensive.
 6   And the cost is related proportionate to whether or not
 7   it's conversational Italian all the way up to
 8   court-certified translation -- excuse me --
 9   conversational English or up to court-certifiable
10   translations.
11                 One translation service quoted us a price
12   of 15 cents per word.  So the word "the" translated
13   from Italian to English would cost 15 cents,
14   astronomical amounts of money.  And I think that's a
15   consideration that we'd like to bring forward to you
16   that is something that will have to be overcome.
17                 The other situation involving CONSOB,
18   which was important to us to bring forward to you
19   today, is the availability of documents.  And the
20   availability of documents that -- for instance, that we
21   currently get from the SEC on corporations, is
22   extremely limited publicly compared to what we get
23   here.
24                 In fact, if you were to go to CONSOB's
25   Web site -- and there is an English version of their
0084
 1   Web site -- and do searches for all these companies,
 2   you'd get very, very little.
 3                 Unfortunately, that's all you will
 4   continue to get.  Even though you are entered into a
 5   contract with them, they told us you will get what's
 6   publicly available and nothing else, which is -- which
 7   is very little.
 8                 We perhaps had hoped that the SEC would
 9   have a contract or an interagency agreement or MOU,
10   memorandum of understanding, with CONSOB where we could
11   go to SEC and get information.  And, in fact, they have
12   some 52 or so of those agreements.
13                 However, those only applied to dually
14   listed companies, companies listed in Italy, as well as
15   America, that we would be able to get that information.
16   And that's not going to be -- it's my understanding
17   that that's not going to be the case should this
18   planned acquisition occur.
19                 We also visited with the Italian version
20   of the Lottery Commission that is known by the word
21   Monopoli.  And the same is true there.  The
22   availability of information from them is extremely
23   limited.
24                 And so when we -- in our interviews with
25   these company officials, we wanted to see how that
0085
 1   could be overcome.  Well, and let me further add Invest
 2   Games into that mix, the availability of that
 3   information, obviously.
 4                 Senior management at Lottomatica has told
 5   us, of course, as I already said, that information will
 6   be on consolidated reports.  And they have a -- file a
 7   report on the six months in addition to the annual
 8   report that is extremely detailed also.  That -- so
 9   they believe that we will get a tremendous amount of
10   information through their consolidated reports.
11                 However, we provided them or received a
12   long list of what is required to be sent to CONSOB and
13   provided that to Lottomatica officials and asked them
14   how can we get this information on a regular basis, all
15   of this that you give to CONSOB, how can we get it.
16                 Of course, we had already -- we already
17   knew that CONSOB wasn't going to give it to us.  And
18   after looking at that document, their answer was:
19   We'll translate it to English and put it all on our Web
20   site and we can perhaps even provide you with a way to
21   be notified by e-mail when there's an update to any of
22   that information.
23                 And, in fact, Lottomatica's Web --
24   Lottomatica that currently exists, the Italian company,
25   their Web site in English is extremely detailed.  And
0086
 1   you'll find a lot of this information on their Web
 2   site.  And they -- they're very proud of their English
 3   version of their Web site, I might add.
 4                 The same verbal promise to give
 5   information came from GTECH officials.  However, as a
 6   Department of Public Safety officer, I want to caution
 7   the commission that, you know, verbal promises are just
 8   that, verbal promises.
 9                 Notwithstanding their already attempts to
10   comply and barring any kind of legally-binding
11   agreement, I would be suspect that that type of verbal
12   promise would be...
13                 As has already been spoken by the law
14   firm, there were some omissions to the De Agostini
15   board of directors minutes.  And those omissions were
16   reported to us to be very specific discussions about
17   the acquisitions of companies, about the -- for
18   instance, some of the information that they didn't
19   supply to us had to do with what they would be willing
20   to pay for a company, perhaps what kind of offer they
21   would be willing to make.
22                 And under -- it was represented to us,
23   under Italian law, those types of discussion are not
24   required to be in writing in the minutes.  However,
25   they have promised to provide us with, in summary form,
0087
 1   with those areas where there are omissions.
 2                 We have not received that yet.  But
 3   that's in the works, in my understanding.  And I have
 4   to say that -- that I very much understand the
 5   confidentiality of that information.  And we don't have
 6   any information to the contrary about what may be in
 7   those minutes.
 8                 However, I can certainly understand their
 9   not wanting to give us publicly that type of
10   information.  I can understand that.
11                 As has also already been told to you by
12   the law firm, De Agostini did not provide personal
13   disclosure forms for individual shareholders who held
14   more than three percent stock in the company.  There
15   are no individual shareholders of Lottomatica that own
16   three percent or more, other than the company that was
17   mentioned.
18                 Their explanation to us made sense to us.
19   And in our interviews with everybody involved, we
20   believed that they were being forthcoming.  And we
21   believed that what they were telling us was the truth.
22                 COMMISSIONER COX:  So to clarify that
23   one, lieutenant, that says that they told you that
24   these limited shareholders were not active in the
25   business.  And as you observed the business in
0088
 1   operation, you did not see any of them active in the
 2   business?
 3                 MR. RIORDAN:  That's exactly correct.
 4   And the -- this -- this limited shareholder situation
 5   is -- is something that's coming.  This new B&D Holding
 6   is -- according to the company, is to be completed by
 7   the end of 2006.
 8                 It will -- it will formalize and legalize
 9   what has been over the years informal.  And that is
10   that there are certain few members of the family who --
11   families who manage the company and the rest have
12   nothing to do with the company.
13                 We saw nothing to the contrary.  To
14   clarify also, when this issue came about, I discussed
15   this with my command staff at length about this -- this
16   not disclosing personal information.
17                 I have to say that we were provided with
18   their -- of course, their identifiers.  We knew who
19   they were.  But the full disclosure form that everybody
20   else gave they did not.  I say these -- these
21   shareholders who do not participate in the company did
22   not.
23                 And my agency is comfortable with the
24   fact that they believe we can -- we could have
25   determined elsewise in our investigation, if it came to
0089
 1   light that some of them were, in fact, involved in
 2   management.  And we did not find anything.  And we were
 3   confident that that was the case.
 4                 There are two individuals that I want to
 5   tell you about that we have information concerning.
 6   One is Lorenzo Pellicioli, the chairman of De Agostini,
 7   the chairman of Lottomatica, expected to be the
 8   chairman -- remain the chairman of the newly-created
 9   company if the acquisition goes through.
10                 Of course, he has in his capacity owned
11   many, many companies, been involved in the operation
12   and management of many, many companies, on the board of
13   directors of many, many companies.
14                 And one of these such companies was
15   purchased by his company and the stockholders,
16   shareholders agreed to the purchase.  It was, as I
17   recall, a one-to-one share price type transaction.
18                 Several banks oversaw this transaction
19   and approved the transaction and the transaction
20   occurred.  At some point later, a prosecutor in Italy
21   -- and I believe it was in Turin, if I remember right,
22   stated that the price was not fair and, in fact,
23   charged Mr. Pellicioli with a charge of insider
24   trading.
25                 And -- and that charge was filed against
0090
 1   him in 2001, some five years ago.  And it remains on
 2   the books.
 3                 Now I caution the commission not to read
 4   anything into the time length here because that may not
 5   be so important.  It may still be an active case.  That
 6   is one of the details that we are still trying to
 7   confirm and get information on.  And we'll report the
 8   conclusion of that to you.
 9                 There has been no furtherance of that
10   case.  It has sat on the books since 2001.  And the
11   current status of it is it's still there filed against
12   Mr. Pellicioli.
13                 Mr. Antonio Belloni is on the board of
14   directors of De Agostini.  Of course, once again, being
15   a member of that family and a member of those business
16   transactions, has been involved in many, many companies
17   over the years.
18                 He was involved in a shipping company
19   many years ago back in the 1980s and was -- was, I
20   believe, asked by the government to consider a contract
21   with some -- some needy countries, Third World
22   countries, if you will.
23                 And he entered into that contract.  And
24   in the process of that, however, he was contacted by
25   members of the Socialist Party at that time and was
0091
 1   more or less extorted.  And he did agree to pay them
 2   money in order for this contract to continue.
 3                 And, in fact, he did provide them with
 4   what they asked for.  At the end of that contract, he
 5   ceased having those types of relations with those
 6   people.
 7                 In 1993 in Italy was a huge change
 8   throughout the country because of a lot of early-on
 9   corruption came to light.  And when all this came to
10   light, Mr. Belloni stepped up, went to the local
11   prosecutor and fully disclosed everything that he had
12   been involved with back in the 1980s -- 1985 or so I
13   think is when all that started -- and fully disclosed
14   all that to the Italian prosecutors, assisted in their
15   investigation in their case.
16                 Because, however, he was involved, he was
17   charged at that time with being involved.  However, in
18   it -- the action was never commenced.  And in 2001, a
19   judgment was entered in Italy dismissing all charges
20   against him.
21                 Those are the only two members of either
22   one of these three companies -- Invest Games,
23   Lottomatica, De Agostini -- that we currently have this
24   information on.  And as I said at the start, we're
25   continuing with our look at GTECH.
0092
 1                 However, I also have to caution you that
 2   information continues to come in on De Agostini and
 3   Lottomatica.  And we'll report any updates when we
 4   receive it.
 5                 At this time, we're open to questions.
 6                 COMMISSIONER COX:  Mr. Chairman, early on
 7   in this process, I shared the concern Mr. Thompson has
 8   expressed that, given the complexity of this
 9   transaction, where everybody was and how rapidly action
10   seemed to be needed, that it was a daunting task.
11                 And I attended the initial organizational
12   meeting where the team first came together with Mr.
13   Mattax and with the Graves Dougherty folks and with the
14   folks from the Department of Public Safety.
15                 Department of Public Safety was
16   represented at that meeting by a number of very high
17   officers.  It was very clear from the start that
18   Department of Public Safety had a high level of
19   interest in this undertaking.
20                 And it's very clear to me that we have
21   had the first team and that they have accomplished in
22   what is a relatively short period of time a remarkable
23   amount of work.  And I for one am very grateful for
24   that.
25                 CHAIR CLOWE:  Absolutely.
0093
 1                 COMMISSIONER COX:  Lieutenant, I have a
 2   couple of questions.  On the Invest Games situation,
 3   and Luxembourg, as I understand from Patrick, that
 4   there are two advantages of Luxembourg.  One is privacy
 5   and one is tax advantages.
 6                 Clearly, you could take advantage of one
 7   without the other.  Do you think we have any reason to
 8   concern -- to be concerned that they will try to take
 9   advantage of both and take -- try to conduct a
10   tax-advantage transaction with an unidentified party?
11                 MR. RIORDAN:  Commissioner, I defer to
12   Sergeant Manning, who went to Luxembourg and can tell
13   you firsthand.
14                 COMMISSIONER COX:  All right.
15                 MR. MANNING:  Quite honestly, I'm not
16   real sure how to answer that question.  But that was a
17   concern of ours from the -- from the very beginning, if
18   De Agostini or Lottomatica would be in a position to
19   move one of the owner or one of the managers that one
20   of the Lottery Commissions didn't agree with and hide
21   them in Luxembourg or use it to sell off pieces of the
22   company to enable to finance it.
23                 As far as the financing aspect of it is
24   concerned, I conducted over 26 interviews of my own in
25   De Agostini.  And they appear to be in a position to
0094
 1   afford this transaction without any problems at all.
 2                 And while I was in -- Sergeant David
 3   Jones and I were in Luxembourg, the information was
 4   readily available to us.  Everything we asked for was
 5   presented to us.
 6                 So I'm not -- I'm not sure whether or not
 7   it's going to be as much of a privacy issue as maybe it
 8   was in the past.  We made some contacts there that made
 9   readily available to us anything we asked for.
10                 COMMISSIONER COX:  Mr. Mattax or Graves
11   Dougherty, do y'all have any concerns that we're not
12   adequately protected or aren't able to call forward
13   information on potential owners of Invest Games?
14                 MR. MATTAX:  Let me go ahead and digress
15   here and talk on a more global basis about this
16   information issue, because both Graves Dougherty and
17   the Department of Public Safety have raised some issues
18   with respect to what continuing information the Lottery
19   Commission will be able to receive.
20                 Let me make it -- start off by making it
21   clear.  I don't know if it's been stated, but this
22   transaction will in no way affect the current contract
23   the Lottery Commission has with GTECH.  That contract
24   will remain in place as is.
25                 This transaction will not change that.
0095
 1   One of the provisions in our contract with GTECH
 2   specifically provides and GTECH agreed that, quote,
 3   during the term of the contract and any renewal
 4   thereof, it -- as in GTECH -- shall be obligated to
 5   provide such information about its officers, directors,
 6   employees and owners -- owners, as well as all
 7   information about its subcontractors' officers,
 8   directors, employees and owners as the Texas Lottery
 9   Commission may prescribe.
10                 To that end, I have drafted a letter for
11   consideration by the Lottery Commission.  I think
12   probably the executive director, you know, either he or
13   his designee, if they so wish, could send this letter
14   out.
15                 And if I may, let me go ahead and hand it
16   up.  We can go over it -- go over it right now.
17                 And during the course of the
18   investigation, it became clear that there would be
19   situations where we would not automatically necessarily
20   get information, the Lottery Commission would not get
21   information it had received in the past.
22                 And so having had the discussions with
23   Department of Public Safety and also with Graves
24   Dougherty, I identified some areas -- I'm working with
25   them -- that I thought we needed to clarify that, if
0096
 1   this transaction, in fact, goes forward, this is
 2   information the Lottery Commission will expect to
 3   receive.
 4                 Let me go through that.  The first is
 5   with respect to all the filings on CONSOB.  And again,
 6   CONSOB is the equivalent of the SEC in Italy.  And as
 7   was indicated, CONSOB will not share the information
 8   with us but Lottomatica has represented that they'll
 9   put that information on their Web site, put it in
10   English.
11                 So the first requirement in the
12   prescription, if you will, would be that all filings
13   made by Lottomatica with the CONSOB shall simultaneous
14   with filing be made available by GTECH in English to
15   the Lottery Commission via electronic transmission to
16   the Lottery Commission or publication on Lottomatica's
17   Web site.
18                 So this is basically a directive from the
19   Lottery Commission pursuant to their contract.  This is
20   what you will do.
21                 Secondly, for purposes of all dealings
22   with the Texas Lottery Commission, the English version
23   of all such filings will be controlling.  Again, this
24   then will eliminate -- certainly for purposes of
25   Italian regulatory function, the Italian version will
0097
 1   be controlling.
 2                 But for purposes of our contract
 3   monitoring or any things that need to be done in Texas,
 4   the Lottery Commission will -- we'll let them know that
 5   it's the English version that's going to be
 6   controlling.
 7                 So then that way it will allow us to
 8   continue to get the same types of information, though
 9   the information on CONSOB is going to be very detailed
10   and -- and as already indicated, they currently have it
11   on their Web site.
12                 But this then will just be a
13   formalization that you will continue to provide it and
14   secondly, a formalization that we will hold you to the
15   English version.  So make sure that the English version
16   is accurate because that's what we're going to hold you
17   to.
18                 Secondly, GTECH shall inform the Texas
19   Lottery Commission within three business days of any
20   change in the ownership of the merged entity that
21   results in a single person or entity holding three
22   percent or more of the merged entity.
23                 Now the reason I used the word merged
24   entity is that, in the future, they may change the name
25   of that merged entity.  But bottom line is what GTECH
0098
 1   merges into, the company -- currently, it's going to
 2   probably end up being GTECH Holdings, as was described
 3   earlier.
 4                 But whatever the name of it is, you will
 5   tell us who is going to have more than three percent
 6   ownership and whatever those changes are.  And that,
 7   again, is a prescription that we're requiring of them.
 8                 Three, all regulatory filings required to
 9   be made by Invest Games, a Luxembourg company, shall
10   simultaneous with filing be made available by GTECH in
11   English to the Texas Lottery Commission via electronic
12   transmission to the Texas Lottery Commission or
13   publication on the Lottomatica Web site.
14                 Again, the verbal representation made was
15   that this information will be made available to us.
16   Again, this is a formalization and instruction to
17   GTECH, pursuant to our contract, this shall be done.
18                 Four, GTECH shall inform the Texas
19   Lottery Commission within three business days o