<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
Mark One
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: APRIL 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition from _______________________ to ____________________________
Commission File number: 0-13063
AUTOTOTE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 81-0422894
--------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
750 Lexington Avenue, New York, New York 10022
----------------------------------------------
(Address of principal executive offices)
(Zip Code)
(212)-754-2233
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of June 10, 1998:
Class A Common Stock: 35,936,949
Class B Common Stock: None
Page 1 of 19
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND OTHER INFORMATION
QUARTER ENDED APRIL 30, 1998
Page
-------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Balance Sheets as of April 30, 1998
and October 31, 1997 3
Statements of Operations for the Three Months Ended
April 30, 1998 and 1997 4
Statements of Operations for the Six Months Ended
April 30, 1998 and 1997 5
Statements of Cash Flows for the Six Months Ended
April 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7-13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-17
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Stockholders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
2
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
APRIL 30, October 31,
1998 1997
----------------- -----------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................... $ 11,590 18,207
Restricted cash..................................................................... 588 512
Accounts receivable, net............................................................ 11,497 13,560
Inventories......................................................................... 7,727 6,653
Prepaid expenses, deposits and other current assets................................. 1,800 2,276
--------------------- -----------------
Total current assets............................................................. 33,202 41,208
--------------------- -----------------
Property and equipment, at cost....................................................... 190,372 180,170
Less accumulated depreciation....................................................... 110,793 103,781
--------------------- -----------------
Net property and equipment....................................................... 79,579 76,389
--------------------- -----------------
Goodwill, net of amortization......................................................... 5,093 5,916
Operating right, net of amortization.................................................. 15,348 15,848
Other assets and investments.......................................................... 16,471 14,180
--------------------- -----------------
$ 149,693 153,541
===================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current installments of long-term debt.............................................. $ 1,790 2,609
Accounts payable.................................................................... 12,500 8,698
Accrued liabilities................................................................. 26,511 24,411
--------------------- -----------------
Total current liabilities........................................................ 40,801 35,718
--------------------- -----------------
Deferred income taxes................................................................. 2,206 2,551
Other long-term liabilities........................................................... 992 1,264
Long-term debt, excluding current installments........................................ 110,964 112,248
Long-term debt, convertible subordinated debentures................................... 35,000 35,000
--------------------- -----------------
Total liabilities................................................................ 189,963 186,781
--------------------- -----------------
Stockholders' equity (deficit):
Preferred stock, par value $1.00 per share, 2,000 shares authorized, none
outstanding...................................................................... -- --
Class A common stock, par value $0.01 per share, 99,300 shares authorized,
35,844 and 35,335 shares outstanding at April 30, 1998 and October 31,
1997, respectively............................................................... 356 354
Class B non-voting common stock, par value $0.01 per share, 700 shares
authorized, none outstanding...................................................... -- --
Additional paid-in capital.......................................................... 148,640 148,238
Accumulated losses.................................................................. (188,611) (181,351)
Treasury stock, at cost............................................................. (102) (102)
Currency translation adjustment..................................................... (553) (379)
--------------------- -----------------
Total stockholders' equity (deficit)............................................. (40,270) (33,240)
--------------------- -----------------
$ 149,693 153,541
===================== =================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended April 30, 1998 and 1997
(Unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
Operating revenues:
<S> <C> <C>
Services............................................................................ $ 32,925 34,969
Sales............................................................................... 3,290 6,952
--------------------- -----------------
36,215 41,921
--------------------- -----------------
Operating expenses (exclusive of depreciation and amortization shown below):
Services............................................................................ 20,297 20,865
Sales............................................................................... 1,972 4,620
--------------------- -----------------
22,269 25,485
--------------------- -----------------
Total gross profit............................................................... 13,946 16,436
Selling, general and administrative expenses.......................................... 5,686 7,389
Gain on sale of business.............................................................. (684) (257)
Depreciation and amortization......................................................... 7,230 10,143
--------------------- -----------------
Operating income (loss).......................................................... 1,714 (839)
Other deductions:
Interest expense.................................................................... 3,825 3,680
Other (income) expense.............................................................. (214) 25
--------------------- -----------------
3,611 3,705
--------------------- -----------------
Loss before income tax expense...................................................... (1,897) (4,544)
Income tax expense.................................................................... 169 147
--------------------- -----------------
Net loss.............................................................................. $ (2,066) (4,691)
===================== =================
Net loss per basic share and diluted share............................................ $ (0.06) (0.14)
===================== =================
Number of shares used in per share calculation........................................ 35,504 34,498
===================== =================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended April 30, 1998 and 1997
(Unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
Operating revenues:
<S> <C> <C>
Services............................................................................ $ 64,252 66,389
Sales............................................................................... 6,394 11,047
--------------------- -----------------
70,646 77,436
--------------------- -----------------
Operating expenses (exclusive of depreciation and amortization shown below):
Services............................................................................ 40,005 39,838
Sales............................................................................... 3,762 7,433
--------------------- -----------------
43,767 47,271
--------------------- -----------------
Total gross profit............................................................... 26,879 30,165
Selling, general and administrative expenses.......................................... 12,845 14,696
Gain on sale of business.............................................................. (684) (257)
Depreciation and amortization......................................................... 14,615 19,852
--------------------- -----------------
Operating income (loss).......................................................... 103 (4,126)
Other deductions:
Interest expense.................................................................... 7,654 7,314
Other (income) expense.............................................................. (585) 132
--------------------- -----------------
7,069 7,446
--------------------- -----------------
Loss before income tax expense...................................................... (6,966) (11,572)
Income tax expense.................................................................... 294 542
--------------------- -----------------
Net loss.............................................................................. $ (7,260) (12,114)
===================== =================
Net loss per basic share and diluted share............................................ $ (0.20) (0.36)
===================== =================
Number of shares used in per share calculation........................................ 35,447 33,616
===================== =================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended April 30, 1998 and 1997
(Unaudited, in thousands)
<TABLE>
<CAPTION>
1998 1997
---------------------- ---------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss....................................................................... $ (7,260) (12,114)
---------------------- ---------------
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization.................................................... 14,615 19,852
Changes in operating assets and liabilities...................................... 7,706 1,837
Other............................................................................ (176) 134
--------------------- -----------------
Total adjustments............................................................. 22,145 21,823
---------------------- ---------------
Net cash provided by operating activities............................................. 14,885 9,709
---------------------- ---------------
Cash flows from investing activities:
Capital expenditures................................................................ (735) (649)
Wagering systems expenditures....................................................... (14,267) (2,773)
Proceeds from sale of business and asset disposals, net of cash transferred......... 45 19,451
Increase in other assets and investments............................................ (4,559) (1,606)
---------------------- ---------------
Net cash used in investing activities................................................. (19,516) 14,423
---------------------- ---------------
Cash flows from financing activities:
Net repayments under revolving credit facilities.................................... -- (4,487)
Payments on long-term debt.......................................................... (2,059) (22,701)
Net proceeds from issuance of common stock.......................................... 146 956
--------------------- -----------------
Net cash used by financing activities................................................. (1,913) (26,232)
---------------------- ---------------
Effect of exchange rate changes on cash............................................... (73) (289)
---------------------- ---------------
Decrease in cash and cash equivalents................................................. (6,617) (2,389)
Cash and cash equivalents, beginning of period........................................ 18,207 5,988
--------------------- -----------------
Cash and cash equivalents, end of period.............................................. $ 11,590 3,599
====================== ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest....................................................................... $ 7,352 6,785
====================== ===============
Income taxes................................................................... $ 475 825
====================== ===============
The Company issued 2,964 shares of Class A Common Stock during the 1997 period in
connection with the settlement of stockholder litigation.
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1998
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1) CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of April 30, 1998 and the consolidated
statements of operations for the three and six months ended April 30, 1998 and
1997, and the consolidated statements of cash flows for the six months then
ended, have been prepared by the Company without audit. In the opinion of
management, all adjustments necessary to present fairly the financial position
of the Company at April 30, 1998 and the results of its operations for the three
and six months ended April 30, 1998 and 1997 and its cash flows for the six
months ended April 30, 1998 and 1997 have been made. In the second quarter of
fiscal 1998, the Company reversed reserves of $1.3 million in connection with
the collection of receivables previously reserved due to concerns about their
recoverability and cost savings related to the refurbishment of certain
terminals.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These consolidated financial statements should
be read in conjunction with the financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the year ended October 31, 1997
(the "1997 Form 10-K"). The results of operations for the period ended April 30,
1998 are not necessarily indicative of the operating results for the full year.
Certain items in the prior year's financial statements have been
reclassified to conform with the current year presentation.
2) FISCAL 1997 SALE OF THE EUROPEAN LOTTERY BUSINESS
On April 15, 1997, the Company completed the sale of its European lottery
business through the sale of its stock ownership of Tele Control Kommunikations
und Computersysteme Aktien Gesellschaft ("Tele Control") for cash consideration
of approximately $26,600, including contingent consideration of approximately
$1,600. At closing, the Company provided the purchaser with a letter of credit
to secure certain obligations under the sales agreement. At October 31, 1997,
$1,500 remained outstanding under the letter of credit, which amount was reduced
to $500 at April 30, 1998. The letter of credit is scheduled to expire on
October 15, 1998. In connection with the reduction of the letter of credit
balance, the Company recorded an additional $684 gain on sale of business in the
second quarter of fiscal 1998.
The following unaudited information shows the revenues, expenses and
operating income of the European lottery business that were included in the
Company's Consolidated Statements of Operations for the three months and six
months ended April 30, 1997. Interest and income tax expenses have not been
included in the table below.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
APRIL 30, 1997 APRIL 30, 1997
---------------------- ---------------
<S> <C> <C> <C>
Operating revenue.............................................................. $ 2,463 6,119
Operating expenses, including selling, general and administrative
expenses, and depreciation and amortization expenses.......................... 2,772 6,181
---------------------- ---------------
Operating loss................................................................. $ (309) (62)
====================== ===============
3) INVENTORIES
Inventories consist of the following: APRIL 30, OCTOBER 31,
1998 1997
--------------------- --------------
Parts and work-in-process...................................................... $ 6,594 5,762
Finished goods................................................................. 319 244
Ticket paper................................................................... 814 647
---------------------- --------------
Total.......................................................................... $ 7,727 6,653
===================== ==============
</TABLE>
7
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
APRIL 30, 1998
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Work-in-process includes costs for equipment expected to be sold. Costs
incurred for equipment associated with specific wagering system service
contracts not yet placed in service are classified as construction in progress
in property and equipment.
4) DEBT
At April 30, 1998, the Company had approximately $22,934 available for
borrowing under the Company's revolving Credit Facility (the "Facility"). There
were no borrowings outstanding under the Facility at April 30, 1998, however,
approximately $2,066 in letters of credit were issued under the Facility. See
Note 7 of Notes to the Consolidated Financial Statements for the year ended
October 31, 1997 included in the 1997 Form 10-K.
5) EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"), which the Company adopted in the first quarter of fiscal 1998. Under
SFAS 128, the Company is required to present two earnings per share amounts for
each period presented, and all prior period earnings per share amounts are
required to be restated to conform with the provisions of SFAS 128. Basic net
loss per common share is computed by dividing net loss by the weighted average
number of common shares outstanding during the period. Diluted earnings per
share gives effect to all dilutive potential common shares that were outstanding
during the period. Potential common shares are not included in the calculation
of the dilutive net loss per share in the second quarter and first six months of
fiscal 1998 and the second quarter and first six months of fiscal 1997, since
their inclusion would be anti-dilutive. Basic and diluted net loss per common
share for the second quarter and first six months of fiscal 1998 and the
restated net loss per common share for the second quarter and first six months
of fiscal 1997, therefore, are essentially the same. At April 30, 1998 and
1997, the Company had outstanding stock options, warrants, convertible
subordinated debentures, Performance Accelerated Restricted Stock Units, and
deferred shares which could potentially dilute basic earnings per share in the
future. Quarterly and year-to date computations of per share amounts are made
independently, therefore, the sum of per share amounts for the quarters may not
equal per share amounts for the year.
6) FINANCIAL INFORMATION FOR GUARANTOR SUBSIDIARIES AND NON-GUARANTOR
SUBSIDIARIES
The Company conducts substantially all of its business through its domestic
and foreign subsidiaries. In July 1997, the Company issued $110 million
aggregate principal amount of Senior Notes bearing interest at an annual rate of
10 7/8% (the "Notes"). The Notes are jointly and severally guaranteed by
substantially all of the Company's wholly-owned domestic subsidiaries (the
"Guarantor Subsidiaries").
Presented below is condensed consolidating financial information for
Autotote Corporation (the "Parent Company") which includes the activities of
Autotote Management Corporation, the Guarantor Subsidiaries and the wholly-owned
foreign subsidiaries and the non-wholly owned domestic and foreign subsidiaries
(the "Non-Guarantor Subsidiaries") as of April 30, 1998 (unaudited) and October
31, 1997 (audited) and for the three and six month periods ended April 30, 1998
and 1997 (unaudited). The condensed consolidating financial information has been
presented to show the nature of assets held, results of operations and cash
flows of the Parent Company, Guarantor Subsidiaries and Non-Guarantor
Subsidiaries assuming the guarantee structure of the Notes was in effect at the
beginning of the periods presented. Separate financial statements for the
Guarantor Subsidiaries are not presented based on management's determination
that they would not provide additional information that is material to
investors.
The condensed consolidating financial information reflects the investments
of the Parent Company in the Guarantor and Non-Guarantor Subsidiaries using the
equity method of accounting. In addition, corporate interest and administrative
expenses have not been allocated to the subsidiaries.
8
<PAGE>
<TABLE>
<CAPTION>
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
April 30, 1998
(Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
--------------- -------------- --------------- ------------- --------------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents........ $ 9,270 (461) 2,781 -- 11,590
Accounts receivable, net......... -- 9,045 2,452 -- 11,497
Other current assets............. 124 11,729 2,754 (4,492) 10,115
Property and equipment, net...... 293 68,902 6,484 3,900 79,579
Investment in subsidiaries....... 59,000 -- -- (59,000) --
Goodwill......................... 207 2,323 2,563 -- 5,093
Other assets..................... 5,602 27,008 712 (1,503) 31,819
--------------- -------------- --------------- ------------- --------------
Total assets.................. $ 74,496 118,546 17,746 (61,095) 149,693
=============== ============== =============== ============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities.............. $ 11,747 23,768 3,418 78 39,011
Current installments of
long-term debt.................. 1,250 371 184 (15) 1,790
Long-term debt, excluding
current installments............ 145,000 193 771 -- 145,964
Other non-current liabilities.... 952 508 1,738 -- 3,198
Intercompany balances............ (44,183) 47,200 (3,017) -- --
Stockholders' equity (deficit)... (40,270) 46,506 14,652 (61,158) (40,270)
--------------- -------------- --------------- ------------- --------------
Total liabilities and
stockholders' equity
(deficit).................... $ 74,496 118,546 17,746 (61,095) 149,693
=============== ============== =============== ============= ==============
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
October 31, 1997
(Audited, in thousands)
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
--------------- -------------- --------------- ------------- --------------
ASSETS
Cash and cash equivalents........ $ 15,582 328 2,297 -- 18,207
Accounts receivable, net......... -- 10,547 3,013 -- 13,560
Other current assets............. 711 6,223 2,791 (284) 9,441
Property and equipment, net...... 161 67,071 9,302 (145) 76,389
Investment in subsidiaries....... 54,760 -- -- (54,760) --
Goodwill......................... 211 2,635 3,070 -- 5,916
Other assets..................... 5,937 24,895 528 (1,332) 30,028
--------------- -------------- --------------- ------------- --------------
Total assets.................. $ 77,362 111,699 21,001 (56,521) 153,541
=============== ============== =============== ============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities.............. $ 14,812 14,515 3,921 (139) 33,109
Current installments of
long-term debt.................. 1,250 474 910 (25) 2,609
Long-term debt, excluding
current installments............ 145,000 323 1,925 -- 147,248
Other non-current liabilities.... 1,111 538 2,166 -- 3,815
Intercompany balances............ (51,571) 54,467 (3,112) 216 --
Stockholders' equity (deficit)... (33,240) 41,382 15,191 (56,573) (33,240)
--------------- -------------- --------------- ------------- --------------
Total liabilities and
stockholders' equity
(deficit).................... $ 77,362 111,699 21,001 (56,521) 153,541
=============== ============== =============== ============= ==============
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS
Three Months Ended April 30, 1998
(Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
--------------- -------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Operating revenues.................. $ -- 33,910 5,005 (2,700) 36,215
Operating expenses.................. -- 21,327 3,424 (2,482) 22,269
--------------- -------------- --------------- ------------- --------------
Gross profit..................... -- 12,583 1,581 (218) 13,946
Selling, general and administrative
expenses........................... 2,082 2,862 832 (90) 5,686
Gain on sale of business............ (684) -- -- -- (684)
Depreciation and amortization....... 29 6,511 773 (83) 7,230
--------------- -------------- --------------- ------------- --------------
Operating income (loss).......... (1,427) 3,210 (24) (45) 1,714
Interest expense.................... 3,766 30 38 (9) 3,825
Other (income) expense.............. (159) (66) 2 9 (214)
--------------- -------------- --------------- ------------- --------------
Income (loss) before equity in
income of subsidiaries,
and income taxes................. (5,034) 3,246 (64) (45) (1,897)
Equity in income of subsidiaries.... 3,057 -- -- (3,057) --
Income tax expense.................. 89 17 63 -- 169
--------------- -------------- --------------- ------------- --------------
Net income (loss)................... $ (2,066) 3,229 (127) (3,102) (2,066)
=============== ============== =============== ============= ==============
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS
Three Months Ended April 30, 1997
(Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
--------------- -------------- --------------- ------------- --------------
Operating revenues.................. $ -- 33,941 8,181 (201) 41,921
Operating expenses.................. -- 20,621 5,366 (502) 25,485
--------------- -------------- --------------- ------------- --------------
Gross profit..................... -- 13,320 2,815 301 16,436
Selling, general and administrative
expenses........................... 2,820 3,388 1,181 -- 7,389
Gain on sale of business............ (257) -- -- -- (257)
Depreciation and amortization....... 12 7,266 2,860 5 10,143
--------------- -------------- --------------- ------------- --------------
Operating income (loss).......... (2,575) 2,666 (1,226) 296 (839)
Interest expense.................... 3,754 11 50 (135) 3,680
Other (income) expense.............. (330) (197) 422 130 25
--------------- -------------- --------------- ------------- --------------
Income (loss) before equity in
income of subsidiaries,
and income taxes................. (5,999) 2,852 (1,698) 301 (4,544)
Equity in income of subsidiaries.... 1,308 -- -- (1,308) --
Income tax expense.................. -- 7 75 65 147
--------------- -------------- --------------- ------------- --------------
Net income (loss)................... $ (4,691) 2,845 (1,773) (1,072) (4,691)
=============== ============== =============== ============= ==============
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS
Six Months Ended April 30, 1998
(Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
--------------- -------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Operating revenues.................. $ -- 64,164 11,126 (4,644) 70,646
Operating expenses.................. -- 40,567 7,505 (4,305) 43,767
--------------- -------------- --------------- ------------- --------------
Gross profit..................... -- 23,597 3,621 (339) 26,879
Selling, general and administrative
expenses........................... 5,062 5,959 1,824 -- 12,845
Gain on sale of business............ (684) -- -- -- (684)
Depreciation and amortization....... 56 13,008 1,716 (165) 14,615
--------------- -------------- --------------- ------------- --------------
Operating income (loss).......... (4,434) 4,630 81 (174) 103
Interest expense.................... 7,523 47 101 (17) 7,654
Other (income) expense.............. (476) (60) (66) 17 (585)
--------------- -------------- --------------- ------------- --------------
Income (loss) before equity in
income of subsidiaries,
and income taxes................. (11,481) 4,643 46 (174) (6,966)
Equity in income of subsidiaries... 4,373 -- -- (4,373) --
Income tax expense.................. 152 -- 142 -- 294
--------------- -------------- --------------- ------------- --------------
Net income (loss)................... $ (7,260) 4,643 (96) (4,547) (7,260)
=============== ============== =============== ============= ==============
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS
Six Months Ended April 30, 1997
(Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
--------------- -------------- --------------- ------------- --------------
Operating revenues.................. $ -- 60,176 18,479 (1,219) 77,436
Operating expenses.................. -- 37,338 11,118 (1,185) 47,271
--------------- -------------- --------------- ------------- --------------
Gross profit..................... -- 22,838 7,361 (34) 30,165
Selling, general and administrative
expenses........................... 5,677 6,327 2,576 116 14,696
Gain on sale of business............ (257) -- -- -- (257)
Depreciation and amortization....... 25 14,039 5,972 (184) 19,852
--------------- -------------- --------------- ------------- --------------
Operating income (loss).......... (5,445) 2,472 (1,187) 34 (4,126)
Interest expense.................... 7,402 15 111 (214) 7,314
Other (income) expense.............. (330) (406) 659 209 132
--------------- -------------- --------------- ------------- --------------
Income (loss) before equity in
income of subsidiaries,
and income taxes................. (12,517) 2,863 (1,957) 39 (11,572)
Equity in income of subsidiaries.... 403 -- -- (403) --
Income tax expense.................. -- 7 535 -- 542
--------------- -------------- --------------- ------------- --------------
Net income (loss)................... $ (12,114) 2,856 (2,492) (364) (12,114)
=============== ============== =============== ============= ==============
</TABLE>
11
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF CASH FLOWS
Six Months Ended April 30, 1998
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
---------------- -------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Net income (loss)................... $ (7,260) 4,643 (96) (4,547) (7,260)
Depreciation and amortization.... 56 13,008 1,716 (165) 14,615
Equity in income of subsidiaries. (4,373) -- -- 4,373 --
Other non-cash adjustments....... 5 (130) (51) -- (176)
Changes in working capital....... (2,008) 5,822 (181) 4,073 7,706
--------------- -------------- --------------- ------------- --------------
Net cash provided by (used in )
operating activities............... (13,580) 23,343 1,388 3,734 14,885
--------------- -------------- --------------- ------------- --------------
Cash flows from investing
activities:
Capital and wagering systems
expenditures.................... (162) (10,091) (869) (3,880) (15,002)
Other assets and investments..... (118) (4,626) 59 171 (4,514)
--------------- -------------- --------------- ------------- --------------
Net cash provided by (used in)
investing activities............... (280) (14,717) (810) (3,709) (19,516)
--------------- -------------- --------------- ------------- --------------
Cash flows from financing
activities:
Payments on long-term debt....... -- (1,907) (162) 10 (2,059)
Other, principally intercompany
balances........................ 7,542 (7,509) 168 (55) 146
--------------- -------------- --------------- ------------- --------------
Net cash provided by (used in)
financing activities............... 7,542 (9,416) 6 (45) (1,913)
--------------- -------------- --------------- ------------- --------------
Effect of exchange rate changes on
cash............................... 6 1 (100) 20 (73)
--------------- -------------- --------------- ------------- --------------
Increase/(decrease) in cash and
cash equivalents................... (6,312) (789) 484 -- (6,617)
Cash and cash equivalents,
beginning of year.................. 15,582 328 2,297 -- 18,207
--------------- -------------- --------------- ------------- --------------
Cash and cash equivalents, end of
period............................. $ 9,270 (461) 2,781 -- 11,590
=============== ============== =============== ============= ==============
</TABLE>
12
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF CASH FLOWS
Six Months Ended April 30, 1997
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
--------------- -------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Net income (loss)................... $ (12,114) 2,856 (2,492) (364) (12,114)
Depreciation and amortization.... 25 14,039 5,972 (184) 19,852
Equity in income of subsidiaries. (403) -- -- 403 --
Other non-cash adjustments....... 674 37 (577) -- 134
Changes in working capital....... 1,440 (3,351) 3,679 69 1,837
--------------- -------------- --------------- ------------- --------------
Net cash provided by (used in )
operating activities............... (10,378) 13,581 6,582 (76) 9,709
--------------- -------------- --------------- ------------- --------------
Cash flows from investing
activities:
Capital and wagering systems
expenditures.................... (31) (2,831) (570) 10 (3,422)
Proceeds from sale of business
and asset disposals............. 21,650 246 (2,445) -- 19,451
Other assets and investments..... (183) (379) (945) (99) (1,606)
--------------- -------------- --------------- ------------- --------------
Net cash provided by (used in)
investing activities............... 21,436 (2,964) (3,960) (89) 14,423
--------------- -------------- --------------- ------------- --------------
Cash flows from financing
activities:
Net repayments under revolving
credit facilities............... -- (4,500) 13 -- (4,487)
Payments on long-term debt....... -- (22,256) (455) 10 (22,701)
Other, principally intercompany
balances........................ (12,447) 16,081 (2,837) 159 956
--------------- -------------- --------------- ------------- --------------
Net cash provided by (used in)
financing activities............... (12,447) (10,675) (3,279) 169 (26,232)
--------------- -------------- --------------- ------------- --------------
Effect of exchange rate changes on
cash............................... 25 -- (310) (4) (289)
--------------- -------------- --------------- ------------- --------------
Increase/(decrease) in cash and
cash equivalents................... (1,364) (58) (967) -- (2,389)
Cash and cash equivalents,
beginning of year.................. 3,376 261 2,351 -- 5,988
--------------- -------------- --------------- ------------- --------------
Cash and cash equivalents, end of
period............................. $ 2,012 203 1,384 -- 3,599
=============== ============== =============== ============= ==============
</TABLE>
13
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion addresses the financial condition of the Company as
of April 30, 1998 and the results of its operations for the three and six month
periods ended April 30, 1998, compared to the same periods last year. This
discussion should be read in conjunction with the Management's Discussion and
Analysis of Financial Condition and Results of Operations for the fiscal year
ended October 31, 1997 ("fiscal 1997") included in the Company's Annual Report
on Form 10-K for fiscal 1997.
THREE MONTHS ENDED APRIL 30, 1998 COMPARED TO THREE MONTHS ENDED APRIL 30, 1997
<TABLE>
<CAPTION>
Second Quarter Fiscal 1998 Second Quarter Fiscal 1997
----------------------------------------------------- ----------------------------------------------------
Pari- Pari-
Mutuel Lottery Mutuel Lottery
Operations Operations Total Operations Operations Total
------------------ -------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Services $ 30,911 2,014 32,925 30,302 4,667 34,969
Sales 3,035 255 3,290 1,949 5,003 6,952
------------------ -------------- ------------ -------------- -------------- -------------
Total Revenues $ 33,946 2,269 36,215 32,251 9,670 41,921
================== ============== ============ ============== ============== =============
GROSS PROFIT
(excluding
depreciation $ 13,173 773 13,946 12,898 3,538 16,436
and amortization) ================== ============== ============ ============== ============== =============
</TABLE>
SECOND QUARTER REVENUE ANALYSIS
Revenues decreased 14% or $5.7 million to $36.2 million in the second
quarter of the fiscal year ending October 31, 1998 ("fiscal 1998") from $41.9
million in the second quarter of the fiscal year ended October 31, 1997.
Pari-mutuel Operations services revenues of $30.9 million for the second
quarter of fiscal 1998 improved $0.6 million or 2% compared to the second
quarter of the prior year. This improvement reflects revenue increases
resulting from the growth in handle in the Company's North American pari-mutuel
operations, as well as increases in the Company's simulcasting and German
operations. The growth in handle during the second quarter of fiscal 1998
compared to the second quarter of fiscal 1997 is attributable to the addition of
four new racetracks and OTB sites, the addition of full card simulcasting at one
North American racetrack customer, an increase in interface fees, the addition
of three new simulcasting customers, the growth in video gaming, and the
increase in simulcasting in Germany. Pari-mutuel Operations equipment sales
revenues in the second quarter of fiscal 1998 of $3.0 million increased $1.1
million or 56% compared to the second quarter of the prior year due primarily to
$2.3 million in sales of terminals and equipment to a former international
customer for which the Company received a long-term note receivable.
Lottery Operations services revenues decreased $2.7 million in the second
quarter of fiscal 1998 to $2.0 million primarily because of the absence of $2.5
million in revenues provided in the prior year period by the Company's European
lottery business which was sold in April 1997. Lottery Operations equipment
sales revenues decreased significantly in the second quarter of fiscal 1998 to
$0.3 million from $5.0 million in the same period in fiscal 1997. This decrease
is primarily attributable to the absence in fiscal 1998 of prior period sales of
$1.5 million of terminals to an Italian distributor and $3.3 million of
terminals to the Israel lottery, partially offset by fiscal 1998 sales of $0.3
million.
GROSS PROFIT ANALYSIS
The total gross profit of $13.9 million in the second quarter of fiscal 1998
decreased by $2.5 million, or 15%, compared to the second quarter of fiscal
1997. Lower margins due to the absence of the Company's European lottery
services revenues of $1.0 million, higher transponder costs in the simulcasting
business, and higher track fees in the OTB business, were partially offset by an
increase in margins earned on higher handle in the pari-mutuel operations
services business. Gross profit as a percent of revenues in the Company's
continuing services businesses was 39% in both second quarter periods, and equal
to the gross profit in full fiscal 1997. Gross profit earned on equipment sales
of $1.3 million in the second quarter of fiscal 1998 decreased by $1.0 million,
or 43%, compared to the second quarter of fiscal 1997 due primarily to the
absence of lottery sales in the second quarter of fiscal 1998. Gross profit as a
percent of equipment sales was 40% in the second quarter of fiscal 1998, an
increase from gross profit of 34% in the second quarter of fiscal 1997 as a
result of a change in the mix of equipment and systems sold.
14
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS(Continued)
EXPENSE ANALYSIS
Selling, general and administrative expenses include marketing, sales,
administrative, engineering and software development, finance, legal and other
expenses. Selling, general and administrative expenses decreased $1.7 million
or 23% to $5.7 million in the second quarter of fiscal 1998 from $7.4 million in
the second quarter of fiscal 1997. The decrease is primarily the result of the
collection of receivables previously reserved due to concerns about their
recoverability and cost reduction programs in Europe.
Depreciation and amortization expenses decreased 29% to $7.2 million in
the second quarter of fiscal 1998 compared to $10.1 million in the second
quarter of fiscal 1997. The decrease results from the sale of the Company's
European lottery business in April 1997, full amortization of certain intangible
assets and lower depreciation on lottery assets in fiscal 1998.
Interest expense of $3.8 million in the second quarter of fiscal 1998
increased $0.1 million from the second quarter of fiscal 1997, primarily
reflecting higher interest rates, partially offset by lower borrowing levels.
INCOME TAXES
Income tax expense was $0.2 million in the second quarter of fiscal
1998 compared to $0.1 million in the fiscal 1997 second quarter. Income tax
expense principally reflects foreign taxes, since no tax benefit has been
recognized on domestic operating losses.
SIX MONTHS ENDED APRIL 30, 1998 COMPARED TO SIX MONTHS ENDED APRIL 30, 1997
<TABLE>
<CAPTION>
Six Months Fiscal 1998 Six Months Fiscal 1997
----------------------------------------------------- ----------------------------------------------------
Pari- Pari-
Mutuel Lottery Mutuel Lottery
Operations Operations Total Operations Operations Total
------------------ -------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Services $ 60,007 4,245 64,252 56,917 9,472 66,389
Sales 5,428 966 6,394 3,195 7,852 11,047
------------------ -------------- ------------ -------------- -------------- -------------
Total Revenues $ 65,435 5,211 70,646 60,112 17,324 77,436
================== ============== ============ ============== ============== =============
GROSS PROFIT
(excluding
depreciation
and amortization) $ 24,927 1,952 26,879 23,068 7,097 30,165
================== ============== ============ ============== ============== =============
</TABLE>
SIX MONTH REVENUE ANALYSIS
Revenues decreased 9% or $6.8 million to $70.6 million in the first six
months of the fiscal year ending October 31, 1998 from $77.4 million in the
first six months of fiscal 1997.
Pari-mutuel Operations services revenues of $60.0 million for the first six
months of fiscal 1998 improved $3.1 million or 5% compared to the first six
months of the prior year. This improvement reflects revenue increases resulting
from the growth in handle in the Company's North American pari-mutuel and
Connecticut OTB operations, as well as increases in the Company's simulcasting
and German operations. The growth in handle during the first six months of
fiscal 1998 compared to the first six months of fiscal 1997 is attributable to
the addition of four new racetracks and OTB sites, the addition of full card
simulcasting at one North American racetrack customer, an increase in interface
fees, the addition of nine new simulcasting customers, the running of the
Breeders' Cup in the first six months of fiscal 1998 and the growth in video
gaming. Pari-mutuel equipment sales revenues in the first six months of fiscal
1998 of $5.4 million increased $2.2 million or 70% compared to the first six
months of the prior year due primarily to $2.3 million in sales of terminals and
equipment to a former international customer for which the Company received a
long-term note receivable.
15
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS(Continued)
Lottery Operations service revenues decreased $5.2 million in the first six
months of fiscal 1998 to $4.2 million primarily because of the absence of $5.2
million in revenue provided in the prior year period by the Company's European
lottery business which was sold in April 1997. Lottery equipment sales revenues
decreased to $1.0 million in the first six months of fiscal 1998 from $7.9
million in the same period in fiscal 1997. This decrease is primarily
attributable to the absence in fiscal 1998 of sales of $2.7 million of terminals
to an Italian distributor, $3.5 million of terminals to the Israel lottery, and
$0.9 million in equipment provided by the Company's European lottery business.
GROSS PROFIT ANALYSIS
The total gross profit of $26.9 million in the first six months of
fiscal 1998 decreased by $3.3 million, or 11%, compared to the first six months
of fiscal 1997. Lower margins due to the absence of the Company's European
lottery service revenue of $2.7 million were partially offset by an increase in
service margins earned on higher handle in the pari-mutuel operaions services
business. Gross profit as a percent of revenues in the Company's continuing
services businesses was 38% in the first six months of fiscal 1998, down
slightly from gross profit of 39% in the first six months of fiscal 1997,
reflecting, primarily, higher operating expenses in the lottery business and
higher track fees in the OTB business. Gross profit earned on equipment sales
was $2.6 million in the first six months of fiscal 1998, as compared to $3.6
million in the first six months of fiscal 1997 due primarily to the absence of
terminal sales to the Israel lottery in fiscal 1998. Gross profit as a percent
of equipment sales was 41% in the first six months of fiscal 1998, an increase
from gross profit of 33% in the first six months of fiscal 1997 as a result of a
change in the mix of equipment and systems sold.
EXPENSE ANALYSIS
Selling, general and administrative expenses include marketing, sales,
administrative, engineering and software development, finance, legal and other
expenses. Selling, general and administrative expenses decreased $1.9 million
or 13% to $12.8 million in the first six months of fiscal 1998 from $14.7
million in the first six months of fiscal 1997. Expense reductions of $0.5
million resulting from the sale of the Company's European lottery business were
complimented by the collection of receivables previously reserved due to
concerns about their recoverability and cost reduction programs in Europe.
Depreciation and amortization expenses decreased 26% to $14.6 million
in the first six months of fiscal 1998 compared to $19.9 million in the first
six months of fiscal 1997. The decrease results from the sale of the Company's
European lottery business in April 1997, full amortization of certain intangible
assets and lower depreciation on lottery assets in fiscal 1998.
Interest expense of $7.7 million in the first six months of fiscal 1998
increased $0.3 million over the first six months of fiscal 1997, primarily
reflecting higher interest rates, partially offset by lower borrowing levels.
INCOME TAXES
Income tax expense was $0.3 million in the first six months of fiscal
1998 compared to $0.5 million in the first six months of fiscal 1997. Income
tax expense principally reflects foreign taxes, since no tax benefit has been
recognized on domestic operating losses.
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1998, the Company's available cash and borrowing capacity
totaled $34.5 million compared to $41.3 million at October 31, 1997. Net cash
provided by operating activities was $14.9 million for the six months ended
April 30, 1998. Utilizing cash provided by operating activities and available
cash, the Company invested $19.5 million principally in capital and contract
expenditures, including construction to date of approximately 3,200 new PROBE-L
lottery terminals for the Connecticut State Lottery, and in software systems
development. Additionally, $2.0 million of available cash was used to reduce
other long-term loans. The Company entered into a $12 million, long-term
borrowing arrangement during the third quarter of fiscal 1998 to finance the
cost of the Connecticut State Lottery equipment.
16
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS(Continued)
As described above in Note 4 to the Consolidated Financial Statements, the
Company had $22.9 million of borrowing availability under its Facility at April
30, 1998. The Company believes that, although it expects to incur a net loss in
fiscal 1998, its cash resources, anticipated cash flows from operations and
borrowing availability under the Facility will provide sufficient liquidity to
meet scheduled interest payments and anticipated capital expenditures during the
next twelve months. The Company believes that additional financing will be
required to enable it to meet its debt service obligations under the Notes, the
Facility and the Subordinated Debentures, and for capital expenditures
thereafter.
The Company has signed an agreement with its Italian distributor,
Elettronica Ingegneria Sistemi, to sell up to 20,000 Extrema terminals, valued
at approximately $64 million, to Sisal Sport Italia SpA for use in Italy's pari-
mutuel lottery pool. The Company expects to manufacture the terminals in its
Irish facility and expects to begin shipping the terminals in the third fiscal
quarter of 1998 and continuing through the fiscal year 2000. The Company
expects to finance the working capital required to manufacture the terminals
with cash advanced under the contract and cash available under the Facility.
NEW ACCOUNTING STANDARD
In February 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 132, "Employer's
Disclosures about Pensions and Other Postretirement Benefits" ("SFAS 132").
SFAS 132 revises employers' disclosures about pension and other postretirement
benefit plans in order to standardize disclosure requirements to the extent
possible and requires additional information on changes in the benefit
obligations and fair values of plan assets that are intended to facilitate
financial analysis. SFAS 132 does not change the measurement or recognition of
those plans and is effective for the Company's 1997 fiscal year. Adoption of
this standard is expected to result in modification of and/or additional
disclosures, but should not have an effect on the Company's financial position
or results of operations.
17
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
QUARTER ENDED APRIL 30, 1998
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
The Annual Meeting of the stockholders of the Company was held on April 16,
1998 to elect five directors of the Company and to ratify the appointment of
KPMG Peat Marwick LLP as auditors for the Company's 1998 fiscal year. All
matters put before the stockholders passed as follows:
<TABLE>
<CAPTION>
DIRECTOR NOMINEES/ OTHER MATTERS FOR WITHHELD AGAINST ABSTAIN
--------------------------------------------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
A. Lorne Weil 30,610,569 370,624
Larry Lawrence 30,635,544 345,649
Sir Brian G. Wolfson 30,635,130 346,063
Alan J. Zakon 30,635,624 345,569
Marshall Bartlett 30,635,134 346,059
Ratification of KPMG Peat Marwick LLP 30,750,335 137,816 93,042
</TABLE>
ITEM 5. OTHER INFORMATION
Effective November 1, 1997, the Company entered into change in control
agreements (the "Agreements") with each of its executive officers (except for A.
Lorne Weil as described below), and with certain of its non-executive officers
(collectively, the "Officers"). A copy of the Form of such agreements is filed
herewith as Exhibit 10.27. The Agreements provide for a term of three years,
commencing on November 1, 1997 and ending on October 31, 2000, which shall be
automatically extended by one year without further action and on each succeeding
year thereafter, unless either party shall have served written notice upon the
other six months prior to the end of the term. In the event an Officer's
employment is terminated without Cause (as defined in the Agreement) or an
Officer terminates his employment for Good Reason (as defined in the Agreement)
at the time of or within two years following a Change in Control (as defined in
the Agreement), the Company's principal obligations under the Agreement will be
to (i) make a lump sum cash payment in an amount equal to two times the sum of
such Officer's base salary at the rate payable immediately prior to termination
plus the greater of (x) the average bonus paid for the three years preceding the
year of termination or (y) the bonus payable to such Officer upon achievement of
the target level of performance for the year of termination; (ii) accelerate the
exercisability of all stock options held by such Officer at termination, such
that all options will become fully vested and exercisable at the date of
termination; and (iii) provide such Officer with continued participation in all
employee and executive benefit plans for a period not to exceed eighteen months
after termination; provided that if any such plan does not permit continued
participation, the Officer shall receive quarterly cash payments equal, on an
after-tax basis, to the cost to such Officer of obtaining the benefit. In the
event an Officer's employment is terminated without Cause, and such Officer is
not entitled to any payment or benefit, each of the Agreements provides (except
for the Agreements of two of the Officers who have preexisting arrangements with
the Company) that the Company will be obligated to make a lump sum cash payment
equal to such Officer's base salary at the rate payable immediately prior to
termination.
Effective November 1, 1997, the Company entered into an employment
agreement (the "Weil Employment Agreement") with A. Lorne Weil, the Company's
President & CEO, the terms of which include change in control provisions. The
principal terms of the Weil Employment Agreement are described under the caption
"Employee Agreements" in the Company's Proxy Statement which was filed with the
Securities and Exchange Commission on March 2, 1998, and a copy of the Weil
Employment Agreement was filed as Exhibit 10.26 to the Company's Quarterly
Report on Form 10-Q for the quarter ended January 31, 1998; and the description
of the Weil Employment Agreement therein is incorporated herein in its entirety
by reference thereto.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.27 Form of Change of Control Agreements effective November 1,
1997 between the Company and its executive officers and
certain non-executive officers.
10.28 Agreement between the Company and Elettronica Ingegneria
Sistemi dated February 19, 1998.
10.29 General Agreement between the Company and Sisal Sport Italia
SpA dated February 19, 1998.
27 Financial Data Schedule.
No current reports on Form 8-K were filed during the second quarter of fiscal
1998.
18
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
Quarter Ended April 30, 1998
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
AUTOTOTE CORPORATION
--------------------
(Registrant)
By: /s/ William Luke
----------------
Name: William Luke
Title: Vice President
& Chief Financial Officer
Dated: June 15, 1998
19
<PAGE>
AUTOTOTE CORPORATION
Exhibit 10.27
- --------------------------------------------------------------------------------
Change in Control Agreement for _______________
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Definitions...................................................... 1
2. Term of Agreement................................................ 3
3. Entitlement to Severance Benefits................................ 3
4 Acceleration of Vesting of Options............................... 6
5. Non-Solicitation; Non-Disclosure; Executive Cooperation; and Non-
Disparagement.................................................... 6
6. Remedies......................................................... 7
7. Governing Law; Arbitration....................................... 8
8. Miscellaneous.................................................... 9
</TABLE>
<PAGE>
THIS AGREEMENT by and between AUTOTOTE CORPORATION, a Delaware corporation
(the "Company"), and _____________ ("Executive") shall become effective as of
November 1, 1997 (the "Effective Date").
W I T N E S S E T H :
---------------------
WHEREAS, Executive is an employee of the Company serving in an executive
capacity;
WHEREAS, the Board of Directors of the Company (the "Board") believes it is
necessary and desirable that the Company be able to rely upon Executive to
continue serving in his or her position in the event of a potential or actual
change in control of the Company or otherwise;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and Executive (individually a
"Party" and together the "Parties") agree as follows:
1. DEFINITIONS.
(a) "Cause" shall mean Executive's gross misconduct (as defined herein) or
willful and material breach of Section 5 of this Agreement. For purposes
of this definition, "gross misconduct" shall mean (A) a felony conviction
in a court of law under applicable federal or state laws, or (B) willfully
engaging in one or more acts, or willfully omitting to act in accordance
with Executive's material duties, including acts and omissions that
constitute gross negligence in the performance of Executive's material
duties. For purposes of this Agreement, an act or failure to act on
Executive's part shall be considered "willful" if it was done or omitted to
be done by him not in good faith, and shall not include any act or failure
to act resulting from any incapacity of Executive. The foregoing
notwithstanding, Executive may not be terminated for Cause unless and until
there shall have been delivered to him, within six months after the
Compensation and Stock Option Committee of the Board (the "Committee") (A)
had knowledge of conduct or an event allegedly constituting Cause and (B)
had reason to believe that such conduct or event could be grounds for
Cause, a copy of a resolution duly adopted by a majority affirmative vote
of the membership of the Committee at a meeting of the Committee called and
held for such purpose (after giving Executive reasonable notice specifying
the nature of the grounds for such termination
<PAGE>
and not less than 30 days to correct the acts or omissions complained of,
if correctable, and affording Executive the opportunity, together with his
counsel, to be heard before the Committee) finding that, in the good faith
opinion of the Committee, Executive was guilty of conduct constituting
Cause under this Agreement. Notwithstanding the foregoing, Executive shall
not be considered to have terminated for Good Reason unless Executive shall
have provided the Company with written notice of the specific reasons for
such termination within ninety (90) days after he has knowledge of the
event that is the basis for such termination and affords Company at least
thirty (30) days to cure the alleged conduct.
(b) A "Change in Control" shall be deemed to have occurred if:
(i) any "person" as defined in Section 3(a)(9) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and as used in Sections
13(d) and 14(d) thereof, including a "group" as defined in Section
13(d) of the Exchange Act but excluding the Company and any subsidiary
and any employee benefit plan sponsored or maintained by the Company
or any subsidiary (including any trustee of such plan acting as
trustee), directly or indirectly, becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of securities of the
Company representing at least 40% of the combined voting power of the
Company's then-outstanding securities;
(ii) the stockholders of the Company approve a merger, consolidation,
recapitalization, or reorganization of the Company, or a reverse stock
split of any class of voting securities of the Company, or the
consummation of any such transaction if stockholder approval is not
obtained, other than any such transaction which would result in at
least 60% of the total voting power represented by the voting
securities of the Company or the surviving entity outstanding
immediately after such transaction being beneficially owned by persons
who together beneficially owned at least 80% of the combined voting
power of the voting securities of the Company outstanding immediately
prior to such transaction; provided that, for purposes of this
paragraph (ii), such continuity of ownership (and preservation of
relative voting power) shall be deemed to be satisfied if the failure
to meet such 60% threshold is due solely to the acquisition of voting
securities by an employee benefit plan of the Company or such
surviving entity or of any subsidiary of the Company or such surviving
entity;
<PAGE>
(iii) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of its assets (or any
transaction having a similar effect); or
(iv) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board, together with any new
director (other than a director designated by a person who has entered
into an agreement with the Company to effect a transaction described
in paragraph (i), (ii), or (iii) hereof) whose election by the Board
or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved
(the "Continuing Directors"), cease for any reason to constitute at
least a majority of the Board.
(c) "Disability" means the failure of Executive to render and perform the
services required of him for a total of 180 days or more during any
consecutive 12 month period, because of any physical or mental incapacity
or disability as determined by a physician or physicians selected by the
Company and reasonably acceptable to Executive unless, within 30 days after
Executive has received written notice from the Company of a proposed
termination due to such absence, Executive shall have returned to the full
performance of his duties and shall have presented to the Company a written
certificate of Executive's good health prepared by a physician selected by
the Company and reasonably acceptable to Executive.
(d) "Good Reason" shall mean, without Executive's prior written consent, (A) a
material change, adverse to Executive, in Executive's positions, nature of
responsibilities, or authority within the Company, except if occurring in
connection with the termination of Executive's employment for Cause,
Disability, Retirement, as a result of Executive's death, or as a result of
action by Executive, (B) a decrease in annual base salary or other
compensation opportunities or a material decrease in the aggregate benefits
from the level provided to Executive immediately prior to the date of the
Change in Control, (C) a relocation of Executive's principal place of
employment by more than 35 miles from the latest location of such principal
place of employment prior to the date of the Change in Control, (D) any
failure to secure the agreement of any successor corporation or other
entity to the Company to fully assume the Company's obligations under this
Agreement in a form reasonably acceptable to Executive, and (E) any attempt
<PAGE>
by the Company to terminate Executive for Cause which does not result in a
valid termination for Cause, except in the case that valid grounds for
termination for Cause exist but are corrected as permitted under Section
1(a).
(e) "Plans" shall mean the plans, programs, and arrangements,
including agreements and documents thereunder and including any agreement solely
with Executive, providing or relating to compensation or benefits.
(f) "Retirement" shall mean Executive's termination of employment with
the Company at or after attaining age 65 or, if early retirement is requested by
Executive and approved in advance by the Committee, Executive's early retirement
prior to age 65.
(g) "Term" shall have the meaning set forth in Section 2 below.
2. TERM OF AGREEMENT.
The term of this Agreement (the "Term") shall be the period commencing
on the Effective Date and ending on October 31, 2000 and any period of extension
of the Term in accordance with this Section 2. The Term shall be extended
automatically without further action by either party by one additional year
(added to the end of the Term) first on October 31, 2000 (extending the Term to
October 31, 2001) and on each succeeding October 31 thereafter, unless either
party shall have served written notice upon the other party prior to the April
30 preceding the date upon which such extension would become effective electing
not to extend the Term further as of the next extension date, in which case the
Term shall end at the later of the next October 31 or the date two years after
the latest Change in Control occurring on or before the next October 31.
3. ENTITLEMENT TO SEVERANCE BENEFITS.
(a) Change in Control Severance Benefits. In the event Executive's
------------------------------------
employment with the Company or any of its subsidiaries is terminated without
Cause, other than due to death, Disability or Retirement, or in the event
Executive terminates such employment for Good Reason, in either case at the time
of or within two years following a Change in Control, the Company will pay and
Executive will be entitled to receive the following:
(i) The unpaid portion of Executive's annual base salary at the rate
payable at the date of termination of employment, pro rated through
<PAGE>
such date of termination, will be paid in a cash lump sum;
(ii) Cash will be paid in a lump sum to Executive in an aggregate amount
equal to the sum of Executive's annual base salary at the rate payable
immediately prior to termination of employment plus the Severance
Annual Incentive Amount (as defined below) multiplied by 2, which
amount shall be reduced pro rata to the extent the number of full
months remaining until Executive attains age 65 is less than 18
months, and which amount will be further reduced (but not to less than
zero) by the amount of any severance payment or benefit provided apart
from this Agreement. For purposes of this Section 3(a)(ii) and
Section 3(a)(iv) below, the "Severance Annual Incentive Amount" shall
be the greater of (1) the average annual incentive compensation paid
to Executive for the three years immediately preceding the year of
termination or (2) the annual incentive compensation payable to
Executive upon achievement of the target level of performance for the
year of termination;
(iii) All vested, nonforfeitable amounts owing or accrued at the date of
termination of employment under any compensation and benefit Plans
(including any earned and vested annual incentive compensation) in
which Executive theretofore participated will be paid under the terms
and conditions of the Plans pursuant to which such compensation and
benefits were granted;
(iv) In lieu of any annual incentive compensation for the year in which
Executive's employment terminated, Executive will be paid a cash
amount equal to the Severance Annual Incentive Amount as defined in
Section 3(a)(ii) above, multiplied by a fraction the numerator of
which is the number of days Executive was employed in the year of
termination and the denominator of which is the total number of days
in the year of termination; provided, however, that payments under
this Section 3(a)(iv) shall be reduced (but not below zero) to the
extent it would duplicate a payment for the same year under Section
3(a)(iii);
(v) Stock options held by Executive at termination, if not then vested and
exercisable, will become fully vested and exercisable at the date of
such termination, and any such options which were granted on or after
the Effective Date or, if previously granted, were not "in the money"
as of the date
<PAGE>
hereof shall remain exercisable until the earlier of 36 months after
termination or the scheduled expiration date, and, in other respects,
all such options shall be governed by the Plans pursuant to which such
options were granted;
(vi) Deferred stock held by Executive at termination will become fully
vested and non-forfeitable, and shall be settled upon such
termination, without regard to any stated period of deferral otherwise
remaining in respect of such amounts;
(vii) All deferred compensation arrangements between Executive and the
Company or a subsidiary at the date of termination of employment
shall be paid or distributed, less applicable withholding taxes under
Section 3(d) as promptly as practicable following such date of
termination, without regard to any stated period of deferral otherwise
remaining in respect of such amounts, and the payment of such amounts
shall be deemed to fully settle such accounts;
(viii) Reasonable business expenses and disbursements incurred by
Executive prior to such termination of employment will be reimbursed
in accordance with policies applicable to Executive while still
employed; and
(ix) Executive shall continue to participate in all employee and executive
benefit Plans providing health, medical, and life insurance benefits
in which Executive was participating immediately prior to termination,
the terms of which allow Executive's continued participation, as if
Executive had continued in employment with the Company at the same
level of responsibility, for a period that shall extend until the
earliest of (A) the expiration of 18 months after termination, (B) the
date Executive attains age 65, or (C) the date, or dates, Executive
receives equivalent coverage and benefits under the plans, programs or
arrangements of a subsequent employer (such coverage and benefits to
be determined on a coverage-by-coverage, or benefit-by-benefit,
basis); provided that (X) if Executive is precluded from continuing
his or her participation in any Plan as provided in this clause (ix)
of this Section 3(a), Executive shall receive cash payments equal on
an after-tax basis to the cost to Executive of obtaining the benefits
provided under the Plan in which Executive is unable to participate
for the period specified in this clause (ix) of this Section 3(a), (Y)
such cost shall be deemed to be the lowest reasonable cost
<PAGE>
that would be incurred by Executive in obtaining such benefit on an
individual basis, and (Z) payment of such amounts shall be made
quarterly in advance;
provided, however, that Executive will be entitled to the benefit of any terms
of Plans applicable to Executive which are more favorable than those specified
in this Section 3(a); and provided further, if any payment or benefit under this
Section 3(a) is based on base salary or other level of compensation or benefits
at the time of termination and if a reduction in such base salary or other level
of compensation or benefit was the basis for Executive's termination for Good
Reason, then the base salary or other level of compensation in effect before
such reduction shall be used to calculate payments or benefits under this
Section 3(a). Except as otherwise expressly provided above, amounts payable
under this Section 3(a) will be paid as promptly as practicable after
termination of Executive's employment and in no event more than 15 days after
such termination.
(b) General Severance Benefits. In the event Executive's employment
--------------------------
with the Company or any of its subsidiaries is terminated without Cause and
Executive is not entitled to any payment or benefit pursuant to Section 3(a)
above, the Company will pay and Executive will be entitled to receive the
following:
(i) The unpaid portion of Executive's annual base salary at the rate
payable at the date of termination of employment, pro rated through
such date of termination, will be paid in a cash lump sum;
(ii) Cash will be paid in a lump sum to Executive in an amount equal to the
Executive's annual base salary at the rate payable immediately prior
to termination of employment;
(iii) All vested, nonforfeitable amounts owing or accrued at the date of
termination of employment under any compensation and benefit Plans
(including any earned and vested annual incentive compensation) in
which Executive theretofore participated will be paid under the terms
and conditions of the Plans pursuant to which such compensation and
benefits were granted;
(iv) The Committee may, but is not required to, extend the period in which
any stock options held by Executive at termination shall remain
exercisable, and, in all other respects, all such options shall be
governed by the Plans pursuant to which such options were granted; and
<PAGE>
(v) Reasonable business expenses and disbursements incurred by Executive
prior to such termination of employment will be reimbursed in
accordance with policies applicable to Executive while still employed.
With the exception of the amount payable to Executive pursuant to Section
3(b)(iv) above, which will be paid after the end of the year in which
Executive's employment terminates in accordance with the Company's normal pay
practices with respect to annual incentive compensation, amounts payable under
this Section 3(b) will be paid as promptly as practicable after termination of
Executive's employment and in no event more than 15 days after such termination.
(c) No Mitigation. Executive shall not be required by this Agreement
-------------
to seek other employment or otherwise to mitigate Executive's damages upon any
termination of employment.
(d) Offsets; Withholding. The amounts required to be paid by the
--------------------
Company to Executive pursuant to this Agreement shall not be subject to offset
other than with respect to any amounts that are owed to the Company by Executive
due to his receipt of funds as a result of his fraudulent activity and except as
provided in Section 3(a)(ix). The foregoing and other provisions of this
Agreement notwithstanding, all payments to be made to Executive under this
Agreement or otherwise by the Company will be subject to required withholding
taxes and other required deductions.
(e) Nature of Payments. Any amounts due under this Section 3 are in
------------------
the nature of severance payments considered to be reasonable by the Company and
are not in the nature of a penalty.
(f) Exclusivity of Severance Payments. Upon termination of
----------------------------------
Executive's employment during the Term and receipt of benefits hereunder,
Executive shall not be entitled to any severance payments or severance benefits
from the Company or any payments by the Company on account of any claim by
Executive of wrongful termination, including claims under any federal, state or
local human and civil rights or labor laws, other than the payments and benefits
provided in this Section 3.
(g) Release of Employment Claims. Executive agrees, as a condition to
-----------------------------
receipt of any termination payments and benefits provided hereunder (other than
salary earned through the date of termination), that Executive will execute a
general release agreement, in a form satisfactory to
<PAGE>
the Company, releasing any and all claims arising out of Executive's employment
(other than enforcement of this Agreement).
4. ACCELERATION OF VESTING OF OPTIONS.
In the event of a Change in Control, all outstanding stock options
then held by Executive shall become fully vested and non-forfeitable.
5. NON-SOLICITATION; NON-DISCLOSURE; EXECUTIVE COOPERATION; AND NON-
DISPARAGEMENT.
(a) Non-Solicitation. Without the consent in writing of the Board,
----------------
Executive will not, at any time during employment and for a period of 18 months
following termination of Executive's employment for any reason, acting alone or
in conjunction with others, directly or indirectly (i) induce any customers of
the Company or any of its subsidiaries with whom Executive has had contacts or
relationships, directly or indirectly, during and within the scope of his
employment with the Company or any of its subsidiaries, to curtail or cancel
their business with the Company or any such subsidiary; (ii) induce, or attempt
to influence, any employee of the Company or any of its subsidiaries to
terminate employment; or (iii) hire, either directly or through any employee,
agent or representative, any employee of the Company or any of its subsidiaries
or any person who was employed by the Company or any of its subsidiaries within
180 days preceding such hiring; provided, however, that activities engaged in by
or on behalf of the Company are not restricted by this covenant. The provisions
of subparagraphs (i), (ii) and (iii) above are separate and distinct commitments
independent of each other.
(b) Non-Disclosure. Executive shall not, at any time during the Term
--------------
and thereafter (including following Executive's termination of employment for
any reason), disclose, use, transfer, or sell, except in the course of
employment with or other service to the Company, any proprietary information,
secrets, or other confidential information belonging or relating to the Company
and its subsidiaries so long as such information has not otherwise been
disclosed or is not otherwise in the public domain, except as required by law or
pursuant to legal process. In addition, upon termination of employment for any
reason, Executive will return to the Company or its subsidiaries all documents
and other media containing information belonging or relating to the Company or
its subsidiaries.
(c) Cooperation With Regard to Litigation. Executive agrees to
-------------------------------------
cooperate with the Company, during the Term and thereafter (including following
Executive's termination of employment for any reason), by making himself
available to testify on behalf of the Company or any subsidiary
<PAGE>
or affiliate of the Company, in any action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, and to assist the Company, or any
subsidiary or affiliate of the Company, in any such action, suit, or proceeding,
by providing information and meeting and consulting with the Board or its
representatives or counsel, or representatives or counsel to the Company, or any
subsidiary or affiliate of the Company, as requested. The Company agrees to
reimburse Executive, on an after-tax basis, for all expenses actually incurred
in connection with his provision of testimony or assistance.
(d) Non-Disparagement. Executive shall not, at any time during the
-----------------
Term and thereafter (including following Executive's termination of employment
for any reason), make statements or representations, or otherwise communicate,
directly or indirectly, in writing, orally, or otherwise, or take any action
which may, directly or indirectly, disparage or be damaging to the Company or
any of its subsidiaries or affiliates or their respective officers, directors,
employees, advisors, businesses or reputations. Notwithstanding the foregoing,
nothing in this Agreement shall preclude Executive from making truthful
statements that are required by applicable law or legal process.
6. REMEDIES.
In addition to whatever other rights and remedies the Company may have
at equity or in law, if Executive breaches any of the provisions contained in
Section 5 above, (i) the Company shall have the right to immediately terminate
all payments and benefits due under this Agreement and cancel all stock options
and deferred stock then outstanding, (ii) Executive shall have the obligation to
repay to the Company an amount equal to all cash previously paid to Executive
pursuant to Sections 3(a)(ii), 3(a)(iii), 3(a)(iv), 3(a)(vi), 3(a)(vii) and
3(a)(ix) or Sections 3(b)(ii), 3(b)(iii) and 3(b)(iv), and (iii) the Company
shall have the right to seek injunctive relief. Executive acknowledges that
such a breach would cause irreparable injury and that money damages would not
provide an adequate remedy for the Company; provided, however, the foregoing
shall not prevent Executive from contesting the issuance of any such injunction
on the ground that no violation or threatened violation of Section 5 has
occurred. Notwithstanding the foregoing, Executive shall not forfeit any
payment, benefit or option unless and until there shall have been delivered to
him, within six months after the committee (A) had knowledge of conduct or an
event allegedly constituting grounds for such forfeiture and (B) had reason to
believe that such conduct or event could be grounds for such forfeiture, a copy
of a resolution duly adopted by a majority affirmative vote of the membership of
the Committee at a meeting of the committee called and held for such purpose
(after giving Executive reasonable notice specifying the nature of the grounds
for such forfeiture and not less than 30 days to correct the acts or omissions
complained of, if correctable,
<PAGE>
and affording Executive the opportunity, together with his counsel, to be heard
before the Committee) finding that, in the good faith opinion of the Committee,
Executive has engaged and continues to engage in conduct set forth in section 5
which constitutes grounds for forfeiture; provided, however, that if any payment
or benefit is received by Executive or any option is exercised after delivery of
such notice and the Committee subsequently makes the determination described in
this sentence, Executive shall be required to repay to the Company any amounts
received and the amount, if any, equal to the difference between the aggregate
value of all shares acquired upon exercise of any option at the date of the
Committee's determination and the aggregate exercise price paid by Executive.
Any such forfeiture shall apply to such payments, benefits and options
notwithstanding any term or provision of any Plan or agreement.
7. GOVERNING LAW; ARBITRATION.
(a) Governing Law. This Agreement is governed by and is to be
-------------
construed, administered, and enforced in accordance with the laws of the State
of Delaware, without regard to conflicts of law principles, except insofar as
federal laws and regulations may be applicable. If under the governing law, any
portion of this Agreement is at any time deemed to be in conflict with any
applicable statute, rule, regulation, ordinance, or other principle of law, such
portion shall be deemed to be modified or altered to the extent necessary to
conform thereto or, if that is not possible, to be omitted from this Agreement.
The invalidity of any such portion shall not affect the force, effect, and
validity of the remaining portion hereof.
(b) Arbitration. Any dispute or controversy arising under or in
-----------
connection with this Agreement shall be settled exclusively by arbitration in
New York, New York by three arbitrators in accordance with the rules of the
American Arbitration Association in effect at the time of submission to
arbitration. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. For purposes of entering any judgment upon an award
rendered by the arbitrators, the Company and Executive hereby consent to the
jurisdiction of any or all of the following courts: (i) the United States
District Court for the Southern District of New York, (ii) any of the courts of
the State of New York or the State of Delaware, or (iii) any other court having
jurisdiction. The Company and Executive further agree that any service of
process or notice requirements in any such proceeding shall be satisfied if the
rules of such court relating thereto have been substantially satisfied. The
Company and Executive hereby waive, to the fullest extent permitted by
applicable law, any objection which it may now or hereafter have to such
jurisdiction and any defense of inconvenient forum. The Company and Executive
hereby agree that a judgment upon an award rendered by the
<PAGE>
arbitrators may be enforced in other jurisdictions by suit on the judgment or in
any other manner provided by law. Pending the resolution of any arbitration or
court proceeding, the Company shall continue payment of all amounts and benefits
due Executive under this Agreement. All reasonable costs and expenses of any
arbitration or court proceeding (including fees and disbursements of counsel)
shall be paid on behalf of or reimbursed to Executive promptly by the Company;
provided, however, that no reimbursement shall be made of such expenses if and
to the extent the arbitrators determine that any of Executive's litigation
assertions or defenses were in bad faith or frivolous.
(c) Interest on Unpaid Amounts. Any amounts that have become payable
--------------------------
pursuant to the terms of this Agreement or any decision by arbitrators or
judgment by a court of law pursuant to this Section 7 but which are not timely
paid shall bear interest at the prime rate in effect at the time such payment
first becomes payable, as quoted by the Company's principal bank.
8. MISCELLANEOUS.
(a) Effect of Agreement on Other Benefits. Except as specifically
-------------------------------------
provided in this Agreement, the existence of this Agreement shall not be
interpreted to preclude, prohibit or restrict Executive's participation in any
other employee benefit or other Plans in which Executive currently participates.
(b) Not an Employment Agreement. This Agreement is not, and nothing
---------------------------
herein shall be deemed to create, a contract of employment between Executive and
the Company. The Company may terminate the employment of Executive at any time,
subject to the terms of any employment agreement between the Company and
Executive that may then be in effect.
(c) Assignability; Binding Nature. This Agreement shall be binding
-----------------------------
upon and inure to the benefit of the parties and their respective successors,
heirs (in the case of Executive) and permitted assigns.
(d) Non-Transferability. Neither this Agreement nor the rights or
-------------------
obligations hereunder of the parties hereto shall be transferable or assignable
by Executive, except in accordance with the laws of descent and distribution or
as specified in Section 8(f). The Company may assign this Agreement and the
Company's rights and obligations hereunder, and shall assign this Agreement, to
any Successor (as hereinafter defined) which, by operation of law or otherwise,
continues to carry on substantially the business of the Company prior to the
event of succession, and the Company shall, as a
<PAGE>
condition of the succession, require such Successor to agree to assume the
Company's obligations and be bound by this Agreement. For purposes of this
Agreement, "Successor" shall mean any person that succeeds to, or has the
practical ability to control (either immediately or with the passage of time),
the Company's business directly, by merger or consolidation, or indirectly, by
purchase of the Company's voting securities or all or substantially all of its
assets, or otherwise.
(e) Indemnification All rights to indemnification by the Company
---------------
existing immediately prior to a Change in Control in favor of the Executive as
provided in the Company's Certificate of Incorporation or By-Laws or pursuant to
other agreements in effect on or immediately prior to a Change in Control shall
continue in full force and effect, and the Company shall also advance expenses
for which indemnification may be ultimately claimed as such expenses are
incurred to the fullest extent permitted under applicable law, subject to any
requirement that the Executive provide an undertaking to repay such advances if
it is ultimately determined that the Executive is not entitled to
indemnification; provided, however, that any determination required to be made
with respect to whether the Executive's conduct complies with the standards
required to be met as a condition of indemnification or advancement of expenses
under applicable law and the Company's Certificate of Incorporation, By-Laws, or
other agreement shall be made by independent counsel mutually acceptable to the
Executive and the Company (except to the extent otherwise required by law). The
Company shall not amend its Certificate of Incorporation or By-Laws or any
agreement in any manner which adversely affects the rights of the Executive to
indemnification thereunder. Any provision contained herein notwithstanding,
this Agreement shall not limit or reduce any rights of the Executive to
indemnification pursuant to applicable law. In addition, the Company will
maintain directors' and officers' liability insurance in effect and covering
acts and omissions of Executive during the Term and for a period of six years
thereafter on terms substantially no less favorable than those in effect on the
Effective Date.
(f) Beneficiaries. Executive shall be entitled to designate (and
-------------
change, to the extent permitted under applicable law) a beneficiary or
beneficiaries to receive any compensation or benefits payable hereunder
following Executive's death.
(g) Integration. This Agreement constitutes the entire agreement
-----------
among the parties with respect to the matters herein provided, and supersedes
all prior agreements, arrangements, communications, whether oral or written, and
policies with respect to severance benefits payable by the Company to Executive
upon termination of employment following a Change in
<PAGE>
Control. No modification or waiver of any provision hereof shall be effective
unless in writing and signed by the parties hereto.
(h) No General Waivers. The failure of any party at any time to
------------------
require performance by any other party of any provision hereof or to resort to
any remedy provided herein or at law or in equity shall in no way affect the
right of such party to require such performance or to resort to such remedy at
any time thereafter, nor shall the waiver by any party of a breach of any of the
provisions hereof be deemed to be a waiver of any subsequent breach of such
provisions. No such waiver shall be effective unless in writing and signed by
the party against whom such waiver is sought to be enforced.
(i) Survivorship. The respective rights and obligations of the
------------
Parties hereunder shall survive any termination of Executive's employment to the
extent necessary to the intended preservation of such rights and obligations.
(j) Notices. Whenever under this Agreement it becomes necessary to
-------
give notice, such notice shall be in writing, signed by the party or parties
giving or making the same, and shall be served on the person or persons for whom
it is intended or who should be advised or notified, by Federal Express or other
similar overnight service or by certified or registered mail, return receipt
requested, postage prepaid and addressed to such party at the address set forth
below or at such other address as may be designated by such party by like
notice:
If to the Company:
Autotote Corporation
750 Lexington Avenue
25th Floor
New York, New York 10022
Attention: Secretary
If to Executive:
______________________
______________________
______________________
If the parties by mutual agreement supply each other with telecopier numbers for
the purposes of providing notice by facsimile, such notice shall also be proper
notice under this Agreement. In the case of Federal Express or other similar
overnight service, such notice or advice shall be effective when sent,
<PAGE>
and, in the cases of certified or registered mail, shall be effective 2 days
after deposit into the mails by delivery to the U.S. Post Office.
(k) Reformation. The invalidity of any portion of this Agreement
-----------
shall not deemed to render the remainder of this Agreement invalid.
(l) Headings. The headings of this Agreement are for convenience of
--------
reference only and do not constitute a part hereof.
(m) Counterparts. This Agreement may be executed in two or more
------------
counterparts.
IN WITNESS WHEREOF, Executive has hereunto set his hand and the
Company has caused this instrument to be duly executed as of the day and year
first above written.
AUTOTOTE CORPORATION
By:__________________________________________________
Name: A. Lorne Weil
Title:Chairman of the Board,
President and CEO
EXECUTIVE
_____________________________________________________
Name:
<PAGE>
Exhibit 10.28
AGREEMENT
FEBRUARY 19, 1998
between
Autotote Systems, Inc., a corporation with its main offices at 100 Bellevue
Road, P.O. Box 6009, Newark, DE 19714 (hereinafter "Autotote"), duly represented
by its Vice President, Richard WEIL,
and
Elettronica Ingegneria Sistemi, a corporation with its main offices at Via
Tiburtina Valeria Km. 13,700, 00131 Rome, Italy (hereinafter "EIS"), duly
represented by its General Manager and Managing Director, Vincenzo ZANNI,
whereas:
a) Autotote is engaged in the design, development, manufacture and sale of
terminal and computer systems;
b) EIS is active in Italy in the field of computer hardware and software
systems and has been appointed as exclusive distributor of Autotote's
products in Italy;
c) Autotote and EIS have agreed about the particular conditions of the
distribution of each of Autotote's products in Italy;
d) Sisal Sport Italia Spa (hereinafter "Sisal") is active in Italy in the
field of betting and is looking for a new, updated and effective computer
hardware and software system;
e) Autotote and Sisal have agreed that Autotote shall assist Sisal in the
development of a new, effective terminal and computer system. EIS agrees
<PAGE>
that Autotote will be permitted to supply the prototypes and 200 pre-
production Terminals directly to Sisal. The production Terminals will be
supplied to Sisal through EIS.
f) Sisal and EIS have agreed, in a separate document, to the terms and
conditions of the supply of the Terminals from EIS to Sisal, a copy of
which will be provided by EIS to Autotote;
g) Autotote and EIS, in this document, agree to all the particular terms and
conditions of the supply of such Terminals from Autotote to EIS;
Now therefore, in consideration of the mutual covenants and agreements set forth
herein, Autotote and EIS agree as follows:
1. OBJECT OF THE AGREEMENT
1.1. a) EIS hereby orders the manufacture and supply of nineteen
thousand eight hundred (19,800) computer hardware and
firmware systems (as understood in the trade), hereinafter
defined as Terminal, having the features, characteristics and
functions described in Exhibit 1. These Terminals are to be
supplied to Sisal and Autotote agrees to manufacture, sell
and deliver said Terminals through EIS.
1.1. b) Notwithstanding the above, EIS shall have the one time
option, based on the final decision of Sisal to be
communicated in writing to Autotote and EIS, to confirm to
Autotote, after 7,000 Terminals have been supplied by
Autotote, the order for the precise amount of Terminals, over
9,800, to be manufactured by Autotote.
1.2. Autotote has granted to Sisal a perpetual, irrevocable, non
exclusive, apart from what is provided in art. 7, royalty
free license to use the Autotote "Software" (defined in
Exhibit 1)
<PAGE>
and Autotote firmware solely in connection with the Terminals.
Autotote or EIS shall provide Sisal with any upgrades to said
Software made available to its customers generally. No license
has been granted with respect to Autotote's source code for the
Software. Autotote or EIS, if the parties agree, shall supply
software enhancements, training and support .
1.3. Autotote has sublicensed to Sisal Autotote's license interest
in, under and to each and every third party Software.
1.4. EIS has received a copy of the agreement between Autotote and
Sisal and agrees to perform all obligations of EIS defined
therein.
2 INFORMATION - CONFIDENTIALITY
The parties shall exchange all information necessary in order to facilitate the
manufacture of the Terminals and shall keep strictly confidential all
information.
3 TERMS
Autotote shall deliver the Terminals ordered by EIS, as per art. 1.1, within the
following dates, at the Autotote's factory indicated:
DATE QUANTITY FACTORY
a) July 10 - July 31, 1998 100/week Ireland
b) from August 7, 1998 *200/week Ireland
* it is agreed that if Sisal wishes to increase or decrease the weekly
quantity by no more than 20 percent, Sisal will inform Autotote and
EIS, and
<PAGE>
Autotote will comply within fifteen (15) days upon receiving such
request in writing.
4 PRICES
4.1 EIS shall pay as the price for the supply of the Terminals ordered as per
art. 1.1, the following amounts of US $ per Terminal:
- in case EIS orders 9,800 Terminals: US $ 3,250,.00;
- in case EIS orders 12,500 Terminals: US $ 3,092.50 on Terminals between
9,801 and 12,500;
- in case EIS orders 15,000 Terminals: US $ 3,065.00 on Terminals between
9,801 and 15,000;
- in case EIS orders 17,500 Terminals: US $ 3,037.50 on Terminal between
9,801 and 17,500;
- in case EIS orders 19,800 Terminals: US $ 3,010 on Terminal between 9,801
and 19,800.
4.2 EIS shall pay the price provided in art. 4.1 as follows:
* US $ 3,000,000.00 within 15 days from the execution of the present
Agreement; Sisal may elect to pay directly to Autotote said deposit on
behalf of EIS;
* the remainder of the price for the first 9,800 Terminals, equal,
taking into consideration the advance payment provided in the previous
point, to the price provided in art. 4.1 less 306 US $ per Terminal
(save more precise adjustement), 60 days after the shipment of
specific Terminals from Autotote's factory;
* after 60 days from the communication of Sisal provided in art. 1.1.
b), the 10% of the whole compensation for the Terminals ordered over
9,800, calculated taking into account the prices provided in art.
4.1.; Sisal may elect to pay directly to Autotote said deposit on
behalf of EIS;
<PAGE>
* the remainder of the price for the further Terminals ordered over
9,800, 60 days after the shipment of specific Terminals from
Autotote's factory. 4.3 Autotote retains a right of property, as
provided in art. 1523 of the Italian Civil Code, in the Terminals
until the full price thereof is paid by EIS.
4.3 Autotote retains a right of property, as provided in art. 1523 of the
Italian Civil Code, in the Terminals until the full price thereof is paid
by EIS.
4.4 Prices do not include any taxes or duties, now or hereafter enacted,
applicable to the Terminals or to this transaction, all of which taxes and
duties shall be the responsibility of EIS, except for Autotote's franchise
taxes and Autotote's income taxes.
4.5 Liability for loss or damages shall pass to EIS when Autotote shall put
the Terminals into possession of a carrier for shipment to EIS, the
carrier beeing deemed to be an agent for EIS.
Accordingly, freight and insurance for the shipment shall be the
responsibility of EIS.
4.6 EIS and Sisal shall agree about the final price and other conditions of
the supply of Terminals to Sisal by EIS.
5 EXCLUSIVITY
EIS is informed that, subject to the requirements of law and/or any applicable
regulatory review ("Government Approval"), Autotote shall, in the future,
not supply Terminals in Italy or destined to Italy to any third party,
unless Sisal agrees. This provision does not apply to such firmware and/or
software which Autotote has currently supplied in Italy.
6 INTELLECTUAL PROPERTY RIGHTS
6.1 Autotote shall be the sole owner of the intellectual property rights on
Terminal. EIS is informed that Sisal is entitled to use the ideas, patents
and other rights embodied in the Terminal and has the right, as owner of
the Terminals bought from Autotote or from EIS, to use, adapt and make
available in Italy the Terminals
<PAGE>
supplied by Autotote or by EIS and to sell them after use, also in other
countries. This clause shall be amended to comply with any required
Government Approval.
6.2 EIS is informed that Sisal shall remain the sole owner of the Trademarks
in Italy. Autotote shall have the right to approve the Trademarks, which
approval shall not be denied unless for good and serious reasons.
6.3 If EIS, for any reason, is not able to perform under the Agreement, then
Autotote may deal directly with Sisal. If Autotote is unable, for any
reason, to perform to Sisal's satisfaction, Sisal can terminate the
Agreement and demand that Autotote provide to Sisal, on a strictly
confidential basis, with all the documents, instructions, schematics,
necessary in order to allow Sisal to manufacture such Terminals.
7 DELIVERY AND FORCE MAJEURE
Autotote shall deliver the Terminals ordered by EIS strictly complying with a
three (3) months rolling forecasts of shipments to be provided by Sisal in
accordance to the terms provided in art.1.
All parties shall strictly comply with such shipment requirements. Autotote
shall not be liable for any delay in performance or for non-performance, in
whole or in part, caused by the occurrence of any contingency beyond the
control of Autotote, including, but not limited to, acts of God.
8 ACCEPTANCE
EIS is informed that Sisal shall perform inspection and final acceptance testing
within 30 days after receipt of shipment. If, within 30 days after receipt
of shipment, Autotote does not receive notification of non-conformity,
then said shipment shall be deemed to have been accepted. Sisal has the
option to substitute for the above mentioned procedure, a procedure where
Sisal, upon reasonable notice, shall be allowed to conduct
<PAGE>
acceptance testing at Autotote's plant for a period not exceeding one (1)
week.
9 WARRANTIES
9.1 Autotote warrants all Terminals against defects in material and
workmanship under normal use and service for a period of thirteen (13)
months from the date of shipment, provided, however, that Autotote's
liability under said warranty shall be limited, at Autotote's cost, to,
within three (3) weeks of determination of entitlement to a warranty
remedy, replacing or commencing repair, at Autotote's option, Terminals or
parts thereof (including subassemblies) which shall be disclosed to be
defective in the form in which it was shipped by Autotote, prior to its
use in further manufacture or assembly. This warranty is applicable only
if Autotote receives written notice of such defect mailed to its office
within said thirteen (13) month period and is given adequate opportunity
to verify the existence of a claimed defect. This warranty shall not apply
to Terminals of parts thereof that have been (a) subjected to misuse,
neglect, accident, damage in transit, abuse or unusual hazard; (b)
repaired, altered or modified by anyone other than Autotote unless EIS or
Sisal are authorised by Autotote to make repair; (c) used in violation of
instructions furnished by Autotote.
9.2 Where Autotote, following acceptance of the working prototype, fails to
make delivery or repudiates or breaches any other material provisions of
this agreement (other than the warranty against patent infringement),
including, without limitation, Autotote's obligations with respect to
nonconforming items, Autotote's liability to both Sisal and EIS,
collectively, shall not exceed the amount of U.S.$3,300.00 per Terminal.
The foregoing are in lieu of all warranties, express, implied or statutory,
<PAGE>
including, but not limited to, any implied warranty of merchantability or
fitness for a particular purpose and any other warranty obligation on the
part of Autotote. Autotote's warranties
extend to EIS or Sisal and to no other person or entity. In no event will
----------------
Autotote be liable to anyone for incidental or consequential damages for
------------------------------------------------------------------------
breach of any of the provisions of this Agreement, such excluded damages to
---------------------------------------------------------------------------
include, without limitation, loss of goodwill, loss of profits or loss of
-------------------------------------------------------------------------
use.
----
10 PATENT INDEMNITY
10.1 Autotote shall defend any suit or proceeding brought against EIS or Sisal
to the extent that such suit or proceeding is based on a claim that
Terminals manufactured and sold by Autotote constitute direct infringement
on any valid Italian patent and Autotote shall pay all damages and costs
awarded by final judgement (from which no appeal may be taken) against EIS
or Sisal, on condition that Autotote (i) shall be promptly informed and
furnished a copy of each communication, notice or other action relating to
the alleged infringement, (ii) shall be given authority, information and
assistance necessary to defend or settle such suit or proceeding, (iii)
shall be in control of the defense (including the right to select
counsel), and shall have the sole right to compromise and settle such suit
or proceeding. Autotote shall not be obligated to defend or be liable for
costs and damages if the infringement arises out from a combination with,
an addition to, or modification of, the Terminals after delivery by
Autotote, or from a misuse of the Terminals, or any part thereof.
10.2 If any Terminal manufactured and supplied by Autotote shall be held to
directly infringe any valid Italian patent and Sisal or EIS are enjoined
from using the same, or if Autotote believes such
<PAGE>
infringement is likely, Autotote shall, at its option and at its expense,
have the right: (i) to procure for Sisal or EIS the right to use such
Terminals free of liability for patent infringement, or (ii) to replace
(or modify) such Terminals with a non-infringing substitute otherwise
complying substantially with all the requirements provided by this
agreement, or (iii), if (i) and (ii) are not reasonably available, upon
return of the goods, refund the purchase price and the transportation cost
of such Terminals.
10.3 The foregoing states the sole and exclusive liability of Autotote hereto
for infringement of patents, whether direct of contributory, and is in
lieu of all warranties, express, implied or statutory in regard thereto.
10.4 Autotote represents that it conducts its business operations so as not to
infringe upon any third party proprietary rights.
11 GENERAL PROVISIONS
EIS is informed that, with reference to the provisions of arts. 7, 8, 9, 10, 15,
Autotote shall be directly responsible to Sisal for all the obligations
and warranties provided in such articles, including for the Terminals
supplied to Sisal by EIS.
EIS shall be responsible to Autotote for all the violations of its obligations
provided in this Agreement or the violation of EIS' obligations described
in the General Agreement of even date herewith.
12 NO CONFLICT
Neither the execution of this agreement and the performance by the Parties of
their obligations, nor the use of the Terminals will violate, conflict
with, result in any breach of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under any
contract or judgement to which Autotote or EIS are party or by which it is
<PAGE>
bound, or violate any applicable law, statute, rule, ordinance or
regulation of any Governmental Body.
13 COMPLIANCE
Each party specifically acknowledges that the other party is subject to the
gaming and licensing requirements of various jurisdictions and is obliged
to take reasonable efforts to determine the suitability of its business
associates. Each party agrees to cooperate fully with the other party by
providing it with any information, of whatever nature, that the other party
deems necessary or appropriate in assuring itself that the party furnishing
information possesses the good character, honesty, integrity and
reputation applicable to those engaged in the gaming industry and
specifically represents that there is nothing in each party's background,
history, or reputation that would be deemed unsuitable under the standards
applicable to the gaming industry. This agreement is subject to the
approval of Autotote Corporation's Corporate Compliance Committee and
EIS's Compliance Committee or equivalent body. If, during the term of the
agreement, a party is notified by any regulatory agency that the conduct of
business with the other party will jeopardize the first party's license or
ability to be licensed or if a party concludes, on the basis of serious
evidence, that the other party fails to meet the above criteria, this
agreement shall terminate upon written notice by the complaining party.
14 TERMINATION
14.1 Except as specifically provided in this art.14, this agreement shall not
be terminated by EIS without the prior written consent of Autotote.
14.2 Autotote may, by written notice to EIS, terminate this agreement if EIS
does not conform to the payment terms
<PAGE>
hereunder. EIS shall have thirty (30) days to cure any default hereunder.
14.3 In case of termination of this agreement, Autotote will directly supply
Sisal with the Terminals requested by Sisal from EIS.
15 NOTICES
All notices or communications required by the provisions of this agreement or
desired to be given thereunder shall be in writing and given by registered
mail, return receipt requested to the addreess stated above or such other
duly notified address.
16 ASSIGNMENT
Autotote or EIS shall not assign this agreement or any portion of this
agreement, or any interest hereunder, to any third party, except to one of
their affiliates, to be considered as corporation or other business entity
controlling, controlled or under common control of a party, without the
advance written consent of the other Party.
17 ENTIRE AGREEMENT
This agreement constitutes the final written expression of all terms of the
agreement relating to the transactions described herein and a complete and
exclusive statement of those terms. This agreement supersedes all previous
communications, representations, agreements, promises or statements, either
oral or written, with respect to such transactions and no communications,
representations, agreements promises or statements of any kind made by any
representative of the Parties which are not stated herein, shall be
binding on a Party. No addition to or modificaton of any provision of this
agreement will be binding unless made in writing and signed by an
authorized representative. No course of dealing
<PAGE>
or usage of trade or course of performance will be deemed relevant to
explain or supplement any term expressed in this agreement.
18 GOVERNING LAW
This agreement shall be governed by the Italian Law.
19 ARBITRATION
19.1 All disputes between the Parties arising out of or in relation to this
agreement (including any questions as to the validity and enforceability
of this arbitration clause), shall be exclusively and finally resolved
through arbitration in compliance with the law and in accordance with the
Arbitration Rules of the International Chamber of Commerce by three
arbitrators, the first of whom shall be appointed by the Party initiating
the arbitration proceedings simultaneously with its demand of arbitration,
the second of whom shall be appointed by the other Party within 15
(fifteen) days from the date on which it received notice of the demand for
arbitration, and the third of whom (who shall act as Chairman of the
Arbitration Panel) will be designated by agreement of the first two
arbitrators within 20 (twenty) days from the appointment of the second
arbitrator or, falling such agreement, by the Court of Arbitration of the
International Chamber of Commerce of Paris acting as appointing authority
for purposes of such Rules. Such Court shall also designate the second
arbitrator (or any arbitrator who may die, resign, or otherwise cease to
be an arbitrator) in the same manner, if the party required to make such
designation does not do so within the period indicated.
19.2 The arbitration proceedings shall take place in Paris, France, and shall
be conducted in the English language.
<PAGE>
19.3 The expenses of the arbitration proceedings shall be borne by the Parties
in accordance with the determination of the Arbitration Panel.
20. PRIOR AGREEMENT
EIS agrees that this agreement is not in violation of any current
agreement between EIS and Autotote.
IN WITNESS WHEREOF, the Parties hereto have caused this agreement to be executed
by their duly empowered representatives as follows, on February 19, 1998.
Autotote Systems, Inc. Elettronica Ingegneria Sistemi
By : _______________ By: __________________
Name: Richard M.WEIL Name: Vincenzo ZANNI
Title: Vice President Title: General Manager
& Managing Director
<PAGE>
Exhibit 10.29
GENERAL AGREEMENT
-----------------
FEBRUARY 19, 1998
-----------------
between
Autotote Systems, Inc., a corporation with its main offices at 100 Bellevue
- -----------------------
Road, P.O. Box 6009, Newark, DE 19714 (hereinafter "Autotote"), duly represented
by its Vice President, Richard WEIL,
and
Sisal Sport Italia SpA, a corporation with its main offices at 6 Via Paleocapa,
- -----------------------
20121 Milano, Italy (hereinafter "Sisal"), duly represented by its Managing
Director, Mr. Giorgio SANDI,
whereas:
* Autotote is engaged in the design, development, manufacture and sale of
terminal and computer systems;
* Sisal is active in Italy in the field of betting and is looking for a new,
updated and effective computer hardware and software system;
* Autotote has agreed to assist Sisal in the development of a new computer
hardware and software system, in the manufacture of the entire Terminal
requirements of Sisal and in directly suppling to Sisal prototypes and a pre-
production amount of such equipment;
<PAGE>
* Autotote and Sisal have agreed that a larger, production amount of such
equipment shall be supplied to Sisal by the exclusive distributor in Italy of
Autotote's products, Elettronica Ingegneria Sistemi SpA (hereinafter "EIS");
Now therefore, in consideration of the mutual covenants and agreements set forth
herein, Autotote and Sisal agree as follows:
2 DEFINITIONS
- - -----------
As used in this Agreement, the following capitalized terms shall have the
meanings set forth below:
2.1 "Affiliate" of any party shall mean any corporation or other
business entity controlling, controlled or under common control
with such party;
2.2 "Agreement" shall mean this Agreement and all Exhibits hereto;
2.3 "Business" shall mean the business, operations and activities of
Sisal relating to the field of betting;
2.4 "Information" shall mean all information regarding the know-how of
Autotote in computer hardware and software systems and the
requirements, needs, activities, organization, and programs of
Sisal related to the Business;
2.5 "System" shall mean equipment and related software and/or firmware;
2.6 "Intellectual Property Rights" shall mean all the rights for the
complete and absolute ownership of the project, ideas and patents
related to the Terminal (including prototypes);
2.7 "Terminal" shall mean the computer hardware, to be utilized for the
exploitation of the Business, having the main features,
characteristics and functions listed in Exhibit 1 of the Agreement;
the Terminal shall consist of hardware and firmware (as understood
in the trade) as described in Exhibit 1;
<PAGE>
2.8 "Territory" shall mean the Republic of Italy, San Marino and
Vatican State;
2.9 "Trademarks" shall mean the trademarks developed by Sisal and
registered in Italy by Sisal to distinguish the Terminals used in
the Territory.
3 OBJECT OF THE AGREEMENT
- - -----------------------
2.1.a. Subject to the terms and conditions of this Agreement,
Autotote shall develop and manufacture for Sisal five (5)
laboratory prototypes of the Terminal and one (1) working
prototype in final assembly form. The laboratory prototype
shall perform the appropriate functions (except the scanner
shall be 3.25 inches wide without printer) and shall not be
in final assembly form. Autotote will own the Intellectual
Property Rights to all said prototypes.
2.1.b. The working prototype of the Terminal shall be deemed
accepted by Sisal if said working prototype performs all
the material functions and has the features, charateristics
and functions described in Exhibit 1.
2.2. Autotote grants to Sisal the right to use the ideas, patents and
other rights embodied in the Terminal. The Terminals, except for
the pre-production amount, shall be supplied to Sisal by the
exclusive distributor in Italy of Autotote's products, EIS.
Sisal shall have the rights, as owner of the Terminals bought
from Autotote or EIS, to use, adapt and make available such
Terminals for the exploitation of the Business in the Territory
and to sell them also in other countries.
2.3. Autotote grants to Sisal hereby a perpetual, irrevocable, non
exclusive, apart from what is provided in art. 7, royalty free
<PAGE>
license to use the Autotote "Software" (defined in Exhibit 1)
and Autotote firmware solely in connection with the Terminals.
Autotote warrants that Sisal shall be provided with any upgrades
to said Software made available to its customers generally. No
license is granted with respect to Autotote's source code for
the Software. Autotote, if the parties agree, shall have Sisal
supplied with software enhancements, training and support.
2.4. Autotote sublicenses to Sisal Autotote's license interest
in, under and to each and every third party Software, which
sublicense shall be subject to the terms hereof.
2.5. Sisal, prior to acceptance of the working prototype and of
this date, hereby orders the manufacture and supply of two
hundred (200) pre-production Terminals, having the
features, characteristics and functions described in
Exhibit 1, and Autotote agrees to manufacture and directly
supply and deliver the said amount of Terminals to Sisal.
Sisal shall directly order to EIS the supply of nineteen
thousand eight hundred (19,800) Terminals and Autotote
shall manufacture and make available such Terminals to
Sisal, through EIS. Autotote shall be directly responsible
to Sisal for the obligations and warranties for the entire
twenty thousand (20,000) Terminals, as per the provisions
of this Agreement. Sisal shall have on all the Terminals
supplied by Autotote or by EIS all of the rights provided
in this art. 2.
Notwithstanding what is provided in this art. 2.5., Sisal
shall have the one-time option, after 7,000 Terminals have
been supplied by Autotote, to confirm, by written notice to
Autotote, the order for the precise amount of Terminals,
over 10,000, to be manufactured by Autotote and supplied
through EIS.
<PAGE>
2.6 Sisal will provide Autotote with a copy of Sisal's
agreement with EIS.
3. INFORMATION - CONFIDENTIALITY
- -- -------------------------------
The parties shall exchange all Information necessary in order to make possible
and facilitate the development of the prototypes of the Terminal and the
manufacture of the Terminals and shall keep strictly confidential all
Information.
<PAGE>
4. TERMS
- -- -----
4.1. Autotote shall develop and make available for Sisal a quantity
of five (5) laboratory prototypes of the Terminal by February
23, 1998, based on the foam model and the design of the
Terminal already approved by Sisal.
4.2. Autotote shall make available to Sisal one (1) working
prototype of the Terminal by May 1, 1998.
4.3. The Parties shall complete the check provided in art. 2.1.b
and execute a confirmatory acknowledgement within 10 days
from the delivery of the working prototype of the Terminal
to Sisal. Such approval notification shall not be
unreasonably withheld by Sisal.
4.4. In case of non-acceptance of said prototype, Autotote shall
be allowed to remedy the defects within 10 days from the
notification of Sisal and Sisal shall check if the
prototype, after the remedy, is acceptable within 10 days
from the delivery of the mended working protype.
4.5. Autotote shall deliver the pre-production Terminals ordered
by Sisal, as per art. 2.5, within the following date, at the
Autotote's factory indicated:
DATE QUANTITY FACTORY
-------------------------------------------------------------
. May 29, 1998 200 Delaware
It is agreed that the Terminals to be supplied by EIS shall
be delivered by Autotote to EIS within the following dates,
at the Autotote's factory indicated:
DATE QUANTITY FACTORY
-------------------------------------------------------------
. July 10 - July 31, 1998 100/week Ireland
. from August 7, 1998 *200/week Ireland
<PAGE>
* it is agreed that if Sisal wishes to increase or decrease
the weekly quantity by no more than 20 percent Autotote and
EIS will comply within fifteen (15) days upon receiving such
request in writing.
5. COMPENSATION AND PRICES
- -- -----------------------
5.1. To compensate the activity of Autotote provided by art. 2.1,
Sisal has paid in advance to Autotote the sum of
U.S.$50,000.00 (consisting of U.S.$8,000.00 for each of 5
laboratory prototypes and U.S.$10,000.00 for 1 working
prototype), U.S.$700,000.00 for development and tooling and
U.S.$175,000.00 for firmware as described in Exhibit 1,
sec.XX, items A. through N.;
5.2. Sisal shall pay as the price for the supply of the 200
pre-production Terminals ordered as per art. 2.5, the
following amount per Terminal: U.S.$4,600.00
5.3. Sisal shall pay the compensation provided in art. 5.2 as
follows:
* 5% (total of U.S.$46,000.00) within 15 days from the
execution of the present Agreement;
* the remainder, 60 days after the shipment of specific
Terminals from Autotote's factory less the 5% deposit;
5.4. Autotote retains a right of property, as provided in art.
1523 of the Italian Civil Code, in the Terminals ordered as
per art. 2.5. until the full price thereof is paid by Sisal.
5.5. Prices do not include any taxes or duties, now or hereafter
enacted, applicable to the Terminals supplied by Autotote or
to this transaction, all of which taxes and duties shall be
the responsibility of Sisal, except for Autotote's franchise
taxes
<PAGE>
and Autotote's income taxes.
5.6. Liability for loss or damages shall pass to Sisal when
Autotote shall put the Terminals ordered as per art. 2.5.
into possession of a carrier for shipment to Sisal, the
carrier beeing deemed to be an agent for Sisal.
Accordingly, freight and insurance for the shipment shall be
the responsibility of Sisal.
5.7. Final price and other conditions of the supply of the
remaining 19,800 Terminals from EIS to Sisal, will be
directly agreed to between EIS and Sisal.
6. POSSIBLE REIMBURSEMENT OF THE COMPENSATION
- -- ------------------------------------------
In case Autotote will not be able to develop or deliver the laboratory
prototypes or the working prototype of the Terminal as per the features,
characteristics and functions listed in Exhibit 1, Autotote shall:
i) reimburse to Sisal 75% of the total sum advanced as per art. 5.1 within 30
days from the notification of definitive non acceptance provided in art.
4.3. - 4.4.;
ii) repay at the same time the down payment (5%) specified in art. 5.3.;
iii) repay at the same time any down payment received for the manufacture of
19,800 Terminals, as per art. 2.5., to either EIS or Sisal, depending upon
which entity made the down payment.
These shall be Autotote's only obligations for failure, for any reason, to
deliver the Terminals because the prototypes have not been accepted.
7. EXCLUSIVITY
- -- -----------
Subject to the requirements of law and/or any applicable regulatory review
("Government Approval"), and except for sales by Autotote to EIS
contemplated by this agreement, Autotote shall, in the future, not supply
Terminals in the Territory or destined to the Territory to any third party,
<PAGE>
or grant rights on Terminal for use in the Territory, unless Sisal agrees
and Autotote and Sisal regulate all the conditions of such a supply or
grant of rights in a written agreement duly signed by the parties. This
clause does not apply to such firmware and/or software which Autotote has
currently supplied in the Territory.
8. INTELLECTUAL PROPERTY RIGHTS
- -- ----------------------------
8.1. Autotote shall be the sole owner of the Intellectual
Property Rights. Sisal shall have the rights provided in
art. 2.2., 2.3., 2.4. This clause shall be amended to
comply with any required Government Approval.
8.2. Sisal shall remain the sole owner of the Trademarks in the
Territory. Autotote shall have the right to approve the
Trademarks, which approval shall not be denied unless for
good and serious reasons.
8.3. If EIS for any reason, is not able to perform under the
Agreement, then Sisal may deal directly with Autotote. If
Autotote in unable, for any reason, to perform to Sisal's
satisfaction, Sisal can terminate the Agreement and demand
that Autotote provide to Sisal, on astrictly confidential
basis, with all the documents, instructions, schematics,
necessary in order to allow Sisal to manufacture such
Terminals.
9. DELIVERY AND FORCE MAJEURE
- -- ----------------------------
Autotote shall strictly comply with the delivery terms provided in art. 4.5.
Sisal shall provide EIS and Autotote with three (3) months rolling
forecasts of shipments. All parties shall strictly comply with such
shipment requirements.
Autotote shall not be liable for any delay in performance or for non-
performance, in whole or in part, caused by the occurrence of any
contingency beyond the control of Autotote, including, but not limited to,
<PAGE>
acts of God, and non performance by Sisal of any of its obligations under
the present Agreement.
10. ACCEPTANCE
- --- ----------
Sisal shall perform inspection and final acceptance testing within 30 days after
receipt of shipment of Terminals supplied directly by Autotote or by EIS.
If, within 30 days after receipt of shipment, Autotote or EIS do not
receive notification of non-conformity, then said shipment shall be deemed
to have been accepted. Sisal shall have the option to substitute for the
above mentioned procedure, a procedure where Sisal, upon reasonable notice,
shall be allowed to conduct acceptance testing at Autotote's plant for a
period not exceeding one (1) week.
11. WARRANTIES
- --- ----------
11.1. Autotote warrants all Terminals directly supplied by
Autotote or supplied by EIS against defects in material and
workmanship under normal use and service for a period of
thirteen (13) months from the date of shipment, provided,
however, that Autotote's liability under said warranty
shall be limited, at Autotote's cost, to, within three (3)
weeks of determination of entitlement to a warranty remedy,
replacing or commencing repair, at Autotote's option,
Terminals or parts thereof (including subassemblies) which
shall be disclosed to be defective in the form in which it
was shipped by Autotote, prior to its use in further
manufacture or assembly. This warranty is applicable only
if Autotote receives, directly or through EIS, written
notice of such defect mailed to its office within said
thirteen (13) month period and is given adequate
opportunity to verify the existence of a claimed defect.
This warranty shall not apply to Terminals of parts thereof
that have been (a) subjected to
<PAGE>
misuse, neglect, accident, damage in transit, abuse or unusual
hazard; (b) repaired, altered or modified by anyone other than
Autotote or EIS unless Sisal is authorised by Autotote to make
repair; (c) used in violation of instructions furnished by
Autotote.
11.2. Where Autotote or EIS, following acceptance of the working
prototype, fails to make delivery or repudiates or breaches
any other material provisions of this Agreement (other
than the warranty against patent infringement), including,
without limitation, obligations with respect to
nonconforming items, Autotote's liability to both Sisal and
EIS, collectively, shall not exceed the amount of
U.S.$3,300.00 per Terminal. The foregoing are in lieu of
all warranties, express, implied or statutory, including,
but not limited to, any implied warranty of merchantability
or fitness for a particular purpose and any other
warranty obligation on the part of Autotote. Autotote's
warranties extend to Sisal and to no other person or
entity. In no event will Autotote be liable to anyone for
incidental or consequential damages for breach of any of
the provisions of this Agreement, such excluded damages to
include, without limitation, loss of goodwill, loss of
profits or loss of use.
12. PATENT INDEMNITY
-----------------
12.1. Autotote shall defend any suit or proceeding brought
against Sisal to the extent that such suit or proceeding is
based on a claim that Terminals manufactured and sold by
Autotote or by EIS to Sisal constitute direct infringement
on any valid Italian patent and Autotote shall pay all
damages and costs awarded by final judgement (from which no
appeal may be
<PAGE>
taken) against Sisal, on condition that Autotote (i) shall be
promptly informed and furnished a copy of each communication,
notice or other action relating to the alleged infringement,
(ii) shall be given authority, information and assistance
necessary to defend or settle such suit or proceeding, (iii)
shall be in control of the defense (including the right to
select counsel), and shall have the sole right to compromise and
settle such suit or proceeding. Autotote shall not be obligated
to defend or be liable for costs and damages if the infringement
arises out from a combination with, an addition to, or
modification of, the Terminals after delivery by Autotote, or
from a misuse of the Terminals, or any part thereof.
12.2. If any Terminal manufactured and supplied by Autotote or by
EIS to Sisal shall be held to directly infringe any valid
Italian patent and Sisal is enjoined from using the same,
or if Autotote believes such infringement is likely,
Autotote shall, at its option and at its expense, have the
right: (i) to procure for Sisal the right to use infringing
substitute otherwise complying substantially with all the
requirements provided by this Agreement, or (iii), if (i)
and (ii) are not reasonably available, upon return of the
goods, refund the purchase price and the transportation
cost of such Terminals.
12.3. The foregoing states the sole and exclusive liability of
Autotote hereto for infringement of patents, whether direct
of contributory, and is in lieu of all warranties, express,
implied or statutory in regard thereto.
12.4. Autotote represents to Sisal that it conducts its business
operations so as not to infringe upon any third party
proprietary rights.
<PAGE>
13. GENERAL PROVISION
-----------------
Autotote and Sisal confirm that the provisions of arts. 9., 10., 11., 12.,
16., may be enforced by Sisal directly against Autotote with respect to all
Terminals, including the Terminals supplied by EIS, and Sisal may directly
claim from Autotote all the possible damages incurred by Sisal covered
under said articles.
14. NO CONFLICT
-----------
Neither the execution of this Agreement and the performance by the Parties of
their obligations, nor the use of the Terminals for the exploitation of the
Business will violate, conflict with, result in any breach of, or
constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under any contract or judgement to which
Autotote or Sisal is party or by which it is bound, or violate any
applicable law, statute, rule, ordinance or regulation of any Governmental
Body.
15. COMPLIANCE
----------
Each party specifically acknowledges that the other party is subject to the
gaming and licensing requirements of various jurisdictions and is obliged
to take reasonable efforts to determine the suitability of its business
associates. Each party agrees to cooperate fully with the other party by
providing it with any information, of whatever nature, that the other party
deems necessary or appropriate in assuring itself that the party furnishing
information possesses the good character, honesty, integrity and
reputation applicable to those engaged in the gaming industry and
specifically represents that there is nothing in each party's background,
history, or reputation that would be deemed unsuitable under the standards
applicable to the gaming industry. This Agreement is subject to the
approval of Autotote Corporation's Corporate
<PAGE>
Compliance Committee and Sisal's Compliance Committee or equivalent body.
If, during the term of the Agreement, a party is notified by any regulatory
agency that the conduct of business with the other party will jeopardize
the first party's license or ability to be licensed or if a party
concludes, on the basis of serious evidence, that the other party fails to
meet the above criteria, this Agreement shall terminate upon written notice
by the complaining party.
16. TERMINATION
- --- -----------
16.1. (a) Except as specifically provided in this art.16., this Agreement and
the agreement with EIS for the supply of 19,800 Terminals shall not
be terminated by Sisal or EIS without the prior written consent of
Autotote. If Sisal defaults, Autotote, in addition to its other legal
remedies, shall be reimbursed for all its documented, non-cancelable
costs (reduced by Autotote's resale of inventory items undertaken in
good faith) incurred to fill the order.
(b) Notwithstanding the above, in case Sisal, directly or through EIS,
has already ordered at the moment of the cancellation more than
10,000 Terminals, Autotote shall not be entitled to claim any
reimboursment or remedy for non-cancellable costs incurred or others
damages.
16.2. Sisal may, by written notice to Autotote, terminate, respectively
this Agreement in whole or, from time to time, in part if any one of
the following occurs:
a) Autotote repeatedly fail to meet delivery dates;
b) Terminals do not conform to the requirements
specified in Exhibit 1;
c) Autotote fail to comply with any material obligations
<PAGE>
contained in this Agreement;
d) Autotote become insolvent or commits an act of
bankruptcy.
Autotote shall have thirty (30) days to cure any default
hereunder. In case of failure, Sisal shall be entitled to
manufacture, directly or through a third party, the Terminals
and to use, adapt, make them available in the Territory and
to sell them also in other countries. In case EIS becomes
insolvent or repeatedly fails to comply with it's material
obligations Autotote shall directly supply Sisal with the
Terminals ordered by EIS. In case of failure the above
provision shall apply.
16.3. Autotote may, by written notice to Sisal, terminate this
Agreement if Sisal does not conform to the payment terms
hereunder. Sisal shall have thirty (30) days to cure any
default hereunder.
17. NOTICES
- --- -------
All notices or communications required by the provisions of this Agreement or
desired to be given thereunder shall be in writing and given by registered
mail, return receipt requested to the addreess stated above or such other
duly notified address.
18. ASSIGNMENT
- --- ----------
Autotote or Sisal shall not assign this Agreement or any portion of this
Agreement, or any interest hereunder, to any third party, except to one of
their Affiliates, without the advance written consent of the other Party.
<PAGE>
19. ENTIRE AGREEMENT
- --- ----------------
This Agreement constitutes the final written expression of all terms of the
Agreement relating to the transactions described herein and a complete and
exclusive statement of those terms. This agreement supersedes all previous
communications, representations, agreements, promises or statements, either
oral or written, with respect to such transactions and no communications,
representations, agreements promises or statements of any kind made by any
representative of the Parties which are not stated herein, shall be
binding on a Party. No addition to or modificaton of any provision of this
Agreement will be binding unless made in writing and signed by an
authorized representative. No course of dealing or usage of trade or course
of performance will be deemed relevant to explain or supplement any term
expressed in this Agreement.
20. GOVERNING LAW
- --- -------------
This Agreement shall be governed by the Italian Law.
21. ARBITRATION
- --- -----------
21.1. All disputes between the Parties arising out of or in relation to
this Agreement (including any questions as to the validity and
enforceability of this arbitration clause), shall be exclusively and
finally resolved through arbitration in compliance with the law and in
accordance with the Arbitration Rules of the International Chamber of
Commerce by three arbitrators, the first of whom shall be appointed by
the Party initiating the arbitration proceedings simultaneously with
its demand of arbitration, the second of whom shall be appointed by
the other Party within 15 (fifteen) days from the date on which it
received notice of the demand for arbitration, and the third of whom
(who shall act as Chairman of the Arbitration Panel) will be
designated by agreement of the first two arbitrators within 20
(twenty) days from the appointment of the second arbitrator or,
falling such
<PAGE>
agreement, by the Court of Arbitration of the International Chamber of
Commerce of Paris acting as appointing authority for purposes of such
Rules. Such Court shall also designate the second arbitrator (or any
arbitrator who may die, resign, or otherwise cease to be an
arbitrator) in the same manner, if the party required to make such
designation does not do so within the period indicated.
21.2. The arbitration proceedings shall take place in Paris, France, and
shall be conducted in the English language.
21.3. The expenses of the arbitration proceedings shall be borne by the
Parties in accordance with the determination of the Arbitration Panel.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their duly empowered representatives as follows, on February
19, 1998.
Autotote Systems, Inc. Sisal Sport Italia SpA
By :__________________ By:__________________
Name: Richard M.Weil Name: Giorgio Sandi
Title: Vice President Title: Managing Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMETNS OF AUTOTOTE CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<CASH> 11,590
<SECURITIES> 0
<RECEIVABLES> 13,055
<ALLOWANCES> (1,558)
<INVENTORY> 7,727
<CURRENT-ASSETS> 33,202
<PP&E> 190,372
<DEPRECIATION> 110,793
<TOTAL-ASSETS> 149,693
<CURRENT-LIABILITIES> 40,801
<BONDS> 35,000
0
0
<COMMON> 356
<OTHER-SE> (40,626)
<TOTAL-LIABILITY-AND-EQUITY> 149,693
<SALES> 70,646
<TOTAL-REVENUES> 70,646
<CGS> 43,767
<TOTAL-COSTS> 43,767
<OTHER-EXPENSES> 26,191
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,654
<INCOME-PRETAX> (6,966)
<INCOME-TAX> 294
<INCOME-CONTINUING> (7,260)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,260)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
