FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 30, 1997
Commission file number 1-11250
GTECH Holdings Corporation
(Exact name of registrant as specified in its charter)
Delaware 05-0450121
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
55 Technology Way, West Greenwich, Rhode Island 02817
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (401) 392-1000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
At October 4, 1997 there were 41,947,946 shares of the registrant's Common Stock
outstanding.
<PAGE>
INDEX
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
Consolidated Income Statements
Consolidated Statement of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 4. Submission of Matters to Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBITS
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Unaudited)
August 30, February 22,
1997 1997
------------ ------------
(In thousands,
except share amounts)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................................................... $ 11,943 $ 11,985
Trade accounts receivable ................................................... 86,611 110,707
Sales-type lease receivables ................................................ 12,513 15,231
Inventories ................................................................. 43,912 35,326
Deferred income taxes ....................................................... 20,237 20,237
Other current assets ........................................................ 16,413 9,743
------------ ------------
TOTAL CURRENT ASSETS ................................................. 191,629 203,229
SYSTEMS, EQUIPMENT AND OTHER ASSETS RELATING TO CONTRACTS ........................ 1,219,568 1,063,651
Less: Accumulated Depreciation ................................................... (633,383) (561,350)
------------ ------------
586,185 502,301
GOODWILL, net .................................................................... 115,590 112,853
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES ......................... 61,372 56,693
OTHER ASSETS ..................................................................... 86,791 81,465
------------ ------------
$ 1,041,567 $ 956,541
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings ....................................................... $ 1,380 $ 1,395
Accounts payable ............................................................ 39,375 53,944
Accrued expenses ............................................................ 61,334 52,625
Advance payments from customers ............................................. 10,117 10,534
Employee compensation ....................................................... 22,705 27,991
Income taxes payable ........................................................ 17,901 13,777
Current portion of long-term debt ........................................... 5,595 6,049
------------ ------------
TOTAL CURRENT LIABILITIES ............................................ 158,407 166,315
LONG-TERM DEBT, less current portion ............................................. 459,889 382,499
OTHER LIABILITIES ................................................................ 18,200 25,907
DEFERRED INCOME TAXES ............................................................ 23,687 23,687
SHAREHOLDERS' EQUITY
Preferred Stock, par value $.01 per share--20,000,000 shares authorized, --- ---
none issued
Common Stock, par value $.01 per share--150,000,000 shares authorized,
43,879,752 and 43,845,651 shares issued, 42,027,071 and 42,490,770 shares
outstanding at August 30, 1997 and February 22, 1997, respectively ....... 439 438
Additional paid-in capital .................................................. 170,385 169,705
Equity carryover basis adjustment ........................................... (7,008) (7,008)
Cumulative translation adjustment ........................................... 331 1,472
Retained earnings ........................................................... 268,286 228,741
------------ ------------
432,433 393,348
Less cost of 1,852,681 and 1,354,881 shares in treasury at
August 30, 1997 and February 22, 1997, respectively ...................... (51,049) (35,215)
------------ ------------
381,384 358,133
------------ ------------
$ 1,041,567 $ 956,541
============ ============
See notes to consolidated financial statements
</TABLE>
<PAGE>
CONSOLIDATED INCOME STATEMENTS
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
-----------------------
August 30, August 24,
1997 1996
---------- ----------
(In thousands, except
per share amounts)
<S> <C> <C>
Revenues:
Services ............................................ $ 209,139 $ 191,812
Sales of products ................................... 17,671 23,141
---------- ----------
226,810 214,953
Costs and expenses:
Costs of services ................................... 143,548 133,947
Costs of sales ...................................... 9,169 14,537
---------- ----------
152,717 148,484
---------- ----------
Gross profit .............................................. 74,093 66,469
Selling, general and administrative ....................... 32,939 30,674
Research and development .................................. 7,869 8,544
---------- ----------
Operating income .......................................... 33,285 27,251
Other income (expenses):
Interest income ..................................... 1,792 899
Equity in earnings of unconsolidated affiliates...... 4,957 3,374
Other income ........................................ 510 2,421
Interest expense .................................... (7,916) (3,772)
---------- ----------
Income before income taxes ................................ 32,628 30,173
Income taxes .............................................. (12,403) (12,672)
---------- ----------
Net income ................................................ $ 20,225 $ 17,501
========== ==========
Earnings per common share ................................. $ .48 $ .41
========== ==========
Weighted average common shares outstanding ................ 42,046 43,087
========== ==========
See notes to consolidated financial statements
</TABLE>
<PAGE>
CONSOLIDATED INCOME STATEMENTS
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended (1)
-----------------------
August 30, August 24,
1997 1996
---------- ----------
(In thousands, except
per share amounts)
<S> <C> <C>
Revenues:
Services ............................................ $ 435,069 $ 386,798
Sales of products ................................... 36,912 39,328
---------- ----------
471,981 426,126
Costs and expenses:
Costs of services ................................... 300,263 265,662
Costs of sales ...................................... 20,497 23,691
---------- ----------
320,760 289,353
---------- ----------
Gross profit .............................................. 151,221 136,773
Selling, general and administrative ....................... 68,853 60,626
Research and development .................................. 16,044 15,174
---------- ----------
Operating income .......................................... 66,324 60,973
Other income (expenses):
Interest income ..................................... 3,545 1,449
Equity in earnings of unconsolidated affiliates...... 8,671 6,591
Other income ........................................ 880 2,467
Interest expense .................................... (14,592) (9,923)
---------- ----------
Income before income taxes ................................ 64,828 61,557
Income taxes .............................................. (25,283) (25,853)
---------- ----------
Net income ................................................ $ 39,545 $ 35,704
========== ==========
Earnings per common share ................................. $ .94 $ .83
========== ==========
Weighted average common shares outstanding ................ 42,065 43,087
========== ==========
(1) 27 weeks in the six month period ended August 30, 1997 and 26 weeks in the
six month period ended August 24, 1996
See notes to consolidated financial statements
</TABLE>
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY-(Unaudited)
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Common Stock Additional
------------------------ Paid-in Retained Treasury
Shares Amount Capital Other Earnings Stock Total
---------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 22, 1997.... 43,845,651 $ 438 $ 169,705 $ (5,536) $ 228,741 $ (35,215) $ 358,133
Purchase of 497,800 shares
of common stock ............ --- --- --- --- --- (15,834) (15,834)
Common stock issued under
stock award plans .......... 34,101 1 680 --- --- --- 681
Net income ..................... --- --- --- --- 39,545 --- 39,545
Foreign currency translation.... --- --- --- (1,141) --- --- (1,141)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at August 30, 1997...... 43,879,752 $ 439 $ 170,385 $ (6,677) $ 268,286 $ (51,049) $ 381,384
========== ========== ========== ========== ========== ========== ==========
See notes to consolidated financial statements
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended (1)
----------------------
August 30, August 24,
1997 1996
---------- ----------
(Dollars in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income .................................................................... $ 39,545 $ 35,704
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ........................................... 99,289 80,376
Equity in earnings of unconsolidated affiliates ......................... (8,671) (6,591)
Other ................................................................... 8,788 264
Changes in operating assets and liabilities:
Trade accounts receivable ............................................. 24,132 (21,712)
Inventories ........................................................... (8,408) 9,512
Other assets and liabilities .......................................... (21,495) 11,703
Other assets and liabilities of discontinued operations ............... (2,604) (2,622)
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ..................................... 130,576 106,634
INVESTING ACTIVITIES
Purchases of systems, equipment and other assets relating to contracts......... (174,939) (106,325)
Purchases of property plant and equipment ..................................... (7,536) (7,064)
Cash received from affiliates ................................................. 2,330 354
Investments in and advances to affiliates ..................................... (5,178) (636)
Other ......................................................................... (4,426) ---
---------- ----------
NET CASH USED FOR INVESTING ACTIVITIES ........................................ (189,749) (113,671)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt ...................................... 433,818 2,965
Principal payments on long-term debt .......................................... (356,592) (1,982)
Purchases of treasury stock ................................................... (15,834) ---
Other ......................................................................... (1,712) 211
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES ..................................... 59,680 1,194
Effect of exchange rate changes on cash ....................................... (549) (772)
---------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS ......................................... (42) (6,615)
Cash and cash equivalents at beginning of period .............................. 11,985 8,519
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................................... $ 11,943 $ 1,904
========== ==========
(1) 27 weeks in the six month period ended August 30, 1997 and 26 weeks in the
six month period ended August 24, 1996
See notes to consolidated financial statements
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of GTECH Holdings
Corporation (the "Company"), the parent of GTECH Corporation ("GTECH"), have
been prepared in accordance with generally accepted accounting principles
("GAAP") for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by GAAP for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the six-month period ended August 30, 1997 are
not necessarily indicative of the results that may be expected for the full 1998
fiscal year ending February 28, 1998. The balance sheet at February 22, 1997 has
been derived from the audited financial statements at that date. For further
information refer to the consolidated financial statements and footnotes thereto
included in GTECH Holdings Corporation's fiscal 1997 Annual Report on Form 10-K.
The Company operates on a 52 to 53 week fiscal year ending on the last Saturday
in February. Fiscal 1998 is a 53 week year. The Company has included the extra
week in its first quarter ended May 31, 1997. Accordingly, there are
twenty-seven weeks in the six month period ended August 30, 1997, versus
twenty-six weeks in the six month period ended August 24, 1996.
NOTE B--INVENTORIES
August 30, February 22,
1997 1997
----------- -----------
(Dollars in thousands)
Inventories consist of:
Purchased components $ 13,639 $ 11,483
Finished subassemblies 1,784 1,993
Work-in-process 18,754 16,106
Finished goods 9,735 5,744
----------- -----------
$ 43,912 $ 35,326
=========== ===========
NOTE C--LONG-TERM DEBT
August 30, February 22,
1997 1997
----------- -----------
(Dollars in thousands)
Long-term debt consists of:
Revolving credit facility $ 145,200 $ 367,000
7.75% Series A Senior Notes due 2004 150,000 ---
7.87% Series B Senior Notes due 2007 150,000 ---
Other 20,284 21,548
----------- -----------
465,484 388,548
Less current maturities 5,595 6,049
----------- -----------
$ 459,889 $ 382,499
=========== ===========
The Company has an unsecured revolving credit facility of $400 million expiring
in June 2002 (the "Credit Facility"). At August 30, 1997, the weighted average
interest rate for all outstanding borrowings under the Credit Facility was
5.93%. On May 29, 1997, the Company issued in a private placement, $150 million
of 7.75% Series A Senior Notes due 2004 and $150 million of 7.87% Series B
Senior Notes due 2007 (collectively, the "Senior Notes"). Interest on each issue
is payable semiannually in arrears. The proceeds from the sale of the Senior
Notes were used to pay down the Credit Facility.
NOTE D--INCOME TAXES
The Company's effective income tax rate was greater than the statutory rate due
primarily to state income taxes and certain expenses that are not deductible for
income tax purposes.
NOTE E--COMMITMENTS AND CONTINGENCIES
See Legal Proceedings in Part II Item 1 and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in Part I, Item 2
herein.
<PAGE>
NOTE F--EARNINGS PER COMMON SHARE
Earnings per common share are calculated by dividing net income by weighted
average common shares outstanding during the period. The exercise of outstanding
stock options would not result in a material dilution of earnings per common
share.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share", that is required to be adopted by the Company in the
fourth quarter of fiscal 1998. At that time, the Company will be required to
change the method currently used to calculate earnings per share and to restate
all prior periods presented. Under the new standard, primary earnings per share
will be replaced with basic earnings per share and fully diluted earnings per
share will be replaced with diluted earnings per share. Basic earnings per
share is computed by dividing income available to common stockholders by
weighted average common shares outstanding for the period without consideration
for common stock equivalents. Diluted earnings per share is computed similarly
to fully diluted earnings per share under the provisions of APB Opinion No. 15.
Had the provisions of Statement No. 128 been used to calculate earnings per
share for the first six months of fiscal 1998 and 1997, earnings per share would
not have differed materially from the reported amounts.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Certain statements contained in this section and elsewhere in this report are
forward looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934. Such statements
include, without limitation, statements relating to (i) the future prospects for
and stability of the lottery industry and other businesses in which the Company
is or expects to be engaged, (ii) the future operating and financial performance
of the Company, (iii) the ability of the Company to retain existing business and
to obtain and retain new business, and (iv) the results and effects of legal
proceedings and investigations. Such forward looking statements reflect
management's assessment based on information currently available, but are not
guarantees and are subject to risks and uncertainties which could cause actual
results to differ materially from those contemplated in the forward looking
statements. These risks and uncertainties include but are not limited to those
set forth herein and in the Company's press releases and filings with the
Securities and Exchange Commission.
General
The Company has derived substantially all of its revenues from the rendering of
services and the sale or supply of computerized on-line lottery systems and
components to government-authorized lotteries. Service revenues have been
derived primarily from service contracts, that are typically of at least five
years' duration, and are generally based upon a percentage of a lottery's gross
on-line lottery sales. These percentages typically fall within a range of 1.5%
to 5.0%. Product sales revenues have been derived primarily from the
installation of new on-line lottery systems and sales of lottery terminals and
equipment in connection with the expansion of existing lottery systems. The size
and timing of these transactions have resulted in variability in product sales
revenues from period to period.
The Company also has taken steps to broaden its offerings of high volume
transaction processing services outside of its core business of providing
on-line lottery services. The Company's Transactive subsidiary currently
provides benefits delivery systems and services on behalf of government
authorities. The Company's Dreamport subsidiary ("Dreamport") pursues gaming
opportunities other than on-line lottery. In addition, the Company's WorldServ
subsidiary provides network communications services to private sector clientele.
The Company's business is highly regulated, and the competition to secure new
government contracts is often intense. Awards of contracts to the Company are,
from time to time, challenged by competitors. Further, there have been and
continue to be investigations of various types, including grand jury
investigations, conducted by governmental authorities into possible
improprieties and wrongdoing in connection with efforts to obtain and/or the
awarding of lottery contracts and related matters. Although the Company does not
believe that it has engaged in any wrongdoing in connection with these matters,
certain investigations that are conducted largely in secret are still underway.
Accordingly, the Company lacks sufficient information to determine with
certainty their ultimate scope and whether the government authorities will
assert claims resulting from these or other investigations that could implicate
or reflect adversely upon the Company. Because the Company's reputation for
integrity is an important factor in its business dealings with lottery and other
government agencies, if government authorities were to make an allegation of, or
if there were to be a finding of, improper conduct on the part of or
attributable to the Company in any matter, such an allegation or finding could
have a material adverse effect on the Company's business, including its ability
to retain existing contracts and to obtain new or renewal contracts. In
addition, continuing adverse publicity resulting from these investigations and
related matters could have such a material adverse effect. See "Legal
Proceedings" in Part II, Item 1 herein; Part I, Item 1 - "Factors Affecting
Future Performance - Maintenance of Business Relationships and Certain Legal
Matters" and Part I, Item 3 - "Legal Proceedings" of the Company's fiscal 1997
annual report on Form 10-K; and Note H to the Consolidated Financial
Statements in the Company's fiscal 1997 annual report on Form 10-K for further
information concerning these matters and other contingencies.
Results of Operations
The Company operates on a 52 to 53 week fiscal year ending on the last Saturday
in February. Fiscal 1998 is a 53 week year. The Company has included the extra
week in its first quarter ended May 31, 1997. Accordingly, there are
twenty-seven weeks in the six month period ended August 30, 1997, versus
twenty-six weeks in the six month period ended August 24, 1996.
Revenues for the second quarter of fiscal 1998 were $226.8 million, representing
a $11.8 million, or 5.5%, increase over revenues of $215.0 million in the second
quarter of fiscal 1997.
<PAGE>
Service revenues in the fiscal 1998 second quarter were $209.1 million,
representing a $17.3 million, or 9.0%, increase over the $191.8 million of
service revenues in the second quarter of fiscal 1997. This increase resulted
primarily from $19.2 million of service revenues from new on-line lottery
systems operated by the Company that commenced operations since the second
quarter of fiscal 1997, including service revenues from the on-line lottery
system that the Company implemented for Caixa Economica Federal ("Caixa"), Latin
America's largest financial institution that runs Brazil's National Lottery,
partially offset by the absence of service revenues from the Maryland contract
which terminated in September 1996.
Product sales in the second quarter of fiscal 1998 were $17.7 million,
representing a $5.5 million, or 23.6%, decrease from the $23.2 million of
product sales in the second quarter of fiscal 1997. This decrease resulted
primarily from lower sales of component parts and equipment ("OEM equipment") to
Camelot Group plc ("Camelot") and other members of the U.K. lottery consortium.
The Company sold approximately 2,000 lottery terminals in both the second
quarter of fiscal 1998 and 1997.
Gross margins on service revenues were 31.4% in the fiscal 1998 second quarter
compared to 30.2% in the second quarter of fiscal 1997. This increase was due
primarily to improved margins on certain existing lottery contracts, partially
offset by lower margins experienced on new lottery contracts in the early stages
of lottery operations.
Gross margins on product sales fluctuate depending primarily on the mix, volume
and timing of product sales contracts. Gross margins on product sales were 48.1%
in the second quarter of fiscal 1998 compared to 37.2% in the second quarter of
fiscal 1997. This improvement was reflective of product mix.
Revenues for the first six months of fiscal 1998 were $472.0 million,
representing a $45.9 million, or 10.8%, increase over revenues of $426.1 million
in the first six months of fiscal 1997.
Service revenues for the first six months of fiscal 1998 were $435.1 million,
representing an increase of $48.3 million, or 12.5%, over the $386.8 million of
service revenues in the first six months of fiscal 1997. This increase resulted
primarily from $31.0 million of higher revenues from the Company's existing
lottery customer base along with $24.1 million of service revenues from new
on-line lottery systems operated by the Company that commenced operations since
the second quarter of fiscal 1997, including service revenues from the Caixa,
partially offset by the absence of service revenues from the Maryland contract.
Product sales in the first six months of fiscal 1998 were $36.9 million,
representing a decrease of $2.4 million, or 6.1%, from the $39.3 million of
product sales in the first six months of fiscal 1997. This decrease resulted
primarily from lower sales of OEM equipment to Camelot and other members of the
U.K. lottery consortium, partially offset by higher revenues from central
lottery and instant ticket validation system sales in the first six months of
fiscal 1998 than in the first six months of fiscal 1997. The Company sold
approximately 3,100 lottery terminals in the first six months of fiscal 1998 as
compared to approximately 3,000 lottery terminals in the first six months of
fiscal 1997.
Gross margins on service revenues were 31.0% in the first six months of fiscal
1998 compared to 31.3% in the first six months of fiscal 1997. This decline was
due primarily to lower margins experienced on new lottery contracts in the early
stages of lottery operations, partially offset by improved margins on certain
existing lottery contracts.
Gross margins on product sales were 44.5% in the first six months of fiscal 1998
compared to 39.8% in the first six months of fiscal 1997. This improvement was
reflective of product mix.
Selling, general and administrative expenses in the second quarter of fiscal
1998 were $32.9 million, representing a $2.2 million, or 7.4%, increase from the
$30.7 million incurred in the second quarter of fiscal 1997. Selling, general
and administrative expenses in the first six months of fiscal 1998 were $68.9
million, representing an $8.3 million, or 13.6%, increase from the $60.6 million
incurred in the first six months of fiscal 1997. These increases were primarily
attributable to higher legal costs relating in large part to investigations and
legal proceedings along with higher administrative, selling and government
relations costs that were necessary to support expanded operations. As a
percentage of revenues, selling, general and administrative expenses were 14.5%
and 14.3% during the second quarters of fiscal 1998 and 1997, respectively, and
14.6% and 14.2% during the first six months of fiscal 1998 and 1997,
respectively.
Research and development expenses in the second quarter of fiscal 1998 were $7.9
million, representing a $.6 million, or 7.9%, decrease from research and
development expenses of $8.5 million in the second quarter of fiscal 1997. This
decrease reflects the capitalization of costs relating to standard software
product offerings in the fiscal 1998 second quarter, partially offset by
increased development activity for hardware products and the design and related
software for new games. Research and development expenses in the first six
months of fiscal 1998 were $16.0 million, representing a $.8 million, or 5.7%,
increase from research and development expenses of $15.2 million in the first
six months of fiscal 1997. This increase reflects increased development activity
for new hardware products and the design and related software for new games,
partially offset by the capitalization of cost relating to standard software
product offerings in the first six months of fiscal 1998. As a percentage of
revenues, research and development expenses were 3.5% and 4.0% during the second
quarters of fiscal 1998 and 1997, respectively, and 3.4% and 3.6% during the
first six months of fiscal 1998 and 1997, respectively.
Interest income in the second quarter of fiscal 1998 was $1.8 million, an
increase of $.9 million over interest income of $.9 million earned during the
second quarter of fiscal 1997. Interest income in the first six months of
fiscal 1998 was $3.5 million, an increase of $2.0 million over interest income
of $1.5 million earned during the first six months of fiscal 1997. These
increases reflect higher dollar denominated cash balances in Brazil to fund the
on-line lottery system implementation underway for the Caixa.
Equity in earnings of unconsolidated affiliates in the second quarter of fiscal
1998 was $5.0 million, an increase of $1.6 million over the $3.4 million earned
during the second quarter of fiscal 1997. Equity in earnings of unconsolidated
affiliates in the first six months of fiscal 1998 was $8.7 million, an increase
of $2.1 million over the $6.6 million earned during the first six months of
fiscal 1997. These increases were due primarily to higher equity income from
Camelot along with higher equity income from Dreamport partnership investments.
Interest expense in the second quarter of fiscal 1998 was $7.9 million, an
increase of $4.1 million over the $3.8 million incurred during the second
quarter of fiscal 1997. Interest expense in the first six months of fiscal 1998
was $14.6 million, an increase of $4.7 million over the $9.9 million incurred
during the first six months of fiscal 1997. These increases were due primarily
to higher average debt outstanding to fund the on-line lottery system
implementation underway for the Caixa along with higher average interest rates.
The Company's effective income tax rate decreased from 42% in the second quarter
of fiscal 1997 to 38% in the second quarter of fiscal 1998 and decreased from
42% in the first six months of fiscal 1997 to 39% in the first six months of
fiscal 1998 due principally to a reduction in nondeductible expenditures,
increased recognition of tax credits and the full year effect of the
restructuring of financing and operations in Brazil. The Company's effective
income tax rate was greater than the statutory rate due primarily to state
income taxes and certain expenses that are not deductible for income tax
purposes.
As previously reported, the Texas Lottery Commission had indicated its intention
to rebid the Texas Lottery contract currently held by GTECH and in August 1997
the Commission issued a Request for Proposals ("RFP") with respect to the
contract. (See "Legal Proceedings" in Part II, Item 1). The Chairman of the
Commission has declared that issuing the RFP is not and should not be deemed an
exercise by the Texas Lottery of the termination provision of GTECH's contract,
without cause, upon 30 days prior notice. Nevertheless, the Texas Lottery
Commission has further asserted that it has no obligation to deal with GTECH in
good faith with respect to the termination of its contract with the Company, a
position with which GTECH strongly disagrees. Pursuant to the amendment to
GTECH's contract executed in April 1996 which extended the term of the contract
for five years, the Company is making major capital investments of more than
$20.0 million and has incurred significant related expenses. A substantial
portion of such investment, along with a substantial portion of the Company's
existing investment in its Texas lottery contract ($38.7 million at August 30,
1997) may be required to be written off should the Company lose all or a portion
of the Texas lottery contract. The Company is pursuing all available options to
ensure that its contract, amended to extend through August 2002 and negotiated
in good faith with the Texas Lottery, is honored. In fiscal 1997, 1996 and 1995,
the aggregate revenues from the State of Texas (including lottery and electronic
benefits transfer) represented 18.6%, 19.6% and 16.1%, respectively, of the
Company's consolidated revenues. No other customer accounted for as much as 10%
of the Company's consolidated revenues in such periods, although the Company's
lottery contracts in a number of jurisdictions, including California, Georgia,
New York and the United Kingdom, are important sources of revenues and earnings
for the Company. Reference is also made to Items 1 and 3 of, and Note H of Notes
to Consolidated Financial Statements included in, the Company's fiscal 1997
Annual Report on Form 10-K, Item 2 "Management's Discussion and Analysis of
Financial Condition and Results of Operations", and Part II, Item 1 "Legal
Proceedings" of the Company's Quarterly Report on From 10-Q for its period
ending May 31, 1997, for further information respecting legal proceedings and
related matters involving the Company.
Changes in Financial Position, Liquidity and Capital Resources
During the first six months of fiscal 1998, the Company generated $130.6 million
of cash from operations. This cash, along with $77.2 million of net borrowings
was used primarily to fund the purchase of $174.9 million of systems, equipment
and other assets relating to contracts and the repurchase of $15.8 million of
the Company' common stock.
The cost of systems, equipment and other assets relating to contracts increased
by $155.9 million from $1,063.7 million at February 22, 1997 to $1,219.6 million
at August 30, 1997. This increase reflects the installation of a portion of the
new lottery system for the Caixa, the continuing installation of new lottery
systems for lotteries in Wisconsin, Kansas, Oregon and Ohio and the expansion of
lottery systems in several domestic and international locations.
Trade accounts receivable decreased by $24.1 million from $110.7 million at
February 22, 1997 to $86.6 million at August 30, 1997, due primarily to
scheduled collections of accounts receivable relating to the high level of
product sales recorded in the fourth quarter of fiscal 1997.
Inventories increased by $8.6 million from $35.3 million at February 22, 1997 to
$43.9 million at August 30, 1997, due primarily to inventory on hand relating to
scheduled shipments of terminals in the third quarter of fiscal 1998.
Other current assets increased by $6.7 million from $9.7 million at February 22,
1997 to $16.4 million at August 30, 1997, due primarily to a $3.7 million
interest bearing loan to NTN Communications, Inc.
Accounts payable decreased by $14.5 million from $53.9 million at February 22,
1997 to $39.4 million at August 30, 1997, due primarily to the timing of
payments relating to ongoing lottery system installations.
Accrued expenses increased by $8.7 million from $52.6 million at February 22,
1997 to $61.3 million at August 30, 1997, due primarily to accrued interest
associated with the Senior Notes that require semi-annual interest payments.
Accrued employee compensation decreased by $5.3 million from $28.0 million at
February 22, 1997 to $22.7 million at August 30, 1997, due primarily to the
payment of fiscal 1997 management bonuses, partially offset by provisions for
fiscal 1998 management bonuses.
The Company's business is capital-intensive. Although it is not possible to
estimate precisely, due to the nature of the business, the Company currently
anticipates that the level of capital expenditures for systems, equipment and
other assets relating to contracts required during fiscal 1998 will be in a
range of $325.0 million to $375.0 million. Approximately $120.0 million of such
spending will be required to implement the on-line lottery system for the Caixa.
At August 30, 1997, the net book value of the Company's investments in Brazil
was approximately $172.9 million. In addition, the Company currently anticipates
that the level of capital expenditures for property, plant and equipment in
fiscal 1998 will approximate $15.0 million. The principal sources of liquidity
for the Company are expected to be cash generated from operations and borrowings
under the Company's Credit Facility. On October 4, 1997 the Company had utilized
approximately $167.5 million of its $400 million Credit Facility. The Company
currently expects that its cash flow from operations and available borrowings
under its Credit Facility, together with other sources of capital believed to be
available, will be sufficient to permit it to meet its anticipated working
capital and ordinary capital expenditure needs, to service its debt obligations
and to permit it to fund anticipated internal growth.
Inflation, Interest Rates and Foreign Exchange Fluctuation
The impact of inflation on the Company's operations has not been significant to
date. While the Company believes that its business is not highly sensitive to
inflation, there can be no assurance that a high rate of inflation in the future
would not have an adverse effect on the Company's operations.
The Company uses various techniques to reduce the risk associated with future
increases in interest rates on its floating rate long-term debt including
utilization of interest rate hedging instruments. In January 1996, the Company
entered into three interest rate swaps with an aggregate notional amount of
$125.0 million that provided interest rate protection over the period January
26, 1996 to April 28, 1997. The swaps effectively entitled the Company to
receive payments from the financial institutions that were counterparties to the
swaps should the three-month London Interbank Offered Rates ("LIBOR") exceed
approximately 5.05%. On April 28, 1997, the Company received approximately $.2
million in connection with the settlement of these swaps. In addition, the
Company issued seven and ten year fixed rate debt on May 29, 1997, in a private
placement.
The Company attempts to manage its foreign exchange risk by securing payment
from its customers in U.S. dollars, by sharing risk with its customers, by
utilizing foreign currency borrowings, by leading and lagging receipts and
payments and by entering into foreign currency exchange contracts. In addition,
a significant portion of the costs attributable to the Company's foreign
currency revenues are incurred in the local currencies.
The Company, from time to time, enters into foreign currency exchange contracts
to hedge the risk associated with certain firm sales commitments, anticipated
revenue streams and certain assets and liabilities denominated in foreign
currencies. The Company does not engage in currency speculation. Gains and
losses on contracts that hedge specific foreign currency commitments are
deferred and accounted for as part of the transaction being hedged. Contracts
used to hedge anticipated revenue streams and certain assets and liabilities are
marked to market, and the resulting transaction gain or loss is included in the
determination of net income. As of October 4, 1997, the Company had
approximately $110.4 million of outstanding foreign currency exchange contracts
to purchase foreign currencies (primarily Japanese Yen) and approximately $174.6
million of outstanding foreign currency exchange contracts to sell foreign
currencies (primarily Japanese Yen and Pounds Sterling).
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
As widely reported in the Texas media and as previously reported, the Texas
Lottery Commission is inquiring of GTECH regarding its business relationships
relating to the Texas Lottery and GTECH has cooperated with that inquiry. The
Texas Lottery is also inquiring about several other matters which could have
material negative implications with respect to GTECH's business in Texas,
including the following:
- GTECH's consulting contracts with Ben Barnes, former Lieutenant Governor
of Texas, which contracts were entered into in 1991 and were bought out
and terminated by the Company in February 1997;
- GTECH's retention in October 1992 of Michael Moeller, a friend of Nora
Linares, the then Executive Director of the Texas Lottery, as a
consultant regarding New Mexico;
- Mr. Barnes' gift in December 1992 of a $100 paperweight to then Governor
of Texas, Ann Richards; and
- Any other instances in which GTECH entertained or gave a gift to a state
official (without reimbursement).
In addition, the Texas State Auditor has issued to GTECH a Request for
Information, and, in response, GTECH has provided information and documents to
the Texas State Auditor. The Texas State Auditor has indicated that it intends
to issue to the Company supplemental requests for information.
As previously reported, the Texas Lottery Commission had indicated its intention
to rebid the Texas Lottery contract currently held by GTECH and in August 1997
the Commission issued a Request for Proposals (the "RFP") with respect to this
contract. The RFP invites vendors to submit proposals for any or all of three
components: On-Line Gaming System and Services, Instant Ticket Gaming System and
Services and Instant Ticket Manufacturing and Services. Under the terms of the
RFP, the Commission may award contracts to one or several vendors, and may award
a contract with respect to the On-Line Gaming System and Services to two
separate vendors. Subsequent to the issuance of the RFP, GTECH filed a protest
with the Commission's General Counsel challenging the issuance and various terms
of the RFP and the Executive Director of the Texas Lottery issued his
determination with respect to GTECH's protest, denying the vast majority of the
protest and amending certain discrete provisions of the RFP in response to
GTECH's protest. GTECH thereupon appealed the Executive Director's determination
to the Commission and, in September 1997, the Commission denied GTECH's appeal.
However, the Chairman of the Commission has declared that issuing the RFP is not
and should not be deemed an exercise by the Texas Lottery of the termination
provision of GTECH's contract, without cause, upon 30 days prior notice. The
Texas Lottery Commission has further asserted that it has no obligation to deal
with GTECH in good faith with respect to the termination of its contract with
the Company, a position with which GTECH strongly disagrees. Pursuant to the
amendment to GTECH's contract executed in April 1996 which extended the term of
the contract for five years, the Company is making major capital investments of
more than $20 million and has incurred significant related expenses (See Part I,
Item 2, Management's Discussion and Analysis of Financial Condition and Results
of Operations). The Texas Lottery contract is GTECH's largest, accounting for
approximately 16% of GTECH's total revenues in fiscal 1997 and a significant
percentage of operating income. GTECH is pursuing all available options to
ensure that its contract, amended to extend through August 2002 and negotiated
in good faith with the Texas Lottery, is honored.
As previously reported, in April 1997, Nora Linares, the former Executive
Director of the Texas Lottery Commission, filed suit against GTECH and James
Hosker, the Company's Texas Site Director (captioned Nora Alicia Linares v.
GTECH Corporation and James Hosker, et al.), in the District Court of Travis
County, Texas (261st Judicial District). Ms. Linares, who had been terminated as
Executive Director of the Texas Lottery Commission in January 1997, alleges that
GTECH, in violation of Texas State Law and its lottery contract with the State
of Texas, tortiously interfered with her employment relationship with her former
employer by, among other things, hiring Michael Moeller as a consultant, and
intentionally inflicted emotional distress upon her. Ms. Linares seeks both a
declaratory judgment setting forth the rights, duties and responsibilities which
GTECH owes to public officials such as Ms. Linares, as well as actual and
exemplary damages from GTECH. GTECH believes that this lawsuit is without merit
and is defending itself (and Mr. Hosker) vigorously. On May 2, 1997, GTECH filed
a notice of removal in the Austin Division of the United States District Court
for the Western District of Texas, seeking to have the case transferred from the
state court to the federal court, and on June 2, 1997 Ms. Linares filed a motion
to remand, opposing GTECH's attempt to transfer the case to federal court from
state court. Ms. Linares' motion to remand was granted and the matter was
remanded to the District Court of Travis County, Texas by order dated September
25, 1997.
As previously reported, in September 1996, Jack M. Janis and Linda Janis, both
individually and on behalf of a class of persons similarly situated, filed suit
against the California State Lottery Commission, Southland Corporation and the
Company in the Supreme Court of the State of California (County of Los Angeles).
This suit alleges, in light of the June 1996 decision of the California Supreme
Court, Western Telcon, Inc. et. al. v. California State Lottery (which held that
the California State Lottery's keno game as then structured was not a lottery
game and therefore was not authorized by California lottery law), that the
defendants were unjustly enriched and were guilty of unfair business practices
and misleading advertising in connection with the sale of keno tickets from
January 1, 1992 through suspension of the keno game in June 1996. The suit seeks
restitution of all amounts realized by the defendants through the sale of keno
tickets less funds paid to public schools pursuant to relevant California law
and proceeds paid to holders of winning keno tickets, together with costs,
disbursements and prejudgment interest. The Company responded with a vigorous
defense. In February 1997, the Court granted the Company summary judgment but
granted the plaintiffs limited leave to amend their complaint alleging
alternative theories of recovery. The plaintiffs filed an amended complaint in
March 1997. In June 1997, the Court granted the Company's motion to strike and
for summary judgment as to the amended complaint, this time without leave to
amend. Plaintiffs have filed a notice of appeal. The Company believes that these
claims are without merit and intends to continue to defend itself vigorously in
the appeal.
In July 1997, Border Capital (Nevada) Corp. ("BCNC"), Border Capital Corp., IBC
Investments Limited ("IBC") and Gaming Properties & Investments, LLC ("GPI")
filed suit against the Arizona Lottery, the Company and GTECH in the United
States District Court for the District of Delaware. The plaintiffs allege that
"Arizona Bingo," a game recently offered by GTECH and the Arizona Lottery,
infringes upon United States patents issued in 1994 and 1996 which are
represented to be owned by IBC and exclusively licensed to BCNC and GPI. The
plaintiffs seek a declaratory judgment that IBC is the owner of the patents and
that the patents have been willfully infringed by the defendants; injunctive
relief enjoining further alleged infringement; and actual and exemplary damages
from the defendants respecting such alleged infringement. The Company and GTECH
were served with the complaint on September 22, 1997, and filed their answer on
October 14, 1997. In their answer, the Company and GTECH assert, among other
defenses, that the plaintiff's complaint fails to state a proper claim and
improperly names the Company as a party, and that the patents in suit are
invalid and unenforceable. In addition, GTECH and the Company counterclaim for
declaratory relief that the patents at issue are invalid, unenforceable and not
infringed by the Company. While the Company intends to defend this lawsuit
vigorously and believes that the patents at issue are invalid (and that, even if
valid, the patents have not been infringed), there can be no assurance that the
Company and GTECH will prevail. In addition to being liable for potential
damages as described above, if GTECH is found to have infringed the patents at
suit, the Company's ability to market bingo based games in Arizona and other
jurisdictions could be adversely affected.
For further information respecting legal proceedings and related matters, refer
to: (i) Items 1 and 3 of, and Note H of Notes to Consolidated Financial
Statements included in, the Company's fiscal 1997 Annual Report on Form 10-K;
(ii) Item 2, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and Item 1, Part II, "Legal Proceedings" of the
Company's Quarterly Report on Form 10-Q for the period ending May 31, 1997; and
(iii) Item 2, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," herein.
Item 2. CHANGES IN SECURITIES
(c) During the quarter, 4,851 shares of the Company's unregistered common stock
vested under stock award plans. Pursuant to the terms of these plans the
shares were issued with no cash consideration to the Company. Registration
of such shares was not required because the transaction did not constitute
a "sale" under Section 2 (3) of the Securities Act of 1933 or,
alternatively, the transaction was exempt pursuant to the private offering
provisions of the Act and the rules thereunder.
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) and (c)
The Company's Annual Meeting of Shareholders was held on July 14, 1997, and in
connection therewith, proxies were solicited by management pursuant to
Regulation 14 under the Securities Exchange Act of 1934. An aggregate of
42,024,810 shares of the Company's common stock ("Shares") were outstanding and
entitled to vote at the meeting. At the meeting the following matters (not
including ordinary procedural matters) were submitted to a vote of the holders
of Shares, with the results indicated below:
1. Election of two directors to serve until the 2000 Annual Meeting.
The following persons were elected. There was no solicitation in opposition
to such nominees. The tabulation of votes was as follows:
Withheld
(including broker
Nominee For nonvotes)
Burnett W. Donoho 35,722,265 Shares 258,909 Shares
Lt. Gen. (Ret.) Emmett Paige, Jr. 35,675,170 Shares 306,004 Shares
2. Approval of the Company's 1997 Stock Option Plan.
The tabulation of votes was as follows:
Abstentions
For Against (including broker
nonvotes)
20,010,700 Shares 9,907,955 Shares 6,062,519 Shares
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - The exhibits to this report are as follows:
10.1 Amended and Restated Employment Agreement, dated September 9,
1997, by and between the Company and William Y. O'Connor
10.2 Agreement, dated July 15, 1997, by and between Michael R.
Chambrello and the Company
10.3 Agreement, dated July 15, 1997, by and between Laurance W. Gay
and the Company
10.4 Agreement, dated July 15, 1997, by and between Thomas J.
Sauser and the Company
11. Computations of Earnings per Share
27. Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the
quarter to which this report relates.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GTECH HOLDINGS CORPORATION
Date October 14, 1997 By /s/ Thomas J. Sauser
----------------- -----------------------------------------------
Thomas J. Sauser, Senior Vice President & Chief
Financial Officer (Principal Financial Officer)
Date October 14, 1997 By /s/ Robert J. Plourde
---------------- -----------------------------------------------
Robert J. Plourde, Vice President and Corporate
Controller (Principal Accounting Officer)
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT, dated September 19,
1997, effective as of July 14, 1997, by and between GTECH Holdings Corporation,
a Delaware corporation (the "Company"), GTECH Corporation, a Delaware
corporation (the "Subsidiary"), and William Y. O'Connor ("Executive").
WHEREAS, the Company and Executive are parties to an Employment
Agreement dated October 27, 1994, as subsequently amended (the "1994
Agreement"); and
WHEREAS, Executive, the Company, the Subsidiary and Executive now
desire to amend and restate the 1994 Agreement to reflect certain changes in the
terms and provisions thereof.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto hereby covenant and agree as
follows:
1. Definitions.
Capitalized terms used in this Agreement and not otherwise
defined herein shall have the following meanings:
"Affiliate" shall mean any joint venture or other entity in which the
Company or any of its subsidiaries has an equity interest of at least 20%.
"Base Salary" has the meaning set forth in Section 5(a)
hereof.
"Board" means the Board of Directors of the Company.
"Cause" means any of the following:
(i) any willful and continuing failure by Executive to
substantially perform his employment duties which has
a demonstrable, material adverse affect on the
Company;
(ii) any engaging by Executive in serious, willful and
continuing misconduct which is demonstratably and
materially injurious to the Company, its subsidiaries
or Affiliates;
(iii) any willful and continuing material breach by
Executive of the terms of this Agreement, including,
without limitation, Sections 11 and 12 hereof which
has a demonstrable, material adverse affect on the
Company;
(iv) Executive's conviction of or pleading nolo contendere
to a crime involving fraud or misrepresentation, a
gambling-related offense or a felony where such crime
or offense has a demonstrable, material adverse
affect on the Company; or
(v) Executive's abuse of illegal drugs or other
controlled substances or his habitual intoxication;
provided that in no event shall Executive's failure to perform the duties
associated with his position caused by a mental or physical disability
constitute Cause for his termination.
"Change in Control" has the meaning set forth in Section
10(d) hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" has the meaning set forth in Section 5(a)
hereof.
"Common Stock" means the Common Stock, par value $.01 per
share, of the Company.
"Company" means GTECH Holdings Corporation and any
successor thereto.
"Disability" means the inability (as determined by the Board in its
sole discretion after affording Executive a reasonable opportunity to present
his case) of Executive to render his agreed-upon, full-time services to the
Company due to physical and/or mental infirmity.
"Executive" means William Y. O'Connor.
"Good Reason" means any of the following events:
(i) the assignment to Executive of duties,
responsibilities and/or reporting
relationship that are inconsistent, in a
material respect, with those associated
with Executive's position as stated in
Sections 4(a) and 4(b) hereof, excluding
any interim relieving of Executive's
duties pursuant to Section 8(b) hereof);
(ii) the Company's failure to pay Executive any amounts
otherwise vested and due hereunder or under any plan
or policy of the Company;
(iii) a reduction in the compensation or
benefits payable to Executive hereunder
(including without limitation any
compensation provided for in the
appendices hereto), or a material adverse
change in the terms or conditions on
which such compensation or benefits are
payable;
(iv) a reduction in the title of Executive from President
and Chief Executive Officer of the Company or in the
authority, duties or responsibilities of
Executive;
(v) if Executive's principal place of employment by the
Company is relocated more than 50 miles from West
Greenwich, Rhode Island, or Boca Raton, Florida,
without the written consent of Executive;
(vi) the events constituting Good Reason specified in
Section 4(a) hereof;
(vii) the failure by the Company to obtain an agreement in
form and substance reasonably satisfactory to
Executive from any successor to the business of the
Company to assume and agree to perform this
Agreement; or
(viii) any material breach by the Company of the terms of
this Agreement.
"Life Insurance Coverage" has the meaning set forth in Section 9(c)
hereof and as described in Section 6(b) hereof.
"Medical Coverage" has the meaning set forth in Section 9(c) hereof and
as described in Appendix B hereto.
"Performance Bonus" has the meaning set forth in Section
5(b) hereof.
"Retirement" means retirement from active employment with the Company
with the express consent of the Board or in accordance with the retirement
policies of the Company applicable to other senior executives generally.
"Term" has the meaning set forth in Section 3 hereof.
2. Employment.
The Company hereby agrees to employ and retain Executive, and
Executive agrees to be employed and retained by the Company, to render services
to the Company and its subsidiaries, Affiliates and divisions for the period, at
the rate of compensation and upon the other terms and conditions hereinafter set
forth.
3. Term.
The term of Executive's employment hereunder shall commence on
July 14, 1997, and shall continue in accordance with the terms of this Agreement
until terminated in accordance herewith (the "Term").
4. Position and Duties.
(a) Position. During the Term, Executive shall be retained and
shall serve as President and Chief Executive Officer of the Company, reporting
directly to the Board. At such time as Guy B. Snowden steps down as Chairman of
the Board of the Company (the "Chairman"), it is the expectation that the Board
will consider Executive as a candidate for that position to succeed Mr. Snowden.
However, whether Executive, in fact, will be elected by the Board to that
position, and if so when, shall be in the sole discretion of the Board. If
Executive is not elected Chairman when Mr. Snowden steps down, the failure so to
elect him shall be deemed Good Reason for Executive to terminate his employment
Term. During the Term, Executive also agrees to serve, if elected, as a senior
executive officer and/or director of any subsidiary or Affiliate of the Company.
(b) Duties. During the Term, Executive shall have the
authority and power to perform such duties consistent with those of the
President and Chief Executive Officer and shall not be required without his
written consent to undertake responsibilities not commensurate with his
position. If Executive becomes Chairman, then he also shall have the authority
and power to perform the duties consistent with such position. Executive shall
comply fully and promptly with the various policies, procedures and rules
governing employees promulgated and/or as amended from time to time by the
Company and any applicable subsidiary or Affiliate of the Company (including,
without limitation, the Company's Ethical Conduct and Conflicts of Interest
Policy and Government Relations Policy) and with any applicable disclosure and
other requirements of any governmental authority and of any other entity with
which the Company, its subsidiaries and Affiliates are doing or propose to do
business. Except for illness, vacations, and holidays in accordance with
then-current Company policy (or, if applicable, this Agreement), and (subject to
the approval of the Board) reasonable leaves of absence, Executive shall devote
his full business time, attention, skill, undivided loyalty and best efforts to
the faithful performance of his duties hereunder; provided, however, that with
the approval of the Board (which approval shall not unreasonably be withheld),
from time to time, Executive may serve, or continue to serve, on the board of
directors of, and hold any other offices or positions, in companies or
organizations, which in the Board's judgment, will not present any conflict of
interest with the Company, its subsidiaries or Affiliates, or materially
adversely affect the performance of Executive's duties pursuant to this
Agreement.
(c) Principal Place of Employment. Executive's principal place
of employment shall be at the Company's offices (in West Greenwich, Rhode
Island, or in Boca Raton, Florida) or at such other location as the Company and
Executive mutually may agree in writing. Executive agrees to reside within
reasonable daily commuting distance by car of such principal place of
employment. The Company shall not require Executive to travel away from
Executive's principal place of employment for more than 21 consecutive days, nor
for more than an aggregate of 180 days in any year during the Term.
(d) Nomination as Director. Assuming the Term has not been
terminated, the Board agrees to nominate Executive as a candidate for election
to the Board at each of the Company's Annual Meetings of Shareholders at which
Executive's term as a director is scheduled to expire, and Executive agrees
(subject to Section 8(d) hereof) to continue to serve as a director if elected.
5. Compensation and Reimbursement of Expenses.
(a) Base Salary. For all services rendered by Executive in all
capacities with the Company, its subsidiaries and Affiliates during the Term,
the Company shall pay or cause to be paid to Executive as compensation a salary
at an annual rate of $550,000 (the "Base Salary"), payable in equal installments
not less frequently than monthly. The Base Salary shall be increased on the
first day of each fiscal year of the Company commencing with fiscal year 1999,
and each annual anniversary thereof (the "Annual Adjustment Date") during the
Term at a rate equal to the annual rate of increase, if any, in the All Cities
Consumer Price Index for Urban Wage Earners and Clerical Workers ("CPI-W"), as
published by the United States Department of Labor, Bureau of Labor Statistics,
applicable for the calendar year immediately preceding the applicable Annual
Adjustment Date. The Base Salary also shall be subject to possible further
increase from time to time in the sole discretion of the Board or the
Compensation Committee of the Board or another Committee of the Board designated
for such purpose (the "Committee"). The Base Salary shall not be subject to
decrease.
(b) Performance Bonus. With respect to each fiscal year of the
Company during the Term commencing with fiscal year 1998, Executive shall be
eligible to earn a performance bonus of up to a maximum of four times
Executive's Base Salary then in effect (the "Performance Bonus"). The amount of
the Performance Bonus for a given fiscal year shall be determined using a matrix
of selected reasonable quantitative metrics yet to be determined but which
likely shall include Company stock price appreciation, profit growth, return on
capital and the like. The matrix will provide for possible bonus values up to
four times Base Salary. The criteria and attainment levels for the Performance
Bonus shall be established each year by and in the discretion of the Committee,
and may be changed each year in the good faith discretion of the Committee. Any
Performance Bonus to which Executive is entitled shall be paid at the time
executive bonuses customarily are paid by the Company, but in no event later
than 120 days after the end of the fiscal year with respect to which such
Performance Bonus is payable.
(c) Increase of Compensation. All compensation payable to
Executive hereunder shall be subject to possible further increase from time to
time in the sole discretion of the Board or the Committee.
(d) Certain Requirements. Notwithstanding anything contained
in this Agreement to the contrary (including Sections 9 and 10 hereof), if
Executive's employment hereunder has terminated for any reason, except by the
Company for Cause or by the Executive voluntarily without Good Reason prior to
the end of a given fiscal year, Executive shall receive a Performance Bonus in
an amount determined by multiplying the average of the Performance Bonuses
awarded to Executive for the preceding three years (or all years, if less than
three years after the Term begins) by a fraction, the numerator of which is the
number of complete months of such fiscal year during which Executive was
employed with the Company, and the denominator of which is twelve.
(e) Reimbursement of Expenses. Consistent with the Company's
established policies, the Company shall pay or reimburse Executive for all
reasonable and necessary travel and other expenses of Executive incurred by
Executive in performing his duties hereunder upon receipt of written
substantiation of such expenses.
6. Benefits.
(a) Benefit Plans. The payments provided in Section 5 hereof
are in addition to any benefits to which Executive may be, or may become,
entitled under any benefit plan, program or arrangement (excluding any increase
in salaries, generally) of the Company for which senior executives are or may
become eligible, including any Supplemental Retirement Plan for Senior
Executives ("SERP"). Further, except as otherwise expressly provided herein,
Executive shall be entitled to receive, during the Term, benefits at least at
the level provided generally to other senior executives under any such benefit
plan, program or arrangement, subject, to Executive's meeting the eligibility
requirements of such plans, programs or arrangements, and in the case of benefit
plans, programs or arrangements providing for discretionary grants or awards, to
the discretion of the Board or applicable Committee.
(b) Term Life Insurance. During the Term, the Company shall
provide Executive with and shall pay the premium on a policy of term life
insurance in the face amount of 3.5 times his Base Salary, with the primary
beneficiary to be Executive's wife, Denise Fields O'Connor.
(c) Stock Options. Executive shall be eligible for annual
grants of stock options under the Company's option plans for employees, any such
grants to be in the discretion of the Committee based upon its evaluation of
Executive's performance.
The terms and provisions of the stock options provided for in
Section 6(d) of the 1994 Agreement and any stock options granted to Executive
hereafter are and shall be as set forth in Appendix A hereto. In addition, the
Company expressly acknowledges that Executive has been granted Restricted Stock
Rights pursuant to a certain agreement with the Company dated June 30, 1995.
(For the purposes of that agreement "Cause" shall be conclusively defined as in
this Agreement.) The Company shall use its best efforts to file, and cause to be
effective under the Securities Act of 1933, as amended, a registration statement
on Form S-8 (or a comparable form) with respect to the shares (or other rights)
of equity issued as provided for or referenced by the foregoing provisions of
this Section 6(c) or, if applicable, issuable upon exercise of rights so
provided for or referenced. The Company will also use its best efforts to ensure
that each grant provided for under Appendix A or referenced above shall meet the
requirements for exemption under Rule 16b-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act").
(d) Certain Specific Benefits and Arrangements. Without
limiting the generality of subsection (a) above (except as may otherwise be
specified in Appendix B hereto), Executive shall be entitled to the specific
benefits and arrangements set forth in Appendix B hereto.
7. Benefits Payable During Term Upon Disability.
(a) Disability Benefits. In the event of Disability of
Executive during the Term of his employment hereunder, the Company shall
continue to pay Executive the compensation and extend to him the benefits
provided in Sections 5 and 6 hereof during the period of Disability, subject to
Section 9(f) hereof and to the extent permitted by applicable law, provided that
in the event of Executive's Disability for an aggregate period of time exceeding
150 calendar days in any 12-consecutive-month period during the Term, the
Company, at its election, may terminate the Term of Executive's employment in
which event Executive shall receive the benefits provided in Section 9(c).
(b) Services During Disability. During the Term,
notwithstanding any Disability, Executive shall, to the extent that he is
physically and mentally able to do so, furnish information and assistance to the
Company, and, in addition, upon the reasonable request in writing on behalf of
the Board, or a senior executive officer designated by the Board, from time to
time, he shall make himself available to the Company, its subsidiaries and
Affiliates to undertake reasonable assignments consistent with his position and
his physical and mental health. During such period of service, he shall be
responsible and report to, and shall be subject to the supervision of, the
Board, or a senior executive officer designated by the Board, as to the method
and manner in which he shall perform such assignments and shall keep the Board,
or such senior executive officer, as the case may be, appropriately informed of
his progress in each such assignment.
8. Termination of Employment.
(a) Expiration and Earlier Termination.
Executive's Term of employment shall terminate:
(i) upon the death or Retirement of Executive;
(ii) at the election of the Company in the event
of Executive's Disability (as provided in
Section 7(a) hereof);
(iii) upon discharge of Executive by the Company
for Cause or resignation of Executive other
than for Good Reason; and
(iv) upon discharge of Executive without Cause or
Executive's resignation for Good Reason.
(b) Certain Obligations of the Company. The Company shall give
Executive not less than 60 days prior written notice of any intended termination
of Executive's employment by the Company for Cause, without Cause or due to
Executive's Disability. In the event of such a proposed termination for Cause,
such notice shall specify the grounds for such termination, and the Company
shall only be entitled to terminate Executive for such Cause if Executive shall
have failed to cure the grounds for such termination within said 60-day notice
period. However, after giving such notice, the Company may relieve Executive of
his duties on an interim basis. Further, Cause shall in no event be deemed to
exist except upon a finding reflected in a resolution of the Board approved by
at least 75% of the members of the Board, whose finding shall not be binding
upon or entitled to any deference by any court, arbitrator or other
decision-maker ruling on this Agreement, at a meeting of which Executive shall
have been given proper notice and at which Executive (and Executive's counsel)
shall have a reasonable opportunity to present Executive's case.
(c) Certain Obligations of Executive. Executive shall give the
Company not less than 60 days prior written notice of any intended termination
by Executive of Executive's employment whether for Good Reason or other than for
Good Reason. In the event of a proposed termination for Good Reason, such notice
shall specify the grounds for such termination, and Executive shall only be
entitled to terminate his employment for Good Reason if the Company shall have
failed to correct the specified grounds within said 60-day notice period.
Executive shall not be entitled to terminate for Good Reason unless he has given
notice to the Company of his intention so to terminate within 60 days following
the occurrence of the event alleged to constitute such Good Reason, except that
notice of Executive's intention to terminate for the reason set forth in Section
4(a) hereof may be given within six months of Mr. Snowden's stepping down as
Chairman. After Executive provides such notice to the Company, the Company shall
have 30 days from the date of receipt of such notice to effect a cure of the
condition constituting Good Reason, and, upon cure thereof by the Company, such
event shall no longer constitute Good Reason; provided that the Company shall
only be permitted the opportunity to cure one time during the Term (except that
the limitation to one such opportunity to cure shall not apply in the case of
immaterial reallocation of benefits which are provided for under Section 6(a)
hereof, (but not under Sections 6(b), (c), or (d)) from one type of benefit to
another). Notwithstanding the foregoing, in the event that Executive has given
the Company notice of his intention to resign for "Good Reason" or otherwise,
the Board may elect to have such resignation become effective immediately or at
such other date, not later than the effective date specified in the notice, as
the Board may determine.
(d) Upon termination of Executive's Term of employment,
Executive (unless otherwise requested by the Board) concurrently shall resign
any directorships which he holds with the Company, its subsidiaries and
Affiliates.
9. Compensation, Benefits, etc. upon, and Effects
of, Termination.
(a) Death, Retirement, Discharge for Cause and Resignation for
Other than for Good Reason. If the Term of Executive's employment is terminated
by reason of his death, Retirement, discharge by the Company for Cause or
resignation other than for Good Reason, the Company shall pay or cause to be
paid to Executive or his estate or beneficiaries, as the case may be, at the
time such payment is due (i) his Base Salary accrued through the effective date
of such termination at the rate in effect immediately prior to such termination,
and (ii) any other amounts to which Executive is entitled under the terms of
Sections 5 and 6 hereof through the effective date of such termination.
Executive also shall be entitled, to the extent not inconsistent with this
Agreement, to receive such additional benefits, if any, as he may be entitled to
under the express terms of the applicable benefit plans (other than bonus and
severance plans) of the Company, its subsidiaries and Affiliates.
(b) Retirement at or after 65. If the Term of Executive's
employment is terminated by reason of Executive's Retirement on or after
attaining the age of 65, in addition to the payments and benefits provided in
subsection (a) above, the Company shall continue, at its expense, to provide
until Executive's death (i) medical coverage (including, hospitalization,
dental, orthodontic and optical) for executive and eligible family members at
substantially the same level of the most comprehensive medical coverage as is
provided, from time to time, to any senior executive of the Company, with such
coverage to continue to be available after Executive's death to his spouse and
family members at their expense at rates available to the Company except to the
extent such continuation is prohibited by applicable federal or state law, and
(ii) term life insurance as provided in Section 6(b) hereof.
(c) Disability, Discharge Without Cause and Resignation for
Good Reason. If the Term of Executive's employment is terminated by the Company
by reason of Executive's Disability as provided in Section 7(a) hereof, by the
Company without Cause or by reason of Executive's resignation for Good Reason,
the Company shall pay or cause to be paid to Executive or his estate, as the
case may be, (i) an amount equal to three times the average of each of
Executive's Base Salary, Performance Bonus and payments under the Company's
Executive Perquisites Program for the prior three full fiscal years, plus (ii)
in consideration of Executive's obligations under Section 12 hereof, the sum of
$1,500,000. The amounts specified in clauses (i) and (ii) above shall be paid
within 45 days of the effective date of termination of Executive's employment
pursuant to this subsection (c). Further, Executive shall be entitled to the
compensation and benefits set forth in subsection (a) above, and the Company
shall (i) for a period of three years following the effective date of such
termination, or until Executive's earlier death, continue, at its expense, to
provide the life insurance specified in Section 6(b) hereof in the amount in
effect immediately prior to the effective date of such termination ("Life
Insurance Coverage"), (ii) the Company shall provide Executive with out
placement services through a bona fide out placement organization acceptable to
Executive that, at a minimum, agrees to supply Executive with out placement
counseling, a private office and administrative support, including telephone
service until such time that Executive secures suitable employment, and (iii)
for a period of three years following the effective date of such termination, or
until Executive's earlier death, continue to provide the medical (including
dental, orthodontic and optical) coverage specified in Appendix B ("Medical
Coverage") and on the terms and conditions so specified at substantially the
same level as provided to Executive and his spouse, and his dependents from time
to time, at the effective date of such termination, and, thereafter, medical,
prescription drug, vision, dental, orthodontic, etc., coverage under the
medical, prescription drug, vision, dental, orthodontic, etc., plans applicable
to senior executives of the Company on the same terms as the most comprehensive
medical coverage available to any senior executive of the Company, with such
coverage (together with the gross-up referred to in the last sentence of Section
4 of Appendix B hereto, if applicable) to continue for an additional year (or
portion thereof) after such three-year period for every year (or portion
thereof) Executive is employed by the Company after the date hereof (the
"Continuation Period"). Following the expiration of the Continuation Period,
Executive shall be entitled to whatever medical coverage, if any, as is required
to be provided by applicable law.
Further, upon such termination of Executive's employment, all
restricted stock then held by Executive shall vest and become immediately
transferable free of restrictions and Executive will become fully vested in the
Company's SERP in existence as of the date hereof and in any other
non-qualified, deferred compensation, incentive compensation or retirement plan
currently in effect or adopted by the Company subsequent to the date hereof, and
any successor plan or plans (together with the SERP, the "Non-qualified Plans").
Within 30 days after Executive's termination of employment, the Company shall
pay to Executive the sum of (i) the present value of all benefits accrued under
the Non-qualified Plans (as supplemented by any early retirement subsidies),
using such actuarial assumptions as are then used to fund the Company's
tax-qualified defined benefit pension plan (or, if there is no such plan, such
actuarial factors as would reasonably be used by comparable companies in funding
defined benefit pension plans (but including, in all events, an interest rate no
greater than the rate that would then be used by the Pension Benefit Guaranty
Corporation to value immediate annuities upon plan termination)), and (ii) an
amount equal to three times the average benefit accrued (in the case of plans
providing for accruals of identified future benefits) and Company contributions
(in the case of other plans) made to the Company's tax-qualified defined benefit
plan and profit-sharing and 401(k) retirement plan and the Non-qualified Plans
over the previous three fiscal years (as supplemental by, in the case of accrued
benefits, any early retirement subsidies). The Company shall also pay to
Executive (i) any amount in Executive's account under the Company's profit
sharing and 401(k) plan forfeited by the Executive due to his termination, and
(ii) the present value of any accrued benefit (as supplemented by any early
retirement subsidies) under any defined benefit plan of the Company forfeited by
Executive due to his termination, determined using such actuarial assumptions as
are then used to fund such plan.
(d) Termination of Certain Benefits Upon Reemployment. In the
event that, following termination of Executive's employment as a result of
Executive's Retirement at or after age 65 or his Disability, by the Company
without Cause or by Executive for Good Reason, Executive secures other
employment (including employment as a consultant) during the period in which the
Company is obligated to continue Life Insurance Coverage and/or medical coverage
under subsections (b) and (c) above as applicable, the Company may offset such
obligations by any life insurance coverage or medical coverage which Executive
receives during the applicable continuation period from a successor employer, so
long as the aggregate coverage (from the Company and the successor employer) is
no less, as to each and every amount payable or other benefit, than the coverage
otherwise applicable under such provisions of (b) and (c) above; provided that
nothing contained herein shall limit any continuation of coverage required by
law. However, subject to subsection (f) below, the securing of such other
employment by Executive shall not affect the Company's obligations with respect
to the continued payment to Executive of the other payments provided in this
Section 9. Executive shall notify the Company promptly of his securing of any
such employment (including employment as a consultant).
(e) Consulting Services by Executive. If Executive's Term of
employment is terminated by the Company for Disability, by the Company without
Cause or by Executive for Good Reason, Executive, in consideration of the
payments and benefits under Section 9(c) hereof, as applicable, shall provide
for a period of three years following the effective date of termination of his
employment hereunder, to the extent that he is physically and mentally able to
do so, such reasonable consulting services to the Company as the Company may
from time to time request; provided that, unless otherwise agreed to by
Executive, such services (i) shall not require in excess of an aggregate of 60
hours during any fiscal quarter, (ii) may be rendered by telephone and shall not
require Executive's presence in person, and (iii) subject to Sections 11(b) and
12 hereof, shall not preclude Executive from engaging in other employment or
activities. Such services shall be at the direction and control of the Board or
a senior executive officer designated by the Board.
(f) Reductions, Forfeitures, etc. Notwithstanding the
foregoing or Section 10 hereof, (i) any payments or benefits required to be paid
or provided to Executive pursuant to Sections 7(a), 9(c) and 10(b) hereof on
account of Executive's Disability shall be reduced to the extent that comparable
payments or benefits are received by Executive for such Disability during such
period under the Company's disability plan, as in effect from time to time, and
(ii) except as otherwise expressly provided herein, the payments and benefits
required by this Section 9 shall be made or provided at such times as they would
have been paid or provided if Executive's employment had not been terminated.
(g) Full Settlement. In the event of the termination of
Executive's employment, the payments and other benefits provided for by this
Agreement (and as otherwise provided under the express terms of any compensation
or benefit plans of the Company, its subsidiaries or Affiliates, to the extent
not inconsistent with this Agreement, or as may otherwise be required by
applicable law) shall constitute the entire obligation of the Company, its
subsidiaries and Affiliates to Executive for compensation and benefits and shall
also constitute full and complete settlement of any claim under law or in equity
that the Executive might otherwise assert against the Company, its subsidiaries
or Affiliates, for compensation and benefits or any of its or their respective
directors, officers or employees on account of such termination of employment.
10. Change in Control, Tax Gross-up; etc.
(a) In the event of a Change in Control (as defined
in subsection (d) below):
(i) any and all restricted stock and restricted stock
rights then held by Executive shall thereupon fully
vest and become immediately transferable free of
restrictions, other than restrictions imposed by
applicable securities laws;
(ii) (A) any and all outstanding unvested stock
options and stock appreciation rights held by
Executive shall thereupon vest and become immediately
exercisable, (B) such options and rights shall
otherwise be exercisable in accordance with their
terms, and (C) notwithstanding anything to the
contrary contained in clause (B), all options and
stock appreciation rights held by Executive shall be
exercisable for three years (one year (or less for
incentive stock options) in the case of options
granted under the Company's 1994 Stock Option Plan to
the extent required by such Plan) after termination
of employment (regardless of the party initiating the
termination, for any reason or no reason (including
without limitation by virtue of Cause, death or
Disability)), except that this clause (C) shall not
extend the generally applicable term of the options
or rights which is measured from the date of grant
thereof, nor shall it preclude earlier termination of
options, to the extent required, in the event of a
corporate transaction, in accordance with Section
3(b) of the 1994 and the 1997 Stock Option Plans; and
(iii) any and all benefits accrued by Executive under
the terms of any Non-qualified Plans shall thereupon
fully vest and the Company shall immediately
contribute to a rabbi trust for the benefit of
Executive the full amount of all such accrued
benefits (and the Company shall make additional
contributions to such rabbi trust equal to the full
amount of any additional benefits accrued by
Executive pursuant to such plans).
(b) In addition to the payments and benefits provided
in subsection (a) above, in the event of any
termination of Executive's employment for any of
the reasons set forth in Section 9(c) hereof
within the 24-month period following a Change in
Control, or if Executive shall voluntarily
terminate his employment at any time not earlier
than six months nor later than one-year following
a Change in Control, or if Executive's employment
with the Company is terminated for any of the
reasons set forth in 9(a) (except for Retirement)
in the 12-month period following a Change in
Control:
(i) the Company shall pay or cause
to be paid to Executive (or his
estate, as the case may be) (A)
his Base Salary accrued through
the effective date of such
termination, at the rate in
effect immediately prior to such
termination, (B) any other
amounts to which Executive is
entitled under the terms of
Section 5 and 6 hereof through
the effective date of such
termination, and (C) such
additional benefits, if any, as
he may be entitled to under the
express terms of the applicable
benefit plans (other than
severance plans) of the Company,
its subsidiaries and Affiliates;
(ii) the Company shall pay to
Executive (or his estate, as the
case may be) an amount equal to
2.99 times the sum of (A)
Executive's Base Salary, at the
rate in effect immediately prior
to such termination, (B) the
annual amount to which he then
is entitled under the Company's
Executive Perquisites Program,
and (C) the most recent
Performance Bonus awarded to
Executive, or, if higher, the
Performance Bonus most recently
awarded to him before the Change
in Control, such amount to be
paid no later than three
business days after such
termination;
(iii) the Company shall continue for a
period of four years following
the effective date of such
termination, or until
Executive's earlier death, to
provide the Life Insurance
Coverage specified in Section
6(b) hereof;
(iv) the Company shall continue to
provide for a period of four
years following the effective
date of such termination, the
medical (including dental,
orthodontic and optical)
coverage specified in Appendix B
hereto and on the terms and
conditions so specified at
substantially the same level as
provided to Executive and his
spouse and his eligible
dependents from time to time,
and following the four-year
period, Executive and such other
parties shall be entitled to
(together with the gross-up
referred to in the last sentence
of Section 4 of Appendix B
hereto, if applicable), lifetime
medical, prescription drug,
vision, dental, orthodontic,
etc., coverage under the
medical, prescription drug,
vision, dental, orthodontic,
etc., plans applicable to senior
executives of the Company on the
same terms as the most
comprehensive medical coverage
available to any senior
executive of the Company;
provided that the Company may
offset its obligations under the
foregoing provisions of this
Section 10(b)(iv) by any health
benefits which Executive
receives during the applicable
period from a successor
employer, so long as the
aggregate coverage (from the
Company and the successor
employer) is no less, as to each
and every amount payable and
other benefit, than the coverage
otherwise applicable with
respect to such period hereunder
under the provisions of this
Section 10(b)(iv) without regard
to this proviso;
(v) Executive will become fully
vested in the Company's
Non-qualified Plans and no later
than 30 days after Executive's
termination of employment, the
Company shall pay to Executive
the sum of (A) the present value
of all benefits accrued under
the Non-qualified Plans (as
supplemented by any early
retirement subsidies) using such
actuarial assumptions as are
then used to fund the Company's
tax-qualified defined benefit
pension plan (or, if there is no
such plan, such actuarial
factors as would reasonably be
used by comparable companies in
funding defined benefit pension
plans (but including, in all
events, an interest rate no
greater than the rate that would
then be used by the Pension
Benefit Guaranty Corporation to
value immediate annuities upon
plan termination)); (B) an
amount equal to four times the
average benefit accrued (in the
case of plans providing for
accruals of identified future
benefits) and Company
contributions (in the case of
other plans) made to the
Company's tax-qualified defined
benefit plan and profit-sharing
and 401(k) retirement plan and
the Non-qualified Plans over the
previous three fiscal years (as
supplemental by, in the case of
accrued benefits, any early
retirement subsidies); (C) any
amount in Executive's account
under the Company's profit
sharing and 401(k) plan
forfeited by the Executive due
to his termination; and (D) the
present value of any accrued
benefit (as supplemented by any
early retirement subsidies)
under any defined benefit plan
of the Company forfeited by
Executive due to his
termination, determined using
such actuarial assumptions as
are then used to fund such plan;
and
(vi) the Company shall provide
Executive with out placement
service through a bona fide out
placement organization
acceptable to,, Executive that,
at a minimum, agrees to supply
Executive with out placement
counseling, a private office and
administrative support including
telephone service until such
time that Executive secures
suitable employment.
(c) If all, or any portion, of the payments
or other benefits provided under any
section of this Agreement (including,
without limitation, Sections 9 and 10
hereof), either alone or together with
other payments and benefits which
Executive receives or is entitled to
receive from the Company or its
Affiliates, would constitute an excess
"parachute payment" within the meaning of
Section 280G of the Code (whether or not
under an existing plan, arrangement or
other agreement) (each such excess
parachute payment, a "Parachute
Payment"), and would result in the
imposition on Executive of an excise tax
under Section 4999 of the Code, then, in
addition to any other benefits to which
Executive is entitled under this
Agreement, Executive shall be paid by the
Company an amount in cash equal to the
sum of the excise taxes payable by
Executive by reason of receiving
Parachute Payments plus a gross-up amount
necessary to offset any and all
applicable federal, state and local
excise, income or other taxes incurred by
Executive by reason of the Company's
payment of the amount of such excise
taxes or incurred by reason of the
gross-up payments made pursuant to this
Section 10(c). The amount of the
payments under this Section 10(c) (the
"Parachute Gross-up") shall be computed
by Ernst & Young LLP or by another
certified public accounting firm of
national reputation mutually agreeable to
the Company and Executive. If either the
Company or Executive desires to dispute
the computation rendered by such
accounting firm, the disputing party may
select an alternative certified public
accounting firm of national reputation to
perform the applicable computations. If
the two accounting firms cannot agree
upon the computations, Executive and the
Company will jointly appoint a third
certified public accounting firm of
national reputation, reasonably
acceptable to Executive and the Company,
within 10 calendar days after the two
conflicting computations have been
rendered. Such third accounting firm
shall be asked to determine within 30
calendar days the computation of the
Parachute Gross-up to be paid to
Executive, and payments shall be made
accordingly. In any event, the Company
will pay to Executive or pay on
Executive's behalf the Parachute Gross-up
as computed by the initial accounting
firm by the time any taxes payable by
Executive as a result of the Parachute
Payments become due, with Executive
agreeing promptly to return the excess
amount of such payment over the final
computation rendered from the process
described in this Section 10(c).
Executive and the Company will provide
the accounting firms with all information
which any such accounting firm reasonably
deems necessary in computing the
Parachute Gross-up to be paid to
Executive. The costs and expenses of all
of the accounting firms retained to
perform the computations described above
shall be borne by the Company.
(d) For purposes of this Agreement, "Change in Control"
shall mean the happening of any of the following:
(i) the members of the Board at the
beginning of any consecutive 24
calendar month period (the
"Incumbent Directors") cease for
any reason other than due to
death to constitute at least a
majority of the members of the
Board, provided that any
director whose election, or
nomination for election by the
Company's stockholders, was
approved by a vote of at least a
majority of the members of the
Board then still in office who
were members of the Board at the
beginning of such 24 calendar
month period, shall be deemed an
Incumbent Director;
(ii) any "person", including a
"group" (as such terms are used
in Sections 13(d) and 14(d) of
the Exchange Act, but excluding
the Company, any of its
Affiliates, or any employee
benefit plan of the Company or
any of its Affiliates) is or
becomes the "beneficial owner"
(as defined in Rule 13(d)(3)
under the Exchange Act),
directly or indirectly, of
securities of the Company
representing 30% or more of the
combined voting power of the
Company's then outstanding
securities;
(iii) the stockholders of the Company
shall approve a definitive
agreement (A) for the merger or
other business combination of
the Company with or into another
corporation if (1) a majority of
directors of the surviving
corporation were not directors
of the Company immediately prior
to the effective date of such
merger or (2) the stockholders
of the Company immediately prior
to the effective date of such
merger own less than 50% of the
combined voting power in the
then outstanding securities in
such surviving corporation or
(B) for the sale or other
disposition of all or
substantially all of the assets
of the Company; or
(iv) the purchase of Common Stock
pursuant to any tender or
exchange offer made by any
"person", including a "group"
(as such terms are used in
Sections 13(d) and 14(d) of the
Exchange Act), other than the
Company, any of its Affiliates,
or any employee benefit plan of
the Company or any of its
Affiliates, for 30% or more of
the Common Stock of the Company.
(e) If Executive's employment with the
Company is terminated prior to the date
on which a Change in Control occurs, and
if it is reasonably demonstrated by
Executive that such termination of
employment (i) was at the request of a
third party who has taken steps
reasonably calculated to effect a Change
in Control or (ii) otherwise arose in
connection with or in anticipation of a
Change in Control, then, for all purposes
of this Agreement, such termination shall
be treated as a termination following a
Change in Control and shall be covered by
this Section 10 accordingly.
(f) It is the intention of the parties that
the provisions of this Section 10 shall
govern the determination of the payments
and benefits to which Executive is
entitled in the event of termination of
his employment (in the circumstances
specified in subsection (b) above)
following a Change in Control (and in the
circumstances specified in subsection (e)
above), and in the event of any such
specified terminations of employment the
provisions of this Section 10 shall
supersede the provisions of Sections
9(a), (b), (c), (d) and (e) hereof.
11. Certain Obligations of Executive.
Executive further covenants with the Company as follows. As
used in Sections 11 and 12 hereof, the term the "Company" shall include GTECH
Holdings Corporation and its subsidiaries and Affiliates.
(a) Assistance in Litigation. During the Term, and for a
period of three years thereafter, Executive, upon reasonable notice, shall
furnish such information and proper assistance to the Company as may reasonably
be required in connection with any litigation in which the Company is, or may
become, a party. If such information or assistance is required in the three-year
period following the Term, Executive shall be reimbursed by the Company for any
and all reasonable expenses incurred by him in providing such information and
assistance and shall be compensated by the Company at a reasonable hourly rate
to be agreed upon by the parties for the time he spends providing such
information and assistance.
(b) Confidential Information, Proprietary Rights, etc. (i)
Executive shall not knowingly use for his own benefit or disclose or reveal to
any unauthorized person, during or after the Term, except as appropriate in
connection with Executive's performance of his duties, any trade secret or other
confidential information relating to the Company, including any customer lists,
customer needs, price and performance information, processes, specifications,
hardware, software, firmware, programs, devices, supply sources and
characteristics, business opportunities, marketing, promotional, pricing and
financing techniques, or other information relating to the business of the
Company; provided that such restriction on confidential information shall not
apply to information which is (i) proven to be generally available in the
industry, (ii) disclosed in published literature or (iii) obtained by Executive
after the Term from a third party without binder of secrecy. Executive agrees
that, except as otherwise agreed by the Company, he will return to the Company,
promptly upon the request of the Board or any executive officer designated by
the Board, any physical embodiment of such confidential information, except that
in any event Executive may retain his rolodex.
(ii) All rights, title and interest in and to any ideas,
inventions, technology, processes, know-how, works, hardware, software,
firmware, programs, devices, trade secrets, trade names, trademarks or service
marks, which Executive may conceive, create, organize, prepare or produce during
the period of his employment with the Company and which relate to the business
of the Company, and all rights, title and interest in and to any patents, patent
applications, copyright registrations and copyright applications resulting
therefrom, shall be owned by the Company, and Executive agrees to execute
instruments or documents, to provide evidence and testimony, and to otherwise
assist the Company in establishing, enforcing and maintaining such rights, title
and interest of the Company during the Term. Executive further agrees to provide
reasonable assistance to the Company, including executing documents, providing
evidence and testimony, in establishing, enforcing and maintaining such rights,
title and interest of the Company after the Term; provided that the Executive
shall be compensated at a reasonable hourly rate to be agreed upon by the
parties and reimbursed for any and all reasonable expenses incurred as well as
for any compensation from other sources that Executive can demonstrate was
foregone by virtue of providing such assistance.
(iii) Executive does hereby irrevocably constitute, authorize,
empower and appoint the Company, or any of its officers, such Executive's true
and lawful attorney (with full power of substitution and delegation) in
Executive's name, and in Executive's place and stead, or in the Company's name,
to take and do such action, and to make, sign, execute, acknowledge and deliver
any and all instruments or documents which the Company, from time to time, may
deem desirable or necessary to vest in the Company, its successors and assigns,
any of the rights, title or interest granted pursuant to clause (ii) above for
the use and benefit of the Company, its successors and assigns.
12. Non-Competition. (a) For a period of three years following
termination of Executive's employment (irrespective of the reason for such
termination), Executive shall not engage or propose to engage, directly or
indirectly (which includes owning, managing, operating, controlling, being
employed by, acting as a consultant to, giving financial assistance to,
participating in or being connected in any material way with any business or
person so engaged) anywhere in the United States, including its territories and
possessions, or in any foreign country (the United States and any such foreign
country being deemed to be a separate "Territory") in any business which
competes or proposes to compete with any business (including, without
limitation, the Lottery and Gaming Business, the EBT Business and network
communications services) in which the Company was engaged or proposed to be
engaged in such Territory at the time of the termination of Executive's
employment; provided, that Executive's ownership as a passive investor of less
than one percent of the issued and outstanding stock or equity, or $100,000
principal amount of any debt securities, of any corporation, partnership or
other entity so engaged shall not by itself be deemed to constitute such
engagement by Executive.
As used herein, the "Lottery and Gaming Business" shall mean
the provision of products or services of every nature relating to the operation
of all manner of lotteries, non-lottery games of chance and parimutuel wagering
however and wherever conducted, and "EBT Business" shall mean the provision of
products or services of every nature relating to the distribution by electronic
means of payments or payments in kind, and the conducting by electronic means of
financial transactions, relating to governmental public assistance programs.
The parties acknowledge that the business of the Company is
subject to change and they agree periodically to update, by Addendum to this
Agreement, the description of the business in which the Company is engaged and
to which this subsection (a) relates to reflect accurately material changes
which occur while the Executive is employed by the Company.
(b) Further, for a period of three years following termination
of Executive's employment (irrespective of the reason for such termination),
Executive shall not (i) intentionally disturb or interfere with any business
relationship between the Company and any of its employees, dealers, customers,
suppliers or similar business associates, or (ii) solicit or cause to be
solicited any officer or employee of the Company to terminate such person's
relationship with the Company.
13. Tax Withholding.
The Company may withhold from any benefits payable under this
agreement all Federal, State, City, or other taxes as shall be required pursuant
to any law or governmental regulations or ruling.
14. Effect of Prior Agreements.
This Agreement, including the Appendices hereto, contains the
entire understanding between the parties hereto with respect, to the matters
covered herein and supersedes any prior agreement (including the 1994
Agreement), condition, practice, custom, usage and obligation with respect to
such matters insofar as any such prior agreement, condition, practice, custom,
usage or obligation might have given rise to any enforceable right.
15. General Provisions.
(a) Indemnification; Liability Insurance. Executive shall,
from time to time, be indemnified by the Company in connection with his
performance of services hereunder, at the maximum level permitted by law. The
Company shall cause Executive (together with other officers and directors) to be
covered from time to time by directors and officers liability insurance
substantially similar to that provided to the Company's directors and officers
immediately before the beginning of the Term, but in no event shall such
liability insurance provide less than $20,000,000 of coverage for all such
directors and officers, including Executive. The Company shall continue to
indemnify Executive as provided above, and maintain such liability insurance
with coverage for Executive, after the Term has ended for any claims that may be
made against Executive with respect to his service as a director or officer of
the Company.
(b) Non-assignability. Neither this Agreement nor any rights
or interest hereunder shall be assignable by Executive, his beneficiaries, or
legal representatives without the Company's prior written consent. In the event
of any sale, transfer or other disposition of all or substantially all of the
Company's assets or business, whether by merger, consolidation or otherwise to
any entity or person other than the Company, this Agreement, and the rights and
obligations of the Company under it, shall be transferred to such entity or
person pursuant to an agreement in form and substance reasonably satisfactory to
Executive from any successor to the business of the Company to assume and agree
to perform this Agreement, but such assignment or transfer shall not limit the
Company's liability under this Agreement to Executive. Notwithstanding the
foregoing, in no event shall any such assignment of this Agreement adversely
affect Executive's rights upon the occurrence of a Change in Control as provided
for in Section 10 herein.
(c) Binding Agreement. This Agreement shall be binding upon,
and accrue to the benefit of, Executive and the Company and their respective
heirs, executors, administrator, successors and permitted assigns, including, in
the case of the Company, any person or entity acquiring all or substantially all
of the Company's assets.
(d) Amendment of Agreement. This Agreement may not be modified
or amended except by an instrument in writing signed by the parties hereto.
(e) Disputes; Remedies etc.. Executive acknowledges and agrees
that the possible restrictions on his activities which may occur as a result of
his performance of his obligations under Sections 11(b) and 12 hereof are
required for the reasonable protection of the Company, its subsidiaries and
Affiliates, and Executive expressly acknowledges and agrees that such
restrictions are fair and reasonable for that purpose. Executive further
expressly acknowledges and agrees that damages alone will be an inadequate
remedy for any breach or violation by him of this Agreement and that the
Company, its subsidiaries and Affiliates, in addition to all other remedies at
law or in equity, shall be entitled as a matter of right to injunctive relief,
including specific performance, with respect to any such breach or violation, in
any court of competent jurisdiction including, without limitation, any state or
federal court in Rhode Island. If any of the provisions of such Sections are
held to be in any respect an unreasonable or unlawful restriction upon
Executive, then they shall be deemed to extend only over the maximum period of
time, geographic area, and/or range of activities as to which they may be
enforceable.
The Company shall pay, at least monthly, all costs and
expenses, including attorney's fees and disbursements, incurred by Executive in
connection with any legal proceeding (including an arbitration), whether or not
instituted by the Company or Executive, relating to any provisions of this
Agreement, including but not limited to the interpretation, enforcement or
reasonableness thereof; provided that, (i) if Executive instituted the
proceeding and the judge or other decision-maker presiding over the proceeding
affirmatively finds that Executive has failed to prevail on all material issues,
or (ii) if at issue is whether or not Executive was discharged by the Company
for Cause and such judge or other decision-maker finds that Executive was
properly so discharged for Cause in accordance with this Agreement (except that
this clause (ii) shall not apply if Executive is seeking to enforce his rights
to amounts or benefits to which he may be entitled hereunder as a result of his
discharge for Cause), Executive shall pay his own costs and expenses (and, if
applicable, return any amounts theretofore paid to Executive or on his behalf
under this Section 15(e)).
The parties further agree that, except as expressly otherwise
provided in this Agreement, the state and federal courts of Rhode Island shall
have exclusive jurisdiction over disputes arising with respect to this
Agreement, and the parties hereby submit to such jurisdiction.
(f) Waiver. No term or condition of this Agreement shall be
deemed to have been waived, nor shall there be any estoppel against the
enforcement of any provision of this Agreement, except by written instrument of
the party charged with such waiver or estoppel.
(g) Severability. If, for any reason, any provision of this
Agreement is held invalid, such invalidity shall not affect any other provision
of this Agreement not so held invalid, and each such other provision shall to
the full extent consistent with law continue in full force and effect.
(h) Notices. For the purposes of this Agreement, notice and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when hand delivered or mailed by United
States certified or registered express mail, return receipt requested, postage
prepaid, if to Executive, addressed to the address set forth on the signature
page of this Agreement, with a copy to Rogers & Wells, 200 Park Avenue, New
York, New York 10166-0153, directed to the attention of Andrew L. Oringer, Esq.;
if to the Company, addressed to GTECH Holdings Corporation, 55 Technology Way,
West Greenwich, Rhode Island 02817 and directed to the attention of the Board
with a copy to the Secretary of the Company; if to a member of the Board,
addressed to each member at his respective address on file with the Secretary of
the Company with a copy to the Company, or to such other address as either party
may have furnished to the others in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
(i) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
(j) Indulgences, Etc. Neither the failure nor any delay on the
part of either party to exercise any right, remedy, power or privilege under
this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege preclude any other or
further exercise of the same or of any other right, remedy, power or privilege,
nor shall any waiver of any right, remedy, power or privilege with respect to
any occurrence be construed as a waiver of such right, remedy, power or
privilege with respect to any other occurrence.
(k) Headings. The headings of Sections and paragraphs herein
are included solely for convenience of reference and shall not affect the
meaning or interpretation of any of the provisions of this Agreement.
(l) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Rhode Island, regardless
of the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
(m) Joint and Several Liability. Notwithstanding any other
provision of this Agreement, each of the Company and Subsidiary, and their
successors and assigns, shall be jointly and severally liable for all
obligations of any of them to Executive hereunder. In the event that a
substantial portion of the assets of the Company or the Subsidiary are
transferred to any other direct or indirect subsidiary or other affiliate of the
Company, whether in one transaction or a series of transactions, the Company or
the Subsidiary, as applicable, shall cause (prior to or concurrently with each
transfer) the transferee to become a signatory to this Agreement and to become
jointly and severally liable for all obligations or any of them to Executive
hereunder.
IN WITNESS WHEREOF, GTECH Holdings Corporation and GTECH
Corporation has caused this Agreement to be executed by their duly authorized
officers, and Executive has signed this Agreement, all as of the day and year
first above written.
GTECH HOLDINGS CORPORATION
Attest:/s/ Jacqueline Godbout By: /s/ Guy B. Snowden
Name:Jacqueline Godbout Name: Guy B. Snowden
Title:Exec. Assistant Title: Chairman of the Board
GTECH CORPORATION
Attest: /s/ Jacqueline Godbout By: /s/ Guy B. Snowden
Name:Jacqueline Godbout Name:Guy B. Snowden
Title:Exec. Assistant Title: Chairman of the Board
Witness: /s/ Elena Chiaradio EXECUTIVE
/s/ William Y. O'Connor
William Y. O'Connor
Address: 55 Technology Way
West Greenwich, RI 02817
<PAGE>
APPENDIX A
Summary of Terms of Stock Options
The stock options granted to Executive as provided in Section 6(d) of
the 1994 Agreement were granted pursuant to the Company's 1994 Stock Option Plan
and are subject to the terms and conditions of that Plan and the stock option
agreements dated December 20, 1994, January 30, 1995, August 9, 1995 and January
2, 1996, governing such options (provided, however, that "Cause" and "Good
Reason" for purposes thereof shall be exclusively as defined in this Agreement),
as well as the provisions of Section 10(a) of this Agreement. Any future stock
options granted to Executive shall have the following attributes:
Nature of Options - Nonqualified unless otherwise determined by the
Committee.
Exercisability - Options shall become exercisable (i.e. vest) in four equal
annual installments commencing one year from the dates of grant of the
particular option and subject to acceleration under the terms of the applicable
Plan.
Option Price - Fair market value at the date of the grant of
the particular option.
Term - Ten years from the date of grant of the particular option,
subject to earlier termination in certain circumstances under the terms of the
applicable Plan.
Termination of Employment - In the event
Executive's employment is terminated: (i) by reason of death or Retirement, by
the Company for Disability or without Cause, or by Executive's resignation for
Good Reason, his outstanding options, whether or not they have vested on the
date of such termination of employment, shall accelerate and become vested in
full and shall remain exercisable for a period of one year; and (ii) for any
reason other than those listed in (i) above, Executive's outstanding options
(i.e, options which have been granted but have not been exercised or terminated
and have not expired), to the extent they are vested at the date of such
termination, shall remain exercisable for a period of six months, provided that
in no event shall any option be exercisable after the expiration of its term.
Notwithstanding the foregoing, (i) the period of exercisability of options
granted under the Company's 1994 and 1997 Stock Option Plans following
termination of employment specified above is subject to possible reduction in
certain circumstances to the extent required under the terms of Section 3(b) of
the 1994 and 1997 Stock Option Plans, (ii) in the event of a Change in Control,
the provisions of Section 10(a) of the Agreement shall be applicable to all
Executive's stock options whether heretofore or hereafter granted, and (iii) in
no event shall any option be exercisable after the expiration of its term.
<PAGE>
APPENDIX B
Summary of Certain Benefits and Arrangements
1. Housing & Related Matters.
(a) Possible Relocation. Executive currently owns a home in
New Jersey and has the use of a condominium in Rhode Island. If Executive
commits to relocate his primary residence within one year from the date of this
Agreement to either the West Greenwich, Rhode Island, or Boca Raton, Florida,
areas, the Company shall:
(i) extend the due date of the Company's outstanding 6%
$500,000 principal amount loan to Executive from November 1, 1999 to January 1,
2000 and forgive $125,000 of the principal of such loan in four installments,
commencing August 1, 1997 and on January 1, 1998, 1999 and 2000; provided,
however, that Executive shall remain responsible for making the interest
payments on the outstanding balance of such loan and for any taxes arising from
the forgiveness of principal;
(ii) provide Executive with an unsecured $1,000,000 revolving
line of credit for the purpose of facilitating the move to and/or renovating his
new primary residence in the West Greenwich or Boca Raton area, any such line of
credit loan to bear interest at the lowest Applicable Federal Rate established,
from time to time, by the Internal Revenue Service, such line of credit to
terminate and any loan outstanding thereunder to become payable in full on the
earlier of ten days following the sale of Executive's home in New Jersey or July
14, 2002; and
(iii) pay Executive's moving expenses to Florida or Rhode
Island, as the case may be, and in the event that Executive incurs federal,
state or local income taxes attributable to the Company's bearing such moving
expenses, the Company shall pay Executive a gross-up payment sufficient to
offset any such income taxes (excluding any interest or penalties) and any such
income taxes imposed by reason of the gross-up payment.
Notwithstanding the foregoing, the outstanding balances of
the above loan and line of credit, if not earlier due, shall become due and
payable 120 days after Executive's Term of employment has terminated for any
reason, other than a termination by the Company without Cause or a termination
by Executive for Good Reason.
The above loan and line of credit shall be evidenced by such
promissory notes and collateral documents as the Company may reasonably request.
(b) During the Term, the Company, at its expense, shall
provide Executive with the use of a suitable furnished condominium in whichever
of the West Greenwich or Boca Raton area as to which he does not relocate his
primary residence, or in one of such areas if he does not choose to relocate his
primary residence to either such area. The Company shall pay Executive gross-up
payments in the same manner as specified in subsection (a)(iii) above for any
taxes attributable to the Company's bearing such condominium expenses or to the
gross-up payment.
(c) The benefits provided in this Section 1 are in lieu of
any other benefits under the Company's relocation policy.
2. Vacation. During the Term, Executive shall be entitled to
a paid vacation of four weeks per year.
3. Automobile. During the Term, the Company shall make
available to Executive for his own use a passenger automobile, such as a BMW
750i or its equivalent, as Executive may select. Executive shall be entitled to
select a new automobile once every three years. All expenses of operating,
repairing, insuring, garaging and otherwise maintaining such automobile shall be
borne by the Company. Further, in the event that Executive incurs federal, state
or local income taxes attributable to the Company's providing such automobile
and bearing such expenses, the Company shall pay Executive a gross-up payment
sufficient to offset any such income taxes (excluding interest or penalties) and
any such income taxes imposed by reason of the gross-up payment.
<PAGE>
4. Medical. During the Term (and thereafter as and to the
extent expressly provided in the Agreement), the Company shall bear the cost of
all medical expenses reasonably incurred by Executive and his family (family
eligibility to be determined in accordance with the Company's general policies
concerning medical coverage), including hospitalization (private room), dental,
orthodontic, optical and choice of physicians such coverage to be 100% of
expenses and to be at no cost to Executive nor his family, including without
limitation no premiums, no deductibles and no co-payments. Further, during the
Term, the cost of Executive's annual physical examination also shall be borne by
the Company. The Company shall pay Executive a gross-up payment sufficient to
offset any income taxes as may arise by virtue of Section 105(h) of the Code and
any such income taxes imposed by reason of the gross-up payment.
5. Spousal Travel. During the Term, the Company shall bear
the expense of first class air travel and related travel living expenses for
Executive and his spouse on Executive's business trips. Further, in the event
that Executive incurs federal, state or local income taxes attributable to the
Company's bearing such travel expenses for his wife, the Company shall pay
Executive a gross-up payment sufficient to offset any such income taxes
(excluding any interest or penalties) and any such income taxes imposed by
reason of the gross-up payment.
6. Tax Preparation. During the Term, the Company shall bear
the expense for annual tax preparation for Executive. The Company shall pay
Executive gross-up payments in the same manner as set forth in Section 5 above
for any taxes attributable to the Company's bearing such tax preparation
expenses or to the gross-up payment.
7. Certain Fees. During the Term, the Company shall provide
Executive with a reasonable allowance for health club, country club and other
similar club memberships, for home security and for computer, facsimile and
other similar equipment; and the Company shall pay Executive gross-up payments
in the same manner as set forth in Section 5 above for any taxes attributable to
such allowances or to the gross-up payment.
8. Perquisite Plan. During the Term, Executive shall be
entitled to participate in the Company's Executive Perquisites Plan. Among the
items which may be selected under the Plan (subject to the Plan's cap) are
estate planning and other financial services. The Company shall pay Executive
gross-up payments in the same manner as set forth in Section 5 above for any
taxes attributable to items selected under the Executive Perquisites Plan or to
the gross-up payment. Benefits specifically numbered above in this Appendix B
shall not be deemed to be provided under the Plan or subject to the Plan's cap.
9. Professional Fees. The Company shall pay the reasonable
professional fees of Executive in connection with the negotiation and
preparation of this Agreement, including attorneys' fees, compensation
consultants' fees and their related expenses and disbursements.
AGREEMENT
AGREEMENT, dated this 15th day of July, 1997, by and between MICHAEL
R. CHAMBRELLO ("Executive") and GTECH HOLDINGS CORPORATION, a Delaware
corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Company wishes to assure itself of continuity of
management in the event of any actual or threatened "Change in Control" (as
defined below) of the Company; and
WHEREAS, the Company and the Executive desire to embody in a written
agreement the terms and conditions under which the Executive shall be employed
by the Company in the event of any actual or threatened Change in Control of the
Company;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto hereby agree as follows:
Section 1. Definitions.
1.1 Act. "Act" means the Securities Exchange Act of 1934, as
amended to date.
1.2. Affiliate. "Affiliate" means any corporation which is a
subsidiary of the Company within the definition of "subsidiary corporation"
under Section 424(f) of the Code.
1.3. Board. "Board" means the Board of Directors of the Company.
1.4. Cause. "Cause" means (i) the Executive's engaging in serious
misconduct that is injurious to the Company, (ii) the Executive's having been
convicted of, or entered a plea of nolo contendere to a crime that constitutes a
felony, (iii) the breach by the Executive of any written covenant or agreement
with the Company not to disclose any information pertaining to the Company or
not to compete or interfere with the Company, or (iv) abuse of illegal drugs or
other controlled substances, or habitual intoxication.
1.5. Change In Control. "Change in Control" means the happening
of any of the following:
(i) the members of the Board at the beginning of any
consecutive twenty-four calendar month period (the
"Incumbent Directors") cease for any reason other
than due to death to constitute at least a majority
of the members of the Board, provided that any
director whose election, or nomination for election
by the Company's stockholders, was approved by a
vote of at least a majority of the members of the
Board then still in office who were members of the
Board at the beginning of such twenty-four calendar
month period, shall be deemed an Incumbent Director;
(ii) any "person", including a "group" (as such terms
are used in Sections 13(d) and 14(d) of the Act,
but excluding the Company, any of its Affiliates,
or any employee benefit plan of the Company or any
of its Affiliates) is or becomes the "beneficial
owner" (as defined in Rule 13(d)(3) under the Act),
directly or indirectly, of securities of the
Company representing the greater of 30% or more of
the combined voting power of the Company's then
outstanding securities;
(iii) the stockholders of the Company shall approve a
definitive agreement (1) for the merger or other
business combination of the Company with or into
another corporation if (A) a majority of the
directors of the surviving corporation were not
directors of the Company immediately prior to the
effective date of such merger or (B) the
stockholders of the Company immediately prior to
the effective date of such merger own less than 50%
of the combined voting power in the then
outstanding securities in such surviving
corporation or (2) for the sale or other
disposition of all or substantially all of the
assets of the Company; or
(iv) the purchase of 30% or more of the Stock pursuant to
any tender or exchange offer made by any "person",
including a "group" (as such terms are used in
Sections 13(d) and 14(d) of the Act), other than the
Company, any of its Affiliates, or any employee
benefit plan of the Company or any of its Affiliates.
1.6. Code. "Code" means the Internal Revenue Code of 1986, as
amended from time to time, and any successor thereto.
1.7. Effective Date. "Effective Date" means the date on which a Change
in Control occurs. Anything in this Agreement to the contrary notwithstanding,
if a Change in Control occurs and if the Executive's employment with the Company
is terminated prior to the date on which the Change in Control occurs, and if it
is reasonably demonstrated by the Executive that such termination of employment
(i) was at the request of a third party who has taken steps reasonably
calculated to effect a Change in Control or (ii) otherwise arose in connection
with or in anticipation of a Change in Control, then for all purposes of this
Agreement, the "Effective Date" shall mean the date immediately prior to the
date of such termination of employment.
1.8 Executive Perquisite Program. "Executive Perquisite
Program" means the Company's Executive Perquisite Program in effect on the date
hereof, as the same may be amended from time to time.
1.9 Non-Qualified Plans. "Non-Qualified Plans" means the Company's
Supplemental Retirement Plan in existence as of the date hereof, and any other
unfunded, non-qualified, deferred compensation, incentive compensation or
retirement plan adopted by the Company subsequent to the date hereof, and/or any
successor plan or plans.
1.10. Option. "Option" means any option to purchase shares of Stock
granted to Executive pursuant to the Company's 1994 Stock Option Plan, as
amended from time to time, the Company's 1997 Stock Option Plan, as amended from
time to time, or any other stock option plan adopted by the Company.
1.11 Retirement Plan. "Retirement Plan" means the Company's
profit-sharing and 401(k) retirement plan which is qualified under Section
401(a) and 501(a) of the Code in existence as of the date hereof and any other
such plan adopted by the Company subsequent to the date hereof and/or any
successor plan or plans.
1.12. Stock. "Stock" means the Common Stock $.01 par value per
share of the Company.
1.13. Term of Employment. "Term of Employment" means the period
commencing on the Effective Date and ending on the earliest of:
(a) Executive's death or "Total Disability" (as defined
below);
(b) Termination of the Term of Employment pursuant to
Section 4 below;
(c) Three (3) years from the Effective Date. Neither the
expiration of the Term of Employment nor the termination of this Agreement
will relieve the Company of the obligation to provide Executive, in accordance
with the terms hereof, the payments, benefits and coverage to which he has
become entitled under this Agreement.
1.14. Total Disability. "Total Disability" shall mean permanent
and total disability as determined under the Company's long term disability
program.
Section 2. Employment.
2.1. Capacity and Situs of Employment. The Company agrees to employ
Executive throughout the Term of Employment, during which (a) Executive's
position (including reporting relationships, status, offices and titles),
authority, duties and responsibilities shall be at least equal in all material
respects with the highest position, authority, duties and responsibilities held
by, exercised by and assigned to the Executive at any time during the six month
period immediately preceding the Change in Control, and (b) Executive's situs of
employment will be at the Company's executive headquarters in West Greenwich,
Rhode Island or such other situs (the "Other Situs") to which Executive may be
assigned prior to the Effective Date (the Company's executive headquarters or
the Other Situs, whichever is applicable to the Executive, is herein referred to
as the "Applicable Situs") or such other location within a fifty (50) mile
radius of the Applicable Situs (hereinafter referred to as the "Area") to which
the Applicable Situs be moved.
2.2. Services of the Executive. Executive agrees, subject to Sections
4.3 and 4.4 below, to remain in the Company's employ during the Term of
Employment, on the terms described in Section 2.1.
Excluding periods of vacation and sick leave to which Executive is
entitled, Executive agrees to devote substantially all of his attention, energy
and time during normal business hours to the business and affairs of the Company
and, to the extent necessary, to discharge responsibilities assigned to
Executive hereunder, to use his best efforts to perform such responsibilities
faithfully and efficiently. Executive may (a) serve on corporate, civic and
charitable boards or committees, (b) deliver lectures and fulfill speaking
engagements and (c) manage personal investments, so long as such activities do
not interfere with the performance of Executive's responsibilities. To the
extent that any such activities have been conducted by Executive prior to the
Change in Control, such prior conduct, and any subsequent conduct similar in
nature and scope, shall not be deemed to interfere with the performance of
Executive's responsibilities.
Section 3. Compensation and Benefits During the Term of Employment.
3.1. Compensation. The Company will pay as compensation to Executive
for his services as an employee during the Term of Employment:
(a) base annual salary at a rate equal to or greater than the
rate of base salary in effect for Executive immediately prior to the
Effective Date; plus
(b) for the year in which a Change in Control occurs, the
greater of (i) a bonus under the annual bonus plan(s) in effect as of
the Change in Control, calculated on the basis of the Company's
performance up to the Change in Control, and payable in accordance with
such plan(s) or (ii) an amount equal to the bonus paid to Executive
under the annual bonus plan(s) in effect for the year immediately
preceding the year in which the Change in Control occurs, payable in
accordance with the terms of such plan(s);
(c) in years subsequent to the year in which the Change in
Control occurs, an annual bonus which is equal to or greater than the
annual bonus paid in the year preceding the year in which the Change in
Control occurs, payable not later than provided for in the plan(s) in
effect for such preceding year.
3.2. Benefits. In addition, for his services as an employee during the
Term of Employment, Executive will receive all life, disability, accident and
group health insurance benefits, retirement, profit-sharing and deferred
compensation, and all other fringe benefits and payments under additional
benefit plans including the Executive Perquisite Program, all in an amount or
with a value at least equal to those benefits being provided by the Company to
the Executive immediately prior to the Effective Date, including but not limited
to the following:
(a) Executive will participate fully in the Company's
Retirement Plan and Non-Qualified Plans with benefit accruals and
Company contributions for the benefit of Executive under all such
plans, and all other material provisions of such plans, being at least
the same as immediately prior to the Effective Date, or Company shall
pay to Executive annual cash payments in advance, each at least being
equal to the total value of such benefit accruals and Company
contributions under such plans for the last fiscal year of the Company
ending prior to the Effective Date;
(b) At no additional cost to Executive, Company shall continue
to provide coverage to Executive, together with his dependents and
beneficiaries, in all life insurance plans, accident and health plans,
Section 125 plans, and other welfare plans maintained or sponsored by
the Company, at a level and subject to terms which are at least as
favorable to Executive as the coverage provided immediately prior to
the Effective Date, or the Company shall pay to Executive the full
value thereof in cash annually in advance;
(c) Executive will participate fully in additional benefit
plans offered by the Company to executives immediately prior to or
after the Effective Date; and
(d) Executive will receive fringe benefits and job perquisites
(which shall not include any benefit referred to elsewhere in this
Section 3), including the Executive Perquisite Program, automobile in
accordance with the Company's Fleet Policy for Vice Presidents and
Corporate Officers as in effect as of the date hereof, paid vacation,
club memberships, applicable class travel, tax and financial statement
preparation assistance, paid financial assistance, executive physical
examinations, office, office furnishings and equipment and support
staff, at least equivalent to those provided to Executive immediately
prior to the Effective Date, as well as reimbursement, upon proper
accounting, of reasonable expenses and disbursements incurred by
Executive in the course of his duties.
3.3. Funding of Deferred Compensation Benefits. Contemporaneous with
the Change in Control, all benefits accrued by Executive under the terms of any
of the Company's Non-Qualified Plans shall become fully vested and the Company
shall immediately contribute to a rabbi trust for the benefit of the Executive
the full amount of all such accrued benefits. Not less frequently than
quarterly, the Company shall make additional contributions to the rabbi trust
equal to the full amount of any additional benefits accrued by Executive
pursuant to Section 3.2(a) hereof.
3.4. Acceleration of Vesting of Options. The Company hereby agrees that
on or prior to the date of a Change in Control any and all options awarded to
the Executive not previously exercisable and vested shall become fully vested
and exercisable. In addition, in the event the Company decides to terminate any
Options previously awarded to the Executive pursuant to the applicable
provisions of any stock option plan adopted by the Company in connection with a
corporate transaction (as that term is described in Section 424(a) of the Code),
the Company will give the Executive not less than fourteen days' notice prior to
any such termination and such notice shall not be given until any and all
Options previously awarded to Executive shall have become fully vested and
exercisable.
Section 4. Termination of Employment
4.1. Compensation Prior To Termination. During the year in which either
(i) the Executive's employment is terminated during the Term of Employment for
any reason, or (ii) the Executive resigns during the Term of Employment in
accordance with Section 4.3(b) below, notwithstanding any other provision of
this Agreement, the Company and the Executive hereby agree that the Executive
shall have the right to receive base salary, annual bonuses, contributions to
Retirement Plans and Non-Qualified Plans, gross-up payments made to cover tax
liabilities (to the extent provided in such plans), and all other compensation,
benefits and payments earned or paid with respect to the period prior to the
date of termination of employment, all such payments or contributions to be made
at the times provided for in such plans or in accordance with Company policy as
in effect immediately prior to the Effective Date, except as expressly provided
below. For purposes of this Section 4.1, the amount of the annual bonuses earned
and the amount of the contributions to the Retirement Plans and Non-Qualified
Plans earned (i) shall be at least equal to the amounts paid to, or contributed
on behalf of, the Executive for the year immediately preceding the year in which
the termination of the Executive's employment occurs which amounts shall be
prorated based on the number of days in the year in which the termination of the
Executive's employment occurs which have passed prior to the date of the
termination of the Executive's employment, and (ii) shall be paid or contributed
on behalf of the Executive not later than 10 days after the date of termination
of employment. Nothing in this Section 4.1 shall in any way alter the
Executive's right to receive all the payments and rights and benefits described
in Sections 4.2 and 4.3(a).
4.2. (a) Termination other than for Cause. In the event Executive's
employment is terminated by the Company during the Term of Employment for any
reason other than Cause, the Company will pay Executive, as liquidated damages,
a lump sum cash payment, payable within ten (10) days of his termination, equal
to two and ninety-nine hundredths (2.99) times the sum of (i) Executive's
current annual base salary in effect at the date of termination (including in
base salary for this purpose any elective salary reductions made by the
Executive and contributed by the Company on his behalf to the Company's
Retirement Plan, any Non-Qualified Plan, or a plan meeting the requirements of
Section 125 of the Code), plus (ii) the total cash bonus received by the
Executive from the Company during the most recent full fiscal year of the
Company pursuant to the Company's annual bonus plan(s), plus (iii) the maximum
amount allowable under the Executive Perquisite Program during the most recent
calendar year of the Company.
(b) Participation in Benefit Plans. In the event of a termination
described in Section 4.2(a) above, Executive, together with his dependents and
beneficiaries, will become fully vested in and continue following his
termination to participate fully in, at no additional cost to Executive, all
life insurance plans, accident and health plans and other welfare plans,
maintained or sponsored by the Company immediately prior to the termination, at
the same level and subject to terms at least as favorable to Executive as in
effect immediately prior to termination (or the full value thereof in cash) from
the Company, until the earlier of (a) the Executive's eligibility for comparable
benefit plans with another employer and (b) the third anniversary of
termination. Executive will also become fully vested in the Retirement Plan, and
all Non-Qualified Plans, and within thirty (30) days of Executive's termination
of employment, Company shall pay to Executive the sum of (i) all benefits
accrued under the Non-Qualified Plans and (ii) an amount equal to 2.99 times the
average benefit accrued and/or Company contributions made to the Retirement Plan
and the Non-Qualified Plans over the last three fiscal years. In addition, the
Company shall provide Executive with out-placement service through a bona fide
out-placement organization acceptable to Executive that, at a minimum, agrees to
supply Executive with out-placement counseling, a private office and
administrative support including telephone service until such time that
Executive secures suitable employment, not to be limited by Section 1.13 hereof.
4.3. Resignation By Executive - Constructive Termination.
(a) If Executive resigns during the Term of Employment in accordance
with Section 4.3(b) below, his employment will be deemed to have been terminated
by the Company for reasons other than Cause (and he will be deemed to have
offered to continue to provide services to the Company), and, notwithstanding
any provision herein to the contrary, he will be entitled to all the payments
and rights and benefits described in Sections 4.1 and 4.2, at the time provided
for therein.
(b) Executive may resign in accordance with this Section 4.3 upon the
occurrence of any of the following events (in each case, "Good Reason"):
(i) any reduction of, or failure to pay, Executive's base
annual salary or annual bonus in breach of Section 3.1 above;
(ii) any failure by the Company to provide the benefits
required by Section 3.2 above or to make any contribution to a rabbi
trust which might be due in accordance with Section 3.3 above;
(iii) assignment to Executive of any duties inconsistent in
any respect with his position (including the office to which he
reports, status, offices, and titles), authority, duties or
responsibilities as contemplated by Section 2.1 above or any other
action by the Company which results in a diminution of such position,
authority, duties or responsibilities;
(iv) as a result of the Change in Control and a change in
circumstances thereafter significantly affecting Executive's position,
including, without limitation, a change in scope of the business or
other activities for which he was responsible immediately prior to the
Change in Control, he has been rendered substantially unable to carry
out, or has been substantially hindered in the performance of, any of
the authority, duties or responsibilities contemplated by Section 2.1
above;
(v) the failure of the Company after a Change in Control to
comply with and satisfy Section 7.1 or 7.2 below;
(vi) relocation by the Company of its principal executive
offices, or any event that causes Executive to have his principal
location of work changed, to any location outside the Area;
(vii) any requirement by the Company that Executive travel
away from his office in the course of his duties significantly more
than the number of consecutive days or aggregate days in any calendar
year than was required of him prior to the Change in Control; or
(viii) without limiting the generality or effect of the
foregoing any material breach of this Agreement by the Company or any
successor thereto or transferee of substantially all of the assets
thereof.
For purposes of this Agreement, any good faith determination of "Good Reason"
made by the Executive shall be presumptively correct.
(c) If Executive resigns during the Term of Employment in accordance
with Section 4.3(b) above, the Company shall have the right to request that the
Executive agree to remain as an employee of the Company during a transition
period of up to three months (the "Transition Period") and the Executive hereby
agrees that, if requested by the Company, he will remain as an employee of the
Company during the Transition Period. During the Transition Period, the Company
will continue to pay the Executive the Executive's base salary, annual bonus and
all other compensation and benefits on the same basis as such items were paid to
the Executive prior to his resignation.
4.4. Resignation by Executive. If Executive resigns during the Term of
Employment without Good Reason, the Executive shall have the right to receive
base salary, annual bonuses, contributions to Retirement Plans and all other
compensation and benefits earned during the calendar year of his resignation up
to the date of his resignation. For purposes of this Section 4.4, the amount of
the annual bonuses and the amount of the contributions to the Retirement Plan
shall be at least equal to the amounts paid to, or contributed on behalf of, the
Executive for the year immediately preceding the year in which the resignation
of the Executive occurs which amounts shall be prorated based on the number of
days in the year in which such resignation occurs which have passed prior to the
date of such resignation. In addition all vested Non-Qualified Plan benefits
shall be paid within thirty (30) days of resignation.
4.5. Termination for Cause. If Executive is dismissed by the Company
for Cause, he will not be entitled to the payments or benefits provided under
Section 4.2 hereof.
4.6. Dispute Resolution. All disputes between the parties to this
Agreement concerning the matters set forth herein shall be resolved exclusively
pursuant to the dispute resolution procedures of this Section 4.6. In
furtherance thereof, Executive or the Company, as the case may be, shall
initiate binding arbitration in Rhode Island before the American Arbitration
Association ("AAA") and under its rules by serving a notice to arbitrate upon
the other party hereto and AAA within 90 days of the occurrence of any dispute
hereunder that is unable to be resolved by negotiation between the parties. The
parties shall bear their respective costs in any such dispute resolution, except
that with respect to any such action initiated by the Executive, provided the
Executive initiates such action in good faith, the Company agrees (i) to pay the
costs and expenses (including fees of counsel to the Executive) of any such
arbitration or judicial proceeding, and (ii) to pay interest to Executive on any
amounts found to be due to Executive hereunder during any period of time that
such amounts are withheld pending arbitration and/or judicial proceedings. Such
interest will be at the base or prime rate most recently announced by Rhode
Island Hospital Trust National Bank (or its successor) prior to the commencement
of the arbitration or litigation. The Company and Executive agree that any
arbitration award shall be binding and may be enforced by any court of competent
jurisdiction.
4.7. Death or Total Disability of the Executive.
(a) If Executive dies or suffers a Total Disability during the Term of
Employment, then this Agreement shall terminate and the Company, its successors
and assigns shall be relieved and discharged of any and all obligations
whatsoever to make further payment to Executive pursuant to the terms of this
Agreement after the date of death or Total Disability of Executive, except as to
base salary earned for services actually rendered and vacation pay accrued prior
to the date of death or Total Disability of Executive.
(b) If Executive dies or suffers a Total Disability following a
termination of employment which entitled him to payments and benefits under this
Section 4 but prior to receipt of all such payments and benefits, his
beneficiary (as designated to the Company in writing) or, if none, his estate,
will be entitled to receive all unpaid amounts and benefits due under this
Agreement.
4.8. Enforcement of Rights. Termination of Executive's employment,
whether or not giving rise to payments or benefits under this Section 4, will
not in any way prevent Executive from enforcing rights to payments or benefits
under Section 3 relating to periods during which he was employed.
Section 5. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 5) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed on the Payments.
(b) Subject to the provisions of Section 5(c), all determinations
required to be made under this Section 5, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made by
Ernst & Young LLP or such other nationally recognized certified public
accounting firm as may be designated by the Executive (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and
the Executive within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as is requested
by the Company. In the event that the Accounting Firm is serving as accountant
or auditor for the individual, entity or group effecting the Change in
Control, the Executive shall appoint another nationally recognized accounting
firm to make the determinations required hereunder (which accounting firm
shall then be referred to as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment, as determined pursuant to this Section 5, shall be paid by
the Company to the Executive within five days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm shall be
binding upon the Company and the Executive. As a result of the uncertainty in
the application of Section 280G and Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible
that Gross-Up Payments which will not have been made by the Company should
have been made ("Underpayment"), consistent with the calculations required to
be made hereunder. In the event that the Company exhausts its remedies
pursuant to Section 5(c) and the Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine the amount of
the Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30-day period following
the date on which he gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
(i) give the Company any information
reasonably requested by the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 5(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 5(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 5(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determinative then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
Section 6. Payment of Fees, Costs and Expenses.
It is the intent of the Company that the Executive not be required to
incur the expenses associated with the enforcement of his rights under this
Agreement by litigation or other legal action or arbitration proceeding because
the cost and expense thereof would substantially detract from the benefits
intended to be extended to the Executive hereunder. Accordingly, if Executive
determines in good faith that the Company has failed to comply with any of its
obligations under this Agreement or if the Company or any other person takes any
action to declare this Agreement void or unenforceable, or institutes any
litigation or arbitration proceeding designed to deny, or to recover from, the
Executive the benefits intended to be provided to the Executive under Section 6
hereof, the Company will promptly, upon request of the Executive in the event of
the likelihood of a Change in Control or upon a Change in Control, use its best
efforts to secure an irrevocable standby letter of credit (the "Letter of
Credit"), issued by Rhode Island Hospital Trust National Bank or another bank of
comparable or greater size (the "Bank") for the benefit of the Executive
providing that the fees and expenses of counsel selected from time to time by
the Executive pursuant to this Section 6 or in proceedings contemplated by
Section 4.6 shall be paid, or reimbursed to the Executive if paid by the
Executive, on a regular, periodic basis upon presentation by the Executive to
the Bank of a statement or statements prepared by such counsel in accordance
with its customary practices. The Company shall pay all amounts and take all
action necessary to maintain the Letter of Credit during the Term of Employment
and for one (1) year thereafter and if, notwithstanding the Company's complete
discharge of such obligations, such Letter of Credit shall be terminated or not
renewed, the Company shall use its best efforts to obtain a replacement
irrevocable letter of credit drawn upon a commercial bank selected by the
Company and reasonably acceptable to the Executive, upon substantially the same
terms and conditions as contained in the Letter of Credit, or any similar
arrangement which, in any case, assures the Executive the benefits of this
Agreement without incurring any cost or expense for enforcement against the
Company or the defense thereof.
Section 7. Merger or Acquisition.
7.1. Assumption of Obligations. If the Company is at any time before or
after a Change in Control merged, consolidated or reorganized into or with any
other corporation or other entity (whether or not the Company is the surviving
entity), or if substantially all of the assets of the Company are transferred to
another corporation or other entity, the entity arising from such merger,
consolidation or reorganization, or the acquirer of such assets, shall (by
agreement in form and substance satisfactory to Executive) expressly assume the
obligations of Company under this Agreement.
7.2. Executive's Rights to Benefits. In the event of any merger,
consolidation, reorganization or sale of assets described above, nothing
contained in this Agreement will detract from or otherwise limit Executive's
right to or privilege of participation in any stock option or purchase plan or
restricted stock plan or any bonus, profit sharing, savings, pension, group
insurance, hospitalization or other incentive or benefit plan or arrangement
which may be or become applicable to executives of the corporation resulting
from such merger or consolidation or the corporation, acquiring such assets of
the Company.
7.3. References. In the event of any merger, consolidation,
reorganization or transfer of assets described above, references to the Company
in this Agreement shall, unless the context suggests otherwise, be deemed to
include the entity resulting from such merger or consolidation or the acquirer
of such assets of the Company.
Section 8. Change in Control Following Certain Circumstances.
Notwithstanding any provision herein to the contrary, should a Change
in Control occur subsequent to Executive's death, Total Disability or retirement
from the Company, the remainder of any benefits owed under the terms of any
stock plans or other non-qualified deferred compensation plan, including
interest, shall be paid in full on the date of the Change in Control.
Section 9. Termination of this Agreement.
Either the Company or Executive may, by giving 60 days written notice
to the other party, terminate this Agreement as of the third or any subsequent
annual anniversary of the occurrence of a Change in Control.
Section 10. Withholding of Taxes.
All payments required to be made by the Company hereunder to Executive
or his dependents, beneficiaries or estate will be subject to the withholding on
such amounts relating to tax and/or other payroll deductions as may be required
by law.
Section 11. Amendment.
No amendment, change or modification of this Agreement may be made
except in a writing, signed by or on behalf of both parties.
Section 12. Miscellaneous.
12.1. Binding Effect. The provisions of this Agreement shall be binding
upon and shall inure to the benefit of Executive, his executors, administrators,
legal representatives and assigns, and the Company and its successors and
assigns.
12.2. Governing Law. The validity, interpretation and effect of this
Agreement shall be governed by and construed in accordance with the laws of the
State of Rhode Island.
12.3. Severability. The invalidity or enforceability of any
provision of this Agreement shall not affect the validity of any other
provision.
12.4. No Set-Off. There shall be no right of setoff or counterclaim, in
respect of any claim, debt or obligation, against any payments to Executive, his
dependents, beneficiaries or estate provided for in this Agreement, and nothing
in this Agreement shall relieve the Company of its obligations to Executive
under any other agreement, plan, contract or arrangement. Subject to Section
12.6 hereof, no right, benefit or interest hereunder shall be subject to
anticipation, alienation, sale, assignment, encumbrance, charge, pledge,
hypothecation or set-off in respect of any claim, debt or obligation, or to
execution, attachment, levy or similar process or assignment by operation of
law. Any attempt, voluntary or involuntary, to effect any action specified in
the immediately preceding sentence shall, to the full extent permitted by law,
be null, void and of no effect. In no event shall the Executive be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and, except as otherwise provided in Section 4.2(b) hereof, such amounts shall
not be reduced whether or not the Executive obtains other employment.
Notwithstanding anything to the contrary in this Agreement, Executive shall
forfeit all future payments and benefits hereunder in the event that Executive
is determined, pursuant to procedures established in Section 4.6 hereof, to have
materially breached any written covenant or agreement between the Executive and
the Company prohibiting the disclosure of confidential information pertaining to
the Company or respecting competition or interference with the Company, provided
that the Company shall have given the Executive at least thirty (30) days prior
written notice of such breach and such breach shall not have been cured by the
end of such notice period.
12.5. Remedies. The Company and Executive agree that, because of the
unique nature of this Agreement, failure of either party to carry out or abide
by the obligations under this Agreement could cause irreparable injury;
accordingly, the parties agree that, in addition to any other remedies available
to either party, any such failure by either party to perform or abide by this
Agreement shall be subject to appropriate equitable remedies, including specific
performance and injunctive relief.
12.6. Assignability. No right or interest to or in any payments shall
be assignable by the Executive; provided, however, that this provision shall not
preclude him from designating one or more beneficiaries to receive any amount
that may be payable after his death and shall not preclude the legal
representative of his estate from assigning any right hereunder to the person or
persons entitled thereto under his will or, in the case of intestacy, to the
person or persons entitled thereto under the laws of intestacy applicable to his
estate. The term "beneficiaries" as used in this Agreement shall mean a
beneficiary or beneficiaries so designated to receive any such amount, or if no
beneficiary has been so designated, the legal representative of the Executive's
estate.
12.7. Counterparts; Headings; References. This Change in Control
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument. The headings of the sections of this Agreement are inserted for
convenience only and shall not constitute a part hereof. References to the
masculine or feminine gender (or to the singular or plural number) herein shall
mean the other such gender (or number), as appropriate.
12.8. Entire Agreement. This instrument contains the entire agreement
of the parties pertaining to the subject matter contained herein and supersedes
and is in lieu of any and all other arrangements pertaining to the subject
matter contained herein having effect as of the effective date.
12.9. Notices. All notices given hereunder shall be in writing and
shall be delivered personally or sent by prepaid registered or certified mail,
return receipt requested, addressed as follows or to such other address as may
be provided by any party hereto to the other party:
If to the Company: GTECH Holdings Corporation
55 Technology Way
West Greenwich, RI 02817
Attention:
If to the Executive: Michael R. Chambrello
20 Kettle Court
North Kingstown, RI 02852
All notices shall be deemed to be given on the date received at the
address of the addressee, or if delivered personally, on the date delivered.
IN WITNESS WHEREOF, the Company and Executive have each caused this
Agreement to be duly executed and delivered as of the date set forth above.
ATTEST: GTECH HOLDINGS CORPORATION
/s/ Kathleen J. Carson By:/s/ Stephen A. Davidson
Title: Senior Vice President
WITNESS:
/s/ Kathleen J. Carson /s/ Michael R. Chambrello
Michael R. Chambrello
AGREEMENT
AGREEMENT, dated this 15th day of July, 1997, by and between LAURANCE
W. GAY ("Executive") and GTECH HOLDINGS CORPORATION, a Delaware corporation (the
"Company").
W I T N E S S E T H:
WHEREAS, the Company wishes to assure itself of continuity of
management in the event of any actual or threatened "Change in Control" (as
defined below) of the Company; and
WHEREAS, the Company and the Executive desire to embody in a written
agreement the terms and conditions under which the Executive shall be employed
by the Company in the event of any actual or threatened Change in Control of the
Company;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto hereby agree as follows:
Section 1. Definitions.
1.1 Act. "Act" means the Securities Exchange Act of 1934, as
amended to date.
1.2. Affiliate. "Affiliate" means any corporation which is a
subsidiary of the Company within the definition of "subsidiary corporation"
under Section 424(f) of the Code.
1.3. Board. "Board" means the Board of Directors of the Company.
1.4. Cause. "Cause" means (i) the Executive's engaging in serious
misconduct that is injurious to the Company, (ii) the Executive's having been
convicted of, or entered a plea of nolo contendere to a crime that constitutes a
felony, (iii) the breach by the Executive of any written covenant or agreement
with the Company not to disclose any information pertaining to the Company or
not to compete or interfere with the Company, or (iv) abuse of illegal drugs or
other controlled substances, or habitual intoxication.
1.5. Change In Control. "Change in Control" means the happening
of any of the following:
(i) the members of the Board at the beginning of any
consecutive twenty-four calendar month period (the
"Incumbent Directors") cease for any reason other
than due to death to constitute at least a majority
of the members of the Board, provided that any
director whose election, or nomination for election
by the Company's stockholders, was approved by a
vote of at least a majority of the members of the
Board then still in office who were members of the
Board at the beginning of such twenty-four calendar
month period, shall be deemed an Incumbent Director;
(ii) any "person", including a "group" (as such terms
are used in Sections 13(d) and 14(d) of the Act,
but excluding the Company, any of its Affiliates,
or any employee benefit plan of the Company or any
of its Affiliates) is or becomes the "beneficial
owner" (as defined in Rule 13(d)(3) under the Act),
directly or indirectly, of securities of the
Company representing the greater of 30% or more of
the combined voting power of the Company's then
outstanding securities;
(iii) the stockholders of the Company shall approve a
definitive agreement (1) for the merger or other
business combination of the Company with or into
another corporation if (A) a majority of the
directors of the surviving corporation were not
directors of the Company immediately prior to the
effective date of such merger or (B) the
stockholders of the Company immediately prior to
the effective date of such merger own less than 50%
of the combined voting power in the then
outstanding securities in such surviving
corporation or (2) for the sale or other
disposition of all or substantially all of the
assets of the Company; or
(iv) the purchase of 30% or more of the Stock pursuant to
any tender or exchange offer made by any "person",
including a "group" (as such terms are used in
Sections 13(d) and 14(d) of the Act), other than the
Company, any of its Affiliates, or any employee
benefit plan of the Company or any of its Affiliates.
1.6. Code. "Code" means the Internal Revenue Code of 1986, as
amended from time to time, and any successor thereto.
1.7. Effective Date. "Effective Date" means the date on which a Change
in Control occurs. Anything in this Agreement to the contrary notwithstanding,
if a Change in Control occurs and if the Executive's employment with the Company
is terminated prior to the date on which the Change in Control occurs, and if it
is reasonably demonstrated by the Executive that such termination of employment
(i) was at the request of a third party who has taken steps reasonably
calculated to effect a Change in Control or (ii) otherwise arose in connection
with or in anticipation of a Change in Control, then for all purposes of this
Agreement, the "Effective Date" shall mean the date immediately prior to the
date of such termination of employment.
1.8 Executive Perquisite Program. "Executive Perquisite
Program" means the Company's Executive Perquisite Program in effect on the date
hereof, as the same may be amended from time to time.
1.9 Non-Qualified Plans. "Non-Qualified Plans" means the Company's
Supplemental Retirement Plan in existence as of the date hereof, and any other
unfunded, non-qualified, deferred compensation, incentive compensation or
retirement plan adopted by the Company subsequent to the date hereof, and/or any
successor plan or plans.
1.10. Option. "Option" means any option to purchase shares of Stock
granted to Executive pursuant to the Company's 1994 Stock Option Plan, as
amended from time to time, the Company's 1997 Stock Option Plan, as amended from
time to time, or any other stock option plan adopted by the Company.
1.11 Retirement Plan. "Retirement Plan" means the Company's
profit-sharing and 401(k) retirement plan which is qualified under Section
401(a) and 501(a) of the Code in existence as of the date hereof and any other
such plan adopted by the Company subsequent to the date hereof and/or any
successor plan or plans.
1.12. Stock. "Stock" means the Common Stock $.01 par value per
share of the Company.
1.13. Term of Employment. "Term of Employment" means the period
commencing on the Effective Date and ending on the earliest of:
(a) Executive's death or "Total Disability" (as defined
below);
(b) Termination of the Term of Employment pursuant to
Section 4 below;
(c) Three (3) years from the Effective Date.
Neither the expiration of the Term of Employment nor the termination of this
Agreement will relieve the Company of the obligation to provide Executive, in
accordance with the terms hereof, the payments, benefits and coverage to which
he has become entitled under this Agreement.
1.14. Total Disability. "Total Disability" shall mean permanent
and total disability as determined under the Company's long term disability
program.
Section 2. Employment.
2.1. Capacity and Situs of Employment. The Company agrees to employ
Executive throughout the Term of Employment, during which (a) Executive's
position (including reporting relationships, status, offices and titles),
authority, duties and responsibilities shall be at least equal in all material
respects with the highest position, authority, duties and responsibilities held
by, exercised by and assigned to the Executive at any time during the six month
period immediately preceding the Change in Control, and (b) Executive's situs of
employment will be at the Company's executive headquarters in West Greenwich,
Rhode Island or such other situs (the "Other Situs") to which Executive may be
assigned prior to the Effective Date (the Company's executive headquarters or
the Other Situs, whichever is applicable to the Executive, is herein referred to
as the "Applicable Situs") or such other location within a fifty (50) mile
radius of the Applicable Situs (hereinafter referred to as the "Area") to which
the Applicable Situs be moved.
2.2. Services of the Executive. Executive agrees, subject to Sections
4.3 and 4.4 below, to remain in the Company's employ during the Term of
Employment, on the terms described in Section 2.1.
Excluding periods of vacation and sick leave to which Executive is
entitled, Executive agrees to devote substantially all of his attention, energy
and time during normal business hours to the business and affairs of the Company
and, to the extent necessary, to discharge responsibilities assigned to
Executive hereunder, to use his best efforts to perform such responsibilities
faithfully and efficiently. Executive may (a) serve on corporate, civic and
charitable boards or committees, (b) deliver lectures and fulfill speaking
engagements and (c) manage personal investments, so long as such activities do
not interfere with the performance of Executive's responsibilities. To the
extent that any such activities have been conducted by Executive prior to the
Change in Control, such prior conduct, and any subsequent conduct similar in
nature and scope, shall not be deemed to interfere with the performance of
Executive's responsibilities.
Section 3. Compensation and Benefits During the Term of Employment.
3.1. Compensation. The Company will pay as compensation to Executive
for his services as an employee during the Term of Employment:
(a) base annual salary at a rate equal to or greater than the
rate of base salary in effect for Executive immediately prior to the
Effective Date; plus
(b) for the year in which a Change in Control occurs, the
greater of (i) a bonus under the annual bonus plan(s) in effect as of
the Change in Control, calculated on the basis of the Company's
performance up to the Change in Control, and payable in accordance with
such plan(s) or (ii) an amount equal to the bonus paid to Executive
under the annual bonus plan(s) in effect for the year immediately
preceding the year in which the Change in Control occurs, payable in
accordance with the terms of such plan(s), provided that such bonus
shall be equal to 100% of the Executive's base salary in effect
immediately prior to the Effective Date.
(c) in years subsequent to the year in which the Change in
Control occurs, an annual bonus which is equal to or greater than the
annual bonus paid in the year preceding the year in which the Change in
Control occurs, but shall be equal to 100% of Executive's base salary
in effect immediately prior to the Effective Date, payable not later
than provided for in the plan(s) in effect for such preceding year.
3.2. Benefits. In addition, for his services as an employee during the
Term of Employment, Executive will receive all life, disability, accident and
group health insurance benefits, retirement, profit-sharing and deferred
compensation, and all other fringe benefits and payments under additional
benefit plans including the Executive Perquisite Program, all in an amount or
with a value at least equal to those benefits being provided by the Company to
the Executive immediately prior to the Effective Date, including but not limited
to the following:
(a) Executive will participate fully in the Company's
Retirement Plan and Non-Qualified Plans with benefit accruals and
Company contributions for the benefit of Executive under all such
plans, and all other material provisions of such plans, being at least
the same as immediately prior to the Effective Date, or Company shall
pay to Executive annual cash payments in advance, each at least being
equal to the total value of such benefit accruals and Company
contributions under such plans for the last fiscal year of the Company
ending prior to the Effective Date;
(b) At no additional cost to Executive, Company shall continue
to provide coverage to Executive, together with his dependents and
beneficiaries, in all life insurance plans, accident and health plans,
Section 125 plans, and other welfare plans maintained or sponsored by
the Company, at a level and subject to terms which are at least as
favorable to Executive as the coverage provided immediately prior to
the Effective Date, or the Company shall pay to Executive the full
value thereof in cash annually in advance;
(c) Executive will participate fully in additional benefit
plans offered by the Company to executives immediately prior to or
after the Effective Date; and
(d) Executive will receive fringe benefits and job perquisites
(which shall not include any benefit referred to elsewhere in this
Section 3), including the Executive Perquisite Program, automobile in
accordance with the Company's Fleet Policy for Vice Presidents and
Corporate Officers as in effect as of the date hereof, paid vacation,
club memberships, applicable class travel, tax and financial statement
preparation assistance, paid financial assistance, executive physical
examinations, office, office furnishings and equipment and support
staff, at least equivalent to those provided to Executive immediately
prior to the Effective Date, as well as reimbursement, upon proper
accounting, of reasonable expenses and disbursements incurred by
Executive in the course of his duties.
3.3. Funding of Deferred Compensation Benefits. Contemporaneous with
the Change in Control, all benefits accrued by Executive under the terms of any
of the Company's Non-Qualified Plans shall become fully vested and the Company
shall immediately contribute to a rabbi trust for the benefit of the Executive
the full amount of all such accrued benefits. Not less frequently than
quarterly, the Company shall make additional contributions to the rabbi trust
equal to the full amount of any additional benefits accrued by Executive
pursuant to Section 3.2(a) hereof.
3.4. Acceleration of Vesting of Options. The Company hereby agrees that
on or prior to the date of a Change in Control any and all options awarded to
the Executive not previously exercisable and vested shall become fully vested
and exercisable. In addition, in the event the Company decides to terminate any
Options previously awarded to the Executive pursuant to the applicable
provisions of any stock option plan adopted by the Company in connection with a
corporate transaction (as that term is described in Section 424(a) of the Code),
the Company will give the Executive not less than fourteen days' notice prior to
any such termination and such notice shall not be given until any and all
Options previously awarded to Executive shall have become fully vested and
exercisable.
Section 4. Termination of Employment
4.1. Compensation Prior To Termination. During the year in which either
(i) the Executive's employment is terminated during the Term of Employment for
any reason, or (ii) the Executive resigns during the Term of Employment in
accordance with Section 4.3(b) below, notwithstanding any other provision of
this Agreement, the Company and the Executive hereby agree that the Executive
shall have the right to receive base salary, annual bonuses, contributions to
Retirement Plans and Non-Qualified Plans, gross-up payments made to cover tax
liabilities (to the extent provided in such plans), and all other compensation,
benefits and payments earned or paid with respect to the period prior to the
date of termination of employment, all such payments or contributions to be made
at the times provided for in such plans or in accordance with Company policy as
in effect immediately prior to the Effective Date, except as expressly provided
below. For purposes of this Section 4.1, the amount of the annual bonuses earned
and the amount of the contributions to the Retirement Plans and Non-Qualified
Plans earned (i) shall be at least equal to the amounts paid to, or contributed
on behalf of, the Executive for the year immediately preceding the year in which
the termination of the Executive's employment occurs which amounts shall be
prorated based on the number of days in the year in which the termination of the
Executive's employment occurs which have passed prior to the date of the
termination of the Executive's employment, and (ii) shall be paid or contributed
on behalf of the Executive not later than 10 days after the date of termination
of employment. Nothing in this Section 4.1 shall in any way alter the
Executive's right to receive all the payments and rights and benefits described
in Sections 4.2 and 4.3(a).
4.2. (a) Termination other than for Cause. In the event Executive's
employment is terminated by the Company during the Term of Employment for any
reason other than Cause, the Company will pay Executive, as liquidated damages,
a lump sum cash payment, payable within ten (10) days of his termination, equal
to two and ninety-nine hundredths (2.99) times the sum of (i) Executive's
current annual base salary in effect at the date of termination (including in
base salary for this purpose any elective salary reductions made by the
Executive and contributed by the Company on his behalf to the Company's
Retirement Plan, any Non-Qualified Plan, or a plan meeting the requirements of
Section 125 of the Code), plus (ii) the total cash bonus received by the
Executive from the Company during the most recent full fiscal year of the
Company pursuant to the Company's annual bonus plan(s) but shall be equal to
100% of Executive's base salary in effect at the date of termination, plus
(iii) the maximum amount allowable under the Executive Perquisite Program
during the most recent calendar year of the Company.
(b) Participation in Benefit Plans. In the event of a termination
described in Section 4.2(a) above, Executive, together with his dependents and
beneficiaries, will become fully vested in and continue following his
termination to participate fully in, at no additional cost to Executive, all
life insurance plans, accident and health plans and other welfare plans,
maintained or sponsored by the Company immediately prior to the termination, at
the same level and subject to terms at least as favorable to Executive as in
effect immediately prior to termination (or the full value thereof in cash) from
the Company, until the earlier of (a) the Executive's eligibility for comparable
benefit plans with another employer and (b) the third anniversary of
termination. Executive will also become fully vested in the Retirement Plan, and
all Non-Qualified Plans, and within thirty (30) days of Executive's termination
of employment, Company shall pay to Executive the sum of (i) all benefits
accrued under the Non-Qualified Plans and (ii) an amount equal to 2.99 times the
average benefit accrued and/or Company contributions made to the Retirement Plan
and the Non-Qualified Plans over the last three fiscal years. In addition, the
Company shall provide Executive with out-placement service through a bona fide
out-placement organization acceptable to Executive that, at a minimum, agrees to
supply Executive with out-placement counseling, a private office and
administrative support including telephone service until such time that
Executive secures suitable employment, not to be limited by Section 1.13 hereof.
4.3. Resignation By Executive - Constructive Termination.
(a) If Executive resigns during the Term of Employment in accordance
with Section 4.3(b) below, his employment will be deemed to have been terminated
by the Company for reasons other than Cause (and he will be deemed to have
offered to continue to provide services to the Company), and, notwithstanding
any provision herein to the contrary, he will be entitled to all the payments
and rights and benefits described in Sections 4.1 and 4.2, at the time provided
for therein.
(b) Executive may resign in accordance with this Section 4.3 upon the
occurrence of any of the following events (in each case, "Good Reason"):
(i) any reduction of, or failure to pay, Executive's base
annual salary or annual bonus in breach of Section 3.1 above;
(ii) any failure by the Company to provide the benefits
required by Section 3.2 above or to make any contribution to a rabbi
trust which might be due in accordance with Section 3.3 above;
(iii) assignment to Executive of any duties inconsistent in
any respect with his position (including the office to which he
reports, status, offices, and titles), authority, duties or
responsibilities as contemplated by Section 2.1 above or any other
action by the Company which results in a diminution of such position,
authority, duties or responsibilities;
(iv) as a result of the Change in Control and a change in
circumstances thereafter significantly affecting Executive's position,
including, without limitation, a change in scope of the business or
other activities for which he was responsible immediately prior to the
Change in Control, he has been rendered substantially unable to carry
out, or has been substantially hindered in the performance of, any of
the authority, duties or responsibilities contemplated by Section 2.1
above;
(v) the failure of the Company after a Change in Control to
comply with and satisfy Section 7.1 or 7.2 below;
(vi) relocation by the Company of its principal executive
offices, or any event that causes Executive to have his principal
location of work changed, to any location outside the Area;
(vii) any requirement by the Company that Executive travel
away from his office in the course of his duties significantly more
than the number of consecutive days or aggregate days in any calendar
year than was required of him prior to the Change in Control; or
(viii) without limiting the generality or effect of the
foregoing any material breach of this Agreement by the Company or any
successor thereto or transferee of substantially all of the assets
thereof.
For purposes of this Agreement, any good faith determination of "Good Reason"
made by the Executive shall be presumptively correct.
(c) If Executive resigns during the Term of Employment in accordance
with Section 4.3(b) above, the Company shall have the right to request that the
Executive agree to remain as an employee of the Company during a transition
period of up to three months (the "Transition Period") and the Executive hereby
agrees that, if requested by the Company, he will remain as an employee of the
Company during the Transition Period. During the Transition Period, the Company
will continue to pay the Executive the Executive's base salary, annual bonus and
all other compensation and benefits on the same basis as such items were paid to
the Executive prior to his resignation.
4.4. Resignation by Executive. If Executive resigns during the Term of
Employment without Good Reason, the Executive shall have the right to receive
base salary, annual bonuses, contributions to Retirement Plans and all other
compensation and benefits earned during the calendar year of his resignation up
to the date of his resignation. For purposes of this Section 4.4, the amount of
the annual bonuses and the amount of the contributions to the Retirement Plan
shall be at least equal to the amounts paid to, or contributed on behalf of, the
Executive for the year immediately preceding the year in which the resignation
of the Executive occurs which amounts shall be prorated based on the number of
days in the year in which such resignation occurs which have passed prior to the
date of such resignation. In addition all vested Non-Qualified Plan benefits
shall be paid within thirty (30) days of resignation.
4.5. Termination for Cause. If Executive is dismissed by the Company
for Cause, he will not be entitled to the payments or benefits provided under
Section 4.2.
4.6. Dispute Resolution. All disputes between the parties to this
Agreement concerning the matters set forth herein shall be resolved exclusively
pursuant to the dispute resolution procedures of this Section 4.6. In
furtherance thereof, Executive or the Company, as the case may be, shall
initiate binding arbitration in Rhode Island before the American Arbitration
Association ("AAA") and under its rules by serving a notice to arbitrate upon
the other party hereto and AAA within 90 days of the occurrence of any dispute
hereunder that is unable to be resolved by negotiation between the parties. The
parties shall bear their respective costs in any such dispute resolution, except
that with respect to any such action initiated by the Executive, provided the
Executive initiates such action in good faith, the Company agrees (i) to pay the
costs and expenses (including fees of counsel to the Executive) of any such
arbitration or judicial proceeding, and (ii) to pay interest to Executive on any
amounts found to be due to Executive hereunder during any period of time that
such amounts are withheld pending arbitration and/or judicial proceedings. Such
interest will be at the base or prime rate most recently announced by Rhode
Island Hospital Trust National Bank (or its successor) prior to the commencement
of the arbitration or litigation. The Company and Executive agree that any
arbitration award shall be binding and may be enforced by any court of competent
jurisdiction.
4.7. Death or Total Disability of the Executive.
(a) If Executive dies or suffers a Total Disability during the Term of
Employment, then this Agreement shall terminate and the Company, its successors
and assigns shall be relieved and discharged of any and all obligations
whatsoever to make further payment to Executive pursuant to the terms of this
Agreement after the date of death or Total Disability of Executive, except as to
base salary earned for services actually rendered and vacation pay accrued prior
to the date of death or Total Disability of Executive.
(b) If Executive dies or suffers a Total Disability following a
termination of employment which entitled him to payments and benefits under this
Section 4 but prior to receipt of all such payments and benefits, his
beneficiary (as designated to the Company in writing) or, if none, his estate,
will be entitled to receive all unpaid amounts and benefits due under this
Agreement.
4.8. Enforcement of Rights. Termination of Executive's employment,
whether or not giving rise to payments or benefits under this Section 4, will
not in any way prevent Executive from enforcing rights to payments or benefits
under Section 3 relating to periods during which he was employed.
Section 5. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 5) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed on the Payments.
(b) Subject to the provisions of Section 5(c), all determinations
required to be made under this Section 5, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made by
Ernst & Young LLP or such other nationally recognized certified public
accounting firm as may be designated by the Executive (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and
the Executive within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as is requested
by the Company. In the event that the Accounting Firm is serving as accountant
or auditor for the individual, entity or group effecting the Change in
Control, the Executive shall appoint another nationally recognized accounting
firm to make the determinations required hereunder (which accounting firm
shall then be referred to as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment, as determined pursuant to this Section 5, shall be paid by
the Company to the Executive within five days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm shall be
binding upon the Company and the Executive. As a result of the uncertainty in
the application of Section 280G and Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible
that Gross-Up Payments which will not have been made by the Company should
have been made ("Underpayment"), consistent with the calculations required to
be made hereunder. In the event that the Company exhausts its remedies
pursuant to Section 5(c) and the Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine the amount of
the Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30-day period following
the date on which he gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
(i) give the Company any information
reasonably requested by the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 5(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 5(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 5(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determinative then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
Section 6. Payment of Fees, Costs and Expenses.
It is the intent of the Company that the Executive not be required to
incur the expenses associated with the enforcement of his rights under this
Agreement by litigation or other legal action or arbitration proceeding because
the cost and expense thereof would substantially detract from the benefits
intended to be extended to the Executive hereunder. Accordingly, if Executive
determines in good faith that the Company has failed to comply with any of its
obligations under this Agreement or if the Company or any other person takes any
action to declare this Agreement void or unenforceable, or institutes any
litigation or arbitration proceeding designed to deny, or to recover from, the
Executive the benefits intended to be provided to the Executive under Section 6
hereof, the Company will promptly, upon request of the Executive in the event of
the likelihood of a Change in Control or upon a Change in Control, use its best
efforts to secure an irrevocable standby letter of credit (the "Letter of
Credit"), issued by Rhode Island Hospital Trust National Bank or another bank of
comparable or greater size (the "Bank") for the benefit of the Executive
providing that the fees and expenses of counsel selected from time to time by
the Executive pursuant to this Section 6 or in proceedings contemplated by
Section 4.6 shall be paid, or reimbursed to the Executive if paid by the
Executive, on a regular, periodic basis upon presentation by the Executive to
the Bank of a statement or statements prepared by such counsel in accordance
with its customary practices. The Company shall pay all amounts and take all
action necessary to maintain the Letter of Credit during the Term of Employment
and for one (1) year thereafter and if, notwithstanding the Company's complete
discharge of such obligations, such Letter of Credit shall be terminated or not
renewed, the Company shall use its best efforts to obtain a replacement
irrevocable letter of credit drawn upon a commercial bank selected by the
Company and reasonably acceptable to the Executive, upon substantially the same
terms and conditions as contained in the Letter of Credit, or any similar
arrangement which, in any case, assures the Executive the benefits of this
Agreement without incurring any cost or expense for enforcement against the
Company or the defense thereof.
Section 7. Merger or Acquisition.
7.1. Assumption of Obligations. If the Company is at any time before or
after a Change in Control merged, consolidated or reorganized into or with any
other corporation or other entity (whether or not the Company is the surviving
entity), or if substantially all of the assets of the Company are transferred to
another corporation or other entity, the entity arising from such merger,
consolidation or reorganization, or the acquirer of such assets, shall (by
agreement in form and substance satisfactory to Executive) expressly assume the
obligations of Company under this Agreement.
7.2. Executive's Rights to Benefits. In the event of any merger,
consolidation, reorganization or sale of assets described above, nothing
contained in this Agreement will detract from or otherwise limit Executive's
right to or privilege of participation in any stock option or purchase plan or
restricted stock plan or any bonus, profit sharing, savings, pension, group
insurance, hospitalization or other incentive or benefit plan or arrangement
which may be or become applicable to executives of the corporation resulting
from such merger or consolidation or the corporation, acquiring such assets of
the Company.
7.3. References. In the event of any merger, consolidation,
reorganization or transfer of assets described above, references to the Company
in this Agreement shall, unless the context suggests otherwise, be deemed to
include the entity resulting from such merger or consolidation or the acquirer
of such assets of the Company.
Section 8. Change in Control Following Certain Circumstances.
Notwithstanding any provision herein to the contrary, should a Change
in Control occur subsequent to Executive's death, Total Disability or retirement
from the Company, the remainder of any benefits owed under the terms of any
stock plans or other non-qualified deferred compensation plan, including
interest, shall be paid in full on the date of the Change in Control.
Section 9. Termination of this Agreement.
Either the Company or Executive may, by giving 60 days written notice
to the other party, terminate this Agreement as of the third or any subsequent
annual anniversary of the occurrence of a Change in Control.
Section 10. Withholding of Taxes.
All payments required to be made by the Company hereunder to Executive
or his dependents, beneficiaries or estate will be subject to the withholding on
such amounts relating to tax and/or other payroll deductions as may be required
by law.
Section 11. Amendment.
No amendment, change or modification of this Agreement may be made
except in a writing, signed by or on behalf of both parties.
Section 12. Miscellaneous.
12.1. Binding Effect. The provisions of this Agreement shall be binding
upon and shall inure to the benefit of Executive, his executors, administrators,
legal representatives and assigns, and the Company and its successors and
assigns.
12.2. Governing Law. The validity, interpretation and effect of this
Agreement shall be governed by and construed in accordance with the laws of the
State of Rhode Island.
12.3. Severability. The invalidity or enforceability of any
provision of this Agreement shall not affect the validity of any other
provision.
12.4. No Set-Off. There shall be no right of setoff or counterclaim, in
respect of any claim, debt or obligation, against any payments to Executive, his
dependents, beneficiaries or estate provided for in this Agreement, and nothing
in this Agreement shall relieve the Company of its obligations to Executive
under any other agreement, plan, contract or arrangement. Subject to Section
12.6 hereof, no right, benefit or interest hereunder shall be subject to
anticipation, alienation, sale, assignment, encumbrance, charge, pledge,
hypothecation or set-off in respect of any claim, debt or obligation, or to
execution, attachment, levy or similar process or assignment by operation of
law. Any attempt, voluntary or involuntary, to effect any action specified in
the immediately preceding sentence shall, to the full extent permitted by law,
be null, void and of no effect. In no event shall the Executive be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and, except as otherwise provided in Section 4.2(b) hereof, such amounts shall
not be reduced whether or not the Executive obtains other employment.
Notwithstanding anything to the contrary in this Agreement, Executive shall
forfeit all future payments and benefits hereunder in the event that Executive
is determined, pursuant to procedures established in Section 4.6 hereof, to have
materially breached any written covenant or agreement between the Executive and
the Company prohibiting the disclosure of confidential information pertaining to
the Company or respecting competition or interference with the Company, provided
that the Company shall have given the Executive at least thirty (30) days prior
written notice of such breach and such breach shall not have been cured by the
end of such notice period.
12.5. Remedies. The Company and Executive agree that, because of the
unique nature of this Agreement, failure of either party to carry out or abide
by the obligations under this Agreement could cause irreparable injury;
accordingly, the parties agree that, in addition to any other remedies available
to either party, any such failure by either party to perform or abide by this
Agreement shall be subject to appropriate equitable remedies, including specific
performance and injunctive relief.
12.6. Assignability. No right or interest to or in any payments shall
be assignable by the Executive; provided, however, that this provision shall not
preclude him from designating one or more beneficiaries to receive any amount
that may be payable after his death and shall not preclude the legal
representative of his estate from assigning any right hereunder to the person or
persons entitled thereto under his will or, in the case of intestacy, to the
person or persons entitled thereto under the laws of intestacy applicable to his
estate. The term "beneficiaries" as used in this Agreement shall mean a
beneficiary or beneficiaries so designated to receive any such amount, or if no
beneficiary has been so designated, the legal representative of the Executive's
estate.
12.7. Counterparts; Headings; References. This Change in Control
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument. The headings of the sections of this Agreement are inserted for
convenience only and shall not constitute a part hereof. References to the
masculine or feminine gender (or to the singular or plural number) herein shall
mean the other such gender (or number) as appropriate.
12.8. Entire Agreement. This instrument contains the entire agreement
of the parties pertaining to the subject matter contained herein and supersedes
and is in lieu of any and all other arrangements pertaining to the subject
matter contained herein having effect as of the effective date.
12.9. Notices. All notices given hereunder shall be in writing and
shall be delivered personally or sent by prepaid registered or certified mail,
return receipt requested, addressed as follows or to such other address as may
be provided by any party hereto to the other:
If to the Company: GTECH Holdings Corporation
55 Technology Way
West Greenwich, RI 02817
Attention:
If to the Executive: Laurance W. Gay
143 East Canaan Road
East Canaan, CT 06024
All notices shall be deemed to be given on the date received at the
address of the addressee, or if delivered personally, on the date delivered.
IN WITNESS WHEREOF, the Company and Executive have each caused this
Agreement to be duly executed and delivered as of the date set forth above.
ATTEST: GTECH HOLDINGS CORPORATION
/s/ Kathleen J. Carson By:/s/ Stephen A. Davidson
Title: Senior Vice President
WITNESS:
/s/ Kathleen J. Carson /s/ Laurance W. Gay
Laurance W. Gay
AGREEMENT
AGREEMENT, dated this 15th day of July, 1997, by and between THOMAS J.
SAUSER ("Executive") and GTECH HOLDINGS CORPORATION, a Delaware corporation (the
"Company").
W I T N E S S E T H:
WHEREAS, the Company wishes to assure itself of continuity of
management in the event of any actual or threatened "Change in Control" (as
defined below) of the Company; and
WHEREAS, the Company and the Executive desire to embody in a written
agreement the terms and conditions under which the Executive shall be employed
by the Company in the event of any actual or threatened Change in Control of the
Company;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto hereby agree as follows:
Section 1. Definitions.
1.1 Act. "Act" means the Securities Exchange Act of 1934, as
amended to date.
1.2. Affiliate. "Affiliate" means any corporation which is a
subsidiary of the Company within the definition of "subsidiary corporation"
under Section 424(f) of the Code.
1.3. Board. "Board" means the Board of Directors of the Company.
1.4. Cause. "Cause" means (i) the Executive's engaging in serious
misconduct that is injurious to the Company, (ii) the Executive's having been
convicted of, or entered a plea of nolo contendere to a crime that constitutes a
felony, (iii) the breach by the Executive of any written covenant or agreement
with the Company not to disclose any information pertaining to the Company or
not to compete or interfere with the Company, or (iv) abuse of illegal drugs or
other controlled substances, or habitual intoxication.
1.5. Change In Control. "Change in Control" means the happening
of any of the following:
(i) the members of the Board at the beginning of any
consecutive twenty-four calendar month period (the
"Incumbent Directors") cease for any reason other
than due to death to constitute at least a majority
of the members of the Board, provided that any
director whose election, or nomination for election
by the Company's stockholders, was approved by a
vote of at least a majority of the members of the
Board then still in office who were members of the
Board at the beginning of such twenty-four calendar
month period, shall be deemed an Incumbent Director;
(ii) any "person", including a "group" (as such terms
are used in Sections 13(d) and 14(d) of the Act,
but excluding the Company, any of its Affiliates,
or any employee benefit plan of the Company or any
of its Affiliates) is or becomes the "beneficial
owner" (as defined in Rule 13(d)(3) under the Act),
directly or indirectly, of securities of the
Company representing the greater of 30% or more of
the combined voting power of the Company's then
outstanding securities;
(iii) the stockholders of the Company shall approve a
definitive agreement (1) for the merger or other
business combination of the Company with or into
another corporation if (A) a majority of the
directors of the surviving corporation were not
directors of the Company immediately prior to the
effective date of such merger or (B) the
stockholders of the Company immediately prior to
the effective date of such merger own less than 50%
of the combined voting power in the then
outstanding securities in such surviving
corporation or (2) for the sale or other
disposition of all or substantially all of the
assets of the Company; or
(iv) the purchase of 30% or more of the Stock pursuant to
any tender or exchange offer made by any "person",
including a "group" (as such terms are used in
Sections 13(d) and 14(d) of the Act), other than the
Company, any of its Affiliates, or any employee
benefit plan of the Company or any of its Affiliates.
1.6. Code. "Code" means the Internal Revenue Code of 1986, as
amended from time to time, and any successor thereto.
1.7. Effective Date. "Effective Date" means the date on which a Change
in Control occurs. Anything in this Agreement to the contrary notwithstanding,
if a Change in Control occurs and if the Executive's employment with the Company
is terminated prior to the date on which the Change in Control occurs, and if it
is reasonably demonstrated by the Executive that such termination of employment
(i) was at the request of a third party who has taken steps reasonably
calculated to effect a Change in Control or (ii) otherwise arose in connection
with or in anticipation of a Change in Control, then for all purposes of this
Agreement, the "Effective Date" shall mean the date immediately prior to the
date of such termination of employment.
1.8 Executive Perquisite Program. "Executive Perquisite
Program" means the Company's Executive Perquisite Program in effect on the date
hereof, as the same may be amended from time to time.
1.9 Non-Qualified Plans. "Non-Qualified Plans" means the Company's
Supplemental Retirement Plan in existence as of the date hereof, and any other
unfunded, non-qualified, deferred compensation, incentive compensation or
retirement plan adopted by the Company subsequent to the date hereof, and/or any
successor plan or plans.
1.10. Option. "Option" means any option to purchase shares of Stock
granted to Executive pursuant to the Company's 1994 Stock Option Plan, as
amended from time to time, the Company's 1997 Stock Option Plan, as amended from
time to time, or any other stock option plan adopted by the Company.
1.11 Retirement Plan. "Retirement Plan" means the Company's
profit-sharing and 401(k) retirement plan which is qualified under Section
401(a) and 501(a) of the Code in existence as of the date hereof and any other
such plan adopted by the Company subsequent to the date hereof and/or any
successor plan or plans.
1.12. Stock. "Stock" means the Common Stock $.01 par value per
share of the Company.
1.13. Term of Employment. "Term of Employment" means the period
commencing on the Effective Date and ending on the earliest of:
(a) Executive's death or "Total Disability" (as defined
below);
(b) Termination of the Term of Employment pursuant to
Section 4 below;
(c) Three (3) years from the Effective Date. Neither the
expiration of the Term of Employment nor the termination of this Agreement
will relieve the Company of the obligation to provide Executive, in accordance
with the terms hereof, the payments, benefits and coverage to which he has
become entitled under this Agreement.
1.14. Total Disability. "Total Disability" shall mean permanent
and total disability as determined under the Company's long term disability
program.
Section 2. Employment.
2.1. Capacity and Situs of Employment. The Company agrees to employ
Executive throughout the Term of Employment, during which (a) Executive's
position (including reporting relationships, status, offices and titles),
authority, duties and responsibilities shall be at least equal in all material
respects with the highest position, authority, duties and responsibilities held
by, exercised by and assigned to the Executive at any time during the six month
period immediately preceding the Change in Control, and (b) Executive's situs of
employment will be at the Company's executive headquarters in West Greenwich,
Rhode Island or such other situs (the "Other Situs") to which Executive may be
assigned prior to the Effective Date (the Company's executive headquarters or
the Other Situs, whichever is applicable to the Executive, is herein referred to
as the "Applicable Situs") or such other location within a fifty (50) mile
radius of the Applicable Situs (hereinafter referred to as the "Area") to which
the Applicable Situs be moved.
2.2. Services of the Executive. Executive agrees, subject to Sections
4.3 and 4.4 below, to remain in the Company's employ during the Term of
Employment, on the terms described in Section 2.1.
Excluding periods of vacation and sick leave to which Executive is
entitled, Executive agrees to devote substantially all of his attention, energy
and time during normal business hours to the business and affairs of the Company
and, to the extent necessary, to discharge responsibilities assigned to
Executive hereunder, to use his best efforts to perform such responsibilities
faithfully and efficiently. Executive may (a) serve on corporate, civic and
charitable boards or committees, (b) deliver lectures and fulfill speaking
engagements and (c) manage personal investments, so long as such activities do
not interfere with the performance of Executive's responsibilities. To the
extent that any such activities have been conducted by Executive prior to the
Change in Control, such prior conduct, and any subsequent conduct similar in
nature and scope, shall not be deemed to interfere with the performance of
Executive's responsibilities.
Section 3. Compensation and Benefits During the Term of Employment.
3.1. Compensation. The Company will pay as compensation to Executive
for his services as an employee during the Term of Employment:
(a) base annual salary at a rate equal to or greater than the
rate of base salary in effect for Executive immediately prior to the
Effective Date; plus
(b) for the year in which a Change in Control occurs, the
greater of (i) a bonus under the annual bonus plan(s) in effect as of
the Change in Control, calculated on the basis of the Company's
performance up to the Change in Control, and payable in accordance with
such plan(s) or (ii) an amount equal to the bonus paid to Executive
under the annual bonus plan(s) in effect for the year immediately
preceding the year in which the Change in Control occurs, payable in
accordance with the terms of such plan(s);
(c) in years subsequent to the year in which the Change in
Control occurs, an annual bonus which is equal to or greater than the
annual bonus paid in the year preceding the year in which the Change in
Control occurs, payable not later than provided for in the plan(s) in
effect for such preceding year.
3.2. Benefits. In addition, for his services as an employee during the
Term of Employment, Executive will receive all life, disability, accident and
group health insurance benefits, retirement, profit-sharing and deferred
compensation, and all other fringe benefits and payments under additional
benefit plans including the Executive Perquisite Program, all in an amount or
with a value at least equal to those benefits being provided by the Company to
the Executive immediately prior to the Effective Date, including but not limited
to the following:
(a) Executive will participate fully in the Company's
Retirement Plan and Non-Qualified Plans with benefit accruals and
Company contributions for the benefit of Executive under all such
plans, and all other material provisions of such plans, being at least
the same as immediately prior to the Effective Date, or Company shall
pay to Executive annual cash payments in advance, each at least being
equal to the total value of such benefit accruals and Company
contributions under such plans for the last fiscal year of the Company
ending prior to the Effective Date;
(b) At no additional cost to Executive, Company shall continue
to provide coverage to Executive, together with his dependents and
beneficiaries, in all life insurance plans, accident and health plans,
Section 125 plans, and other welfare plans maintained or sponsored by
the Company, at a level and subject to terms which are at least as
favorable to Executive as the coverage provided immediately prior to
the Effective Date, or the Company shall pay to Executive the full
value thereof in cash annually in advance;
(c) Executive will participate fully in additional benefit
plans offered by the Company to executives immediately prior to or
after the Effective Date; and
(d) Executive will receive fringe benefits and job perquisites
(which shall not include any benefit referred to elsewhere in this
Section 3), including the Executive Perquisite Program, automobile in
accordance with the Company's Fleet Policy for Vice Presidents and
Corporate Officers as in effect as of the date hereof, paid vacation,
club memberships, applicable class travel, tax and financial statement
preparation assistance, paid financial assistance, executive physical
examinations, office, office furnishings and equipment and support
staff, at least equivalent to those provided to Executive immediately
prior to the Effective Date, as well as reimbursement, upon proper
accounting, of reasonable expenses and disbursements incurred by
Executive in the course of his duties.
3.3. Funding of Deferred Compensation Benefits. Contemporaneous with
the Change in Control, all benefits accrued by Executive under the terms of any
of the Company's Non-Qualified Plans shall become fully vested and the Company
shall immediately contribute to a rabbi trust for the benefit of the Executive
the full amount of all such accrued benefits. Not less frequently than
quarterly, the Company shall make additional contributions to the rabbi trust
equal to the full amount of any additional benefits accrued by Executive
pursuant to Section 3.2(a) hereof.
3.4. Acceleration of Vesting of Options. The Company hereby agrees that
on or prior to the date of a Change in Control any and all options awarded to
the Executive not previously exercisable and vested shall become fully vested
and exercisable. In addition, in the event the Company decides to terminate any
Options previously awarded to the Executive pursuant to the applicable
provisions of any stock option plan adopted by the Company in connection with a
corporate transaction (as that term is described in Section 424(a) of the Code),
the Company will give the Executive not less than fourteen days' notice prior to
any such termination and such notice shall not be given until any and all
Options previously awarded to Executive shall have become fully vested and
exercisable.
Section 4. Termination of Employment
4.1. Compensation Prior To Termination. During the year in which either
(i) the Executive's employment is terminated during the Term of Employment for
any reason, or (ii) the Executive resigns during the Term of Employment in
accordance with Section 4.3(b) below, notwithstanding any other provision of
this Agreement, the Company and the Executive hereby agree that the Executive
shall have the right to receive base salary, annual bonuses, contributions to
Retirement Plans and Non-Qualified Plans, gross-up payments made to cover tax
liabilities (to the extent provided in such plans), and all other compensation,
benefits and payments earned or paid with respect to the period prior to the
date of termination of employment, all such payments or contributions to be made
at the times provided for in such plans or in accordance with Company policy as
in effect immediately prior to the Effective Date, except as expressly provided
below. For purposes of this Section 4.1, the amount of the annual bonuses earned
and the amount of the contributions to the Retirement Plans and Non-Qualified
Plans earned (i) shall be at least equal to the amounts paid to, or contributed
on behalf of, the Executive for the year immediately preceding the year in which
the termination of the Executive's employment occurs which amounts shall be
prorated based on the number of days in the year in which the termination of the
Executive's employment occurs which have passed prior to the date of the
termination of the Executive's employment, and (ii) shall be paid or contributed
on behalf of the Executive not later than 10 days after the date of termination
of employment. Nothing in this Section 4.1 shall in any way alter the
Executive's right to receive all the payments and rights and benefits described
in Sections 4.2 and 4.3(a).
4.2. (a) Termination other than for Cause. In the event Executive's
employment is terminated by the Company during the Term of Employment for any
reason other than Cause, the Company will pay Executive, as liquidated damages,
a lump sum cash payment, payable within ten (10) days of his termination, equal
to two and ninety-nine hundredths (2.99) times the sum of (i) Executive's
current annual base salary in effect at the date of termination (including in
base salary for this purpose any elective salary reductions made by the
Executive and contributed by the Company on his behalf to the Company's
Retirement Plan, any Non-Qualified Plan, or a plan meeting the requirements of
Section 125 of the Code), plus (ii) the total cash bonus received by the
Executive from the Company during the most recent full fiscal year of the
Company pursuant to the Company's annual bonus plan(s), plus (iii) the maximum
amount allowable under the Executive Perquisite Program during the most recent
calendar year of the Company.
(b) Participation in Benefit Plans. In the event of a termination
described in Section 4.2(a) above, Executive, together with his dependents and
beneficiaries, will become fully vested in and continue following his
termination to participate fully in, at no additional cost to Executive, all
life insurance plans, accident and health plans and other welfare plans,
maintained or sponsored by the Company immediately prior to the termination, at
the same level and subject to terms at least as favorable to Executive as in
effect immediately prior to termination (or the full value thereof in cash) from
the Company, until the earlier of (a) the Executive's eligibility for comparable
benefit plans with another employer and (b) the third anniversary of
termination. Executive will also become fully vested in the Retirement Plan, and
all Non-Qualified Plans, and within thirty (30) days of Executive's termination
of employment, Company shall pay to Executive the sum of (i) all benefits
accrued under the Non-Qualified Plans and (ii) an amount equal to 2.99 times the
average benefit accrued and/or Company contributions made to the Retirement Plan
and the Non-Qualified Plans over the last three fiscal years. In addition, the
Company shall provide Executive with out-placement service through a bona fide
out-placement organization acceptable to Executive that, at a minimum, agrees to
supply Executive with out-placement counseling, a private office and
administrative support including telephone service until such time that
Executive secures suitable employment, not to be limited by Section 1.13 hereof.
4.3. Resignation By Executive - Constructive Termination.
(a) If Executive resigns during the Term of Employment in accordance
with Section 4.3(b) below, his employment will be deemed to have been terminated
by the Company for reasons other than Cause (and he will be deemed to have
offered to continue to provide services to the Company), and, notwithstanding
any provision herein to the contrary, he will be entitled to all the payments
and rights and benefits described in Sections 4.1 and 4.2, at the time provided
for therein.
(b) Executive may resign in accordance with this Section 4.3 upon the
occurrence of any of the following events (in each case, "Good Reason"):
(i) any reduction of, or failure to pay, Executive's base
annual salary or annual bonus in breach of Section 3.1 above;
(ii) any failure by the Company to provide the benefits
required by Section 3.2 above or to make any contribution to a rabbi
trust which might be due in accordance with Section 3.3 above;
(iii) assignment to Executive of any duties inconsistent in
any respect with his position (including the office to which he
reports, status, offices, and titles), authority, duties or
responsibilities as contemplated by Section 2.1 above or any other
action by the Company which results in a diminution of such position,
authority, duties or responsibilities;
(iv) as a result of the Change in Control and a change in
circumstances thereafter significantly affecting Executive's position,
including, without limitation, a change in scope of the business or
other activities for which he was responsible immediately prior to the
Change in Control, he has been rendered substantially unable to carry
out, or has been substantially hindered in the performance of, any of
the authority, duties or responsibilities contemplated by Section 2.1
above;
(v) the failure of the Company after a Change in Control to
comply with and satisfy Section 7.1 or 7.2 below;
(vi) relocation by the Company of its principal executive
offices, or any event that causes Executive to have his principal
location of work changed, to any location outside the Area;
(vii) any requirement by the Company that Executive travel
away from his office in the course of his duties significantly more
than the number of consecutive days or aggregate days in any calendar
year than was required of him prior to the Change in Control; or
(viii) without limiting the generality or effect of the
foregoing any material breach of this Agreement by the Company or any
successor thereto or transferee of substantially all of the assets
thereof.
For purposes of this Agreement, any good faith determination of "Good Reason"
made by the Executive shall be presumptively correct.
(c) If Executive resigns during the Term of Employment in accordance
with Section 4.3(b) above, the Company shall have the right to request that the
Executive agree to remain as an employee of the Company during a transition
period of up to three months (the "Transition Period") and the Executive hereby
agrees that, if requested by the Company, he will remain as an employee of the
Company during the Transition Period. During the Transition Period, the Company
will continue to pay the Executive the Executive's base salary, annual bonus and
all other compensation and benefits on the same basis as such items were paid to
the Executive prior to his resignation.
4.4. Resignation by Executive. If Executive resigns during the Term of
Employment without Good Reason, the Executive shall have the right to receive
base salary, annual bonuses, contributions to Retirement Plans and all other
compensation and benefits earned during the calendar year of his resignation up
to the date of his resignation. For purposes of this Section 4.4, the amount of
the annual bonuses and the amount of the contributions to the Retirement Plan
shall be at least equal to the amounts paid to, or contributed on behalf of, the
Executive for the year immediately preceding the year in which the resignation
of the Executive occurs which amounts shall be prorated based on the number of
days in the year in which such resignation occurs which have passed prior to the
date of such resignation. In addition all vested Non-Qualified Plan benefits
shall be paid within thirty (30) days of resignation.
4.5. Termination for Cause. If Executive is dismissed by the Company
for Cause, he will not be entitled to the payments or benefits provided under
Section 4.2 hereof.
4.6. Dispute Resolution. All disputes between the parties to this
Agreement concerning the matters set forth herein shall be resolved exclusively
pursuant to the dispute resolution procedures of this Section 4.6. In
furtherance thereof, Executive or the Company, as the case may be, shall
initiate binding arbitration in Rhode Island before the American Arbitration
Association ("AAA") and under its rules by serving a notice to arbitrate upon
the other party hereto and AAA within 90 days of the occurrence of any dispute
hereunder that is unable to be resolved by negotiation between the parties. The
parties shall bear their respective costs in any such dispute resolution, except
that with respect to any such action initiated by the Executive, provided the
Executive initiates such action in good faith, the Company agrees (i) to pay the
costs and expenses (including fees of counsel to the Executive) of any such
arbitration or judicial proceeding, and (ii) to pay interest to Executive on any
amounts found to be due to Executive hereunder during any period of time that
such amounts are withheld pending arbitration and/or judicial proceedings. Such
interest will be at the base or prime rate most recently announced by Rhode
Island Hospital Trust National Bank (or its successor) prior to the commencement
of the arbitration or litigation. The Company and Executive agree that any
arbitration award shall be binding and may be enforced by any court of competent
jurisdiction.
4.7. Death or Total Disability of the Executive.
(a) If Executive dies or suffers a Total Disability during the Term of
Employment, then this Agreement shall terminate and the Company, its successors
and assigns shall be relieved and discharged of any and all obligations
whatsoever to make further payment to Executive pursuant to the terms of this
Agreement after the date of death or Total Disability of Executive, except as to
base salary earned for services actually rendered and vacation pay accrued prior
to the date of death or Total Disability of Executive.
(b) If Executive dies or suffers a Total Disability following a
termination of employment which entitled him to payments and benefits under this
Section 4 but prior to receipt of all such payments and benefits, his
beneficiary (as designated to the Company in writing) or, if none, his estate,
will be entitled to receive all unpaid amounts and benefits due under this
Agreement.
4.8. Enforcement of Rights. Termination of Executive's employment,
whether or not giving rise to payments or benefits under this Section 4, will
not in any way prevent Executive from enforcing rights to payments or benefits
under Section 3 relating to periods during which he was employed.
Section 5. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 5) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed on the Payments.
(b) Subject to the provisions of Section 5(c), all determinations
required to be made under this Section 5, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made by
Ernst & Young LLP or such other nationally recognized certified public
accounting firm as may be designated by the Executive (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and
the Executive within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as is requested
by the Company. In the event that the Accounting Firm is serving as accountant
or auditor for the individual, entity or group effecting the Change in
Control, the Executive shall appoint another nationally recognized accounting
firm to make the determinations required hereunder (which accounting firm
shall then be referred to as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment, as determined pursuant to this Section 5, shall be paid by
the Company to the Executive within five days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm shall be
binding upon the Company and the Executive. As a result of the uncertainty in
the application of Section 280G and Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible
that Gross-Up Payments which will not have been made by the Company should
have been made ("Underpayment"), consistent with the calculations required to
be made hereunder. In the event that the Company exhausts its remedies
pursuant to Section 5(c) and the Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine the amount of
the Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30-day period following
the date on which he gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
(i) give the Company any information
reasonably requested by the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 5(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 5(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 5(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determinative then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
Section 6. Payment of Fees, Costs and Expenses.
It is the intent of the Company that the Executive not be required to
incur the expenses associated with the enforcement of his rights under this
Agreement by litigation or other legal action or arbitration proceeding because
the cost and expense thereof would substantially detract from the benefits
intended to be extended to the Executive hereunder. Accordingly, if Executive
determines in good faith that the Company has failed to comply with any of its
obligations under this Agreement or if the Company or any other person takes any
action to declare this Agreement void or unenforceable, or institutes any
litigation or arbitration proceeding designed to deny, or to recover from, the
Executive the benefits intended to be provided to the Executive under Section 6
hereof, the Company will promptly, upon request of the Executive in the event of
the likelihood of a Change in Control or upon a Change in Control, use its best
efforts to secure an irrevocable standby letter of credit (the "Letter of
Credit"), issued by Rhode Island Hospital Trust National Bank or another bank of
comparable or greater size (the "Bank") for the benefit of the Executive
providing that the fees and expenses of counsel selected from time to time by
the Executive pursuant to this Section 6 or in proceedings contemplated by
Section 4.6 shall be paid, or reimbursed to the Executive if paid by the
Executive, on a regular, periodic basis upon presentation by the Executive to
the Bank of a statement or statements prepared by such counsel in accordance
with its customary practices. The Company shall pay all amounts and take all
action necessary to maintain the Letter of Credit during the Term of Employment
and for one (1) year thereafter and if, notwithstanding the Company's complete
discharge of such obligations, such Letter of Credit shall be terminated or not
renewed, the Company shall use its best efforts to obtain a replacement
irrevocable letter of credit drawn upon a commercial bank selected by the
Company and reasonably acceptable to the Executive, upon substantially the same
terms and conditions as contained in the Letter of Credit, or any similar
arrangement which, in any case, assures the Executive the benefits of this
Agreement without incurring any cost or expense for enforcement against the
Company or the defense thereof.
Section 7. Merger or Acquisition.
7.1. Assumption of Obligations. If the Company is at any time before or
after a Change in Control merged, consolidated or reorganized into or with any
other corporation or other entity (whether or not the Company is the surviving
entity), or if substantially all of the assets of the Company are transferred to
another corporation or other entity, the entity arising from such merger,
consolidation or reorganization, or the acquirer of such assets, shall (by
agreement in form and substance satisfactory to Executive) expressly assume the
obligations of Company under this Agreement.
7.2. Executive's Rights to Benefits. In the event of any merger,
consolidation, reorganization or sale of assets described above, nothing
contained in this Agreement will detract from or otherwise limit Executive's
right to or privilege of participation in any stock option or purchase plan or
restricted stock plan or any bonus, profit sharing, savings, pension, group
insurance, hospitalization or other incentive or benefit plan or arrangement
which may be or become applicable to executives of the corporation resulting
from such merger or consolidation or the corporation, acquiring such assets of
the Company.
7.3. References. In the event of any merger, consolidation,
reorganization or transfer of assets described above, references to the Company
in this Agreement shall, unless the context suggests otherwise, be deemed to
include the entity resulting from such merger or consolidation or the acquirer
of such assets of the Company.
Section 8. Change in Control Following Certain Circumstances.
Notwithstanding any provision herein to the contrary, should a Change
in Control occur subsequent to Executive's death, Total Disability or retirement
from the Company, the remainder of any benefits owed under the terms of any
stock plans or other non-qualified deferred compensation plan, including
interest, shall be paid in full on the date of the Change in Control.
Section 9. Termination of this Agreement.
Either the Company or Executive may, by giving 60 days written notice
to the other party, terminate this Agreement as of the third or any subsequent
annual anniversary of the occurrence of a Change in Control.
Section 10. Withholding of Taxes.
All payments required to be made by the Company hereunder to Executive
or his dependents, beneficiaries or estate will be subject to the withholding on
such amounts relating to tax and/or other payroll deductions as may be required
by law.
Section 11. Amendment.
No amendment, change or modification of this Agreement may be made
except in a writing, signed by or on behalf of both parties.
Section 12. Miscellaneous.
12.1. Binding Effect. The provisions of this Agreement shall be binding
upon and shall inure to the benefit of Executive, his executors, administrators,
legal representatives and assigns, and the Company and its successors and
assigns.
12.2. Governing Law. The validity, interpretation and effect of this
Agreement shall be governed by and construed in accordance with the laws of the
State of Rhode Island.
12.3. Severability. The invalidity or enforceability of any
provision of this Agreement shall not affect the validity of any other
provision.
12.4. No Set-Off. There shall be no right of setoff or counterclaim, in
respect of any claim, debt or obligation, against any payments to Executive, his
dependents, beneficiaries or estate provided for in this Agreement, and nothing
in this Agreement shall relieve the Company of its obligations to Executive
under any other agreement, plan, contract or arrangement. Subject to Section
12.6 hereof, no right, benefit or interest hereunder shall be subject to
anticipation, alienation, sale, assignment, encumbrance, charge, pledge,
hypothecation or set-off in respect of any claim, debt or obligation, or to
execution, attachment, levy or similar process or assignment by operation of
law. Any attempt, voluntary or involuntary, to effect any action specified in
the immediately preceding sentence shall, to the full extent permitted by law,
be null, void and of no effect. In no event shall the Executive be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and, except as otherwise provided in Section 4.2(b) hereof, such amounts shall
not be reduced whether or not the Executive obtains other employment.
Notwithstanding anything to the contrary in this Agreement, Executive shall
forfeit all future payments and benefits hereunder in the event that Executive
is determined, pursuant to procedures established in Section 4.6 hereof, to have
materially breached any written covenant or agreement between the Executive and
the Company prohibiting the disclosure of confidential information pertaining to
the Company or respecting competition or interference with the Company, provided
that the Company shall have given the Executive at least thirty (30) days prior
written notice of such breach and such breach shall not have been cured by the
end of such notice period.
12.5. Remedies. The Company and Executive agree that, because of the
unique nature of this Agreement, failure of either party to carry out or abide
by the obligations under this Agreement could cause irreparable injury;
accordingly, the parties agree that, in addition to any other remedies available
to either party, any such failure by either party to perform or abide by this
Agreement shall be subject to appropriate equitable remedies, including specific
performance and injunctive relief.
12.6. Assignability. No right or interest to or in any payments shall
be assignable by the Executive; provided, however, that this provision shall not
preclude him from designating one or more beneficiaries to receive any amount
that may be payable after his death and shall not preclude the legal
representative of his estate from assigning any right hereunder to the person or
persons entitled thereto under his will or, in the case of intestacy, to the
person or persons entitled thereto under the laws of intestacy applicable to his
estate. The term "beneficiaries" as used in this Agreement shall mean a
beneficiary or beneficiaries so designated to receive any such amount, or if no
beneficiary has been so designated, the legal representative of the Executive's
estate.
12.7. Counterparts; Headings; References. This Change in Control
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument. The headings of the sections of this Agreement are inserted for
convenience only and shall not constitute a part hereof. References to the
masculine or feminine gender (or to the singular or plural number) herein shall
mean the other such gender (or number), as appropriate.
12.8. Entire Agreement. This instrument contains the entire agreement
of the parties pertaining to the subject matter contained herein and supersedes
and is in lieu of any and all other arrangements pertaining to the subject
matter contained herein having effect as of the effective date.
12.9. Notices. All notices given hereunder shall be in writing and
shall be delivered personally or sent by prepaid registered or certified mail,
return receipt requested, addressed as follows or to such other address as may
be provided by any party hereto to the other party:
If to the Company: GTECH Holdings Corporation
55 Technology Way
West Greenwich, RI 02817
Attention:
If to the Executive: Thomas J. Sauser
5 Cedar Rock Meadows
East Greenwich, RI 02818
All notices shall be deemed to be given on the date received at the
address of the addressee, or if delivered personally, on the date delivered.
IN WITNESS WHEREOF, the Company and Executive have each caused this
Agreement to be duly executed and delivered as of the date set forth above.
ATTEST: GTECH HOLDINGS CORPORATION
/s/ Kathleen J. Carson By:/s/ Stephen A. Davidson
Title: Senior Vice President
WITNESS:
/s/ Alicia E. Rodzen /s/ Thomas J. Sauser
Thomas J. Sauser
EXHIBIT 11--COMPUTATIONS OF EARNINGS PER SHARE
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------- ---------------------
August 30, August 24, August 30, August 24,
1997 1996 1997 1996
--------- --------- --------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Primary: (1)
Net income ....................................... $ 20,225 $ 17,501 $ 39,545 $ 35,704
========= ========= ========= =========
Weighted average common shares outstanding ....... 42,046 43,087 42,065 43,087
Net effect of dilutive stock options--based on the
treasury stock method using the average market
price for the period ............................ 667 270 642 300
--------- --------- --------- ---------
Totals ........................................... 42,713 43,357 42,707 43,387
========= ========= ========= =========
Earnings per common share ........................ $ .47 $ .40 $ .93 $ .82
========= ========= ========= =========
Fully diluted: (1)
Net income ....................................... $ 20,225 $ 17,501 $ 39,545 $ 35,704
========= ========= ========= =========
Weighted average common shares outstanding ....... 42,046 43,087 42,065 43,087
Net effect of dilutive stock options--based on the
treasury stock method using the quarter-end
market price which is higher than the average
market price .................................... 667 270 642 300
--------- --------- --------- ---------
Totals ........................................... 42,713 43,357 42,707 43,387
========= ========= ========= =========
Earnings per common share ........................ $ .47 $ .40 $ .93 $ .82
========= ========= ========= =========
(1) The primary and fully diluted earnings per share were not presented on the
face of the Consolidated Income Statements because the resulting amounts
were not materially dilutive.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Feb-28-1998
<PERIOD-START> Feb-23-1997
<PERIOD-END> Aug-30-1997
<CASH> 11,943
<SECURITIES> 0
<RECEIVABLES> 99,124
<ALLOWANCES> 0
<INVENTORY> 43,912
<CURRENT-ASSETS> 191,629
<PP&E> 1,305,490
<DEPRECIATION> 682,379
<TOTAL-ASSETS> 1,041,567
<CURRENT-LIABILITIES> 158,407
<BONDS> 459,889
0
0
<COMMON> 439
<OTHER-SE> 380,945
<TOTAL-LIABILITY-AND-EQUITY> 1,041,567
<SALES> 36,912
<TOTAL-REVENUES> 471,981
<CGS> 20,497
<TOTAL-COSTS> 320,760
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,592
<INCOME-PRETAX> 64,828
<INCOME-TAX> 25,283
<INCOME-CONTINUING> 39,545
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,545
<EPS-PRIMARY> .94
<EPS-DILUTED> .94
</TABLE>
