<PAGE> 1
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 November 28, 1998
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 Identification
incorporation or organization) 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 January 2, 1999 there were 40,244,973 shares of the registrant's Common Stock
outstanding.
<PAGE> 2
INDEX
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
Page
PART I. FINANCIAL INFORMATION Number
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Income Statements 4-5
Consolidated Statement of Shareholders' Equity 6
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8-10
Item 2. Management's Discussion and Analysis of Financial Condition 11-19
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20-21
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
EXHIBITS
<PAGE> 3
PART 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Unaudited)
November 28, February 28,
----------- -----------
(In thousands, except
share amounts)
<S> <C> <C>
ASSETS 1998 1998
CURRENT ASSETS
Cash and cash equivalents $ 2,829 $ 8,250
Trade accounts receivable 95,103 93,778
Sales-type lease receivables 8,260 13,958
Inventories 60,422 27,853
Deferred income taxes 40,897 40,897
Assets held for sale 14,178 14,178
Other current assets 14,597 14,141
----------- -----------
TOTAL CURRENT ASSETS 236,286 213,055
SYSTEMS, EQUIPMENT AND OTHER ASSETS RELATING TO CONTRACTS 1,252,354 1,204,552
Less: Accumulated Depreciation (779,343) (677,696)
----------- -----------
473,011 526,856
GOODWILL, net 137,308 118,537
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES 11,332 64,808
OTHER ASSETS 101,374 100,556
----------- -----------
$ 959,311 $ 1,023,812
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 38,394 $ 39,451
Accrued expenses 52,955 57,155
Special charge 8,742 33,631
Employee compensation 17,863 25,648
Advance payments from customers 28,985 504
Income taxes payable 65,315 25,392
Current portion of long-term debt 1,851 3,903
----------- -----------
TOTAL CURRENT LIABILITIES 214,105 185,684
LONG-TERM DEBT, less current portion 310,371 453,587
OTHER LIABILITIES 32,118 19,171
DEFERRED INCOME TAXES 20,160 20,160
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,
44,121,565 and 43,922,627 shares issued, 40,798,623 and 41,284,146 shares
outstanding at November 28, 1998 and February 28, 1998, respectively 441 439
Additional paid-in capital 175,911 171,302
Equity carryover basis adjustment (7,008) (7,008)
Accumulated other comprehensive income (15,125) (42)
Retained earnings 322,958 255,955
----------- -----------
477,177 420,646
Less cost of 3,322,942 and 2,638,481 shares in treasury at
November 28, 1998 and February 28, 1998, respectively (94,620) (75,436)
----------- -----------
382,557 345,210
----------- -----------
$ 959,311 $ 1,023,812
=========== ===========
</TABLE>
See notes to consolidated financial statements
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<PAGE> 4
CONSOLIDATED INCOME STATEMENTS
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
----------------------
November 28, November 29,
1998 1997
--------- ---------
(Dollars in thousands,
except per share amounts)
<S> <C> <C>
Revenues:
Services $ 226,076 $ 213,116
Sales of products 25,599 51,649
--------- ---------
251,675 264,765
Costs and expenses:
Costs of services 148,522 150,476
Costs of sales 15,400 32,284
--------- ---------
163,922 182,760
--------- ---------
Gross profit 87,753 82,005
Selling, general and administrative 31,527 32,982
Research and development 9,761 7,720
--------- ---------
Operating income 46,465 41,303
Other income (expense):
Interest income 1,041 1,296
Equity in earnings of unconsolidated affiliates 786 4,919
Other income (expense) 2,193 (925)
Interest expense (6,795) (7,359)
--------- ---------
Income before income taxes 43,690 39,234
Income taxes 17,214 15,301
--------- ---------
Net income $ 26,476 $ 23,933
========= =========
Basic earnings per share $ .64 $ .57
========= =========
Diluted earnings per share $ .64 $ .57
========= =========
</TABLE>
See notes to consolidated financial statements
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<PAGE> 5
CONSOLIDATED INCOME STATEMENTS
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended (1)
----------------------
November 28, November 29,
1998 1997
--------- ---------
(Dollars in thousands,
except per share amounts)
<S> <C> <C>
Revenues:
Services $ 672,539 $ 648,185
Sales of products 44,949 88,561
--------- ---------
717,488 736,746
Costs and expenses:
Costs of services 445,634 450,739
Costs of sales 30,223 52,781
--------- ---------
475,857 503,520
--------- ---------
Gross profit 241,631 233,226
Selling, general and administrative 91,228 101,835
Research and development 28,004 23,764
--------- ---------
Operating income 122,399 107,627
Other income (expense):
Interest income 2,618 4,841
Equity in earnings of unconsolidated affiliates 5,022 13,590
Other income (expense) 4,728 (45)
Interest expense (21,203) (21,951)
--------- ---------
Income before income taxes 113,564 104,062
Income taxes 46,561 40,584
--------- ---------
Net income $ 67,003 $ 63,478
========= =========
Basic earnings per share $ 1.62 $ 1.51
========= =========
Diluted earnings per share $ 1.61 $ 1.50
========= =========
</TABLE>
(1) 39 weeks in the nine month period ended November 28, 1998 and 40 weeks
in the nine month period ended November 29, 1997
See notes to consolidated financial statements
-5-
<PAGE> 6
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY-(Unaudited)
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Equity Accumulated
Common Stock Additional Carryover Other
Issued Paid-in Basis Comprehensive Retained
Shares Amount Capital Adjustment Income Earnings
---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at February 28, 1998 43,922,627 $ 439 $ 171,302 $ (7,008) $ (42) $ 255,955
Comprehensive income:
Net income -- -- -- -- -- 67,003
Other comprehensive income, net of tax:
Foreign currency translation -- -- -- -- (14,178) --
Net loss on derivative instruments -- -- -- -- (905) --
Comprehensive income
Purchase of 685,100
shares of common stock -- -- -- -- -- --
Reissued 639 shares from treasury under
Director Stock election plan -- -- -- -- -- --
Common stock issued
under stock award plans 198,938 2 4,609 -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance at November 28, 1998 44,121,565 $ 441 $ 175,911 $ (7,008) $ (15,125) $ 322,958
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Treasury
Stock Total
---------- ----------
<S> <C> <C>
Balance at February 28, 1998 $ (75,436) $ 345,210
Comprehensive income:
Net income -- 67,003
Other comprehensive income, net of tax:
Foreign currency translation -- (14,178)
Net loss on derivative instruments -- (905)
----------
Comprehensive income 51,920
Purchase of 685,100
shares of common stock (19,202) (19,202)
Reissued 639 shares from treasury under
Director Stock election plan 18 18
Common stock issued
under stock award plans -- 4,611
---------- ----------
Balance at November 28, 1998 $ (94,620) $ 382,557
========== ==========
</TABLE>
See notes to consolidated financial statements
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<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended (1)
----------------------
November 28, November 29,
1998 1997
--------- ---------
(Dollars in thousands)
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 67,003 $ 63,478
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 153,405 153,940
Equity in earnings of unconsolidated affiliates,
net of dividends received (2,407) 1,439
Other 2,070 4,477
Changes in operating assets and liabilities:
Trade accounts receivable 2,363 (2,447)
Inventories (31,537) 6,430
Special charge (22,891) --
Other assets and liabilities 39,270 (27,197)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 207,276 200,120
INVESTING ACTIVITIES
Purchases of systems, equipment and other assets relating to contracts (97,589) (239,388)
Cash proceeds from sale of equity investment 84,904 --
Acquisitions (net of cash acquired) (18,853) (20,964)
Other (17,053) (17,641)
--------- ---------
NET CASH USED FOR INVESTING ACTIVITIES (48,591) (277,993)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 93,306 466,121
Net payments under short-term borrowing arrangements (108) (1,174)
Principal payments on long-term debt (239,249) (360,770)
Purchases of treasury stock (19,201) (27,583)
Other 4,473 (1,436)
--------- ---------
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES (160,779) 75,158
Effect of exchange rate changes on cash (3,327) (1,089)
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (5,421) (3,804)
Cash and cash equivalents at beginning of period 8,250 11,985
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,829 $ 8,181
========= =========
</TABLE>
(1) 39 weeks in the nine month period ended November 28, 1998 and 40 weeks
in the nine month period ended November 29, 1997
See notes to consolidated financial statements
-7-
<PAGE> 8
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 nine-month period ended November 28, 1998
are not necessarily indicative of the results that may be expected for the full
1999 fiscal year ending February 27, 1999. The balance sheet at February 28,
1998 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 1998 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 was a 53-week year. The Company included the extra week
in the fiscal 1998 first quarter ended May 31, 1997. Accordingly, there were 39
weeks in the nine-month period ended November 28, 1998, versus 40 weeks in the
nine-month period ended November 29, 1997.
<TABLE>
<CAPTION>
NOTE B--INVENTORIES November 28, February 28,
1998 1998
---- ----
(Dollars in thousands)
<S> <C> <C>
Inventories consist of:
Purchased components $25,257 $17,202
Finished subassemblies 2,357 1,719
Work-in-process 22,259 7,789
Finished goods 10,549 1,143
------- -------
$60,422 $27,853
======= =======
</TABLE>
<TABLE>
<CAPTION>
NOTE C--LONG-TERM DEBT November 28, February 28,
1998 1998
---- ----
(Dollars in thousands)
<S> <C> <C>
Long-term debt consists of:
7.75% Series A Senior Notes due 2004 $150,000 $150,000
7.87% Series B Senior Notes due 2007 150,000 150,000
Revolving credit facility 8,600 135,000
Other 3,622 22,490
-------- --------
312,222 457,490
Less current portion 1,851 3,903
-------- --------
$310,371 $453,587
======== ========
</TABLE>
The Company has an unsecured revolving credit facility of $400 million expiring
in June 2002 (the "Credit Facility"). At November 28, 1998, the weighted average
interest rate for all outstanding borrowings under the Credit Facility was
5.27%.
-8-
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(continued)
NOTE D--INCOME TAXES
The Company's effective income tax rate is 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.
NOTE F--EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
November 28, November 29, November 28, November 29,
1998 1997 1998 1997
---- ---- ---- ----
(Dollars and shares in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Numerator:
Net income $26,476 $23,933 $67,003 $63,478
Denominator:
Weighted average shares-Basic 41,210 41,908 41,304 42,014
Effect of dilutive securities:
Employee stock options 106 386 348 354
------- ------- ------- -------
Weighted average shares-Diluted 41,316 42,294 41,652 42,368
======= ======= ======= =======
Basic earnings per share $ .64 $ .57 $ 1.62 $ 1.51
======= ======= ======= =======
Diluted earnings per share $ .64 $ .57 $ 1.61 $ 1.50
======= ======= ======= =======
</TABLE>
NOTE G--ACQUISITION
On July 1, 1998, the Company acquired 80% of the equity of Europrint Holdings
Ltd. ("Europrint") and its wholly owned subsidiaries, including Interactive
Games International ("IGI") for a net cash purchase price of $21,455,000,
including related acquisition costs. The Company has the option, and in certain
circumstances the obligation, to acquire the remaining 20% of the equity of
Europrint and IGI within the next five years. Europrint is among the world's
largest providers of media promotional games, and IGI has pioneered the
development of interactive, televised lottery games.
-9-
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(continued)
NOTE H--NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities". The Company
adopted the new Statement effective August 30, 1998 (the first day of its fiscal
1999 third quarter). The new Statement did not have a significant effect on
earnings or the financial position of the Company. The Statement requires the
Company to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments, through earnings,
or recognized in other comprehensive income until the hedged item is recognized
in earnings.
-10-
<PAGE> 11
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 that the Company is
engaged in or expects to engage in, (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, (iv) the Company's program to
address potential issues relating to the change of date to January 1, 2000
("Year 2000"), and (v) 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 that 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 below and
elsewhere in this report and in the Company's press releases and its fiscal 1998
Form 10-K and subsequent 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 lottery service contracts. These contracts 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 vary depending on the
size of the lottery and the scope of services provided to the lottery. Product
sale 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 sale revenues from period
to period. Fiscal 1998 was a significant year for product sales, including the
sale of a new on-line lottery central system to the Massachusetts State Lottery
in the third quarter of fiscal 1998. The Company currently anticipates that
product purchases by lotteries during fiscal 1999 could be lower than the fiscal
1998 level of $122.0 million by as much as 40%.
The Company has taken steps to broaden its offerings of high-volume transaction
processing services outside of its core business of providing on-line lottery
services. For example, the Company's Dreamport subsidiary ("Dreamport") provides
gaming technology and a comprehensive array of management, development and
strategic services to the gaming and entertainment market. Also, on July 1,
1998, the Company acquired 80% of the equity of Europrint Holdings Ltd.
("Europrint") and its wholly owned subsidiaries, including Interactive Games
International ("IGI"), for a net cash purchase price of $21.5 million, including
related acquisition costs. The Company has the option, and in certain
circumstances the obligation, to acquire the remaining 20% of the equity of
Europrint and IGI within the next five years. Europrint is among the worlds
largest providers of media promotional games, and IGI has pioneered the
development of interactive, televised lottery games.
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 under
way. Accordingly, the Company lacks sufficient information to determine with
certainty their ultimate scope and whether the government
-11-
<PAGE> 12
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" in the Company's fiscal 1998
annual report on Form 10-K; and Note G to the Consolidated Financial Statements
in the Company's fiscal 1998 annual report on Form 10-K for further information
concerning these matters and other contingencies.
The Company operates on a 52- to 53-week fiscal year ending on the last Saturday
in February. Fiscal 1998 was a 53-week year. The Company included the extra week
in the fiscal 1998 first quarter ended May 31, 1997. Accordingly, there were 39
weeks in the nine-month period ended November 28, 1998, versus 40 weeks in the
nine-month period ended November 29, 1997.
Strategies
During the third quarter of fiscal 1999, the Company completed its review of
strategic alternatives, and announced that it would pursue a growth strategy
that would leverage its core technology of on-line transaction processing and
data communications. The Company also announced an increase in the number of its
shares that the Company is authorized to repurchase under its share repurchase
program to $90 million from its previous level of $50 million. As of December
31, 1998, a total of 1,350,000 shares for a total of $35.6 million had been
purchased under the repurchase program since the beginning of fiscal 1999.
Results of Operations
Third Quarter
Revenues for the third quarter of fiscal 1999 were $251.7 million, representing
a $13.1 million, or 4.9%, decrease from revenues of $264.8 million in the third
quarter of fiscal 1998.
Service revenues in the fiscal 1999 third quarter were $226.1 million,
representing a $13.0 million, or 6.1%, increase over the $213.1 million of
service revenues in the third quarter of fiscal 1998. This increase was driven
primarily by higher service revenues from the on-line lottery system in Brazil
that was implemented by the Company in fiscal 1998, higher service revenues from
certain of the Company's other international lottery customers and higher
service revenues from Dreamport. These increases were partially offset by lower
service revenues from the Company's Texas lottery contract (resulting primarily
from lower sales generated by the Texas lottery).
Product sales in the third quarter of fiscal 1999 were $25.6 million, a decrease
of $26.1 million, or 50.4%, from the $51.7 million of product sales in the third
quarter of fiscal 1998. This decrease resulted primarily from lower lottery
equipment sales in the third quarter of fiscal 1999 than in the third quarter of
fiscal 1998 when the Company sold a new on-line lottery central system to the
Massachusetts State Lottery and a video lottery central system to the Oregon
State Lottery. This decrease was partially offset by higher sales by Dreamport
resulting from its sale of all of its assets and rights related to the provision
of gaming technology at Charles Town Races in West Virginia to Penn National
Gaming, Inc., the operator of the facility, for approximately $13.0 million. In
addition, the Company realized approximately $5.8 million of product sales from
Europrint, a U.K. company acquired by the Company in the second quarter
-12-
<PAGE> 13
of fiscal 1999. The Company sold approximately 1,000 lottery terminals in the
third quarter of fiscal 1999 as compared to approximately 7,200 lottery
terminals in the third quarter of fiscal 1998.
Gross margins on service revenues were 34.3% in the fiscal 1999 third quarter
compared to 29.4% in the third quarter of fiscal 1998. This increase was due
primarily to higher service margins from the Company's lottery contract in
Brazil, along with lower costs resulting from the Company's restructuring
announced in February 1998. These increases were partially offset by losses
generated by the Company's video lottery business in Brazil due to the start-up
nature of those contracts.
Gross margins on product sales fluctuate due to the mix, volume and timing of
product sales contracts. Gross margins on product sales were 39.8% in the third
quarter of fiscal 1999 compared to 37.5% in the third quarter of fiscal 1998.
This increase is reflective of product mix.
Selling, general and administrative expenses in the third quarter of fiscal 1999
were $31.5 million, representing a $1.5 million, or 4.4%, decrease from the
$33.0 million incurred in the third quarter of fiscal 1998. This decrease was
due primarily to cost savings resulting from the restructuring announced in
February 1998, partially offset by expenses associated with the Company's recent
review and evaluation of strategic alternatives. As a percentage of revenues,
selling, general and administrative expenses were 12.5% during the third
quarters of fiscal 1999 and 1998.
Research and development expenses in the third quarter of fiscal 1999 were $9.8
million, representing a $2.0 million, or 26.4%, increase over research and
development expenses of $7.7 million in the third quarter of fiscal 1998. This
increase reflects costs associated with the continuing development of the
Company's Internet wagering platform, as well as an increase in the number of
new products in the development pipeline. As a percentage of revenues, research
and development expenses were 3.9% and 2.9% during the third quarters of fiscal
1999 and 1998, respectively.
Equity in earnings of unconsolidated affiliates in the third quarter of fiscal
1999 was $.8 million, a decrease of $4.1 million from the $4.9 million earned
during the third quarter of fiscal 1998. This decrease was due primarily to the
sale by the Company, in April 1998, of its 22.5% equity interest in Camelot
Group plc ("Camelot") to Camelot for approximately $84.9 million. The book value
of the Camelot investment at the time of sale was approximately $51.8 million. A
portion of the cash received by the Company would have to be returned to Camelot
in the event that Camelot loses its operating license for reasons attributable
to actions of the Company or its employees. Accordingly, the Company has
deferred the recognition of the gain from the sale of its investment and will
recognize such gain evenly over the remaining period of Camelot's operating
license which currently is scheduled to expire on September 30, 2001. The sale
of this equity interest does not affect the Company's position as the principal
supplier of goods and services to Camelot, but has reduced the Company's equity
in earnings of unconsolidated affiliates. (Reference is made to the Company's
Report on Form 8-K and 8-K/A filed with the SEC in May 1998 for further
information concerning the sale of the Company's equity interest in Camelot).
Other income in the third quarter of fiscal 1999 of $2.2 million was comprised
principally of the amortization of the deferred gain on the sale of the Camelot
investment. See discussion above. Other expense of $.9 million in the third
quarter of fiscal 1998 was comprised principally of the timing impact of foreign
exchange costs incurred relating to the marking to market of hedges utilized to
protect certain fiscal 1999 profit.
Interest expense in the third quarter of fiscal 1999 was $6.8 million, a
decrease of $.6 million from the $7.4 million incurred during the third quarter
of fiscal 1998. This decrease was due primarily to lower average debt balances,
partially offset by higher average interest rates.
-13-
<PAGE> 14
Year to Date
Revenues for the first nine months of fiscal 1999 were $717.5 million,
representing a $19.2 million, or 2.6%, decrease from revenues of $736.7 million
in the first nine months of fiscal 1998.
Service revenues for the first nine months of fiscal 1999 were $672.5 million,
representing a $24.4 million, or 3.8%, increase over the $648.1 million of
service revenues for the first nine months of fiscal 1998. This increase was due
primarily to higher service revenues from the on-line lottery system in Brazil,
higher jackpot activity resulting from two large Powerball jackpots in the first
nine months of fiscal 1999, higher service revenues from certain of the
Company's U.S. and international lottery customers and higher service revenues
from Dreamport. These increases were partially offset by lower service revenues
from the Company's Texas lottery contract (resulting primarily from lower sales
generated by the Texas lottery). Further, there were 39 weeks of service
revenues in the nine-month period ended November 28, 1998, versus 40 weeks in
the nine-month period ended November 29, 1997. After a number of years of
growth, the Company has witnessed a slowing in the sales generated by its U.S.
lottery customers. The Company believes that the overall growth rate for its
U.S. lottery customer's sales will be in the 1-3% range through January 2001.
However, there can be no assurance that this will be the case.
Product sales in the first nine months of fiscal 1999 were $45.0 million, a
decrease of $43.6 million, or 49.2%, from the $88.6 million of product sales in
the first nine months of fiscal 1998. This anticipated decrease resulted
primarily from lower lottery terminal and peripheral equipment sales in the
first nine months of fiscal 1999 than in the first nine months of fiscal 1998.
These lower revenues were partially offset by higher sales by Dreamport, the
recognition of deferred revenues on product sales to Camelot and product sales
of $11.5 million from Europrint. Prior to the sale of the Company's investment
in Camelot, the Company deferred 22.5% of the revenues attributable to any
product sales to Camelot and the other consortium members and recognized such
deferred revenue over the depreciable life of the equipment. The sale of the
Camelot investment triggered an acceleration in the recognition of this deferred
revenue. As discussed earlier, Dreamport recorded the sale of its assets and
rights related to the provision of gaming technology at Charles Town Races in
West Virginia for approximately $13.0 million in the third quarter of fiscal
1999. Product sales in the first nine months of fiscal 1998 included the sale of
a new on-line lottery central system to the Massachusetts State Lottery and a
video lottery central system to the Oregon State lottery. The Company sold
approximately 1,300 lottery terminals in the first nine months of fiscal 1999 as
compared to approximately 10,200 lottery terminals in the same period of fiscal
1998.
Gross margins on service revenues were 33.7% in the first nine months of fiscal
1999 compared to 30.5% in the corresponding period of fiscal 1998. This increase
was due primarily to higher Powerball jackpots in the first nine months of
fiscal 1999 than in the corresponding period of fiscal 1998, along with lower
costs resulting from the restructuring announced in February 1998, partially
offset by lower margins realized from the Company's Texas lottery contract
(primarily as a function of lower sales generated by the Texas lottery).
Gross margins on product sales were 32.8% in the first nine months of fiscal
1999 compared to 40.4% in the same period of fiscal 1998. This decrease is
reflective of product mix and the impact of product sales of Europrint, that
carry lower product margins than have been realized historically by the Company
on its product sales.
Selling, general and administrative expenses in the first nine months of fiscal
1999 were $91.2 million, representing a $10.6 million, or 10.4%, decrease from
the $101.8 million incurred in the first nine months of fiscal 1998. This
decrease was due primarily to cost savings resulting from the restructuring
announced in February 1998, along with lower legal expenses associated with
investigations and legal
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<PAGE> 15
proceedings. As a percentage of revenues, selling, general and administrative
expenses were 12.7% and 13.8% during the first nine months of fiscal 1999 and
1998, respectively.
Research and development expenses in the first nine months of fiscal 1999 were
$28.0 million, representing a $4.2 million, or 17.8%, increase over research and
development expenses of $23.8 million in the first nine months of fiscal 1998.
This increase reflects costs associated with the continuing development of the
Company's Internet wagering platform, as well as an increase in the number of
new products in the development pipeline. As a percentage of revenues, research
and development expenses were 3.9% and 3.2% during the first nine months of
fiscal 1999 and 1998, respectively.
Interest income in the first nine months of fiscal 1999 was $2.6 million, a
decrease of $2.2 million from the $4.8 million earned during the first nine
months of fiscal 1998. During the first nine months of fiscal 1998 the Company
had higher dollar-denominated cash balances on hand in Brazil than in the
comparable period of fiscal 1999 to fund the on-line lottery system
implementation that was completed in February 1998.
Equity in earnings of unconsolidated affiliates in the first nine months of
fiscal 1999 was $5.0 million, a decrease of $8.6 million from the $13.6 million
earned during the same period of fiscal 1998. This decrease was due primarily to
the sale by the Company, in April 1998, of its 22.5% equity interest in Camelot.
Other income in the first nine months of fiscal 1999 of $4.7 million is
primarily comprised of the amortization of the gain on the sale of the Camelot
investment.
Interest expense in the first nine months of fiscal 1999 was $21.2 million, a
decrease of $.8 million from the $22.0 million incurred during the corresponding
period of fiscal 1998. This decrease was due primarily to lower average debt
balances, partially offset by higher average interest rates and lower
capitalization of interest on lottery system installations.
The Company's effective income tax rate increased from 39% in the first nine
months of fiscal 1998 to 41% in the first nine months of fiscal 1999 due
principally to the loss of the beneficial tax effect of U.K. equity earnings
that were reported on an after-tax basis. The Company's effective income tax
rate is greater than the statutory rate due primarily to state income taxes and
certain expenses that are not deductible for income tax purposes.
Special Charge
In the fourth quarter of fiscal 1998 the Company's Board of Directors approved a
plan of repositioning and restructuring of the Company's operations (the
"Plan"). The Company estimated and recorded a $99.4 million special charge
($60.6 million after-tax) in connection with the Plan. The major components of
the Plan consisted of the sale of electronic benefit transfer (EBT) contracts
and certain related assets held by the Company's Transactive subsidiary
("Transactive"), contractual obligations in connection with the departures of
the Company's former Chairman and Vice Chairman from the Company, legal costs in
connection with the Branson litigation and judgment in the U.K., asset
impairment charges relating to two of the Company's lottery contracts, and a
worldwide workforce reduction to eliminate a total of approximately 800 company
positions worldwide. See Note P to the Consolidated Financial Statements in the
Company's fiscal 1998 annual report on Form 10-K for further information.
The Company expects total pre-tax savings in fiscal 1999 in the range of $40.0
to $45.0 million resulting from the Plan. For the nine month period ended
November 28, 1998 the savings associated with the Plan were in line with the
Company's expectations.
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<PAGE> 16
The sale of EBT contracts and certain related assets held by Transactive is
subject to the consents of certain of the contract parties and to approvals from
regulatory agencies. The Company has received consents from three contract
parties, two of which are time-limited. The U.S. Department of Justice has
challenged the transaction on anti-trust grounds. The Company is contesting the
Department of Justice's position and expects a resolution by the end of fiscal
1999. In the event that the court's decision is unfavorable, the agreement with
Citibank is modified or is terminated by either party, requisite contract
parties approvals are not received or expire and are not renewed, an additional
charge may be required.
Impact of Year 2000
The Year 2000 computer issue creates potentially significant risks for the
Company. If lottery, gaming or EBT systems that the Company supplies to
customers or management information systems that the Company uses internally do
not correctly recognize and process date information beyond the Year 1999, there
could be an adverse impact on customers' and/or the Company's operations. The
Company has begun a program to assess the capability of its lottery, gaming and
EBT products and its interfaces to customer systems to handle the Year 2000. The
major challenge for the Company in remediating the Year 2000 issue with respect
to customer systems is the multinational nature of the Company's business and
the high degree of coordination that is required with customers, suppliers and
employees across the globe.
The Company has established a Year 2000 project team and a program office at its
corporate headquarters, made up of dedicated and shared resources, to provide
the guidance and support necessary to accomplish the Year 2000 initiative. The
Company's program is comprised of a six phase approach as follows:
- - The inventory phase consists of compiling a comprehensive list of
software and hardware technologies in use by the Company. This phase is
approximately 45% complete and is expected to be completed by the end
of January 1999.
- - The assessment phase consists of determining the compliance status of
each technology identified in the inventory phase. This phase is
approximately 35% complete and is expected to be completed by February
1999.
- - The planning phase consists of developing plans to upgrade hardware
and/or software to Year 2000 compliance. This phase is approximately
15% complete and is expected to be completed by March 1999.
- - The implementation phase consists of executing the tasks identified in
the planning phase. This phase is approximately 15% complete and is
expected to be completed by September 1999.
- - The quality assurance phase consists of testing and validating systems
replaced or modified as part of the implementation phase. This phase
has not begun and is expected to be completed by September 1999.
- - The special cases phase consists of developing and implementing
specific plans for any Year 2000 issues that cannot be handled by the
previous phases. This phase has not begun and is expected to be
completed by December 1999.
The Company is actively working with and seeking to enlist the cooperation of
its customers to ensure integration with their systems and telecommunication
networks. The Company is also actively working with critical suppliers of
products and services to determine that the suppliers' operations and the
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<PAGE> 17
products and services they provide are Year 2000 capable. The Company will
continue to monitor their progress toward Year 2000 capability.
The majority of the internal management information systems in use by the
Company (including SAP's R/3 system, System Union's SUN accounting system and
Hyperion's Pillar software) are Year 2000 compliant. The Company has a time
tracking system and an accounting system in Brazil that are not Year 2000
compliant. The Company is executing its plan to replace these two systems with
SAP's R/3 system by July 1999. The Company has a limited number of non-IT
systems that are primarily in use by the engineering and manufacturing
departments of the Company. The Company began the inventory and assessment of
these systems in October 1998 and plans to complete remediation by September
1999.
The Company's contingency planning involves using already established problem
resolution processes to resolve any problems encountered during the timeframe.
As a standard practice, the Company provides 24 hours a day operational support.
This support provides focused individuals in all disciplines that respond real
time to operational issues. In addition, an expanded team will be staffing our
Year 2000 help desk to provide greater responsiveness to issues.
The costs incurred to date related to the Company's Year 2000 program
approximates $1.5 million. The Company currently expects that the total cost of
the program will not exceed $25 million, including $7 million for the purchase
of software and hardware that will be capitalized and $18 million that will be
expensed. The total cost estimate does not include possible costs related to any
customer or other claims or the cost of internal software and hardware replaced
in the normal course of business but does include the cost to install new
software and hardware that is being accelerated to afford a solution to Year
2000 issues. The total cost estimate is based on the Company's current
assessment of the program and is subject to change as the program progresses.
Based on currently available information, management does not believe that the
Year 2000 matters discussed above will pose significant operational problems;
however there can be no assurance that this will be the case. Year 2000 issues
could have a significant impact on the Company's operations and its financial
results if modifications cannot be completed on a timely basis, unforeseen needs
or problems arise, or, systems operated by third parties are not Year 2000
compliant. In addition to the potential for a significant loss of revenues
associated with Year 2000 issues, certain of the Company's United States lottery
contracts provide for up to $10,000 or more in liquidated damages per minute for
system downtime in excess of a stipulated grace period and certain of the
Company's international customers reserve the right to assess substantial
liquidated damages in the event that system downtime does occur.
Changes in Financial Position, Liquidity and Capital Resources
During the first nine months of fiscal 1999, the Company generated $207.3
million of cash from operations. This cash, together with $84.9 million of cash
received from the sale of the Company's investment in Camelot, was used to pay
down $126.4 million on the Credit Facility, to fund the purchase of $97.6
million of systems, equipment and other assets relating to contracts, to fund
the acquisition of Europrint for $21.5 million and to repurchase $19.2 million
of the Company's common stock.
Inventories increased by $32.5 million, from $27.9 million at February 28, 1998
to $60.4 million at November 28, 1998, due primarily to spending relating to
product sales (see also advanced payments from customers below) expected to be
delivered by August 1999.
The cost of systems, equipment and other assets relating to contracts increased
by $47.8 million, from $1,204.6 million at February 28, 1998 to $1,252.4 million
at November 28, 1998. This increase reflects the continuing installation of a
new lottery system in Michigan and the expansion of lottery systems in several
domestic and international locations.
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<PAGE> 18
Goodwill increased by $18.8 million, from $118.5 million at February 28, 1998 to
$137.3 million at November 28, 1998, due primarily to the acquisition of
Europrint.
Investments in and advances to unconsolidated affiliates decreased by $53.5
million, from $64.8 million at February 28, 1998 to $11.3 million at November
28, 1998, due primarily to the sale of the Company's investment in Camelot.
Special charge decreased by $24.9 million, from $33.6 million at February 28,
1998 to $8.7 million at November 28, 1998, due to approximately $16.1 million of
severance and related payments.
Employee compensation decreased by $7.7 million, from $25.6 million at February
28, 1998 to $17.9 million at November 28, 1998, due primarily to the payment of
fiscal 1998 incentive compensation and employee profit sharing, along with lower
anticipated incentive compensation costs for fiscal 1999.
Advance payments from customers increased by $28.5 million, from $.5 million at
February 28, 1998 to $29.0 million at November 28, 1998. This increase reflects
down payments received on product sales orders from five international
customers, along with the current portion of the deferred gain from the sale of
the Company's investment in Camelot.
Income taxes payable, that are reported net of income tax refunds receivable,
increased by $39.9 million, from $25.4 million at February 28, 1998 to $65.3
million at November 28, 1998, due primarily to an income tax refund received
relating to the special charge, along with the timing of income tax payments.
Long-term debt, less current portion decreased by $143.2 million, from $453.6
million at February 28, 1998 to $310.4 million at November 28, 1998, due
primarily to the proceeds received from the sale of the Company's investment in
Camelot and free cash flow that were utilized to reduce the Credit Facility.
Other liabilities increased by $12.9 million, from $19.2 million at February 28,
1998 to $32.1 million at November 28, 1998. This increase reflects the long-term
portion of the deferred gain from the sale of the Company's investment in
Camelot. See discussion of Camelot sale in "Results of Operations - Third
Quarter" above.
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 1999 will be in a
range of $160.0 million to $210.0 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. As of January 2, 1999 the Company had
utilized approximately $18 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, particularly in
emerging markets such as Brazil. The Company historically used the U.S. dollar
as the functional currency for its operations in Brazil due to the high levels
of inflation in the Brazilian economy. The Company began using the local
currency in Brazil as the functional currency on March 1, 1998 because of the
significant reduction in the rate of inflation in Brazil. The change in
functional
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<PAGE> 19
currency is not expected to materially affect the Company's operations. At
November 28, 1998, the net book value of the Company's investments in Brazil was
approximately $165.4 million.
The Company uses various techniques to reduce the risk associated with future
increases in interest rates, including the issuance of seven- and ten-year fixed
rate debt on May 29, 1997, in a private placement.
The Company seeks 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 and option contracts. In addition, a
significant portion of the costs attributable to the Company's foreign currency
revenues are payable in the local currencies.
The Company, from time to time, enters into foreign currency exchange and option
contracts to reduce the exposure associated with certain firm sales commitments,
anticipated local currency margin and certain assets and liabilities denominated
in foreign currencies. The Company does not engage in currency speculation.
Unrealized 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 local currency margin and certain assets and
liabilities are marked to market with the resulting transaction gains or losses
included in other income. As of January 2, 1999, the Company had approximately
$2.2 million of outstanding foreign currency exchange contracts to purchase
foreign currencies (primarily Australian dollars) and approximately $176.4
million of outstanding foreign currency exchange and futures contracts to sell
foreign currencies (primarily pounds Sterling, Brazilian reals, Spanish pesetas
and Australian dollars).
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities". The Company
adopted the new Statement effective August 30, 1998 (the first day of its fiscal
1999 third quarter). The new Statement did not have a significant effect on
earnings or the financial position of the Company. The Statement requires the
Company to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings.
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<PAGE> 20
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
As previously publicly reported, in October 1994, the U.S. Attorney's Office for
the District of New Jersey indicted J. David Smith, the former sales manager of
the Company (who resigned in early 1994 for reasons unrelated to the
indictments), and two other individuals who served as consultants to the Company
through their wholly-owned company, The Benchmark Group, Inc. ("Benchmark"). The
indictment alleged essentially that, unbeknownst to the Company, Mr. Smith had
received kickbacks from the consultants for his own benefit. The indictment did
not charge the Company with any wrongdoing, and the actions complained of did
not affect the Company's New Jersey lottery operations. The trial of Mr. Smith
and the two consultants commenced in September 1996 in the U.S. District Court
for New Jersey, and on October 4, 1996, Mr. Smith and one of the two consultants
were found guilty of all charges. The other consultant, Joseph LaPorta, was
found not guilty. The New Jersey U.S. Attorney immediately announced in a press
release that a grand jury investigation in that jurisdiction was continuing but
did not specify the scope of such investigation. In October 1996, Mr. Smith
moved for a new trial. In the midst of these events, the New Jersey Lottery
Commission awarded the Company a contract to continue operating the State
lottery. In August 1998, the New Jersey Federal Court denied a motion brought by
Mr. Smith for a new trial. In October 1998, Mr. Smith was finally sentenced
respecting the October 1996 jury verdict against him. He received a prison term
of 63 months, was ordered to pay restitution to the Company in the amount of
$169,500 and was fined $20,000. In October 1998, Mr. Smith filed a notice of
appeal in the United States Court of Appeals for the Third Circuit. In November
1998, the U.S. Attorney's Office for the District of New Jersey advised the
Company that currently GTECH is not the current subject or target of an ongoing
grand jury investigation by that office.
In November 1998, Benchmark and Joseph LaPorta, the shareholder of Benchmark who
was found not guilty in the criminal proceeding described in the preceding
paragraph, filed suit in the Superior Court of New Jersey (Atlantic County - Law
Division) against GTECH and Victor Markowicz, the Company's former Co-Chairman,
alleging that GTECH had wrongfully terminated and otherwise breached a May 1992
contract, as amended, between the Company and Benchmark pursuant to which
Benchmark provided government relations services on behalf of GTECH in New
Jersey. The complaint filed by Benchmark and Mr. LaPorta also alleged that GTECH
had breached an implied covenant of good faith and fair dealing by allegedly
authorizing and directing Benchmark to make payments that were not within the
contemplation of the contract and terminating its contract with Benchmark after
allegedly receiving substantial benefits from Benchmark; that GTECH had
committed fraud upon Benchmark by allegedly making knowingly false
representations to Benchmark prior to termination of the May 1992 contract; and
that GTECH and Markowicz had committed fraud upon and had made negligent
representations to Benchmark by allegedly concealing that certain payments which
the Company is said to have directed that Benchmark make to third parties were
allegedly made for the personal benefit of Mr. Markowicz and unspecified others.
Benchmark's complaint seeks unspecified compensatory and punitive damages and
costs and such other further relief as the Court deems equitable and just. The
Company believes that Benchmark's complaint, and the allegations underlying the
complaint, are wholly without merit. The Company intends to vigorously defend
itself in these proceedings.
In December 1998, Lawrence Littwin, the former Executive Director of the Texas
Lottery Commission, filed suit against GTECH in the United States District Court
for the Northern District of Texas alleging that GTECH, as operator of the Texas
lottery, unlawfully attempted to have Mr. Littwin removed as
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<PAGE> 21
Executive Director of the Texas Lottery Commission in order to continue its
alleged unlawful control of the Texas Lottery Commission and the Texas lottery.
The specific causes of action alleged by Mr. Littwin include alleged tortious
interference by GTECH with Mr. Littwin's employment relationship with the Texas
Lottery Commission which caused him to be removed as the Executive Director;
alleged conspiracy with unspecified third parties to maintain control of the
Texas Lottery Commission and the Texas lottery; and various alleged violations
by GTECH of the Racketeer Influenced Corrupt Organization Act (18 Sections
1961(4) and 1962(b), (c) and (d)) ("RICO"). Mr. Littwin's complaint seeks
unspecified damages (including treble damages in the case of RICO violations)
and costs. The Company believes that Mr. Littwin's complaint, and the
allegations underlying the complaint, are wholly without merit. The Company
intends to vigorously defend itself in these proceedings.
The Company monitors, and occasionally affirmatively becomes involved in,
litigation involving Indian gaming in states where such litigation may, directly
or indirectly, concern or call into question the legal rights and operations of
state lotteries to which the Company provides contract services. The purpose of
this effort is to protect state lottery interests, and thus the Company's
revenue streams from service contracts. As previously publicly reported, one
such piece of litigation is Rumsey Indian Rancheria v. Wilson, recently pending
in the U.S. District Court for the Eastern District of California, which
involved a suit by several California Indian tribes against the Governor of
California under the federal Indian Gaming Regulatory Act ("IGRA"). The Indian
Tribes claimed that certain elements of the California State Lottery (which is a
customer of the Company) and the equipment on which it is run involve the
operation of slot machines and, therefore, under IGRA, the tribes also must be
permitted to operate slot machines. The State of California argued that the
California Lottery does not involve the operation of slot machines; however, the
State also appeared to take the position that, if and to the extent the
California Lottery does involve the operation of slot machines, it must be
terminated because the California Lottery is not exempt from the California law
prohibiting the operation of slot machines. The Company filed amicus curiae
briefs in this case which argued that the California Lottery does not involve
the operation of slot machines and that even if it does, the California Lottery
is exempt from the State law prohibition on slot machines. In September 1998,
the Court entered summary judgement for the defendants. The Indian Tribes have
since appealed the District Court's decision.
For further information respecting legal proceedings, refer to Items 1 and 3 of,
and Note G of Notes to Consolidated Financial Statements included in, the
Company's fiscal 1998 Annual Report on Form 10-K; to Part I, 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 for the period ending May 30, 1998; to Part I, Item 2
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations," and Part II, Item 1 "Legal Proceedings," of the Company's Quarterly
Report for the period ending August 29, 1998; and to Part I, Item 2,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of this report.
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<PAGE> 22
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - The exhibits to this report are as follows:
10 Income Deferral Plan 1998
10.1 Trust Agreement, dated December 18, 1998, by and
between the Company and The Bank of New York as
Trustee, respecting the Income Deferral Plan 1998
27 Financial Data Schedule - November 28, 1998
27.1 Financial Data Schedule - November 29, 1997
(b) The Company did not file any reports on form 8-K during the
quarter to which this report relates
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<PAGE> 23
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: January 5, 1999 By /s/ Thomas J. Sauser
-----------------------------------------------------
Thomas J. Sauser, Senior Vice President, Chief Financial
Officer and Treasurer (Principal Financial Officer)
Date: January 5, 1999 By /s/ Robert J. Plourde
-----------------------------------------------------
Robert J. Plourde, Vice President and Corporate
Controller (Principal Accounting Officer)
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<PAGE> 1
EXHIBIT 10
GTECH HOLDINGS CORPORATION
AND SUBSIDIARIES
INCOME DEFERRAL PLAN 1998
<PAGE> 2
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
INCOME DEFERRAL PLAN 1998
Effective December 15, 1998
1. PURPOSE. The purpose of this GTECH Holdings Corporation and
Subsidiaries Income Deferral Plan 1998 ("Plan") is to provide eligible key
employees of GTECH Holdings Corporation and its subsidiaries ("Company") with an
opportunity to defer compensation to be earned by them from the Company as a
means of saving for retirement or other future purposes. For purposes of the
Employee Retirement Income Security Act of 1974, as amended, the Company intends
that this Plan be considered an unfunded arrangement, maintained primarily to
provide deferred compensation benefits for members of a select group of
management or highly compensated employees of the Company.
2. DEFINITION OF TERMS. Certain words and phrases are defined
when first used in later paragraphs of this Plan. In addition, the following
words and phrases when used herein, unless the context clearly requires
otherwise, shall have the following respective meanings:
(a) ACCRUED BENEFIT: The sum of all Deferred Amounts
credited to the Participant's Deferred Income Account
and due and owing to the Participant or his
beneficiaries pursuant to this Plan, together with
Investment Returns thereon calculated as set forth in
paragraph 4 hereof, minus any distributions hereunder.
(b) AFFILIATE: Any corporation, partnership, joint
venture, association, or similar organization or
entity, the employees of which would be treated as
employed by the Company under Section 414(b) and
414(c) of the Code.
(c) CODE: The Internal Revenue Code of 1986, as amended.
(d) COMPENSATION COMMITTEE: The Compensation Committee of
the Board of Directors of the Company.
(e) DEFERRED AMOUNTS: The amounts of Income actually
deferred less any and all deductions required to be
made by applicable law.
(f) DEFERRED INCOME ACCOUNT: Book entries maintained by
the Company reflecting Deferred Amounts and Investment
Returns thereon; provided, however, that the existence
of such book entries and the Deferred Income Account
shall not create and shall not be deemed to create a
trust of any kind, or a fiduciary relationship between
the Company and the Participant, his designated
beneficiary, or other beneficiaries under this Plan.
(g) EFFECTIVE DATE: December 15, 1998.
(h) ELECTION OF DEFERRAL: A written notice filed by the
Participant with the Compensation Committee of the
Company in substantially
<PAGE> 3
the form attached hereto as Exhibit A, respecting
Income to be deferred in any Plan Year.
(i) INCOME: Total salary, commissions and bonuses of the
Participant paid or accrued by the Company, exclusive
of Accrued Benefits and any employer contributions or
payments to any other trust, fund, agreement or plan
providing retirement, pension, profit sharing, health,
welfare, death, insurance or similar benefits.
(j) PARTICIPANT: Each employee who:
(i) is an executive officer, officer or key
employee of the Company or an Affiliate of the
Company;
(ii) has been selected and approved by the
Compensation Committee to participate in the Plan, as
reported in the minutes of the Compensation
Committee; and
(iii) has elected to defer payment of a percentage of
his Income under the Plan.
(k) PLAN YEAR: Any fiscal year of the Company.
3. DEFERRED INCOME. Each Participant shall be entitled to
elect, in accordance with Section 5, to defer into his Deferred Income Account
from between five percent (5%) to one-hundred percent (100%), in whole
percentages, of the base salary that the Participant would otherwise be entitled
to receive from and after the date of election from the Company in any given
Plan Year. In addition, prior to the start of a Plan Year, the Participant shall
be entitled to elect to defer from between one percent (1%) to one-hundred
percent (100%), in whole percentages, of any commissions and/or bonuses that the
Participant would otherwise be entitled to receive from the Company with respect
to such Plan Year. The Participant's Deferred Amounts shall be credited to the
Participant's Deferred Income Account as of the dates such Deferred Amounts
would, but for such deferral, be payable to the Participant. Except as provided
in Section 9 hereof (with respect to certain financial hardships), an Election
of Deferral with respect to a Plan Year, once made, shall be irrevocable.
4. INVESTMENT RETURNS ON DEFERRED AMOUNTS. The Company hereby
agrees that it will credit Deferred Amounts in each Participant's Deferred
Income Account with investment gains thereon and debit Deferred Amounts in the
Participant's Deferred Income Account with investment losses thereon
(collectively, "Investment Returns") from and after the dates Deferred Amounts
are credited to the Deferred Income Account. Investments Returns on Deferred
Amounts shall accrue commencing on the date the Deferred Income Account first
has a positive balance. Investment Returns shall be calculated at a rate
computed as if such amounts had been invested in hypothetical investments
selected by the Participant from various investment options offered by the
Company in its sole discretion. An investment election shall remain effective
until a subsequent properly filed election becomes effective. If the Participant
fails to file an initial election, Investment Returns shall be calculated based
on the average rate
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<PAGE> 4
earned by all the investment options offered by the Company under the Plan until
such time as an investment election by the Participant becomes effective.
5. ELECTION TO DEFER INCOME.
(a) ELECTION PROCEDURE. The Participant may elect to defer
Income hereunder by filing an Election of Deferral. With respect to base salary
to be earned by a Participant during a Plan Year, an Election of Deferral may be
filed prior to the start of, or at any time during, such Plan Year, provided
that if such an Election of Deferral is filed after the start of a Plan Year, it
shall only be effective with respect to base salary earned after the filing date
of the Election of Deferral. With respect to commissions and/or bonuses to be
earned by a Participant with respect to a Plan Year, an Election of Deferral may
only be filed prior to the start of the Plan Year to which such bonuses or
commissions relate. (For example, Participants may, prior to the start date of
the Plan Year next following the Effective Date of the Plan, [i.e. February 28,
1999], file an Election of Deferral with respect to any commissions and/or
bonuses to be earned with respect to the Company's fiscal year ending in
February 2000. Participants may not, however, file an Election of Deferral with
respect to any commissions and/or bonuses to be paid with respect to the
Company's fiscal year ending February 27, 1999). Each Election of Deferral shall
be effective only in the Plan Year to which such Election of Deferral applies
and, as provided above, shall generally be irrevocable once made.
(b) DURATION OF DEFERRAL. At the time each Election of
Deferral is filed, the Participant must elect the period of deferral for Income
deferred pursuant to such Election of Deferral. With respect to each Election of
Deferral, the Participant may elect to defer Income earned in the Plan Year to
which such Election of Deferral applies for one of the following time periods
("Deferral Period"):
(1) Five (5) years;
(2) Eight (8) years;
(3) Ten (10) years;
(4) Until attainment of age fifty-five (55); provided
that the Participant is under age 50 at the time of such election; or
(5) Until attainment of age sixty-five (65); provided
that the Participant is under age 60 at the time of such election.
(6) Until retirement in accordance with the Company's
policies respecting retirement from time to time in effect.
The period of deferral may be different as to each Election of
Deferral filed by the Participant with the Company; provided that, once an
Election of Deferral is filed by the Participant, the Deferral Period for Income
earned in the Plan Year to which such Election of Deferral applies shall be
irrevocable.
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<PAGE> 5
6. DEFERRED BENEFIT. The Company agrees that upon the
expiration of a Deferral Period, the Company shall thereafter pay to the
Participant that portion of the Participant's Accrued Benefit which relates to
Deferred Amounts and Investment Returns thereon for which the Deferral Period
has expired ("Deferred Income Benefit"). At the time each Election of Deferral
is filed, the Participant must elect the Deferred Income Benefit payment form
for Income deferred pursuant to such Election of Deferral. Such election as to
payment form may be changed by the Participant by filing a written notice of the
desired change with the Compensation Committee at least one year prior to the
end of the Deferral Period. A Deferred Income Benefit shall be payable in the
form of either:
(a) a single sum, payable on the first day of the month
following the expiration of a Deferral Period; or
(b) a monthly annuity for a period of five (5), eight (8)
or ten (10) years, commencing with the first day of the first month following
the expiration of the Deferral Period. The Participant shall elect whether the
annuity payments are to be fixed or variable. Fixed annuity payments shall be
monthly payments which remain level during the payout period and which are based
on an effective annual rate of interest to be determined by the Company as of
the date of the expiration of the Deferral Period. Variable annuity payments
shall be monthly payments, commencing on the first day of the first month
following the expiration of the Deferral Period, which fluctuate each Plan Year
based on the average rate earned in the preceding Plan Year on all investments
offered by the Company as investment options pursuant to Section 4 above.
7. DISABILITY BENEFIT. Notwithstanding any other provision in
the Plan to the contrary, upon a Participant's long term disability, the
Participant shall be entitled to receive his entire Accrued Benefit, in a single
sum, payable on the first day of the first month following a determination that
the Participant has a long term disability. A long term disability shall have
the meaning of such term as defined in the long-term disability plan, as amended
from time to time, maintained by the Company.
8. DEATH BENEFITS.
(a) CALCULATION. In the event of the Participant's death
(whether prior to or after the commencement of Deferred Income Benefits), the
Company shall pay the sum of the balance, if any, remaining in the Participant's
Deferred Income Account, in a single lump sum, payable on the first day of the
first month following the Participant's date of death, to the Participant's
designated beneficiary, in accordance with the last such designation received by
the Company from the Participant prior to his death. If no such designation has
been received by the Company from the Participant prior to his death, the
balance of said payments shall be continued to the Participant's then living
spouse, or if the Participant is not survived by a spouse, or if such spouse
does not live to receive all such payments, any balance of the payments shall be
made in a single lump sum to the estate of the Participant on the first day of
the first month following the Participant's death or spouse's death, whichever
applies.
(b) BENEFICIARY DESIGNATION. The Participant shall have the
right, at any time, to submit in substantially the form attached hereto as
Exhibit B, a written designation of primary and secondary beneficiaries to whom
payment under this Plan shall be made in the
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<PAGE> 6
event of his death prior to complete distribution of the benefits due and
payable under the Plan. Each beneficiary designation shall become effective only
when receipt thereof is acknowledged in writing by the Company.
9. HARDSHIP BENEFIT. In the event the Participant suffers a
Financial Hardship (as hereinafter defined), the Compensation Committee may, if
it deems advisable in its sole and absolute discretion, distribute to or utilize
on behalf of the Participant as a hardship benefit (the "Hardship Benefit") any
portion of the Participant's Deferred Income Account as of the date a Hardship
Benefit is distributed or utilized. Any Hardship Benefit shall be distributed or
utilized at such times as the Compensation Committee shall determine, and the
Accrued Benefit in the Participant's Deferred Income Account shall be reduced by
the amount so distributed and/or utilized. Financial Hardship shall mean an
immediate and heavy financial need of the Participant on account of an
unforeseeable emergency as determined by the Compensation Committee upon
application by the Participant.
In addition to or in lieu of granting a distribution of a Hardship
Benefit, upon a showing of a financial hardship, the Compensation Committee,
may, if it deems advisable in its sole and absolute discretion, permit or
require a discontinuance of deferrals in a Plan Year.
10. TERMINATION BENEFIT.
(a) VOLUNTARY OR INVOLUNTARY (BUT NOT FOR CAUSE). In the
event of the Participant's termination of employment, other than for death,
disability or cause pursuant to Section 10.b. below, the Company shall pay to
the Participant the sum of the balance, if any, remaining in the Participant's
Deferred Income Account as of the date of Participant's termination of
employment. The form of payment shall be in a single lump sum, payable within
ninety (90) days of the date the Company receives the Participant's written
resignation, or informs the Participant of the Company's decision to terminate
the Participant.
(b) INVOLUNTARY. In the event of the Participant's
termination of employment for cause, the Company shall pay to the Participant
the sum of:
(i) with respect to those portions of Participant's
Accrued Benefit for which the Deferral Period has expired and which are being
paid in the form of an annuity, the present value (calculated using reasonable
actuarial assumptions established for such purpose by the Company) of that
portion of the future Deferred Income Benefit payments payable to the
Participant attributable to Deferred Amounts only; plus
(ii) with respect to those portions of Participant's
Accrued Benefit for which the Deferral Period has not expired, the balance, if
any, remaining in the Participant's Deferred Income Account attributable to
Deferred Amounts only.
The form of payment shall be in a single lump sum, payable as of the date which
is ninety (90) days after the date of the Participant's termination of
employment. The portion of the Participant's Accrued Benefit which represents
Investment Returns shall be forfeited by the Participant.
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<PAGE> 7
11. CHANGE IN CONTROL BENEFIT. In the event of a change in
control, the Participant's Accrued Benefit shall be immediately due and payable.
A change in control means the happening of any of the following:
(a) The members of the Board of Directors of the Company
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 of Directors of the
Company, 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 of Directors of the Company then still in office who
were members of the Board of Directors of the Company at the beginning of such
twenty-four calendar month period, shall be deemed an Incumbent Director;
(b) Any "person", including a "group" (as such terms are
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 ("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;
(c) The stockholders of the Company shall approve a
definitive agreement (1) for the merger or 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 the 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
(d) The purchase of the common stock of the Company
pursuant to any tender or exchange offer made by any "person", including a
"group" (as such terms are used in Section 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), for 30% more of the common stock of the
Company.
12. IMMEDIATE BENEFIT; CHANGE IN TAX LAW.
(a) In the event that the benefits to the Participants
under this Plan are taxable for federal income tax purposes to the Participants
at a time other than the time the Participants actually receive such benefits,
the Company shall as promptly as practicable pay to the Participants the amounts
so determined to be taxable and the Company's obligations to the Participants
under this Plan shall be reduced by a corresponding amount.
(b) In the event that the benefits to Participants under
this Plan are abrogated by virtue of a change in the federal income tax law, as
determined by the Compensation Committee in its sole discretion, the Company
shall as promptly as practicable pay to the Participants in a single sum the
amounts credited to the Participants' respective
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<PAGE> 8
Deferred Income Accounts and thereupon the Compensation Committee may, in its
sole discretion, terminate the Plan.
13. OFFSET FOR OBLIGATIONS TO COMPANY. If, at such time as the
Participant becomes entitled to benefit payments hereunder, the Participant has
any debt, obligation or other liability representing an amount owing to the
Company or an Affiliate of the Company, and if such debt, obligation, or other
liability is due and owing at the time benefit payments are payable hereunder,
the Company may offset the amount owing it or an Affiliate against the amount of
benefits otherwise distributable hereunder.
14. NO TRUST CREATED. Nothing contained in this Plan, and no
action taken pursuant to its provisions by either party hereto shall create, or
be construed to create, a trust of any kind, or a fiduciary relationship between
the Company and the Participant, his designated beneficiary, other beneficiaries
of the Participant or any other person.
15. BENEFITS PAYABLE ONLY FROM GENERAL CORPORATE ASSETS;
UNSECURED GENERAL CREDITOR STATUS OF PARTICIPANT.
(a) The payments to the Participant or his designated
beneficiary or any other beneficiary hereunder shall be made from assets which
shall continue, for all purposes, to be a part of the general, unrestricted
assets of the Company; no person shall have any interest in any such assets by
virtue of the provisions of this Plan. The Company's obligation hereunder shall
be an unfunded and unsecured promise to pay money in the future. To the extent
that any person acquires a right to receive payments from the Company under the
provisions hereof, such right shall be no greater than the right of any
unsecured general creditor of the Company; no such person shall have nor acquire
any legal or equitable right, interest or claim in or to any property or assets
of the Company.
(b) In the event that, in its discretion, the Company
purchases an insurance policy or policies insuring the life of the Participant
(or any other property), to allow the Company to recover the cost of providing
benefits, in whole or in part, hereunder, neither the Participant, his
designated beneficiary nor any other beneficiary shall have any rights
whatsoever therein or in the proceeds therefrom. The Company shall be the sole
owner and beneficiary of any such insurance policy and shall possess and may
exercise all incidents of ownership therein. No such policy, policies or other
property shall be held in any trust for the Participant or any other person nor
as collateral security for any obligation of the Company hereunder.
16. NO CONTRACT OF EMPLOYMENT. Nothing contained herein shall
be construed to be a contract of employment for any term of years, nor as
conferring upon the Participant the right to continue to be employed by the
Company in his present capacity, or in any capacity. It is expressly understood
by the parties hereto that this Plan relates to the payment of deferred
compensation for the Participant's services, payable after termination of his
employment with the Company, and is not intended to be an employment contract.
17. BENEFITS NOT TRANSFERABLE. Neither the Participant, his
designated beneficiary, nor any other beneficiary under this Plan shall have any
power or right to transfer, assign, anticipate, hypothecate or otherwise
encumber any part or all of the amounts payable
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<PAGE> 9
hereunder. No such amounts shall be subject to seizure by any creditor of any
such beneficiary, by a proceeding at law or in equity, nor shall such amounts be
transferable by operation of law in the event of bankruptcy, insolvency or death
of the Participant, his designated beneficiary, or any other beneficiary
hereunder. Any such attempted assignment or transfer shall be void.
18. DETERMINATION OF BENEFITS.
(a) CLAIM.
A person who believes that he is being denied a benefit to
which he is entitled under the Plan (hereinafter referred to as a "Claimant")
may file a written request for such benefit with the Compensation Committee,
setting forth his claim. The request must be addressed to the Compensation
Committee at the Company's then principal place of business.
(b) CLAIM DECISION.
Upon receipt of a claim, the Compensation Committee shall
advise the Claimant that a reply will be forthcoming within ninety (90) days and
shall, in fact, deliver such reply within such period. The Compensation
Committee may, however, extend the reply period for an additional ninety (90)
days for reasonable cause.
If the claim is denied in whole or in part, the
Compensation Committee shall adopt a written opinion, using language calculated
to be understood by the Claimant, setting forth:
(a) The specific reason or reasons for such denial;
(b) The specific reference to pertinent provisions of
this Plan on which such denial is based;
(c) A description of any additional material or
information necessary for the Claimant to perfect his claim and an explanation
why such material or such information is necessary;
(d) Appropriate information as to the steps to be
taken if the Claimant wishes to submit the claim for review; and
(e) The time limits for requesting a review under
subsection c. and for review under subsection d. hereof.
(c) REQUEST FOR REVIEW
With sixty (60) days after the receipt by the Claimant
of the written opinion described above, the Claimant may request in writing that
the Board of Directors of the Company review the determination of the
Compensation Committee. Such request must be addressed to the Secretary of the
Board of Directors of the Company, at its then principal place of business. The
Claimant or his duly authorized representative may, but need not, review the
pertinent documents and submit issues and comments in writing for consideration.
If the
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Claimant does not request a review of the Compensation Committee's determination
by the Board of Directors of the Company within such sixty (60) day period, he
shall be barred and estopped from challenging the Compensation Committee's
determination.
(d) REVIEW OF DECISION.
Within sixty (60) days after the Board of Directors'
receipt of a request for review, it will review the Compensation Committee's
determination. After considering all materials presented by the Claimant, the
Board of Directors will render a written opinion, written in a manner calculated
to be understood by the Claimant, setting forth the specific reasons for the
decision and containing specific references to the pertinent provisions of this
Plan on which the decision is based. If special circumstances require that the
sixty (60) day time period be extended, the Board of Directors will so notify
the Claimant and will render the decision as soon as possible, but no later than
one-hundred twenty (120) days after receipt of the request for review.
19. AMENDMENT. This Plan may be amended, altered or modified,
by the Company in its sole discretion from time to time upon execution by
written amendment.
20. NOTICE. Any notice, consent or demand required or
permitted to be given under the provisions of this Plan shall be in writing, and
shall be signed by the party giving or making the same. If such notice, consent
or demand is mailed to a party hereto, it shall be sent by United States
certified mail, postage prepaid, addressed to such party's last known address as
shown on the records of the Company. The date of such mailing shall be deemed
the date of notice, consent or demand. Either party may change the address to
which notice is to be sent by giving notice of the change of address in the
manner aforesaid.
21. GOVERNING LAW. This Plan, and the rights of the parties
hereunder, shall be governed by and construed in accordance with the laws of the
State of Rhode Island.
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Attachment 1
IN WITNESS WHEREOF, effective December 15, 1998, the Company has
executed this Plan as of the 17th day of December, 1998.
GTECH HOLDINGS CORPORATION
By: /s/ Stephen A. Davidson
------------------------
Name: Stephen A. Davidson
Title: Senior Vice President
<PAGE> 1
EXHIBIT 10.1
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
INCOME DEFFERAL PLAN 1998 RABBI TRUST
TRUST AGREEMENT
<PAGE> 2
TRUST AGREEMENT
TRUST AGREEMENT made and entered into as of the 18th day of December,
1998, by and between GTECH HOLDINGS CORPORATION, a corporation organized under
the laws of the State of Delaware (hereinafter referred to as the "Company") and
THE BANK OF NEW YORK, a New York banking corporation (hereinafter referred to as
the "Trustee").
WHEREAS, the Company has established the GTECH Holdings Corporation and
Subsidiaries Income Deferral Plan 1998 (as from time to time amended, the
"Plan") as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
from time to time participating in the Plan; and
WHEREAS, under the Plan, the Company is required to pay Benefits to the
Participants or their Beneficiaries; and
WHEREAS, the Company intends from time to time to contribute cash or
other property reasonably acceptable to the Trustee which cash or property will,
as and when received by the Trustee, constitute a trust fund to aid the Company
in meeting its obligations to make payments of Benefits to Participants and
Beneficiaries under the Plan and to assure that such obligations are met after a
Change in Control; and
WHEREAS, the establishment of this Trust shall not affect the Company's
continuing obligation to make payments to Participants and Beneficiaries under
the Plan except that the Company's liability thereunder shall be offset by
actual payments made on its behalf by the Trustee hereunder; and
WHEREAS, the Company intends that the Trust Fund shall be held by the
Trustee and invested, reinvested and distributed all in accordance with the
provisions of this Trust Agreement; and
WHEREAS, the Plan provides, and the Company intends, that the assets of
the Trust Fund shall be and remain subject to the claims of the Company's
creditors as herein provided and that the Plan not be deemed funded solely by
virtue of the existence of this Trust; and
<PAGE> 3
WHEREAS, the Trust is intended to be a "grantor trust" with the result
that the corpus and income of the Trust are treated as assets and income of the
Company pursuant to Sections 671 through 679 of the Code; and
WHEREAS, the Company intends that the Plan not be deemed funded within
the meaning of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), despite the existence of this Trust; and
WHEREAS, the Trust shall initially be revocable but shall become
irrevocable upon the occurrence of a Change of Control.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the Company and the Trustee declare and agree as follows:
1. DEFINITIONS; ESTABLISHMENT OF TRUST
1.1. DEFINITIONS.
Whenever used in this Trust Agreement, unless otherwise
provided or the context otherwise requires:
(a) "ACCOUNT" shall mean the account established in the Trust
Fund with respect to a Participant in accordance with Section 3.1 hereof.
(b) "ADMINISTRATOR" shall mean the individual, individuals or
committee appointed by the Board of Directors of the Company to control and
manage the operation and administration of the Plan.
(c) "AFFILIATE" shall mean any person, corporation or other
entity which the Company shall have advised the Trustee in writing is a
subsidiary or affiliate of the Company or its successor or which owns 20% or
more of the voting securities of the Company.
(d) "AUTHORIZED OFFICER" shall mean the Chairman, President,
any Vice President, the Secretary or the Treasurer of the Company or any other
person or persons as may be designated by any such officer.
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(e) "BENEFICIARY" shall mean the beneficiary of a Participant
as set forth on the Payment Schedule or as thereafter changed in accordance with
this Trust Agreement and which is in effect on the date of the Participant's
death. If no designated beneficiary survives the Participant or if no
Beneficiary is designated as provided herein, the legal representative of the
Participant's estate shall be the Beneficiary. If a designated beneficiary
survives the Participant but dies before payment in full of Benefits from the
Trust has been made, the legal representative of such beneficiary's estate shall
become the Beneficiary. References to a Participant in this Trust Agreement in
connection with payments hereunder shall also refer to such Participant's
Beneficiary unless the context clearly requires otherwise.
(f) "BENEFITS" shall mean the payments required to be made to
a Participant or his Beneficiary pursuant to a Payment Schedule.
(g) "CHANGE OF CONTROL" shall have the meaning assigned to
such term by Section 6.2 hereof.
(h) "CODE" shall mean the Internal Revenue Code of 1986 as
from time to time amended.
(i) "COMPANY" shall mean GTECH Holdings Corporation or its
successors.
(j) "FINAL DETERMINATION" shall mean (i) an assessment of tax
by the Internal Revenue Service addressed to the Participant or his Beneficiary
which is not timely appealed to the courts; (ii) a final determination by the
United States Tax Court or any other Federal Court, the time for an appeal
thereof having expired or been waived; or (iii) an opinion by the Company's
counsel, addressed to the Company and the Trustee and in form and substance
satisfactory to the Trustee, to the effect that amounts held in the Trust are
subject to Federal income tax to the Participant or his Beneficiary prior to
payment. Notwithstanding the foregoing, no Final Determination shall be deemed
to have occurred until the Trustee has actually received a copy of the
assessment, court order or opinion which forms the
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basis thereof and such other documents as it may reasonably request.
(k) "INCUMBENCY CERTIFICATE" shall mean a certificate of the
Secretary or any Assistant Secretary of the Company identifying the
Administrator (or every member thereof if the Administrator consists of more
than one person) and each Authorized Officer, which certificate shall include
the name, title and specimen signature of each such person and any changes
thereto.
(l) "INSOLVENT" with respect to the Company means that (i) the
Company is unable to pay its debts generally as they come due and/or (ii) the
Company is subject to a pending proceeding as a debtor under the Federal
Bankruptcy Code or any successor statute.
(m) "INVESTMENT GUIDELINES" shall mean the Investment
Guidelines in effect pursuant to Section 2.2.
(n) "PARTICIPANT" shall mean at the time of determination, an
employee of the Company or an Affiliate of the Company participating in the Plan
with respect to whom a Payment Schedule is then in effect and for whom an
Account is then in existence.
(o) "PAYMENT SCHEDULE" shall mean, collectively, the list of
Participants in the form of Exhibit B and the schedule of Benefits payable from
the Trust Fund to such Participants in the form of Exhibit B-1 or any amendment
or substitution thereof as may be provided to the Trustee by the Company prior
to a Change of Control in accordance with Section 4.5 of this Trust Agreement.
(p) "PLAN YEAR" shall mean the Company's fiscal year.
(q) "RELIABLE SOURCE" shall mean (i) a report filed with the
Securities and Exchange Commission, (ii) a public statement issued by the
Company, or a periodical of general circulation, including, but not limited to,
The New York Times or The Wall Street Journal, or (iii) a certificate of the
Company signed by the Chief Executive Officer or by the Chairman of the Board of
Directors.
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<PAGE> 6
(r) "TERMINATION" shall mean a Participant's termination of
employment with the Company.
(s) "TERMINATION AFFIDAVIT" shall mean an affidavit of a
Participant in the form annexed hereto as Exhibit C.
(t) "TRUST" shall mean the Trust established under this Trust
Agreement.
(u) "TRUST AGREEMENT" shall mean this trust agreement as from
time to time amended.
(v) "TRUST FUND" shall mean the trust fund held from time to
time by the Trustee hereunder consisting of all contributions received by the
Trustee together with the investments and reinvestments made therewith and all
net profits and earnings thereon less all payments and charges therefrom.
1.2. ESTABLISHMENT AND TITLE OF THE TRUST.
The Company hereby establishes with the Trustee a trust to be
known as the "GTECH Holdings Corporation and Subsidiaries Income Deferred Plan
1998 Trust", consisting of such sums of money and other property acceptable to
the Trustee as from time to time shall be paid or delivered to the Trustee. The
Trustee acknowledges the receipt of [$364,933.33] representing the initial
contribution to the Trust. The Trust Fund shall be held by the Trustee in trust
and shall be dealt with in accordance with the provisions of this Trust
Agreement. The Company shall at all times have the power to reacquire the Trust
Fund by substituting readily marketable securities of equivalent value, net of
any costs of disposition (other than securities issued by the Company or any
Affiliate), and such other property shall, following such substitution,
constitute the Trust Fund.
1.3. ACCEPTANCE BY THE TRUSTEE.
The Trustee accepts the Trust established hereunder on the
terms and conditions set forth herein and agrees to perform the duties imposed
on it by this Trust Agreement.
1.4. INCUMBENCY CERTIFICATES.
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<PAGE> 7
The Secretary or any Assistant Secretary of the Company,
pursuant to authorization of the Board of Directors of the Company, will
promptly deliver an Incumbency Certificate to the Trustee with respect to the
Administrator (or every member thereof if the Administrator consists of more
than one person) and each Authorized Officer and any changes thereto. The
Trustee shall be entitled to rely on the identity of the Administrator and any
Authorized Officer until it receives written notice to the contrary.
1.5. EFFECTIVE DATE.
This Trust Agreement shall be effective as of the date and
year first above-written provided that the Trustee shall have received an
opinion of counsel to the Company substantially in the form annexed hereto as
Exhibit A.
2. INVESTMENT AND ADMINISTRATION OF THE TRUST FUND
2.1. POWERS AND DUTIES OF THE TRUSTEE.
In addition to every power and discretion conferred upon the
Trustee by any other provision of this Trust Agreement, the Trustee will have
the following express powers with respect to the Trust Fund:
(a) Subject to the Investment Guidelines set forth in Section
2.2 hereof, to make investments and reinvestments of the assets of the Trust
Fund including investments which yield little or no income and from time to time
hold funds uninvested, without distinction between principal and income; and in
making and holding investments, the Trustee will not be restricted to those
investments which are authorized by the law of the State of New York for the
investment of trust funds, provided, however, that no investment shall be made
in any securities or other obligations of the Company or of any Affiliate. The
Trustee is further authorized and empowered to invest and reinvest all or any
part of such assets through the medium of any common, collective or commingled
trust fund or pool maintained by it as the same may have heretofore been or may
hereafter be established or amended.
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<PAGE> 8
(b) To retain, to exchange for any other property, to sell in
any manner and at any time, any property, and to grant options to sell any such
property, without regard to restrictions and without the approval of any court.
(c) To vote personally or by proxy and to delegate power and
discretion to such proxy.
(d) To exercise subscription, conversion and other rights and
options, and to make payments from the Trust Fund in connection therewith.
(e) To take any action and to abstain from taking any action
with respect to any reorganization, consolidation, merger, dissolution,
recapitalization, refinancing and any other plan or change affecting any
property, and in connection therewith, to delegate its discretionary powers and
to pay assessments, subscriptions and other charges from the Trust Fund.
(f) In any manner, and to any extent, to waive, modify,
reduce, compromise, release, settle and extend the time of payment of any claim
of whatsoever nature in favor of or against the Trustee or all or any part of
the Trust Fund and to commence or defend suits or other legal proceedings in
connection therewith.
(g) To make executory contracts and to grant options for any
purposes, and to make such contracts and options binding on the trust and
enforceable against any property of the Trust Fund.
(h) Upon any terms, to borrow money from any person
(including, to the extent permitted by applicable law, the Trustee in its
individual capacity) and to pledge assets of the Trust Fund as security for
repayment.
(i) To hold all or any part of the Trust Fund in cash and
without obligation to pay or earn interest thereon.
(j) To hold assets in time or demand deposits (including
deposits with the Trustee in its individual capacity which pay a reasonable rate
of interest).
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(k) To employ agents, experts and counsel, to delegate
discretionary powers to, and rely upon information and advice furnished by, such
agents, experts and counsel and to pay their reasonable fees and disbursements.
(l) From time to time to register any property in the name of
its nominee or in its own name, or to hold it unregistered or in such form that
title shall pass by delivery or to cause the same to be deposited in a
depository or clearing corporation or system established to settle transfers of
securities and to cause such securities to be merged and held in bulk by the
nominee of such depository or clearing corporation or system.
2.2. INVESTMENT GUIDELINES.
(a) Investment Guidelines Prior to a Change of Control. Prior
to a Change of Control, in exercising its powers under Section 2.1 hereof, the
Trustee shall invest and reinvest the Trust Fund in accordance with the
Investment Guidelines delivered to the Trustee in writing by the Company. The
Company may from time to time prior to a Change of Control amend the Investment
Guidelines then in effect or substitute new Investment Guidelines in writing
signed by an Authorized Officer of the Company. Until the Trustee receives new
Investment Guidelines, the Trustee may rely and shall be fully protected in
relying on the last Investment Guidelines it has received.
(b) Investment Guidelines On and After a Change of Control;
Absence of Effective Investment Guidelines. On and after the occurrence of a
Change of Control (and prior to a Change of Control if the Company has not
delivered Investment Guidelines to the Trustee or there are no such Investment
Guidelines then in effect), in exercising its powers under Section 2.1 hereof,
the Trustee shall, consistent with the overall objective of the Trust Fund which
is the preservation of capital, invest and reinvest the Trust Fund in short-term
investments, including, without limitation, obligations issued or guaranteed by
the United States of America or any agency thereof, proportionate interests in
any such obligations held by any bank or trust company organized under the laws
of the United States of America or any state thereof as a custodian, commercial
paper rated A-1 by Standard & Poors Corporation or P-1 by Moody's
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Investment Services, Master Notes of corporations with commercial paper ratings
of A-1 or P-1, time or savings deposits and certificates of deposit.
3. ACCOUNTS; CONTRIBUTIONS
3.1. ESTABLISHMENT OF ACCOUNTS.
(a) The Trustee shall create in the Trust Fund a separate
Account for each Participant for whom a contribution has been made in accordance
with the Payment Schedule provided to the Trustee. All contributions received by
the Trustee and all other receipts of the Trustee, whether by way of dividends,
interest or otherwise for the account of the Trust Fund, may be commingled,
held, invested and, with all disbursements therefrom, accounted for by the
Trustee as a single fund. The Trust Fund shall be revalued by the Trustee as of
the last business day of each calendar quarter at current market values, as
determined by the Trustee. Net income and net investment gains and losses
(including gains and losses on the amounts contributed pursuant to Section
3.2(b)) shall be allocated by the Trustee proportionately among Participants'
Accounts as of the end of each calendar quarter based on the value of
Participants' Accounts as of the last business day of the preceding calendar
quarter. The Trustee shall maintain a record of the value of each Participant's
Account based on the aggregate value of the Trust Fund, the information provided
by the Company as to its contributions with respect to each Participant's
Account and any payments therefrom.
3.2. CONTRIBUTIONS BY THE COMPANY.
(a) The Trustee shall receive from the Company such amounts in
cash or other property acceptable to the Trustee as the Company may from time to
time determine. The Trustee shall be under no obligation to collect any such
contribution. All responsibility for the determination of the amount, timing and
type of payments made to the Trustee, or otherwise establishing a funding policy
consistent with the objectives of the Plan shall
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be on the Company or its designee. The Company will certify to the Trustee in
writing with respect to each such contribution the amount of the contribution
being made with respect to each Participant's Account and the Trustee shall
allocate the contribution among such Accounts accordingly.
(b) In addition to contributions made to the Trust pursuant to
Section 3.2(a), the Company may from time to time deliver to the Trustee such
other amounts as may be considered necessary or appropriate to provide for the
payment of expenses of the Trust.
4. PAYMENT OF BENEFITS
4.1. PAYMENTS PRIOR TO A CHANGE OF CONTROL.
Prior to a Change of Control, solely out of the Trust Fund and
with no obligation otherwise to make any payment, the Trustee shall make such
payments as shall be directed by the Company in writing. Such directions shall
specify the Accounts to be charged in connection therewith. The Trustee may rely
and shall be fully protected in relying on such directions.
4.2. PAYMENTS ON AND AFTER CHANGE OF CONTROL.
(a) On and after the occurrence of a Change of Control in the
event of a Participant's Termination, such Participant shall provide the Trustee
with a Termination Affidavit. If the Participant is deceased, the Termination
Affidavit shall be provided by the Beneficiary who shall also supply the Trustee
with a certified copy of the death certificate of the Participant (and, where
the Beneficiary is the legal representative of the estate of a Beneficiary who
survives the Participant but dies before all benefits have been paid, a
certified copy of the death certificate of such Beneficiary), an inheritance tax
waiver and such other documents as the Trustee may require (including, without
limitation, certified copies of letters testamentary). Promptly upon receipt
thereof, the Trustee shall mail a copy of the Termination Affidavit to the
Company. The Trustee, solely out of the Trust Fund and with no obligation
otherwise to make
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any payment, shall, as soon as administratively practicable and in conformity
with the instructions set forth in the Payment Schedule, make payments to such
Participant or Beneficiary at the times and in the manner set forth in the
Payment Schedule last received by the Trustee with respect to such Participant
or Beneficiary and consistent with the information set forth in the Termination
Affidavit. In no event will the amount payable to a Participant or Beneficiary
exceed the balance credited to such Participant's Account. The Trustee may rely
and shall be fully protected in relying on the contents of a Termination
Affidavit and all documentation and other information provided to it by the
Company or the Administrator for all purposes under this Trust Agreement as if
the Plan were deemed funded and the Company and the Administrator were "named
fiduciaries" as such term is defined in ERISA.
(b) Payments to Participants shall be made in the order of the
receipt of Termination Affidavits. In the event that the Trustee receives more
than one Termination Affidavit on the same day and the Trust Fund is not
sufficient to make all of the payments otherwise required as a result of the
receipt of such Termination Affidavits, the Trustee, after the payment of all of
its unpaid compensation and expenses, shall distribute the balance of the Trust
Fund to the Participants who have submitted such Termination Affidavits on a pro
rata basis.
4.3. PAYMENTS IN THE EVENT OF A FINAL DETERMINATION.
Notwithstanding anything contained in Section 4 of this Trust
Agreement to the contrary, if at any time (i) a Final Determination is made that
the income of the Trust Fund is taxable to the Trust as an entity and not to the
Company, or (ii) if a tax, as a result of a Final Determination, is payable by
one or more Participants in respect of any interest in the Trust Fund prior to
payment of such interest to such Participant or Participants, then, (x) in case
of the occurrence of the event described in clause (i), the Trust shall
terminate and the assets thereof shall be paid to the Company, (y) in the event
of the occurrence of the event described in clause (ii), the Trustee, solely out
of the Trust Fund and with no obligation otherwise to make any payment, shall
pay to the affected Participant and charge his Account accordingly the amount of
the tax so payable, and (z) in the event of the occurrence of the events
described in
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both clauses (i) and (ii), the Trustee shall first pay to the affected
Participant or Participants the amount of tax so payable, and then the Trust
shall terminate and the remaining assets thereof shall be paid to the Company.
Notwithstanding any other provision of this Trust Agreement, if any amounts held
in the Trust are found in a Final Determination to have been includible in gross
income of a Participant prior to payment of such amounts from the Trust, the
Trustee shall, as soon as practicable, pay such amounts to such Participant and
charge his Account accordingly. For purposes of this Section 4.3, the Trustee
shall be entitled to rely on an affidavit from a Participant (substantially in
the form annexed hereto as Exhibit D) to the effect that a Final Determination
described in clause (ii) above has occurred.
4.4. RULES GOVERNING PAYMENTS.
The Trustee shall not make any payments to Participants or
Beneficiaries from the Trust Fund except as provided in Sections 4.1, 4.2 or 4.3
even though it may be informed from another source that payments are due under
the Plan. The Trustee shall have no duty to determine the propriety or amount of
such payments or the rights of any person in the Trust Fund. Any amount paid
under Section 4.1, 4.2 or 4.3 shall be charged against such Participant's
Account and no payment with respect to a Participant's Account shall be made in
excess of the amount then credited to such Participant's Account. The
Administrator or the Company shall provide the Trustee with sufficient
information to enable it to so charge a Participant's Account. The Company shall
on a timely basis provide the Trustee with written instructions for the
reporting and withholding of any federal, state and local taxes that may be
required to be reported and withheld with respect to any amount paid under
Section 4.1, 4.2 or 4.3, and the Trustee shall comply with such written
instructions and shall pay any taxes withheld to the appropriate taxing
authorities. The Trustee may rely conclusively (and shall be fully protected in
such reliance) on the written instructions of the Company as to all tax
reporting and withholding requirements.
4.5. PAYMENT SCHEDULES.
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Upon the execution of this Trust Agreement, the Company shall
deliver to the Trustee a list of current Participants substantially in the form
of Exhibit B and the initial Payment Schedules substantially in the form of
Exhibit B-1. The Company may from time to time add additional Payment Schedules
to the Trust Agreement and may from time to time amend the Payment Schedules
then in effect or substitute new Payment Schedules without the written consent
of the Participant or Participants to whom such Payment Schedules relate;
provided, however, that following a Change of Control the Company shall not have
the power to add or substitute Payment Schedules nor may the Company amend a
Payment Schedule without the written consent of the Participant to whom such
Payment Schedule relates. The Trustee may rely and shall be fully protected in
relying on the contents of a Payment Schedule for all purposes under this Trust
Agreement without inquiry until it receives an amendment thereto or a new
Payment Schedule in substitution thereof to the extent permitted hereunder.
4.6. DESIGNATION OF BENEFICIARIES.
At the time that the Company first submits a Payment Schedule
with respect to a Participant, it shall ascertain from such Participant the
identity of such Participant's Beneficiary and shall identify such Beneficiary
on the initial Payment Schedule submitted to the Trustee with respect to such
Participant. In submitting a Payment Schedule with a Beneficiary designated
thereon, the Company shall be deemed to certify that such designation accurately
reflects the Participant's instructions to the Company. At any time, a
Participant may revoke or change a Beneficiary designation without the consent
of any prior Beneficiary by mailing or delivering a written Change or Revocation
of Beneficiary Designation substantially in the form annexed hereto as Exhibit E
to the Trustee at the address set forth in Section 8.3(b); provided, however,
that no change or revocation of a designation shall be valid unless it is
actually received by the Trustee during the Participant's lifetime. The Trustee
may rely and shall be fully protected in relying on the last Beneficiary
designation in its possession as of the date of a Participant's death.
4.7. COMPANY'S CONTINUING OBLIGATIONS.
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Notwithstanding any provisions of this Trust Agreement to the
contrary, the Company shall remain obligated to pay the Benefits under the Plan.
To the extent the amount in a Participant's Account is not sufficient to pay any
Benefit when due, the Company shall pay such deficiency directly to the
Participant. Nothing in this Trust Agreement shall relieve the Company of its
liabilities to pay the Benefits except to the extent such liabilities are met by
the application of Trust Fund assets.
4.8. EXCESS AMOUNTS.
To the extent there remains an amount credited to a
Participant's Account after his Benefits have been paid in full, such excess
shall be reallocated as of the end of that calendar quarter to the remaining
Accounts of all other Participants who then have an Account in the Trust Fund in
proportion to their respective Account balances. After all of the Benefits have
been paid in full, the Trust shall terminate and, after the payment of any
unpaid expenses, the assets of the Trust Fund (if any) shall be transferred to
the Company.
4.9. COMPANY'S INTENT.
It is the intention of the Company to have each Account
established hereunder treated as a separate account designed to satisfy the
Company's legal liability under the applicable Agreement in respect of the
Participant for whom such Account has been established, and to have the balance,
if any, in each such Account revert to the Company after all of the Company's
legal liabilities with respect to Benefits under all of the Plan have been met.
The Company, therefore, agrees that all income, deductions and credits of each
such Account belong to it as owner for income tax purposes and will be included
on the Company's income tax returns.
5. CONCERNING THE TRUSTEE
5.1. NOTICES TO THE TRUSTEE.
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<PAGE> 16
The Trustee may rely on the authenticity, truth and accuracy
of, and will be fully protected in acting upon:
(a) any notice, direction, certification, approval or
other writing of the Company, if evidenced by an instrument signed in the name
of the Company by an Authorized Officer; and
(b) any copy of a resolution of the Board of
Directors of the Company, if certified by the Secretary or an Assistant
Secretary of the Company under its corporate seal; or
(c) any notice, direction, certification, approval or
other writing, oral or other transmitted form of instruction received by the
Trustee and believed by it to be genuine and to be sent by or on behalf of the
Administrator.
5.2. EXPENSES OF THE TRUST FUND.
The Trustee is authorized to pay out of the Trust Fund: (a)
all brokerage fees and transfer tax expenses and other expenses incurred in
connection with the sale or purchase of investments; (b) all real and personal
property taxes, income taxes and other taxes of any kind at any time levied or
assessed under any present or future law upon, or with respect to, the Trust
Fund or any property included in the Trust Fund; (c) the Trustee's compensation
and expenses as provided in Section 5.3 hereof; and (d) all other expenses of
administering the Trust, unless promptly paid to the Trustee by the Company. To
the extent charged against the Trust Fund, all expenses described in this
Section 5.2 shall be charged proportionately against, and paid from, all
Accounts in existence at the time of such payment.
5.3. COMPENSATION OF THE TRUSTEE.
The Company will pay to the Trustee such compensation for its
services as set forth on Exhibit F as from time to time amended by the Company
and the Trustee and will reimburse the Trustee for all expenses (including
reasonable attorney's fees) incurred by the Trustee in the administration of the
Trust. If not promptly paid on request, the Trustee may charge such fees and
expenses to and pay the same from the Trust Fund. In such event, such fees and
expenses shall be charged pro rata to the Accounts in existence on the date of
such payment. The
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compensation and expenses of the Trustee shall constitute a lien on the Trust
Fund.
5.4. PROTECTION OF THE TRUSTEE.
The Company shall pay and shall protect, indemnify and save
harmless the Trustee and its officers, employees and agents from and against any
and all losses, liabilities (including liabilities for penalties), actions,
suits, judgments, demands, damages, costs and expenses (including, without
limitation, attorneys' fees and expenses) of any nature arising from or relating
to any action or any failure to act by the Trustee, its officers, employees and
agents or the transactions contemplated by this Trust Agreement, including, but
not limited to, any claim made by a Participant or his beneficiary with respect
to payments made or to be made by the Trustee, any claim made by the Company or
its successor, whether pursuant to a sale of assets, merger, consolidation,
liquidation or otherwise, that this Trust Agreement is invalid or ultra vires,
except to the extent that any such loss, liability, action, suit, judgment,
demand, damage, cost or expense has been determined by a final judgment of a
court of competent jurisdiction to be solely the result of the gross negligence
or willful misconduct of the Trustee, its officers, employees or agents. To the
extent that the Company has not fulfilled its obligations under the foregoing
provisions of this Section, the Trustee shall be reimbursed out of the assets of
the Trust Fund or may set up reasonable reserves for the payment of such
obligations. The Trustee assumes no obligation or responsibility with respect to
any action required by this Trust Agreement on the part of the Company or the
Administrator.
5.5. DUTIES OF THE TRUSTEE.
The Trustee will be under no duties whatsoever, except such
duties as are specifically set forth as such in this Trust Agreement, and no
implied covenant or obligation will be read into this Trust Agreement against
the Trustee. The Trustee will not be liable for any action or failure to act
except if such action or failure to act constitutes gross negligence or willful
misconduct. The Trustee will not be compelled to take any action toward the
execution or enforcement of the Trust or to prosecute or defend any suit in
respect thereof, unless indemnified to its
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satisfaction against loss, cost, liability and expense; and the Trustee will be
under no liability or obligation to anyone with respect to any failure on the
part of the Company, the Administrator or a Participant to perform any of their
respective obligations under the Plan. Nothing in this Trust Agreement shall be
construed as requiring the Trustee to make any payment in excess of the amounts
held in the Trust Fund at the time of such payment or otherwise to risk its own
funds.
5.6. SETTLEMENT OF ACCOUNTS OF THE TRUSTEE.
The Trustee shall keep or cause to be kept accurate and
detailed accounts of all investments, receipts, disbursements and other
transactions hereunder. Such accounts shall be open to inspection and audit at
all reasonable times during normal business hours by any person designated by
the Company or the Administrator. At least annually after the end of each Plan
Year, the Trustee shall file with the Company and the Administrator a written
account, listing the investments of the Trust Fund and any uninvested cash
balance thereof, and setting forth all receipts, disbursements, payments, and
other transactions respecting the Trust Fund not included in any such previous
account. Any account, when approved by the Company and the Administrator, will
be binding and conclusive on the Company, the Administrator and all
Participants, and the Trustee will thereby be released and discharged from any
liability or accountability to the Company, the Administrator and all
Participants with respect to all matters set forth therein. Omission by the
Company or the Administrator to object in writing to any specific items in any
such account within sixty (60) days after its delivery will constitute approval
of the account by the Company and the Administrator. No other accounts or
reports shall be required to be given to the Company, the Administrator or a
Participant except as stated herein or except as otherwise agreed to in writing
by the Trustee. The Trustee shall not be required to file, and no Participant or
Beneficiary shall have right to compel, an accounting, judicial or otherwise, by
the Trustee.
5.7. RIGHT TO JUDICIAL SETTLEMENT.
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Nothing contained in this Trust Agreement shall be construed
as depriving the Trustee of the right to have a judicial settlement of its
accounts, and upon any proceeding for a judicial settlement of the Trustee's
accounts or for instructions the only necessary parties thereto in addition to
the Trustee shall be the Company, in the case of a proceeding commenced prior to
a Change of Control, or the Company and the Participants for whom Accounts are
held as part of the Trust Fund and to whom additional Benefits are payable
pursuant to a Payment Schedule then in effect (or, in the case of a deceased
Participant still entitled to Benefits from the Trust Fund, his Beneficiary), in
the case of a proceeding commenced on or after a Change of Control.
5.8. RESIGNATION OR REMOVAL OF THE TRUSTEE.
The Trustee may at any time resign and may at any time be
removed by the Company upon sixty (60) days' notice in writing; provided,
however, that following a Change of Control, the Company shall have the right to
remove the Trustee only with the written consent of two-thirds of the
Participants for whom Accounts are held as part of the Trust Fund and to whom
additional Benefits are payable pursuant to a Payment Schedule then in effect.
5.9. APPOINTMENT OF SUCCESSOR TRUSTEE.
In the event of the resignation or removal of the Trustee, or
in any other event in which the Trustee ceases to act, a successor trustee may
be appointed by the Company by instrument in writing delivered to and accepted
by the successor trustee; provided, however, that following a Change of Control,
the designation of a successor trustee shall be approved in writing by
two-thirds of the Participants for whom Accounts are held as part of the Trust
Fund and to whom additional Benefits are payable pursuant to a Payment Schedule
then in effect. Notice of such appointment and approval, if applicable, will be
given by the Company to the retiring trustee, and the successor trustee will
deliver to the retiring trustee an instrument in writing accepting such
appointment. Notwithstanding the foregoing, if no appointment and approval, if
applicable, of a successor trustee is made by the Company within a reasonable
time
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after such a resignation, removal or other event, any court of competent
jurisdiction may appoint a successor trustee after such notice, if any, solely
to the Company and the retiring trustee, as such court may deem suitable and
proper.
In the event of such resignation, removal or other event, the retiring
trustee or its successors and assigns shall file with the Company a final
account to which the provisions of Section 5.6 hereof relating to annual
accounts shall apply.
In the event of the appointment of a successor trustee, such successor
trustee will succeed to all the right, title and estate of, and will be, the
Trustee; and the retiring trustee will after the settlement of its final account
and the receipt of any compensation or expenses due it, deliver the Trust Fund
to the successor trustee together with all such instruments of transfer,
conveyance, assignment and further assurance as the successor trustee may
reasonably require. The retiring trustee will retain a lien upon the Trust Fund
to secure all amounts due the retiring trustee pursuant to the provisions of
this Trust Agreement.
5.10. MERGER OR CONSOLIDATION OF THE TRUSTEE.
Any corporation continuing as the result of any merger or
resulting from any consolidation to which merger or consolidation the Trustee is
a party, or any corporation to which substantially all the business and assets
of the Trustee may be transferred, will be deemed automatically to be continuing
as the Trustee.
6. ENFORCEMENT; CHANGE OF CONTROL; CREDITORS
6.1. ENFORCEMENT OF TRUST AGREEMENT AND LEGAL PROCEEDINGS.
The Company shall have the right to enforce any provision of
this Trust Agreement, and on or after a Change of Control, any Participant (or
if such Participant is deceased, his Beneficiary) shall have the right as a
beneficiary of the Trust to enforce any provision of this Trust Agreement that
affects the right, title and interest of such Participant in the Trust. Except
as otherwise provided in Sections 5.6 and 5.7 hereof, in any action or
proceeding affecting the Trust, the only necessary parties shall be the Company,
the Trustee and the Participants
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with respect to whom Accounts are then in existence in the Trust Fund and,
except as otherwise required by applicable law, no other person shall be
entitled to any notice or service of process. Any judgment entered in such an
action or proceeding shall, to the maximum extent permitted by applicable law,
be binding and conclusive on all persons having or claiming to have any interest
in the Trust.
6.2. CHANGE OF CONTROL.
A Change of Control means the occurrence of any of the following:
(a) The members of the Board of Directors of the Company 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 of Directors of the
Company, 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 of Directors of the Company still in office who were
members of the Board of Directors of the Company at the beginning of such
twenty-four calendar month period, shall be deemed an Incumbent Director;
(b) Any "person", including a "group" (as such terms are used
in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 ("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;
(c) The stockholders of the Company shall approve a definitive
agreement (1) for the merger or 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 the 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
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<PAGE> 22
surviving corporation or (2) for the sale or other disposition of all or
substantially all of the assets of the Company; or
(d) The purchase of the common stock of the Company pursuant
to any tender or exchange offer made by any "person", including a "group" (as
such terms are used in Section 13(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), for 30% more of the common stock of the Company.
Notwithstanding the foregoing definition, (i) no Change of
Control shall be deemed to have occurred for purposes of this Trust Agreement
unless and until the Trustee has actual knowledge from a Reliable Source, not
including a Participant, of such Change of Control, and (ii) the Trustee shall
not be deemed to have actual knowledge of any Change of Control as defined in
Section 6.2(a) until it has received a report signed by a majority of the board
of directors referred to in such Section indicating that they have not approved
of the change in the composition of the board of directors referred to in such
Section.
6.3. INSOLVENCY OF THE COMPANY.
(a) If at any time (i) the Company or a person claiming to be
a creditor of the Company alleges in writing to the Trustee that the Company has
become Insolvent, (ii) the Trustee is served with any order, process or paper
from which it appears that an allegation to the effect that the Company is
Insolvent has been made in a judicial proceeding or (iii) the Trustee has actual
knowledge of a current report or statement from a nationally recognized credit
reporting agency or from a Reliable Source to the effect that the Company is
Insolvent, the Trustee shall discontinue payment of Benefits under this Trust
Agreement, shall hold the Trust Fund for the benefit of the Company's creditors,
and shall resume payment of Benefits under this Trust Agreement in accordance
with Section 4 hereof only upon receipt of an order of a court of competent
jurisdiction requiring such payment or if the Trustee has actual knowledge of a
current report or statement from a nationally recognized credit reporting agency
or other Reliable Source (other than a Reliable Source described in clause (iii)
of the definition thereof) to
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<PAGE> 23
the effect that the Company is not Insolvent; provided, however, that in the
event that payment of Benefits was discontinued by reason of a court order or
injunction, the Trustee shall resume payment of Benefits only upon receipt of an
order of a court of competent jurisdiction requiring such payment. The Company
and its Chief Executive Officer shall be obligated to give the Trustee prompt
written notice in the event that the Company becomes Insolvent. The Trustee
shall not be liable to anyone in the event Benefits are discontinued pursuant to
this Section 6.3.
(b) If the Trustee discontinues payment of Benefits pursuant
to Section 6.3(a) and subsequently resumes such payment, the first payment to a
Participant for his Account following such discontinuance shall include an
aggregate amount equal to the difference between the payments which would have
been made to such Participant under this Trust Agreement but for Section 6.2(a)
and the aggregate payments actually made to such Participant by the Company (as
certified to the Trustee by the Participant in writing) during any such period
of discontinuance, plus interest on such amount at a rate equivalent to the net
rate of return earned by the Trust Fund during the period of such
discontinuance.
(c) In the event that at any time any amount is paid from the
Trust Fund to creditors of the Company, the Company shall upon demand by the
Trustee deposit into the Trust Fund a sum equal to the amount paid by the Trust
Fund to such creditors. The Trustee shall be under no obligation to collect any
such deposit.
7. AMENDMENT, REVOCATION AND TERMINATION
7.1. AMENDMENT.
(a) Prior to the occurrence of a Change of Control, the
Company may from time to time amend in writing, in whole or in part, any or all
of the provisions of this Trust Agreement with the written consent of the
Trustee but without the consent of any Participant.
(b) At any time upon or after the occurrence of a Change of
Control, the Company may from time to time amend in
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writing, in whole or in part, any or all of the provisions of this Trust
Agreement with the written consent of the Trustee and two-thirds of the
Participants for whom Accounts are held as part of the Trust Fund and to whom
additional Benefits are payable pursuant to a Payment Schedule then in effect.
In addition, the Trust Agreement may be amended by the Company at any time with
the written consent of the Trustee, but only to the extent such amendment is
required by law or is necessary or desirable to prevent adverse tax consequences
to Participants. In the event that the Company proposes to adopt an amendment to
the Trust Agreement pursuant to the preceding sentence, the Company shall
provide the Trustee with an opinion of counsel reasonably acceptable to the
Trustee and in form and substance satisfactory to the Trustee to the effect that
such amendment is required by law or is necessary or desirable to prevent
adverse tax consequences to Participants. The Trustee may rely and shall be
fully protected in relying on such opinion without inquiry.
7.2. REVOCABILITY.
Prior to a Change of Control, the Trust shall be revocable by
the Company, all or any part of the Trust Fund shall be recoverable by the
Company and the Participants shall have no right to any part of the Trust Fund.
Upon a Change of Control, the Trust shall become irrevocable, and shall be held
for the exclusive purpose of providing the Benefits to Participants and their
beneficiaries and defraying expenses of the Trust in accordance with the
provisions of this Trust Agreement. Once the Trust has become irrevocable, no
part of the income or corpus of the Trust Fund shall be recoverable by the
Company. Notwithstanding anything in this Trust Agreement to the contrary, the
Trust Fund shall at all times be subject to the claims of creditors of the
Company as provided in Section 6.3 of this Trust Agreement.
7.3. TERMINATION.
(a) Prior to a Change of Control, the Company may revoke and
terminate the Trust at any time, in its sole discretion, without the approval of
any Participant, upon notice in writing to the Trustee. As soon as practicable
following the Trustee's receipt of such notice, the Trustee shall settle its
final accounts in accordance with Section 5.6 hereof and, after
- 23 -
<PAGE> 25
the receipt of any unpaid fees and expenses, shall distribute the balance of the
Trust Fund as directed by the Company.
(b) Following a Change of Control the Trust shall terminate
after the Trustee shall have made all payments required by Section 4, and, after
the Trustee's final accounts have been settled in accordance with Section 5.6
hereof and after the receipt of any unpaid fees and expenses, the Trustee shall
distribute the balance of the Trust Fund as directed by the Company.
8. MISCELLANEOUS PROVISIONS
8.1. SUCCESSORS.
This Trust Agreement shall be binding upon and inure to the
benefit of the Company and the Trustee and their respective successors and
assigns.
8.2. NONALIENATION.
Except insofar as applicable law may otherwise require, (a) no
amount payable to or in respect of any Participant at any time under the Trust
shall be subject in any manner to alienation by anticipation, sale, transfer,
assignment, bankruptcy, pledge, attachment, charge or encumbrance of any kind,
and any attempt to so alienate, sell, transfer, assign, pledge, attach, charge
or otherwise encumber any such amount, whether presently or thereafter payable,
shall be void; and (b) the Trust Fund shall in no manner be liable for or
subject to the debts or liabilities of any Participant.
8.3. COMMUNICATIONS.
(a) Communications to the Company shall be addressed to the
Company at 55 Technology Way, West Greenwich, RI 02852, Attn: General Counsel,
provided, however, that upon the Company's written request, such communications
shall be sent to such other address as the Company may specify.
(b) Communications to the Trustee shall be addressed to it at
The Centre at Purchase, 3 Manhattanville Road, Purchase, NY 10577, Attn:
Retirement Services Division; provided, however,
- 24 -
<PAGE> 26
that upon the Trustee's written request, such communications shall be sent to
such other address as the Trustee may specify.
(c) No communication shall be binding on the Trustee until it
is received by officer the Trustee having primary responsibility for this Trust,
and no communication shall be binding on the Company until it is received by the
Company.
8.4. HEADINGS.
Titles to the Sections of this Trust Agreement are included
for convenience only and shall not control the meaning or interpretation of any
provision of this Trust Agreement.
8.5. THIRD PARTIES.
A third party dealing with the Trustee shall not be required
to make inquiry as to the authority of the Trustee to take any action nor be
under any obligation to follow the proper application by the Trustee of the
proceeds of sale of any property sold by the Trustee or to inquire into the
validity or propriety of any act of the Trustee.
8.6. GOVERNING LAW.
This Trust Agreement and the Trust established hereunder shall
be governed by and construed, enforced, and administered in accordance with the
internal laws of the State of New York without regard to principles of conflicts
of laws and the Trustee shall be liable to account only in the courts of that
state.
8.7. COUNTERPARTS.
This Trust Agreement may be executed in any number of
counterparts, each of which shall be deemed to be the original although the
others shall not be produced.
- 25 -
<PAGE> 27
IN WITNESS WHEREOF, this Trust Agreement has been duly executed by the
parties hereto as of the day and year first above written.
GTECH HOLDINGS CORPORATION
BY: /s/
________________________
ATTEST
/s/
______________________________
THE BANK OF NEW YORK, AS
TRUSTEE
BY: /s/
_________________________
ATTEST
/s/
______________________________
- 26 -
<PAGE> 28
STATE OF )
: SS.:
COUNTY OF )
On this __ day of _____________, 199_, before me personally came
____________________, to me known, who, being by me duly sworn, said that he\she
resides at _______________________; that he\she is a _______________ of GTECH
HOLDINGS CORPORATION, the corporation described in and which executed the
foregoing instrument; that he\she knows the seal of said corporation; that the
seal affixed to said instrument is such corporate seal; that it was so affixed
by order of the Board of Directors of said corporation; and that he\she signed
his\her name thereto by like order.
____________________________
Notary Public
Commission Expires:
STATE OF NEW YORK )
: SS.:
COUNTY OF NEW YORK )
On this __ day of _____________, 199_, before me personally came
____________________, to me known, who, being by me duly sworn, said that he\she
resides at _______________________; that he\she is a _______________ of THE BANK
OF NEW YORK, the corporation described in and which executed the foregoing
instrument; that he\she knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the Board of Directors of said corporation; and that he\she signed
his\her name thereto by like order.
____________________________
Notary Public
Commission Expires:
<PAGE> 29
EXHIBIT A
FORM OF OPINION OF COUNSEL
____________, 199_
The Bank of New York
One Wall Street
New York, New York 10286
Gentlemen:
We have acted as counsel to _____________________ (the "Company") in
connection with the negotiation, execution and delivery by the Company of the
Trust Agreement, dated as of _______, 199_, between the Company and The Bank of
New York, as Trustee (the "Trust Agreement") establishing the _______________
Trust (the "Trust").
We are familiar with the proceedings taken by the Company in connection
with the Trust Agreement and the transactions contemplated thereby. In addition,
we have examined such records, certificates and other documents and such
questions of law as we have considered necessary or appropriate for the purposes
of this opinion.
Based upon, and subject to, the foregoing it is our opinion that:
1. The Company is a corporation duly constituted, validly existing and
in good standing under the laws of the State of ________________, the Company is
authorized to do business in the State of New York and other such jurisdictions
in which it is currently doing business; and the Company has all requisite power
and authority to establish the Trust and to execute, deliver and perform its
obligations under the Trust Agreement.
2. The execution, delivery and performance by the Company of the Trust
Agreement has been duly authorized by all necessary action on the part of the
Company, and does not and will not (a)
<PAGE> 30
violate any provision of any law, rule or regulation of the State of New York,
the State of ________________, or of the Federal law of the United States of
America or any order, writ, judgment, decree, determination or award known to us
and having applicability to the Company, or (b) result in a breach of or
constitute a default under any agreement or instrument, in each case known to
us, to which the Company is a party or by which the Company or its properties
may be bound or affected.
3. The Trust Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
and other similar laws affecting the enforcement of creditors' rights generally
and by general principles of equity as may be applied by a court.
4. The Trust constitutes a "grantor trust" within the meaning of
Sections 671 et. seq. of the Internal Revenue Code of 1986, as amended, with
respect to which the Company is deemed to be the "owner" of all portions of the
Trust and is required to report the income thereof on its income tax return.
In rendering the foregoing opinions with respect to the Trust
Agreement, we have assumed the due authorization, execution and delivery of such
Trust Agreement on the part of The Bank of New York, as Trustee, and the
legality, validity, binding effect on and enforceability against the Trustee,
except as enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws affecting the enforcement of creditor's rights
generally and by general principles of equity as may be applied by a court.
Very truly yours,
- 2 -
<PAGE> 31
EXHIBIT B
FORM OF LIST OF PARTICIPANTS
Pursuant to Section 4.5 of the Trust Agreement, dated as of December
18, 1998, between GTECH HOLDINGS CORPORATION (the "Company") and The Bank of New
York as Trustee, the Company provides the following list of Participants in the
Plan:
Dated:
GTECH HOLDINGS CORPORATION
By: ________________________
Authorized Officer
<PAGE> 32
EXHIBIT B-1
FORM OF PAYMENT SCHEDULE
__________ , 199_
Pursuant to Section 4.5 of the Trust Agreement, dated as of
_______________, 199_, between ___________________ (the "Company") and The Bank
of New York as Trustee, the Company provides a Payment Schedule with respect to
the following Participant:
NAME OF PARTICIPANT: ________________________
ADDRESS: ________________________
________________________
SOCIAL SECURITY NUMBER: ________________________
NAME OF BENEFICIARY: ________________________
RELATIONSHIP: ________________________
ADDRESS: ________________________
________________________
SOCIAL SECURITY NUMBER: ________________________
[GTECH TO INSERT PAYMENT OPTION PURSUANT TO GTECH HOLDINGS CORPORATION AND
SUBSIDIARIES INCOME DEFERRAL PLAN 1998]
Dated: _________, 199_
[COMPANY]
<PAGE> 33
By: ________________________
Authorized Officer
THE PARTICIPANT MUST SIGN THE FOLLOWING CONSENT IF THIS IS AN AMENDMENT OR
SUBSTITUTION OF A PAYMENT SCHEDULE AFTER A CHANGE OF CONTROL
The undersigned Participant to whom this Payment Schedule relates
consents to the amendment of or substitution for the Payment Schedule heretofore
on file with the Trustee with respect to him, by the form set forth above.
Dated:______________, 19__
_________________________
Participant's Signature
- 2 -
<PAGE> 34
EXHIBIT C
FORM OF TERMINATION AFFIDAVIT
I, __________________, under penalties of perjury, do hereby solemnly
swear (i) that, pursuant to Section 4.1 of the Trust Agreement between The Bank
of New York (the "Trustee") and _____________ (the "Company"), dated as of
____________, 199_ (the "Trust Agreement"), I am providing this Termination
Affidavit to the Trustee and the Company in order to secure the benefits to
which I am entitled under such Trust Agreement and the _________ Plan (the
"Plan"); (ii) that a Termination (within the meaning of the Trust Agreement)
occurred on _________ __, 19__.
[GTECH TO INSERT PAYMENT OPTION PURSUANT TO GTECH HOLDINGS CORPORATION AND
SUBSIDIARIES INCOME DEFERRAL PLAN 1998]
_____________________________
Participant's Signature
STATE OF ___________)
SS.:
COUNTY OF __________)
On this __ day of _____________, 199_, before me personally came
____________________, to me known, who, being by me duly sworn, said that he
resides at _______________________ and that the statements herein are all true
and correct.
____________________________
Notary Public
Commission Expires:
<PAGE> 35
EXHIBIT D
FORM OF AFFIDAVIT WITH RESPECT TO FINAL DETERMINATION
__________________________
I, ___________________, under penalties of perjury, do hereby solemnly
swear (i) that I make this affidavit in order to induce The Bank of New York, as
Trustee under the Trust Agreement, dated as of _______________, 199_, between
___________________ (the "Company") and The Bank of New York as Trustee, (the
"Trust Agreement"), to pay me the benefits to which I am entitled under such
Trust Agreement, and (ii) that a Final Determination (within the meaning of
Sections 1.1(j) and 4.3 of the Trust Agreement) has occurred with respect to my
interest in the Trust Fund on _____________ .
_____________________________
Participant's Signature
STATE OF ___________)
SS.:
COUNTY OF __________)
On this __ day of _____________, 199_, before me personally came
____________________, to me known, who, being by me duly sworn, said that he
resides at _______________________ and that the statements herein are all true
and correct.
_____________________________
Notary Public
Commission Expires:
<PAGE> 36
EXHIBIT E
FORM OF CHANGE OR REVOCATION OF BENEFICIARY DESIGNATION
Pursuant to Section 4.6 of the Trust Agreement, dated as of
_______________, 199_, between GTECH Holdings Corporation (the "Company") and
The Bank of New York as Trustee, I hereby revoke all prior beneficiary
designations and designate the following Beneficiary of any payments to which my
Beneficiary is entitled under the Trust Agreement.
I hereby reserve the right to change or revoke this beneficiary
designation without notice to any beneficiary.
____________________________ ____________ __________________
Name of Beneficiary (Primary) Relationship Social Security No.
________________________________________________________________________________
Address
I understand that to be effective, any change or revocation must be
received by the Trustee during my life at the address set forth below or at such
other address as may from time to time be specified by the Trustee for notices
to it under the Trust Agreement.
Date ________________ _____________________________________
Participant's Signature
RETURN THIS FORM TO: THE BANK OF NEW YORK
RETIREMENT SERVICES DIVISION
THE CENTRE AT PURCHASE
3 MANHATTANVILLE ROAD
PURCHASE, NEW YORK 10577
ATTN: RETIREMENT SERVICES DIVISION
<PAGE> 37
EXHIBIT F
TRUSTEE'S FEE SCHEDULE
[Omitted]
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-27-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> NOV-28-1998
<CASH> 2,829
<SECURITIES> 0
<RECEIVABLES> 103,363
<ALLOWANCES> 0
<INVENTORY> 60,422
<CURRENT-ASSETS> 236,286
<PP&E> 1,252,354
<DEPRECIATION> 779,343
<TOTAL-ASSETS> 959,311
<CURRENT-LIABILITIES> 214,105
<BONDS> 310,371
0
0
<COMMON> 441
<OTHER-SE> 382,116
<TOTAL-LIABILITY-AND-EQUITY> 959,311
<SALES> 44,949
<TOTAL-REVENUES> 717,488
<CGS> 30,223
<TOTAL-COSTS> 475,857
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,203
<INCOME-PRETAX> 113,564
<INCOME-TAX> 46,561
<INCOME-CONTINUING> 67,003
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 67,003
<EPS-PRIMARY> 1.52
<EPS-DILUTED> 1.51
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> FEB-23-1997
<PERIOD-END> NOV-29-1997
<CASH> 8,181
<SECURITIES> 0
<RECEIVABLES> 124,480
<ALLOWANCES> 0
<INVENTORY> 29,116
<CURRENT-ASSETS> 196,426
<PP&E> 1,356,490
<DEPRECIATION> 720,351
<TOTAL-ASSETS> 1,075,972
<CURRENT-LIABILITIES> 151,996
<BONDS> 489,443
0
0
<COMMON> 439
<OTHER-SE> 394,387
<TOTAL-LIABILITY-AND-EQUITY> 1,075,972
<SALES> 88,561
<TOTAL-REVENUES> 736,746
<CGS> 52,781
<TOTAL-COSTS> 503,520
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,951
<INCOME-PRETAX> 104,062
<INCOME-TAX> 40,584
<INCOME-CONTINUING> 63,478
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63,478
<EPS-PRIMARY> 1.51
<EPS-DILUTED> 1.50
</TABLE>
