<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 27, 1999
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 December 14, 1999 there were 34,798,598 shares of the registrant's Common
Stock outstanding.
<PAGE> 2
INDEX
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION Number
- ------------------------------ ------
<S> <C>
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 11-18
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 19
PART II. OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
- ----------
EXHIBITS
- --------
</TABLE>
<PAGE> 3
PART 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES (Unaudited)
November 27, February 27,
1999 1999
-------------------- ---------------------
(In thousands, except share amounts)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,750 $ 7,733
Trade accounts receivable 125,970 106,693
Sales-type lease receivables 6,787 6,743
Inventories 59,142 61,893
Deferred income taxes 29,419 29,419
Other current assets 15,817 14,047
----------- -----------
TOTAL CURRENT ASSETS 244,885 226,528
SYSTEMS, EQUIPMENT AND OTHER ASSETS RELATING TO CONTRACTS 1,193,454 1,157,683
Less: Accumulated Depreciation (818,005) (760,122)
----------- -----------
375,449 397,561
GOODWILL, net 130,972 135,662
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES 25,438 10,801
OTHER ASSETS 105,905 103,663
----------- -----------
$ 882,649 $ 874,215
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 40,481 $ 43,402
Accrued expenses 41,527 55,609
Special charge 1,487 6,058
Employee compensation 28,535 27,379
Advance payments from customers 35,733 30,458
Income taxes payable 44,007 57,907
Current portion of long-term debt 521 1,960
----------- -----------
TOTAL CURRENT LIABILITIES 192,291 222,773
LONG-TERM DEBT, less current portion 385,900 319,078
OTHER LIABILITIES 28,393 29,908
DEFERRED INCOME TAXES 18,550 18,550
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, 44,165,815 and 44,152,565 shares issued,
34,798,598 and 38,722,063 shares outstanding at November 27, 1999 and
February 27, 1999, respectively 442 442
Additional paid-in capital 176,657 176,434
Equity carryover basis adjustment (7,008) (7,008)
Accumulated other comprehensive income (78,344) (84,842)
Retained earnings 407,713 345,018
----------- -----------
499,460 430,044
Less cost of 9,367,217 and 5,430,502 shares in treasury at
November 27, 1999 and February 27, 1999, respectively (241,945) (146,138)
----------- -----------
257,515 283,906
----------- -----------
$ 882,649 $ 874,215
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
-3-
<PAGE> 4
CONSOLIDATED INCOME STATEMENTS
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
------------------------------------------
November 27, November 28,
1999 1998
----------------- ------------------
(Dollars in thousands,
except per share amounts)
<S> <C> <C>
Revenues:
Services $ 221,093 $ 226,076
Sales of products 28,473 25,599
--------- ---------
249,566 251,675
Costs and expenses:
Costs of services 141,993 148,522
Costs of sales 18,014 15,400
--------- ---------
160,007 163,922
--------- ---------
Gross profit 89,559 87,753
Selling, general and administrative 32,595 31,527
Research and development 12,697 9,761
--------- ---------
Operating income 44,267 46,465
Other income (expense):
Interest income 902 1,041
Equity in earnings of unconsolidated affiliates (135) 786
Other income 1,042 2,193
Interest expense (7,468) (6,795)
--------- ---------
Income before income taxes 38,608 43,690
Income taxes 15,829 17,214
--------- ---------
Net income $ 22,779 $ 26,476
========= =========
Basic earnings per share $ .65 $ .64
========= =========
Diluted earnings per share $ .65 $ .64
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
-4-
<PAGE> 5
CONSOLIDATED INCOME STATEMENTS
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended
-------------------------------------------
November 27, November 28,
1999 1998
------------------- ------------------
(Dollars in thousands,
except per share amounts)
<S> <C> <C>
Revenues:
Services $ 642,094 $ 672,539
Sales of products 101,521 44,949
--------- ---------
743,615 717,488
Costs and expenses:
Costs of services 421,267 445,634
Costs of sales 70,505 30,223
--------- ---------
491,772 475,857
--------- ---------
Gross profit 251,843 241,631
Selling, general and administrative 94,929 91,228
Research and development 34,663 28,004
--------- ---------
Operating income 122,251 122,399
Other income (expense):
Interest income 2,603 2,618
Equity in earnings of unconsolidated affiliates 1,801 5,022
Other income 2,320 4,728
Interest expense (21,402) (21,203)
--------- ---------
Income before income taxes 107,573 113,564
Income taxes 44,105 46,561
--------- ---------
Net income $ 63,468 $ 67,003
========= =========
Basic earnings per share $ 1.73 $ 1.62
========= =========
Diluted earnings per share $ 1.73 $ 1.61
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
-5-
<PAGE> 6
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY-(Unaudited)
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Equity Accumulated
Additional Carryover Other
Outstanding Common Paid-in Basis Comprehensive
Shares Stock Capital Adjustment Income
----------------- --------- --------------- ------------ -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at February 27, 1999 38,722,063 $ 442 $ 176,434 $ (7,008) $ (84,842)
Comprehensive income:
Net income - - - - -
Other comprehensive income, net of tax:
Foreign currency translation - - - - 6,800
Net loss on derivative instruments - - - - (302)
Comprehensive income
Treasury shares repurchased (4,049,100) - - - -
Shares reissued under employee
stock purchase plan 106,297 - - - -
Shares reissued under stock award plans 6,088 - - - -
Shares issued upon exercise of stock options 13,250 - 223 - -
----------------- ---------- --------------- ------------ -------------
Balance at November 27, 1999 34,798,598 $ 442 $ 176,657 $ (7,008) $ (78,344)
================= ========== =============== ============ =============
</TABLE>
<TABLE>
<CAPTION>
Retained Treasury
Earnings Stock Total
----------------- --------------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
Balance at February 27, 1999 $ 345,018 $ (146,138) $ 283,906
Comprehensive income:
Net income 63,468 - 63,468
Other comprehensive income, net of tax:
Foreign currency translation - - 6,800
Net loss on derivative instruments - - (302)
---------
Comprehensive income 69,966
Treasury shares repurchased - (98,747) (98,747)
Shares reissued under employee
stock purchase plan (764) 2,782 2,018
Shares reissued under stock award plans (9) 158 149
Shares issued upon exercise of stock options - - 223
---------------- --------------- -----------
Balance at November 27, 1999 $ 407,713 $ (241,945) $ 257,515
================ =============== ===========
</TABLE>
See Notes to Consolidated Financial Statements
-6-
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended
----------------------------------------
November 27, November 28,
1999 1998
------------ ------------
(Dollars in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 63,468 $ 67,003
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 138,471 153,405
Equity in earnings of unconsolidated affiliates,
net of dividends received 464 (2,407)
Other (3,739) 2,070
Changes in operating assets and liabilities:
Trade accounts receivable (19,718) 2,363
Inventories 2,751 (31,537)
Special charge (4,571) (22,891)
Other assets and liabilities (24,444) 39,270
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 152,682 207,276
INVESTING ACTIVITIES
Purchases of systems, equipment and other assets
relating to contracts (92,863) (97,589)
Investments in and advances to unconsolidated subsidiaries (15,226) 114
Cash proceeds from sale of equity investment - 84,904
Acquisitions (net of cash acquired) - (18,853)
Other (14,077) (17,167)
--------- ---------
NET CASH USED FOR INVESTING ACTIVITIES (122,166) (48,591)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 199,200 93,306
Principal payments on long-term debt (133,692) (239,249)
Purchases of treasury stock (98,747) (19,201)
Other 293 4,365
--------- ---------
NET CASH USED FOR FINANCING ACTIVITIES (32,946) (160,779)
Effect of exchange rate changes on cash 2,447 (3,327)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 17 (5,421)
Cash and cash equivalents at beginning of period 7,733 8,250
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,750 $ 2,829
========= =========
</TABLE>
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 27, 1999
are not necessarily indicative of the results that may be expected for the full
fiscal year ending February 26, 2000. The balance sheet at February 27, 1999 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 the Company's fiscal 1999 Annual Report on Form 10-K.
Certain reclassifications have been made to the prior years' financial
statements to conform to the current year presentation.
<TABLE>
<CAPTION>
NOTE B--INVENTORIES November 27, February 27,
1999 1999
--------------- -----------------
(Dollars in thousands)
<S> <C> <C>
Inventories consist of:
Purchased components $ 17,329 $ 27,323
Finished subassemblies 1,926 2,922
Work-in-process 38,734 23,309
Finished goods 1,153 8,339
--------------- --------------
$ 59,142 $ 61,893
=============== ==============
</TABLE>
<TABLE>
<CAPTION>
NOTE C--LONG-TERM DEBT November 27, February 27,
1999 1999
--------------- --------------
(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 70,000 18,000
Other 16,421 3,038
--------------- --------------
386,421 321,038
Less current portion 521 1,960
--------------- --------------
$ 385,900 $ 319,078
=============== ==============
</TABLE>
The Company has an unsecured revolving credit facility of $400 million expiring
in June 2002 (the "Credit Facility"). At November 27, 1999, the weighted average
interest rate for all outstanding borrowings under the Credit Facility was
5.74%.
-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
-------------------------------------------
November 27, November 28,
1999 1998
------------------- --------------
(Dollars and shares in thousands,
except per share amounts)
<S> <C> <C>
Numerator:
Net income $ 22,779 $ 26,476
Denominator:
Weighted average shares-Basic 35,049 41,210
Effect of dilutive securities:
Employee stock options 31 106
------------------- --------------
Weighted average shares-Diluted 35,080 41,316
=================== ==============
Basic earnings per share $ .65 $ .64
=================== ==============
Diluted earnings per share $ .65 $ .64
=================== ==============
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------------------
November 27, November 28,
1999 1998
------------------ --------------
(Dollars and shares in thousands,
except per share amounts)
<S> <C> <C>
Numerator:
Net income $ 63,468 $ 67,003
Denominator:
Weighted average shares-Basic 36,689 41,304
Effect of dilutive securities:
Employee stock options 46 348
------------------ --------------
Weighted average shares-Diluted 36,735 41,652
================== ==============
Basic earnings per share $ 1.73 $ 1.62
================== ==============
Diluted earnings per share $ 1.73 $ 1.61
================== ==============
</TABLE>
NOTE G--COMPREHENSIVE INCOME
For the three-month period ended November 27, 1999 and November 28, 1998, total
comprehensive income amounted to $22,880,000 and $21,316,000, respectively.
During the first nine months of fiscal 2000 and fiscal 1999, total comprehensive
income amounted to $69,966,000 and $51,920,000, respectively. The primary
differences between comprehensive income and net income is comprised of foreign
currency translation adjustments, along with net gains or losses on derivative
instruments.
-9-
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(continued)
NOTE H--SEGMENT INFORMATION
The Company presently has one reportable segment. The Lottery segment provides
online, high speed, highly secured transaction processing systems to the
worldwide lottery industry. Executive management of the Company evaluates
segment performance based on net operating profit after income taxes. All other
revenues (as reported below) are comprised principally of revenues from the
Company's Transactive, Dreamport and Europrint subsidiaries.
The Company's business segment data is summarized below:
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------
November 27, November 28,
1999 1998
-------------------- --------------------
(Dollars in thousands)
<S> <C> <C>
Revenues from external sources:
Lottery $ 228,622 $ 217,319
All other 20,944 34,356
-------------------- --------------------
Consolidated $ 249,566 $ 251,675
==================== ====================
Net operating profit after income taxes:
Lottery $ 28,854 $ 29,579
All other (613) 2,099
-------------------- --------------------
Consolidated $ 28,241 $ 31,678
==================== ====================
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------------------
November 27, November 28,
1999 1998
--------------------- --------------------
(Dollars in thousands)
<S> <C> <C>
Revenues from external sources:
Lottery $ 685,242 $ 646,520
All other 58,373 70,968
--------------------- --------------------
Consolidated $ 743,615 $ 717,488
===================== ====================
Net operating profit after income taxes:
Lottery $ 81,956 $ 83,360
All other (2,693) (679)
--------------------- --------------------
Consolidated $ 79,263 $ 82,681
===================== ====================
</TABLE>
The following is a reconciliation of net operating profit after income taxes to
net income as reported on the consolidated income statements:
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------
November 27, November 28,
1999 1998
-------------------- --------------------
(Dollars in thousands)
<S> <C> <C>
Net operating profit after income taxes $ 28,241 $ 31,678
Reconciling items, net of tax:
Interest expense (4,406) (4,117)
Other (1,056) (1,085)
-------------------- --------------------
Net income $ 22,779 $ 26,476
==================== ====================
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------------------
November 27, November 28,
1999 1998
-------------------- --------------------
(Dollars in thousands)
<S> <C> <C>
Net operating profit after income taxes $ 79,263 $ 82,681
Reconciling items, net of tax:
Interest expense (12,627) (12,510)
Other (3,168) (3,168)
-------------------- --------------------
Net income $ 63,468 $ 67,003
==================== ====================
</TABLE>
-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 Forms 10-K,
10-Q, 8-K and other reports and filings with the Securities and Exchange
Commission (the "SEC").
General
The Company has derived substantially all of its revenues from the rendering of
services and the sale or supply of computerized online lottery systems and
components to government-authorized lotteries. Service revenues have been
derived primarily from lottery service contracts. These contracts are typically
at least five years in duration, and are generally based upon a percentage of a
lottery's gross online 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 online
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. The Company currently anticipates that product sales during fiscal
2000 will be in a range of $170.0 million to $180.0 million.
The Company has taken steps to broaden its offerings of high-volume transaction
processing services outside of its core business of providing online 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 markets. Also, in the second
quarter of fiscal 1999, the Company augmented its game design expertise by
acquiring 80% of the equity of Europrint Holdings Ltd. ("Europrint") and its
wholly owned subsidiaries, including Interactive Games International ("IGI").
Europrint is among the world's largest providers of media promotional games and
IGI has pioneered the development of interactive, televised lottery games. Also
during the second quarter of fiscal 1999, the Company established an Internet
wagering subsidiary, UWin, to provide legal and secure Internet gaming solutions
for government authorized wagering. UWin has entered into contracts with two
international customers in fiscal 2000.
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 may
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 may still be under
way. Accordingly, the Company lacks sufficient information to determine with
certainty their ultimate scope and whether the government authorities will
assert claims resulting from these or other investigations that could implicate
-11-
<PAGE> 12
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 and in the Company's Report on Form 10-Q
for the quarterly periods ended May 29, 1999 and August 28, 1999; Part I, Item 1
- - "Certain Factors That May Affect Future Performance - Maintenance of Business
Relationships and Certain Legal Matters" and Part I, Item 3 - "Legal
Proceedings" in the Company's fiscal 1999 annual report on Form 10-K; and Note G
to the Consolidated Financial Statements in the Company's fiscal 1999 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 2000 and fiscal 1999 are 52-week years.
Results of Operations
Third Quarter
Revenues for the third quarter of fiscal 2000 were $249.6 million, representing
a $2.1 million, or .8%, decrease from revenues of $251.7 million in the third
quarter of fiscal 1999.
Service revenues, including lottery and other services, in the fiscal 2000 third
quarter were $221.1 million, representing a $5.0 million, or 2.2%, decrease from
the $226.1 million of service revenues in the third quarter of fiscal 1999. This
decrease reflects a 5% decline in domestic lottery service revenues, partially
offset by a 1% increase in international lottery service revenues.
In the fiscal 2000 third quarter, lottery sales by the Company's domestic
customers declined approximately 2% compared with the third quarter of fiscal
1999. As anticipated, sales declined in Texas, although at a slower rate. This
sales decline was partially offset by sales increases in Georgia and New York.
The overall lower sales, coupled with a rate reduction in Texas and the loss of
the Company's Indiana lottery contract, resulted in a 5% decline in the
Company's domestic lottery service revenues.
Sales of the Company's international lottery customers increased approximately
28% in the fiscal 2000 third quarter compared with the third quarter of fiscal
1999, primarily driven by growth in Brazil, Mexico and the Czech Republic. This
increase was partially offset by the impact of the reduction in the dollar value
of foreign currencies, primarily related to Brazil, resulting in a 1% increase
in the Company's international lottery service revenues.
Product sales in the third quarter of fiscal 2000 were $28.5 million, an
increase of $2.9 million over the $25.6 million of product sales in the third
quarter of fiscal 1999. This increase was driven by the sale, in the third
quarter of fiscal 2000, of terminals to Uthingo, the consortium that recently
signed a contract to operate the South Africa National Lottery and of which the
Company owns 10%. This increase was partially offset by the sale in the third
quarter of last year, of Dreamport's 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. The
Company sold approximately 4,400 lottery terminals during the third quarter of
fiscal 2000, as compared to approximately 1,000 lottery terminals during the
fiscal 1999 third quarter.
-12-
<PAGE> 13
Gross margins on service revenues improved from 34.3% in the third quarter of
fiscal 1999 to 35.8% in the third quarter of fiscal 2000 due to improved margins
from the Company's lottery operations in Brazil, resulting partially from
higher jackpot activity.
Gross margins on product sales fluctuate depending on the mix, volume and timing
of product sales contracts. Gross margins on product sales in the third quarter
of fiscal 2000 were 36.7% compared to 39.8% in the same period of fiscal 1999,
primarily due to the change in product mix.
Selling, general and administrative expenses in the third quarter of fiscal 2000
were $32.6 million, representing a $1.1 million, or 3.4%, increase over the
$31.5 million incurred in the third quarter of fiscal 1999. This increase was
primarily attributable to expenses incurred on new business development that has
yielded positive results. For example, the Company was selected, in the fourth
quarter of fiscal 2000, as the supplier to provide a new online lottery central
system and services to the French National Lottery. As a percentage of revenues,
selling, general and administrative expenses were 13.1% and 12.5% during the
third quarters of fiscal 2000 and 1999, respectively.
Research and development expenses in the third quarter of fiscal 2000 were $12.7
million, representing a $2.9 million, or 30.1%, increase over research and
development expenses of $9.8 million in the third quarter of fiscal 1999. This
reflects the increase in development activities associated with the Company's
next generation operating system and terminals. As a percentage of revenues,
research and development expenses were 5.1% and 3.9% during the third quarters
of fiscal 2000 and 1999, respectively.
Year to Date
Revenues for the first nine months of fiscal 2000 were $743.6 million,
representing a $26.1 million, or 3.6%, increase over revenues of $717.5 million
in the first nine months of fiscal 1999.
Service revenues, including lottery and other services, in the first nine months
of fiscal 2000 were $642.1 million, representing a $30.4 million, or 4.5%,
decrease from the $672.5 million of service revenues in the first nine months of
fiscal 1999. This decrease reflects an 8% decline in domestic lottery service
revenues, while international lottery service revenues were comparable to last
year's levels.
In the first nine months of fiscal 2000, lottery sales by the Company's domestic
customers declined approximately 7% compared with the first nine months of
fiscal 1999, primarily reflecting lower sales in Texas, the temporary suspension
of Quick Draw in New York and lower jackpot activity. This decline, coupled with
the loss of the Company's Indiana lottery contract, resulted in an 8% decline in
the Company's domestic lottery service revenues.
Lottery sales by the Company's international customers increased approximately
21% in the first nine months of fiscal 2000 compared with the first nine months
of fiscal 1999, primarily driven by growth in Brazil, Germany, the Czech
Republic, Poland and Mexico. This increase was fully offset by the impact of the
reduction in the dollar value of foreign currencies, primarily in Brazil.
Product sales in the first nine months of fiscal 2000 were $101.5 million, an
increase of $56.5 million over the $45.0 million of product sales in the first
nine months of fiscal 1999. This increase was primarily driven by sales of an
online lottery system to Israel, a new PRO:SYS central system, including instant
ticket validation capabilities to Sweden, terminals to Uthingo and a new PRO:SYS
central system to Belgium. The Company sold approximately 8,200 lottery
terminals during the first nine months of fiscal 2000, as compared to
approximately 1,300 lottery terminals during the first nine months of fiscal
1999.
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Gross margins on service revenues improved from 33.7% in the first nine months
of fiscal 1999 to 34.4% in the first nine months of fiscal 2000 due to improved
margins from the Company's lottery operations in Brazil.
Gross margins on product sales fluctuate depending on the mix, volume and timing
of product sales contracts. Gross margins on product sales in the first nine
months of fiscal 2000 were 30.6% compared to 32.8% in the same period of fiscal
1999, primarily due to the change in product mix.
Selling, general and administrative expenses in the first nine months of fiscal
2000 were $94.9 million, representing a $3.7 million, or 4.1%, increase over the
$91.2 million incurred in the first nine months of fiscal 1999. This increase
was primarily attributable to the Company's bi-annual user's conference held
during the second quarter of fiscal 2000 along with higher expenses incurred on
new business development. As a percentage of revenues, selling, general and
administrative expenses were 12.8% and 12.7% during the first nine months of
fiscal 2000 and 1999, respectively.
Research and development expenses in the first nine months of fiscal 2000 were
$34.7 million, representing a $6.7 million, or 23.8%, increase over research and
development expenses of $28.0 million in the first nine months of fiscal 1999.
This increase reflects development activities associated with the Company's next
generation operating system and terminals. As a percentage of revenues, research
and development expenses were 4.7% and 3.9% during the first nine months of
fiscal 2000 and 1999, respectively.
Equity in earnings of unconsolidated affiliates in the first nine months of
fiscal 2000 was $1.8 million, a decrease of $3.2 million from the $5.0 million
of such earnings during the first nine months of fiscal 1999. This decrease
resulted principally from the Company's sale, in April 1998, of its 22.5% equity
interest in Camelot Group plc ("Camelot").
Other income in the first nine months of fiscal 2000 was $2.3 million,
representing a $2.4 million decrease from the $4.7 million recorded in the first
nine months of fiscal 1999. This decrease was primarily attributable to net
foreign exchange losses associated with the Company's global asset protection
and foreign exchange management programs designed to protect future cash flows,
partially offset by the amortization of the deferred gain on the sale of the
Camelot investment. The foreign exchange losses during fiscal 2000 were more
than offset by higher cash gross margin from the Company's foreign operations
due to stronger than expected foreign currencies relative to the U.S. dollar.
Changes in Financial Position, Liquidity and Capital Resources
During the first nine months of fiscal 2000, the Company generated $152.7
million of cash from operations. This cash, together with $65.5 million of net
borrowings, was used primarily to fund the purchase of $92.9 million of systems,
equipment and other assets relating to contracts and to repurchase $98.7 million
of the Company's common stock.
Trade accounts receivable increased by $19.3 million, from $106.7 million at
February 27, 1999 to $126.0 million at November 27, 1999, primarily due to
extended payment terms on certain product sales recorded in the second quarter
of fiscal 2000, along with the timing of product sales recorded in the third
quarter of fiscal 2000.
The cost of systems, equipment and other assets relating to contracts increased
by $35.8 million, from $1,157.7 million at February 27, 1999 to $1,193.5 million
at November 27, 1999. This increase reflects the completion of new lottery
systems in Michigan and Puerto Rico, the continuing installation of new lottery
systems in South Africa, Arizona and Argentina and the expansion of lottery
systems in several
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domestic and international locations, along with $9.0 million relating to the
strengthening of the Brazilian currency versus the U.S. dollar during the first
nine months of fiscal 2000.
Investments in and advances to unconsolidated affiliates increased by $14.6
million, from $10.8 million at February 27, 1999 to $25.4 million at November
27, 1999, primarily due to the Company's 10% equity investment and associated
loans to Uthingo, the consortium that recently signed a contract to operate the
South Africa National Lottery and the March 1999 purchase by Dreamport of a
one-third interest in Turfway Park racetrack.
Accrued expenses decreased by $14.1 million, from $55.6 million at February 27,
1999 to $41.5 million at November 27, 1999, primarily due to the timing of
semi-annual interest payments on the Company's Senior Notes.
Income taxes payable, that are reported net of income tax refunds receivable,
decreased by $13.9 million, from $57.9 million at February 27, 1999 to $44.0
million at November 27, 1999, primarily due to income tax payments made in
fiscal 2000 relating to the gain generated from the Company's sale, in April
1998, of its 22.5% equity interest in Camelot.
The Company's business is capital-intensive. Although it is not possible to
estimate precisely, the Company currently anticipates that the level of capital
expenditures for systems, equipment and other assets relating to contracts
required during fiscal 2000 will be in a range of $160.0 million to $170.0
million. The principal sources of liquidity for the Company are cash generated
from operations and borrowings under the Company's Credit Facility. As of
November 27, 1999 the Company had utilized approximately $70.0 million of its
$400 million Credit Facility. The Company currently expects that its cash flow
from operations and available borrowings under its Credit Facility will be
sufficient to fund its anticipated working capital and ordinary capital
expenditure needs, to service its debt obligations and to fund anticipated
internal growth in the foreseeable future.
Market Risk Disclosures
The primary market risk inherent in the Company's financial instruments and
exposures is the potential loss arising from adverse changes in interest rates
and foreign currency rates. The Company's exposure to commodity price changes is
not considered material and is managed through its procurement and sales
practices. The Company did not own any marketable equity securities during the
first nine months of fiscal 2000.
Interest rates
Interest rate market risk is estimated as the potential change in the fair value
of the Company's total debt or current earnings resulting from a hypothetical
10% adverse change in interest rates. At November 27, 1999, the estimated fair
value of the Company's fixed rate debt, as determined by an independent
investment banker, approximated $295.3 million. A hypothetical 10% increase in
interest rates would change the estimated fair value of the Company's fixed rate
debt to $287.2 million. A hypothetical 10% decrease in interest rates would
change the estimated fair value of the Company's fixed rate debt to $303.8
million.
A hypothetical 10% adverse or favorable change in interest rates applied to
variable rate debt would not have a material affect on current earnings.
The Company uses various techniques to reduce the risk associated with future
increases in interest rates, the most significant being the private placement of
seven- and 10-year fixed rate debt on May 29, 1997.
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Foreign Currency Exchange Rates
Foreign exchange exposures arise from current transactions and anticipated
transactions denominated in a currency other than an entity's functional
currency and from the translation of foreign currency balance sheet accounts
into U.S. dollar balance sheet accounts.
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. Whenever possible, the Company
negotiates clauses into its contracts that allow for price adjustments should a
material change in foreign exchange rates occur.
The Company, from time to time, enters into foreign currency exchange and option
contracts to reduce the exposure associated with current transactions and
anticipated transactions denominated in foreign currencies. However, the Company
does not engage in currency speculation. At November 27, 1999, a hypothetical
10% adverse change in foreign exchange rates would result in a translation loss
of $15.2 million that would be recorded in the equity section of the Company's
balance sheet.
At November 27, 1999, a hypothetical 10% adverse change in foreign exchange
rates would result in a net transaction loss of $2.2 million recorded in current
earnings after considering the effects of foreign exchange contracts currently
in place.
At November 27, 1999, a hypothetical 10% adverse change in foreign exchange
rates would result in a net reduction of cash flows from anticipatory
transactions in fiscal 2000 by $1.0 million after considering the effects of
foreign exchange contracts currently in place. The percentage of fiscal 2000
anticipatory cash flows that were hedged varied throughout the first nine months
of fiscal 2000, but averaged 64%.
As of November 27, 1999, the Company had approximately $116.1 million of
outstanding foreign currency exchange contracts to sell foreign currencies
(primarily pounds sterling, Spanish pesetas, Brazilian reals, Australian dollars
and South African rand) and approximately $83.5 million of outstanding foreign
currency exchange contracts to purchase foreign currencies (primarily pounds
sterling).
IMPACT OF YEAR 2000
The Year 2000 computer issue creates potentially significant risks for the
Company. If lottery, gaming or electronic benefits transfer ("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 is actively managing its program to assess the
capability of its lottery, gaming and EBT products and its interfaces to
customer systems to handle the Year 2000. With respect to customer systems, the
major challenge for the Company in remediating the Year 2000 issue is the
multinational nature of the Company's business and the high degree of global
coordination that is required with customers, suppliers and employees.
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
status of the Company's six-phase program as of December 17, 1999 is as follows:
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<PAGE> 17
- - The inventory phase consists of compiling a comprehensive list of software
and hardware technologies that the Company supplies to customers and
management information systems that the Company uses internally. This phase
is complete.
- - The assessment phase consists of determining the compliance status of each
technology identified in the inventory phase. This phase is complete.
- - The planning phase consists of developing plans to upgrade hardware and/or
software to Year 2000 compliance. This phase is complete.
- - The implementation phase consists of executing the tasks identified in the
planning phase. This phase is complete.
- - The quality assurance phase consists of testing and validating systems
replaced or modified as part of the implementation phase. This phase is
complete.
- - The special case phase consists of developing and implementing specific
plans for any Year 2000 issues that cannot be handled by the previous
phases. This phase will include monitoring each site for change control,
contingency planning, monitoring vendor compliance issues and other matters
that may arise. This phase is underway and will continue through February
29, 2000 to ensure that there are no disruptions during the transition into
the new year and leap year.
The Company is actively working with and seeking to enlist the cooperation of
its customers to ensure integration with their systems and telecommunications
networks. The Company is also actively working with critical suppliers of
products and services to determine that the suppliers' operations and the
products and services they provide are Year 2000 capable. The Company will
continue to monitor their progress toward Year 2000 capability.
The Company's critical internal management information systems (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 limited number of non-IT systems that
are primarily in use by the engineering and manufacturing departments of the
Company. The remediation of these systems is complete.
The Company's contingency planning involves using already established problem
resolution processes to resolve any problems encountered during the Year 2000
timeframe. As a standard practice, the Company provides 24 hour a day
operational support. This support provides focused individuals in all
disciplines that respond in real time to operational issues. The Company's
contingency planning includes the expansion of the Year 2000 help desk team and
the creation of ten command centers worldwide to provide the necessary response
to issues that may arise as January 1, 2000 approaches.
The Company currently expects that the total cost of the Year 2000 program will
be in a range of $22 million to $25 million, including approximately $4 million
for the purchase of software and hardware that will be capitalized. As of
November 27, 1999 the Company had spent approximately $20 million on the
program. 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 provide a solution to Year
2000 issues.
Year 2000 issues could have a significant impact on the Company's operations and
its financial condition and 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 and possible damage claims by third parties
associated with Year 2000 issues, certain of the Company's United States lottery
contracts provide for up to $10,000 or more in
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<PAGE> 18
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. Based on currently available information, management does not
believe that the Year 2000 matters discussed above will cause significant
operational or financial problems for the Company; however there can be no
assurance that this will be the case.
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<PAGE> 19
Item 3. Quantitative and Qualitative Disclosures about Market Risk
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Market Risk Disclosures" in Part I, Item 2 herein.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
As previously publicly reported, in December 1998, Lawrence Littwin, the former
Executive Director of the Texas Lottery Commission from June 1997 to October
1997, filed suit against GTECH Corporation 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 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 included 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 civil 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 sought
unspecified damages (including treble damages in the case of RICO violations)
and costs. In October 1999, the Company announced that it had reached a
settlement with Mr. Littwin respecting this lawsuit. Under the terms of the
settlement agreement, Mr. Littwin admitted that he had no personal knowledge of
any improper contacts between GTECH and the Texas Lottery Commission that
factored in his dismissal and stated that he no longer asserts the claims he
made against GTECH in the suit, including allegations of any criminal activity
by GTECH. GTECH, in turn, agreed to pay Mr. Littwin an amount which will not
materially adversely affect the Company's consolidated financial position or
results of operations. The Company decided to settle this suit notwithstanding
its belief that Mr. Littwin's complaint, and the allegations underlying the
complaint, were without merit, and that the Company had done nothing improper in
light of the following two considerations: firstly, the Company's pursuit of an
effective defense in this case was adversely affected by the refusal of the
Texas Lottery Commission to give testimony in the case, or to otherwise publicly
disclose their justification for Mr. Littwin's termination; and secondly, the
Company estimated that the potential cost of further litigating the suit
exceeded the amount to be paid under the settlement agreement.
For information respecting certain other legal proceedings, refer to Part I,
Item 1 - "Certain Factors That May Affect Future Performance - Maintenance of
Business Relationships and Certain Legal Matters" and Part I, Item 3 - "Legal
Proceedings" in the Company's Fiscal 1999 Annual Report on Form 10-K; Note G to
the Consolidated Financial Statements included in the Company's fiscal 1999
Annual Report on Form 10-K; Part II, Item 1 - "Legal Proceedings" in the
Company's Report on Form 10-Q for the quarterly period ended May 29, 1999; and
Part II, Item 1 - "Legal Proceedings" in the Company's Report on Form 10-Q for
the quarterly period ended August 28, 1999.
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<PAGE> 20
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - The exhibits to this report are as follows:
10 Employment Severance Agreement and Release, dated
November 4, 1999, between the Company and Thomas J.
Sauser
27 Financial Data Schedule
(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> 21
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: December 17, 1999 By /s/ Robert J. Plourde
---------------------------
Robert J. Plourde, Vice President, Corporate
Controller and Acting Chief Financial Officer
(Principal Financial Officer)
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<PAGE> 1
November 4, 1999
EMPLOYMENT SEVERANCE AGREEMENT AND RELEASE
GTECH Holdings Corporation ("Holdings"), GTECH Corporation, Holdings's direct
wholly-owned subsidiary ("GTECH" or the "Company") and Thomas J. Sauser ("Mr.
Sauser") hereby agree as follows:
1. a. Mr. Sauser hereby resigns as Senior Vice President and Chief
Financial Officer and Treasurer of Holdings and as an officer and
director of all direct and indirect subsidiaries and other affiliates of
GTECH effective on October 22, 1999 (the "Resignation Date").
b. Separate from his resignation as an officer, Mr. Sauser hereby
resigns as an employee of GTECH effective on the Resignation Date.
2. a. On the Resignation Date GTECH will pay Mr. Sauser for any unused
vacation time earned by him through the Resignation Date.
b. Upon the expiration of the Revocation Period (as hereinafter
defined), GTECH shall be obligated to continue to pay Mr. Sauser his
base salary in effect on the Resignation Date, which amount is $309,900
per annum, for the period beginning on October 23, 1999 through and
including April 23, 2001, in bi-weekly installments in accordance with
GTECH's payroll policies in effect from time-to-time.
c. All such amounts shall be subject to required federal and state
withholdings and applicable benefit deductions.
3. a. Upon GTECH's receipt of invoice and supporting documents from Mr.
Sauser, GTECH shall reimburse Mr. and Mrs. Sauser for the cost of their
benefits under the Consolidated Omnibus Budget Reconciliation Act
(COBRA), if any, commencing December 1, 1999 and continuing through and
including April 23, 2001. Invoices shall be submitted for each calendar
quarter, excepting the final invoice. Thereafter, GTECH shall respect
Mr. Sauser's rights, if any, to continued medical coverage at his own
expense under the Consolidated Omnibus Budget Reconciliation Act.
b. GTECH will pay the premiums to continue Mr. Sauser's basic life
insurance policy, having a face value of $500,000, through April 23,
2001.
4. Upon the expiration of the Revocation Period, GTECH shall be obligated
to provide the following other benefits to Mr. Sauser under this
Agreement:
a. GTECH will provide Mr. Sauser with executive outplacement assistance
at Right Associates in Providence or other mutually agreed office until
the earlier of his
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<PAGE> 2
resumption of full-time employment or the expiration of the twelve month
period following the commencement of outplacement assistance.
Outplacement assistance shall commence at such time as Mr. Sauser elects
but no later than January 31, 2000. GTECH will not contest Mr. Sauser's
eligibility to claim unemployment compensation.
b. Mr. Sauser may continue to use his company-leased automobile for a
period of thirty days after the Resignation Date, during which period
GTECH will pay the monthly lease payments and Mr. Sauser will pay for
all operating and maintenance costs. GTECH agrees to make said
company-leased automobile available for purchase by Mr. Sauser
immediately upon expiration of said thirty day period, for the sum of
one thousand two hundred dollars ($1,200), and Mr. Sauser agrees to
purchase said automobile for the said sum of $1,200 immediately upon the
expiration of said thirty day period.
c. GTECH agrees to sell to Mr. Sauser, and Mr. Sauser agrees to purchase
from GTECH, Mr. Sauser's office computer and home fax machine, at
current net book value, as soon as reasonably practicable. Said sale is
made "as is" and "where is" and GTECH disclaims all warranties,
including without limitation all warranties of merchantability or
fitness for a particular purpose. Mr. Sauser shall be responsible for
transferring the cellular phone service to his name, as it will be
cancelled by the Company on the Resignation Date.
d. Mr. Sauser shall be entitled at GTECH's expense and in accordance
with GTECH policy to tax planning and preparation assistance for tax
returns for calendar years 1999 and 2000.
e. Mr. Sauser shall be entitled to the use of the balance of his
Executive Perquisites Account for 1999, if any.
5. a. As of the Resignation Date, Mr. Sauser will no longer be eligible to
receive long-term disability benefits or to participate in the GTECH
401(K) and Profit Sharing Plan, and the Holdings Supplemental Retirement
Plan. GTECH will notify Mr. Sauser in writing concerning his options
with regard to his 401(K) account.
b. In accordance with the 1994 GTECH Holdings Corporation Stock Option
Plan and the 1997 GTECH Holdings Corporation Stock Option Plan, any and
all options ("Options") which have been granted to Mr. Sauser under said
Plans and which have vested but have not been exercised by Mr. Sauser
shall be forfeited at the close of business on the Resignation Date. All
unvested Options shall be forfeited at the close of business on the
Resignation Date.
6. a. Mr. Sauser acknowledges that the aggregate payments and benefits
referred to herein are greater than those to which he is entitled under
any existing GTECH separation or benefit plan. In consideration of the
foregoing, Mr. Sauser hereby releases and forever discharges GTECH, its
present and former directors, officers, employees, agents, subsidiaries,
shareholders, successors and assigns from any and all liabilities,
causes of
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<PAGE> 3
action, debts, claims and demands both in law and in equity, known or
unknown, fixed or contingent, which he may have or claim to have based
upon or in any way related to employment or termination of employment by
GTECH, including, but not limited to: (i) the letter from GTECH to Mr.
Sauser dated December 22, 1995, attached hereto as Annex 1, including
without limitation the Separation Agreement between GTECH and Mr. Sauser
referenced in numbered paragraph 8 therein (the "Offer Letter"), and
(ii) the Change of Control Agreement between Holdings and Mr. Sauser,
dated July 15, 1997, (the "Change of Control Agreement") and hereby
covenants not to file a lawsuit or charge to assert such claims,
including but not limited to claims arising under the Federal Age
Discrimination in Employment Act, and any other federal, state or local
laws prohibiting employment discrimination or claims growing out of any
legal restrictions on GTECH's right to terminate its employees.
Notwithstanding the foregoing, Mr. Sauser does not release or waive his
right to sue GTECH and/or Holdings to enforce GTECH's and/or Holdings
obligations under this Employment Severance Agreement and Release and
Annex 3, Indemnification Agreement, thereto.
b. For good and valuable consideration, the receipt of which is hereby
acknowledged, in the absence of willful and demonstrable wrongdoing by
Mr. Sauser, GTECH and Holdings hereby release, forever discharge, and
convenant not to sue Mr. Sauser (and/or his heirs, executors,
administrators, and legatees) of, from and for any and all liabilities,
causes of action, debts, claims and demands both in law and in equity,
known or unknown, fixed or contingent, which they may have or claim to
have based upon or in any way related to his employment or termination
of employment by GTECH. Notwithstanding the foregoing, GTECH and
Holdings do not release, waive any claims, or covenant not to sue Mr.
Sauser to enforce Mr. Sauser's obligations under this Employment
Severance Agreement and Release and Annex 3, Indemnification Agreement,
thereto.
7. Mr. Sauser understands that various state and federal laws prohibit
employment discrimination based on age, sex, race, color, national
origin, religion, handicap or veteran status. These laws are enforced
through the Equal Employment Opportunity Commission (EEOC), Department
of Labor and State Human Rights Agencies. Mr. Sauser acknowledges that
he has been advised by GTECH to discuss this Agreement with his attorney
and has been encouraged to take this Agreement home for up to twenty-one
(21) days so that he can thoroughly review it and understand the effect
of this Agreement before acting on it.
8. Mr. Sauser acknowledges and agrees to continue to be bound by the
provisions of the Restrictive Agreement - Employee/Applicant executed by
him on February 1, 1996, a copy of which is attached hereto as Annex 2
and incorporated by reference herein.
9. In consideration of the aggregate payments and benefits he is receiving
hereunder, in the event a court of competent jurisdiction restricts the
time and scope of the non-competition and confidentiality provisions of
the Restrictive Agreement, Mr. Sauser further covenants with GTECH as
follows and expressly agrees that all payments and benefits due Mr.
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<PAGE> 4
Sauser under this Agreement shall be subject to Mr. Sauser's compliance
with the following provisions (all references to "GTECH" herein to be
deemed to refer to Holdings and its subsidiaries).
a. Confidentiality Information. Mr. Sauser shall not knowingly use for
his own benefit or disclose or reveal to any unauthorized person, any
trade secret or other confidential information relating to GTECH, or to
any of the businesses operated by it, including, without limitation, any
customer lists, customer needs, price and performance information,
processes, specifications, hardware, software, devices, supply sources
and characteristics, business opportunities, marketing, promotional
pricing and financing techniques, or other information relating to the
business of GTECH, and Mr. Sauser confirms that such information
constitutes the exclusive property of GTECH. Such restriction on
confidential information shall remain in effect until such time as the
information is (i) generally available in the industry, (ii) disclosed
in published literature or (iii) obtained by Mr. Sauser from a third
party without binder of secrecy. Mr. Sauser agrees to return to GTECH
any physical embodiment of such confidential information within seven
(7) days of the execution hereof.
b. Non-competition. For the period ending April 23, 2001, Mr. Sauser
shall not engage, directly or indirectly (which includes, without
limitation, owning, managing, operating, controlling, being employed by,
giving financial assistance to, participating in or being connected in
any material way with any person or entity), anywhere in any area which
involves (i) the transmission of data via electronic means and (ii)
elements of chance and/or skill, consideration for the opportunity to
participate and (iii) a prize; provided, however, that Mr. Sauser's
ownership as a passive investor of less than one percent (1%) of the
issued and outstanding stock of publicly held corporation so engaged
shall not by itself be deemed to constitute such competition. Further,
during the period ending April 23, 2001, Mr. Sauser shall not: (i)
solicit any of GTECH's employees to leave the employment of GTECH or
(ii) solicit any of the GTECH's customers to cease doing business with
GTECH.
c. Remedies. Mr. Sauser recognizes that the possible restrictions on Mr.
Sauser's activities which may occur as a result of his performance of
his obligations under this Section 9 are required for the reasonable
protection of GTECH and its investments, and Mr. Sauser expressly
acknowledges that such restrictions are fair and reasonable for that
purpose. Mr. Sauser further expressly acknowledges that damages alone
will be an inadequate remedy for any breach or violation of any of the
provisions of this Section 9, and that GTECH, in addition to all other
remedies hereunder, shall be entitled, as a matter of right, to
injunctive relief, including specific performance, with respect to any
such breach or violation, in any court of competent jurisdiction. If any
of the provisions of this Section 9 are held to be in any respect an
unreasonable restriction upon Mr. Sauser then they shall be deemed to
extend only over the maximum period of time, geographic area, and/or
range of activities as to which they may be enforceable.
10. After the Resignation Date, Mr. Sauser shall make himself available,
upon reasonable
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notice, in any third party claims, investigations, litigation or similar
proceedings to answer any questions relating to his employment or
actions as an employee, officer or director of GTECH or Holdings,
including without limitation attendance at any deposition or similar
proceeding. GTECH shall pay Mr. Sauser's expenses, including reasonable
attorneys' fees, but shall not be obligated to compensate him or any
subsequent employer for his time.
11. Mr. Sauser and Holdings agree to enter into the Indemnification
Agreement in the form attached hereto as Annex 3 simultaneously with the
execution of this Agreement.
12. Mr. Sauser shall immediately return to GTECH any GTECH property in his
possession which was not purchased pursuant to Section 4(c).
13. Mr. Sauser shall at no time make any derogatory or disparaging comments
regarding GTECH or Holdings, their business, or their present or past
directors, officers or employees. Senior officers of GTECH and Holdings
shall at no time make any derogatory or disparaging comments regarding
Mr. Sauser.
14. The execution of this Agreement shall not be construed as an admission
of a violation of any statute or law or breach of any duty or obligation
by either GTECH or Mr. Sauser.
15. This Agreement is confidential and shall not be made public by either
GTECH or Mr. Sauser except as required by law or if necessary in order
to enforce this Agreement.
16. The invalidity or unenforceability of any particular provision of this
Agreement shall not affect the other provisions hereof, and this
Agreement shall be construed in all respects as if such invalid and
unenforceable provisions were omitted. If any of the provisions of this
Agreement are held to be in any respect an unreasonable restriction upon
Mr. Sauser then they shall be deemed to extend only over the maximum
period of time, geographic area, and/or range of activities as to which
they may be enforceable.
17. This Agreement is personal to Mr. Sauser and may not be assigned by him.
However, in the event of Mr. Sauser's death, all benefits payable
hereunder shall be payable to his estate.
18. This Agreement is made pursuant to and shall be governed by the laws of
the State of Rhode Island, without regard to its rules regarding
conflict of laws. The parties agree that the courts of the State of
Rhode Island, and the Federal Courts located therein, shall have
exclusive jurisdiction over all matters arising from this Agreement. Mr.
Sauser hereby acknowledges that service of process by certified mail
(return receipt requested) shall be deemed to be proper service of
process for such purposes.
19. This Agreement together with the Indemnification Agreement entered into
pursuant to Section 11 hereof and the Restrictive
Agreement-Employee/Applicant referred to in Section 8 hereof, contains
the entire understanding between Mr. Sauser and GTECH,
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supersedes all prior agreements, written or oral, with respect to the
subject matter hereof (except as expressly provided herein), and may not
be changed orally but only by an agreement in writing signed by the
party against whom enforcement of any waiver, change, modification,
extension or discharge is sought. Mr. Sauser acknowledges that he has
not relied upon any representation or statement, written or oral, not
set forth in this Agreement.
20. Mr. Sauser may revoke this Agreement at any time during the seven-day
period following the date of his signature below (the "Revocation
Period") by delivering written notice of his revocation to 55 Technology
Way, West Greenwich, RI 02817, Attention: Senior Vice President, Human
Resources. This Agreement shall become effective upon the expiration of
the Revocation Period.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date set
forth below.
GTECH Holdings Corporation Attest:
By /s/ William Y. O'Connor /s/ Elizabeth J. Furtado
---------------------------------- -----------------------------
Name: William Y. O'Connor
Title: Chairman of the Board
Date: 11/4/99
------------------------------
GTECH Corporation Attest:
By /s/ PA Ippoliti /s/ Roberta A. Richie
------------------------------- --------------------------
Name: Patricia A. Ippoliti
Title: Senior Vice President
Date: 11/4/99
-----------------------------
Witness:
x: /s/ Thomas J. Sauser Dale Sauser
---------------------------- --------------------------
Thomas J. Sauser
Date: 11/4/99
----------------------------
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Annex 1
[GTECH Letterhead]
December 22, 1995
Mr. Thomas J. Sauser
44 Old Connecticut Path
Wayland, Massachusetts 01778
Dear Tom:
On behalf of GTECH Corporation, I am pleased to offer you the position of Senior
Vice President and Chief Financial Officer, located at our World Headquarters in
West Greenwich, Rhode Island.
Your annual starting salary will be Three Hundred Thousand Dollars
($300,000.00), payable in bi-weekly installments of Eleven Thousand, Five
Hundred Thirty Eight dollars and Forty-seven cents ($11,538.47). Please
understand your employment will be "at will", and that the quotation of an
annual salary is for convenience and is not intended to indicate any proposed
term of employment.
Within thirty days of joining GTECH you will receive a Fifty Thousand dollar
($50,000) sign-on bonus.
Further management will recommend to the Board of Directors that you be granted
the option to purchase One Hundred Thousand (100,000) shares of GTECH common
stock, based on the terms of the plan.
In addition to your base salary, your offer includes eligibility to participate
in the GTECH Corporation's Management Incentive Plan which will normally qualify
you for an annual "Target" bonus of 100% of your base salary, depending on your
individual and Corporate performance compared to a number of predetermined,
mutually agreed upon objectives. These measures will also include a
discretionary element for management's assessment of your contribution to the
Company. For the fiscal year 1997, you will receive a guaranteed bonus pay out
of One Hundred and Fifty Thousand Dollars ($150,000), payable at the normal time
of bonus distribution, in accordance with the bonus eligibility terms of the
plan.
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In connection with your employment and subject to generally applicable company
policy, you will also receive the following benefits:
1. Participation in the Executive Perquisite Plan which entitles
you to a total of $27,500 (net) annually to be spent on a menu
of items developed by GTECH, with selection of the appropriate
items at your discretion. These funds, which are considered
taxable income, will be "grossed up" from a tax point of view at
the end of each year.
2. A vehicle and related operating expenses, provided by GTECH.
3. Vacation accrued at a rate of four (4) weeks a year.
4. A $500,000 Group Life Insurance Policy at GTECH's expense. Other
optional insurance plans are also available through normal GTECH
plans.
5. Annual Executive Tax Preparation and Financial Statement
Services.
6. Annual Executive Physical Examination.
7. Participation in all other Company Benefit Plans (enclosed).
8. A Separation Agreement providing for twelve months of salary
continuation in the form of the attached. Additionally, the
company will enter into a "Change of Control" agreement with you
which will provide you with an additional one year of Base Pay
if you are involuntarily terminated for reasons other than "'for
Cause", within one year of a "Change of Control", as defined in
the actual agreement. This "Change of Control" agreement will be
executed within 60 days of your joining GTECH.
9. Relocation expense reimbursement per Company Guidelines.
This offer of employment is further subject to and contingent upon the
following:
A. Your execution of a Restrictive Agreement, which will include,
but not be limited to, non-disclosure and non-competitive
language in favor of GTECH, in the form attached, prior to
commencement of employment.
B. Your execution of GTECH's Conflict of Interest and Ethical
Conduct Agreement in the form attached, prior to commencement of
employment.
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C. Your receiving a security clearance from GTECH (please return
the enclosed release by fax (401) 392-4951) and satisfactory
reference checks.
D. Your completion of an 1-9 form in compliance with the National
Immigration Reform Act.
E. Your full cooperation in making all personal and financial
disclosures as the Company may require for purposes of
disclosure to governmental authorities.
This letter constitutes our employment offer to you in its entirety, and
supersedes all prior discussions related to your prospective employment GTECH
and/or its subsidiaries.
Tom, we are enthusiastic about your potential contribution to GTECH Corporation
and look forward to working with you.
Should you elect to accept this offer, please acknowledge by signing the
enclosed copy of this letter where indicated and returning it to me by fax (401)
392-4951.
Sincerely,
GTECH CORPORATION
/s/ SA Davidson
Stephen A. Davidson
Vice President, Human Resources
cc: Guy B. Snowden
I hereby accept the above-described position with GTECH Corporation, upon the
terms and conditions set forth herein.
/s/ Thomas J. Sauser 01-15-96
- -------------------------------- --------------------------
Signature Date
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AGREEMENT
AGREEMENT, dated this 15th day of July, 1997, by and between THOMAS J.
SAUSER ("Executive") and GTECH HOLDINGS CORPORATION, a Delaware corporation (the
"Company").
W I T N E S S E T H:
WHEREAS, the Company wishes to assure itself of continuity of management
in the event of any actual or threatened "Change in Control" (as defined below)
of the Company; and
WHEREAS, the Company and the Executive desire to embody in a written
agreement the terms and conditions under which the Executive shall be employed
by the Company in the event of any actual or threatened Change in Control of the
Company;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto hereby agree as follows:
Section 1. Definitions.
1.1 Act. "Act" means the Securities Exchange Act of 1934, as amended
to date.
1.2. Affiliate. "Affiliate" means any corporation which is a
subsidiary of the Company within the definition of "subsidiary corporation"
under Section 424(f) of the Code.
1.3. Board. "Board" means the Board of Directors of the Company.
1.4. Cause. "Cause" means (i) the Executive's engaging in serious
misconduct that is injurious to the Company, (ii) the Executive's having been
convicted of, or entered a plea of nolo contendere to a crime that constitutes a
felony, (iii) the breach by the Executive of any written covenant or agreement
with the Company not to disclose any information pertaining to the Company or
not to compete or interfere with the Company, or (iv) abuse of illegal drugs or
other controlled substances, or habitual intoxication.
1.5. Change In Control. "Change in Control" means the happening of
any of the following:
(i) the members of the Board at the beginning of any
consecutive twenty-four calendar month period (the
"Incumbent Directors") cease for any reason other than due
to death to constitute at least a majority of the members
of the Board, provided that any director whose election,
or nomination for election by the Company's stockholders,
was approved by a vote of at least a majority of the
members of the Board then still in office who were
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members of the Board at the beginning of such twenty-four
calendar month period, shall be deemed an Incumbent
Director;
(ii) any "person", including a "group" (as such terms are used
in Sections 13(d) and 14(d) of the Act, but excluding the
Company, any of its Affiliates, or any employee benefit
plan of the Company or any of its Affiliates) is or
becomes the "beneficial owner" (as defined in Rule
13(d)(3) under the Act), directly or indirectly, of
securities of the Company representing the greater of 30%
or more of the combined voting power of the Company's then
outstanding securities;
(iii) the stockholders of the Company shall approve a definitive
agreement (1) for the merger or other business combination
of the Company with or into another corporation if (A) a
majority of the directors of the surviving corporation
were not directors of the Company immediately prior to the
effective date of such merger or (B) the stockholders of
the Company immediately prior to the effective date of
such merger own less than 50% of the combined voting power
in the then outstanding securities in such surviving
corporation or (2) for the sale or other disposition of
all or substantially all of the assets of the Company; or
(iv) the purchase of 30% or more of the Stock pursuant to any
tender or exchange offer made by any "person", including a
"group" (as such terms are used in Sections 13(d) and
14(d) of the Act), other than the Company, any of its
Affiliates, or any employee benefit plan of the Company or
any of its Affiliates.
1.6. Code. "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto.
1.7. Effective Date. "Effective Date" means the date on which a Change
in Control occurs. Anything in this Agreement to the contrary notwithstanding,
if a Change in Control occurs and if the Executive's employment with the Company
is terminated prior to the date on which the Change in Control occurs, and if it
is reasonably demonstrated by the Executive that such termination of employment
(i) was at the request of a third party who has taken steps reasonably
calculated to effect a Change in Control or (ii) otherwise arose in connection
with or in anticipation of a Change in Control, then for all purposes of this
Agreement, the "Effective Date" shall mean the date immediately prior to the
date of such termination of employment.
1.8 Executive Perquisite Program. "Executive Perquisite Program" means
the Company's Executive Perquisite Program in effect on the date hereof, as the
same may be amended from time to time.
1.9 Non-Qualified Plans. "Non-Qualified Plans" means the Company's
Supplemental Retirement Plan in existence as of the date hereof, and any other
unfunded, non-qualified, deferred compensation, incentive compensation or
retirement plan adopted by the Company
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subsequent to the date hereof, and/or any successor plan or plans.
1.10. Option. "Option" means any option to purchase shares of Stock
granted to Executive pursuant to the Company's 1994 Stock Option Plan, as
amended from time to time, the Company's 1997 Stock Option Plan, as amended from
time to time, or any other stock option plan adopted by the Company.
1.11 Retirement Plan. "Retirement Plan" means the Company's
profit-sharing and 401(k) retirement plan which is qualified under Section
401(a) and 501(a) of the Code in existence as of the date hereof and any other
such plan adopted by the Company subsequent to the date hereof and/or any
successor plan or plans.
1.12. Stock. "Stock" means the Common Stock $.01 par value per share of
the Company.
1.13. Term of Employment. "Term of Employment" means the period
commencing on the Effective Date and ending on the earliest of:
(a) Executive's death or "Total Disability" (as defined
below);
(b) Termination of the Term of Employment pursuant to Section 4
below;
(c) Three (3) years from the Effective Date.
Neither the expiration of the Term of Employment nor the termination of this
Agreement will relieve the Company of the obligation to provide Executive, in
accordance with the terms hereof, the payments, benefits and coverage to which
he has become entitled under this Agreement.
1.14. Total Disability. "Total Disability" shall mean permanent and
total disability as determined under the Company's long term disability program.
Section 2. Employment.
2.1. Capacity and Situs of Employment. The Company agrees to employ
Executive throughout the Term of Employment, during which (a) Executive's
position (including reporting relationships, status, offices and titles),
authority, duties and responsibilities shall be at least equal in all material
respects with the highest position, authority, duties and responsibilities held
by, exercised by and assigned to the Executive at any time during the six month
period immediately preceding the Change in Control, and (b) Executive's situs of
employment will be at the Company's executive headquarters in West Greenwich,
Rhode Island or such other situs (the "Other Situs") to which Executive may be
assigned prior to the Effective Date (the Company's executive headquarters or
the Other Situs, whichever is applicable to the Executive, is herein referred to
as the "Applicable Situs") or such other location within a fifty (50) mile
radius of the Applicable Situs (hereinafter referred to as the "Area") to which
the Applicable Situs be moved.
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2.2. Services of the Executive. Executive agrees, subject to Sections
4.3 and 4.4 below, to remain in the Company's employ during the Term of
Employment, on the terms described in Section 2.1.
Excluding periods of vacation and sick leave to which Executive is
entitled, Executive agrees to devote substantially all of his attention, energy
and time during normal business hours to the business and affairs of the Company
and, to the extent necessary, to discharge responsibilities assigned to
Executive hereunder, to use his best efforts to perform such responsibilities
faithfully and efficiently. Executive may (a) serve on corporate, civic and
charitable boards or committees, (b) deliver lectures and fulfill speaking
engagements and (c) manage personal investments, so long as such activities do
not interfere with the performance of Executive's responsibilities. To the
extent that any such activities have been conducted by Executive prior to the
Change in Control, such prior conduct, and any subsequent conduct similar in
nature and scope, shall not be deemed to interfere with the performance of
Executive's responsibilities.
Section 3. Compensation and Benefits During the Term of Employment.
3.1. Compensation. The Company will pay as compensation to Executive for
his services as an employee during the Term of Employment:
(a) base annual salary at a rate equal to or greater than the rate
of base salary in effect for Executive immediately prior to the
Effective Date; plus
(b) for the year in which a Change in Control occurs, the greater
of (i) a bonus under the annual bonus plan(s) in effect as of the
Change in Control, calculated on the basis of the Company's
performance up to the Change in Control, and payable in accordance
with such plan(s) or (ii) an amount equal to the bonus paid to
Executive under the annual bonus plan(s) in effect for the year
immediately preceding the year in which the Change in Control
occurs, payable in accordance with the terms of such plan(s);
(c) in years subsequent to the year in which the Change in Control
occurs, an annual bonus which is equal to or greater than the
annual bonus paid in the year preceding the year in which the
Change in Control occurs, payable not later than provided for in
the plan(s) in effect for such preceding year.
3.2. Benefits. In addition, for his services as an employee during the
Term of Employment, Executive will receive all life, disability, accident and
group health insurance benefits, retirement, profit-sharing and deferred
compensation, and all other fringe benefits and payments under additional
benefit plans including the Executive Perquisite Program, all in an amount or
with a value at least equal to those benefits being provided by the Company to
the Executive immediately prior to the Effective Date, including but not limited
to the following:
(a) Executive will participate fully in the Company's Retirement Plan
and Non-Qualified Plans with benefit accruals and Company contributions
for the benefit of
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Executive under all such plans, and all other material provisions of
such plans, being at least the same as immediately prior to the
Effective Date, or Company shall pay to Executive annual cash payments
in advance, each at least being equal to the total value of such benefit
accruals and Company contributions under such plans for the last fiscal
year of the Company ending prior to the Effective Date;
(b) At no additional cost to Executive, Company shall continue to
provide coverage to Executive, together with his dependents and
beneficiaries, in all life insurance plans, accident and health plans,
Section 125 plans, and other welfare plans maintained or sponsored by
the Company, at a level and subject to terms which are at least as
favorable to Executive as the coverage provided immediately prior to the
Effective Date, or the Company shall pay to Executive the full value
thereof in cash annually in advance;
(c) Executive will participate fully in additional benefit plans offered
by the Company to executives immediately prior to or after the Effective
Date; and
(d) Executive will receive fringe benefits and job perquisites (which
shall not include any benefit referred to elsewhere in this Section 3),
including the Executive Perquisite Program, automobile in accordance
with the Company's Fleet Policy for Vice Presidents and Corporate
Officers as in effect as of the date hereof, paid vacation, club
memberships, applicable class travel, tax and financial statement
preparation assistance, paid financial assistance, executive physical
examinations, office, office furnishings and equipment and support
staff, at least equivalent to those provided to Executive immediately
prior to the Effective Date, as well as reimbursement, upon proper
accounting, of reasonable expenses and disbursements incurred by
Executive in the course of his duties.
3.3. Funding of Deferred Compensation Benefits. Contemporaneous with the
Change in Control, all benefits accrued by Executive under the terms of any of
the Company's Non-Qualified Plans shall become fully vested and the Company
shall immediately contribute to a rabbi trust for the benefit of the Executive
the full amount of all such accrued benefits. Not less frequently than
quarterly, the Company shall make additional contributions to the rabbi trust
equal to the full amount of any additional benefits accrued by Executive
pursuant to Section 3.2(a) hereof.
3.4. Acceleration of Vesting of Options. The Company hereby agrees that
on or prior to the date of a Change in Control any and all options awarded to
the Executive not previously exercisable and vested shall become fully vested
and exercisable. In addition, in the event the Company decides to terminate any
Options previously awarded to the Executive pursuant to the applicable
provisions of any stock option plan adopted by the Company in connection with a
corporate transaction (as that term is described in Section 424(a) of the Code),
the Company will give the Executive not less than fourteen days' notice prior to
any such termination and such notice shall not be given until any and all
Options previously awarded to Executive shall have become fully vested and
exercisable.
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Section 4. Termination of Employment
4.1. Compensation Prior To Termination. During the year in which either
(i) the Executive's employment is terminated during the Term of Employment for
any reason, or (ii) the Executive resigns during the Term of Employment in
accordance with Section 4.3(b) below, notwithstanding any other provision of
this Agreement, the Company and the Executive hereby agree that the Executive
shall have the right to receive base salary, annual bonuses, contributions to
Retirement Plans and Non-Qualified Plans, gross-up payments made to cover tax
liabilities (to the extent provided in such plans), and all other compensation,
benefits and payments earned or paid with respect to the period prior to the
date of termination of employment, all such payments or contributions to be made
at the times provided for in such plans or in accordance with Company policy as
in effect immediately prior to the Effective Date, except as expressly provided
below. For purposes of this Section 4.1, the amount of the annual bonuses earned
and the amount of the contributions to the Retirement Plans and Non-Qualified
Plans earned (i) shall be at least equal to the amounts paid to, or contributed
on behalf of, the Executive for the year immediately preceding the year in which
the termination of the Executive's employment occurs which amounts shall be
prorated based on the number of days in the year in which the termination of the
Executive's employment occurs which have passed prior to the date of the
termination of the Executive's employment, and (ii) shall be paid or contributed
on behalf of the Executive not later than 10 days after the date of termination
of employment. Nothing in this Section 4.1 shall in any way alter the
Executive's right to receive all the payments and rights and benefits described
in Sections 4.2 and 4.3(a).
4.2. (a) Termination other than for Cause. In the event Executive's
employment is terminated by the Company during the Term of Employment for any
reason other than Cause, the Company will pay Executive, as liquidated damages,
a lump sum cash payment, payable within ten (10) days of his termination, equal
to two and ninety-nine hundredths (2.99) times the sum of (i) Executive's
current annual base salary in effect at the date of termination (including in
base salary for this purpose any elective salary reductions made by the
Executive and contributed by the Company on his behalf to the Company's
Retirement Plan, any Non-Qualified Plan, or a plan meeting the requirements of
Section 125 of the Code), plus (ii) the total cash bonus received by the
Executive from the Company during the most recent full fiscal year of the
Company pursuant to the Company's annual bonus plan(s), plus (iii) the maximum
amount allowable under the Executive Perquisite Program during the most recent
calendar year of the Company.
(b) Participation in Benefit Plans. In the event of a termination
described in Section 4.2(a) above, Executive, together with his dependents and
beneficiaries, will become fully vested in and continue following his
termination to participate fully in, at no additional cost to Executive, all
life insurance plans, accident and health plans and other welfare plans,
maintained or sponsored by the Company immediately prior to the termination, at
the same level and subject to terms at least as favorable to Executive as in
effect immediately prior to termination (or the full value thereof in cash) from
the Company, until the earlier of (a) the Executive's eligibility for comparable
benefit plans with another employer and (b) the third anniversary of
termination. Executive will also become fully vested in the Retirement Plan, and
all Non-Qualified Plans, and within thirty (30) days of Executive's termination
of employment, Company shall pay to Executive the sum of (i) all benefits
accrued under the Non-Qualified Plans and (ii) an amount
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equal to 2.99 times the average benefit accrued and/or Company contributions
made to the Retirement Plan and the Non-Qualified Plans over the last three
fiscal years. In addition, the Company shall provide Executive with
out-placement service through a bona fide out-placement organization acceptable
to Executive that, at a minimum, agrees to supply Executive with out-placement
counseling, a private office and administrative support including telephone
service until such time that Executive secures suitable employment, not to be
limited by Section 1.13 hereof.
4.3. Resignation By Executive - Constructive Termination.
(a) If Executive resigns during the Term of Employment in accordance
with Section 4.3(b) below, his employment will be deemed to have been terminated
by the Company for reasons other than Cause (and he will be deemed to have
offered to continue to provide services to the Company), and, notwithstanding
any provision herein to the contrary, he will be entitled to all the payments
and rights and benefits described in Sections 4.1 and 4.2, at the time provided
for therein.
(b) Executive may resign in accordance with this Section 4.3 upon the
occurrence of any of the following events (in each case, "Good Reason"):
(i) any reduction of, or failure to pay, Executive's base annual
salary or annual bonus in breach of Section 3.1 above;
(ii) any failure by the Company to provide the benefits required
by Section 3.2 above or to make any contribution to a rabbi
trust which might be due in accordance with Section 3.3
above;
(iii) assignment to Executive of any duties inconsistent in any
respect with his position (including the office to which he
reports, status, offices, and titles), authority, duties or
responsibilities as contemplated by Section 2.1 above or any
other action by the Company which results in a diminution of
such position, authority, duties or responsibilities;
(iv) as a result of the Change in Control and a change in
circumstances thereafter significantly affecting Executive's
position, including, without limitation, a change in scope
of the business or other activities for which he was
responsible immediately prior to the Change in Control, he
has been rendered substantially unable to carry out, or has
been substantially hindered in the performance of, any of
the authority, duties or responsibilities contemplated by
Section 2.1 above;
(v) the failure of the Company after a Change in Control to
comply with and satisfy Section 7.1 or 7.2 below;
(vi) relocation by the Company of its principal executive
offices, or any event that causes Executive to have his
principal location of work changed, to
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any location outside the Area;
(vii) any requirement by the Company that Executive travel away from
his office in the course of his duties significantly more than
the number of consecutive days or aggregate days in any
calendar year than was required of him prior to the Change in
Control; or
(viii) without limiting the generality or effect of the foregoing
any material breach of this Agreement by the Company or any
successor thereto or transferee of substantially all of the
assets thereof.
For purposes of this Agreement, any good faith determination of "Good Reason"
made by the Executive shall be presumptively correct.
(c) If Executive resigns during the Term of Employment in accordance
with Section 4.3(b) above, the Company shall have the right to request that the
Executive agree to remain as an employee of the Company during a transition
period of up to three months (the "Transition Period") and the Executive hereby
agrees that, if requested by the Company, he will remain as an employee of the
Company during the Transition Period. During the Transition Period, the Company
will continue to pay the Executive the Executive's base salary, annual bonus and
all other compensation and benefits on the same basis as such items were paid to
the Executive prior to his resignation.
4.4. Resignation by Executive. If Executive resigns during the Term of
Employment without Good Reason, the Executive shall have the right to receive
base salary, annual bonuses, contributions to Retirement Plans and all other
compensation and benefits earned during the calendar year of his resignation up
to the date of his resignation. For purposes of this Section 4.4, the amount of
the annual bonuses and the amount of the contributions to the Retirement Plan
shall be at least equal to the amounts paid to, or contributed on behalf of, the
Executive for the year immediately preceding the year in which the resignation
of the Executive occurs which amounts shall be prorated based on the number of
days in the year in which such resignation occurs which have passed prior to the
date of such resignation. In addition all vested Non-Qualified Plan benefits
shall be paid within thirty (30) days of resignation.
4.5. Termination for Cause. If Executive is dismissed by the Company for
Cause, he will not be entitled to the payments or benefits provided under
Section 4.2 hereof.
4.6. Dispute Resolution. All disputes between the parties to this
Agreement concerning the matters set forth herein shall be resolved exclusively
pursuant to the dispute resolution procedures of this Section 4.6. In
furtherance thereof, Executive or the Company, as the case may be, shall
initiate binding arbitration in Rhode Island before the American Arbitration
Association ("AAA") and under its rules by serving a notice to arbitrate upon
the other party hereto and AAA within 90 days of the occurrence of any dispute
hereunder that is unable to be resolved by negotiation between the parties. The
parties shall bear their respective costs in any such dispute resolution, except
that with respect to any such action initiated by the Executive, provided the
Executive initiates such action in good faith, the Company agrees (i) to
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pay the costs and expenses (including fees of counsel to the Executive) of any
such arbitration or judicial proceeding, and (ii) to pay interest to Executive
on any amounts found to be due to Executive hereunder during any period of time
that such amounts are withheld pending arbitration and/or judicial proceedings.
Such interest will be at the base or prime rate most recently announced by Rhode
Island Hospital Trust National Bank (or its successor) prior to the commencement
of the arbitration or litigation. The Company and Executive agree that any
arbitration award shall be binding and may be enforced by any court of competent
jurisdiction.
4.7. Death or Total Disability of the Executive.
(a) If Executive dies or suffers a Total Disability during the Term of
Employment, then this Agreement shall terminate and the Company, its successors
and assigns shall be relieved and discharged of any and all obligations
whatsoever to make further payment to Executive pursuant to the terms of this
Agreement after the date of death or Total Disability of Executive, except as to
base salary earned for services actually rendered and vacation pay accrued prior
to the date of death or Total Disability of Executive.
(b) If Executive dies or suffers a Total Disability following a
termination of employment which entitled him to payments and benefits under this
Section 4 but prior to receipt of all such payments and benefits, his
beneficiary (as designated to the Company in writing) or, if none, his estate,
will be entitled to receive all unpaid amounts and benefits due under this
Agreement.
4.8. Enforcement of Rights. Termination of Executive's employment,
whether or not giving rise to payments or benefits under this Section 4, will
not in any way prevent Executive from enforcing rights to payments or benefits
under Section 3 relating to periods during which he was employed.
Section 5. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 5) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed on the Payments.
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(b) Subject to the provisions of Section 5(c), all determinations
required to be made under this Section 5, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Ernst & Young
LLP or such other nationally recognized certified public accounting firm as may
be designated by the Executive (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. In the event that
the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change in Control, the Executive shall appoint
another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 5, shall be paid by the Company to the Executive within five days
of the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 280G and Section 4999 of the
Code at the time of the initial determination by the Accounting Firm hereunder,
it is possible that Gross-Up Payments which will not have been made by the
Company should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 5(c) and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which he gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively
to contest such claim, and
(iv) permit the Company to participate in any proceedings relating
to such claim;
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provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 5(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 5(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 5(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determinative then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
Section 6. Payment of Fees, Costs and Expenses.
It is the intent of the Company that the Executive not be required to
incur the expenses associated with the enforcement of his rights under this
Agreement by litigation or other legal action or arbitration proceeding because
the cost and expense thereof would substantially detract from the benefits
intended to be extended to the Executive hereunder. Accordingly, if Executive
determines in good faith that the Company has failed to comply with any of its
obligations under this Agreement or if the Company or any other person takes any
action to declare this Agreement void or unenforceable, or institutes any
litigation or arbitration proceeding designed to deny, or to
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recover from, the Executive the benefits intended to be provided to the
Executive under Section 6 hereof, the Company will promptly, upon request of the
Executive in the event of the likelihood of a Change in Control or upon a Change
in Control, use its best efforts to secure an irrevocable standby letter of
credit (the "Letter of Credit"), issued by Rhode Island Hospital Trust National
Bank or another bank of comparable or greater size (the "Bank") for the benefit
of the Executive providing that the fees and expenses of counsel selected from
time to time by the Executive pursuant to this Section 6 or in proceedings
contemplated by Section 4.6 shall be paid, or reimbursed to the Executive if
paid by the Executive, on a regular, periodic basis upon presentation by the
Executive to the Bank of a statement or statements prepared by such counsel in
accordance with its customary practices. The Company shall pay all amounts and
take all action necessary to maintain the Letter of Credit during the Term of
Employment and for one (1) year thereafter and if, notwithstanding the Company's
complete discharge of such obligations, such Letter of Credit shall be
terminated or not renewed, the Company shall use its best efforts to obtain a
replacement irrevocable letter of credit drawn upon a commercial bank selected
by the Company and reasonably acceptable to the Executive, upon substantially
the same terms and conditions as contained in the Letter of Credit, or any
similar arrangement which, in any case, assures the Executive the benefits of
this Agreement without incurring any cost or expense for enforcement against the
Company or the defense thereof.
Section 7. Merger or Acquisition.
7.1. Assumption of Obligations. If the Company is at any time before or
after a Change in Control merged, consolidated or reorganized into or with any
other corporation or other entity (whether or not the Company is the surviving
entity), or if substantially all of the assets of the Company are transferred to
another corporation or other entity, the entity arising from such merger,
consolidation or reorganization, or the acquirer of such assets, shall (by
agreement in form and substance satisfactory to Executive) expressly assume the
obligations of Company under this Agreement.
7.2. Executive's Rights to Benefits. In the event of any merger,
consolidation, reorganization or sale of assets described above, nothing
contained in this Agreement will detract from or otherwise limit Executive's
right to or privilege of participation in any stock option or purchase plan or
restricted stock plan or any bonus, profit sharing, savings, pension, group
insurance, hospitalization or other incentive or benefit plan or arrangement
which may be or become applicable to executives of the corporation resulting
from such merger or consolidation or the corporation, acquiring such assets of
the Company.
7.3. References. In the event of any merger, consolidation,
reorganization or transfer of assets described above, references to the Company
in this Agreement shall, unless the context suggests otherwise, be deemed to
include the entity resulting from such merger or consolidation or the acquirer
of such assets of the Company.
Section 8. Change in Control Following Certain Circumstances.
Notwithstanding any provision herein to the contrary, should a Change in
Control occur subsequent to Executive's death, Total Disability or retirement
from the Company, the remainder
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of any benefits owed under the terms of any stock plans or other non-qualified
deferred compensation plan, including interest, shall be paid in full on the
date of the Change in Control.
Section 9. Termination of this Agreement.
Either the Company or Executive may, by giving 60 days written notice to
the other party, terminate this Agreement as of the third or any subsequent
annual anniversary of the occurrence of a Change in Control.
Section 10. Withholding of Taxes.
All payments required to be made by the Company hereunder to Executive
or his dependents, beneficiaries or estate will be subject to the withholding on
such amounts relating to tax and/or other payroll deductions as may be required
by law.
Section 11. Amendment.
No amendment, change or modification of this Agreement may be made
except in a writing, signed by or on behalf of both parties.
Section 12. Miscellaneous.
12.1. Binding Effect. The provisions of this Agreement shall be binding
upon and shall inure to the benefit of Executive, his executors, administrators,
legal representatives and assigns, and the Company and its successors and
assigns.
12.2. Governing Law. The validity, interpretation and effect of this
Agreement shall be governed by and construed in accordance with the laws of the
State of Rhode Island.
12.3. Severability. The invalidity or enforceability of any provision
of this Agreement shall not affect the validity of any other provision.
12.4. No Set-Off. There shall be no right of setoff or counterclaim, in
respect of any claim, debt or obligation, against any payments to Executive, his
dependents, beneficiaries or estate provided for in this Agreement, and nothing
in this Agreement shall relieve the Company of its obligations to Executive
under any other agreement, plan, contract or arrangement. Subject to Section
12.6 hereof, no right, benefit or interest hereunder shall be subject to
anticipation, alienation, sale, assignment, encumbrance, charge, pledge,
hypothecation or set-off in respect of any claim, debt or obligation, or to
execution, attachment, levy or similar process or assignment by operation of
law. Any attempt, voluntary or involuntary, to effect any action specified in
the immediately preceding sentence shall, to the full extent permitted by law,
be null, void and of no effect. In no event shall the Executive be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and, except as otherwise provided in Section 4.2(b) hereof, such amounts shall
not be reduced whether or not the Executive obtains other employment.
Notwithstanding anything to the contrary in this Agreement, Executive shall
forfeit all future payments and
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<PAGE> 23
benefits hereunder in the event that Executive is determined, pursuant to
procedures established in Section 4.6 hereof, to have materially breached any
written covenant or agreement between the Executive and the Company prohibiting
the disclosure of confidential information pertaining to the Company or
respecting competition or interference with the Company, provided that the
Company shall have given the Executive at least thirty (30) days prior written
notice of such breach and such breach shall not have been cured by the end of
such notice period.
12.5. Remedies. The Company and Executive agree that, because of the
unique nature of this Agreement, failure of either party to carry out or abide
by the obligations under this Agreement could cause irreparable injury;
accordingly, the parties agree that, in addition to any other remedies available
to either party, any such failure by either party TO perform or abide by this
Agreement shall be subject to appropriate equitable remedies, including specific
performance and injunctive relief.
12.6. Assignability. No right or interest to or in any payments shall be
assignable by the Executive; provided, however, that this provision shall not
preclude him from designating one or more beneficiaries to receive any amount
that may be payable after his death and shall not preclude the legal
representative of his estate from assigning any right hereunder to the person or
persons entitled thereto under his will or, in the case of intestacy, to the
person or persons entitled thereto under the laws of intestacy applicable to his
estate. The term "beneficiaries" as used in this Agreement shall mean a
beneficiary or beneficiaries so designated to receive any such amount, or if no
beneficiary has been so designated, the legal representative of the Executive's
estate.
12.7. Counterparts; Headings; References. This Change in Control
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument. The headings of the sections of this Agreement are inserted for
convenience only and shall not constitute a part hereof. References to the
masculine or feminine gender (or to the singular or plural number) herein shall
mean the other such gender (or number), as appropriate.
12.8. Entire Agreement. This instrument contains the entire agreement of
the parties pertaining to the subject matter contained herein and supersedes and
is in lieu of any and all other arrangements pertaining to the subject matter
contained herein having effect as of the effective date.
12.9. Notices. All notices given hereunder shall be in writing and shall
be delivered personally or sent by prepaid registered or certified mail, return
receipt requested, addressed as follows or to such other address as may be
provided by any party hereto to the other party:
If to the Company: GTECH Holdings Corporation
55 Technology Way
West Greenwich, RI 02817
Attention:
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If to the Executive: Thomas J. Sauser
5 Cedar Rock Meadows
East Greenwich, RI 02818
All notices shall be deemed to be given on the date received at the
address of the addressee, or if delivered personally, on the date delivered.
IN WITNESS WHEREOF, the Company and Executive have each caused this
Agreement to be duly executed and delivered as of the date set forth above.
ATTEST: GTECH HOLDINGS CORPORATION
/s/ Kathy J Carson By:/s/ SA Davidson
- -------------------------- --------------------------------
Title: Senior Vice President
----------------------------
WITNESS:
/s/ Alicia E. Rodzen /s/ Thomas J. Sauser
- ------------------------- -----------------------------------
Thomas J. Sauser
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Annex 2
RESTRICTIVE AGREEMENT - EMPLOYEE/APPLICANT
THIS AGREEMENT made this 01 day of February 1996 , by and between GTECH
Corporation, a Delaware corporation with offices at 55 Technology Way, West
Greenwich, Rhode Island 02817 ("GTECH"), and Thomas J. Sauser, an individual
residing at ________ , ____________ ("Employee").
W I T N E S S E T H:
WHEREAS GTECH has hired or is considering hiring Employee as an employee, and
Employee has agreed or is considering agreeing to perform certain services as an
employee for and on behalf of GTECH; and
WHEREAS as a condition to such relationship or such consideration thereof, GTECH
requires certain protections of its business interests,
NOW THEREFORE, in consideration of these presents and of the sum of One Dollar
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties, intending to be legally bound hereby, agree
as follows:
1. Definitions. The following terms shall have the meanings indicated
below:
The Company: GTECH and/or its parent, affiliates or
subsidiaries.
Services and Products: All gaming systems and equipment and all
other products, services and things which the Company markets or
provides or which to Employee's knowledge the Company plans to market or
provide.
Employment: As used herein, "Employment" shall mean all past,
present and future business activities relating to Services and Products
engaged in by Employee as an employee of the Company or as a negotiant
for such position, and "Employment" shall also mean the period of time
covered by such activities.
2. Confidential Information. Except as required pursuant to Employment, or
as authorized by GTECH in writing, Employee shall never directly or indirectly
use or disclose, and shall take all reasonable steps to prevent others from
using or disclosing any information, discovered or acquired by Employee during
or by virtue of Employment, which relates to the Company, its Services and
Products, or to any Invention (as defined in Section 3 hereof), except
information which through no fault of Employee is within the public domain or
widely known within the United States gaming industry ("Confidential
Information").
Immediately upon termination of Employment or when sooner requested by
GTECH Employee shall deliver to GTECH all records and other things containing or
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embodying Confidential Information within Employee's possession or control,
whether or not such records, things or information were generated by Employee.
3. Inventions. Employee hereby unreservedly assigns to GTECH all rights
Employee may have or hereafter acquire in any new information, concept or thing
(whether or not patentable) which is both (i) based upon or related to any
Confidential Information or Services and Products and (ii) generated during
Employment or within one year after termination thereof ("Invention").
Employee shall make prompt and full disclosure of each Invention to
GTECH and, at GTECH's request and expense, shall execute and/or assist GTECH in
executing formal applications for patents, copyrights or other commercial
protections anywhere in the world, and Employee shall do all other things deemed
by GTECH to be necessary or desirable to effect the full assignment and
protection of all the rights to Inventions herein granted to GTECH.
4. Non-Competition. During Employment and for three (3) years immediately
thereafter, Employee shall not disturb any business relationship between GTECH
and its employees, dealers, customers, suppliers or other business associates.
During Employment and for eighteen (18) months immediately thereafter, Employee
shall not directly or indirectly engage in any activity (if such activity is
reasonably related to any activity engaged in by Employee as an employee of the
Company) in conjunction with and to the benefit of any business or endeavor
which is reasonably deemed by GTECH to be, or about to be in competition with
the Services and Products anywhere in the world where GTECH is then doing or
pursuing business or is to Employee's knowledge about to do or pursue business.
Employee shall promptly notify GTECH of any change in address,
on-Company employment or business activity occurring within eighteen (18) months
after termination of Employment. Such notice shall include the name and address
of each such employer or business associate as well as the nature of each such
non-Company employment or business activity.
5. Games. If Employee is or shall become an employee of the Company, neither
Employee nor any members of Employee's household or immediate family shall,
during such employment, participate in any lottery or other game marketed or
provided by the Company, and all such persons are prohibited from claiming or
receiving any benefit as a result of such prohibited participation.
6. Scienter. Employee represents that he/she has read and fully understands
this Agreement, having consulted such persons as he/she deems appropriate
regarding its scope and effect.
7. Construction
a. Except as may otherwise be provided herein, this writing
represents the entire Agreement and understanding of the parties
with respect to the
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subject matter hereof, and supersedes all prior agreements and
understandings of the parties in respect thereto.
b. Nothing contained herein shall be construed as giving Employee
any right to employment with the Company.
c. In case any one or more of the provisions contained in this
Agreement shall for any reason be held invalid, illegal or
unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the enforceability of any other
provisions of this Agreement. If any one or more of the
provisions contained herein shall for any reason be held to be
excessively broad as to duration, scope, activity or subject, it
shall be construed, by limiting or reducing it, so as to be
enforceable to the extent compatible with the applicable law as
it shall then appear. Employee acknowledges that the duration,
territorial and other restrictions set forth herein are, at this
time, reasonable to protect GTECH's business interests.
d. This Agreement shall not be modified except in writing signed by
all parties hereto.
e. No waiver of any provisions of this Agreement shall be effective
unless agreed to in writing by the party against whom such waiver
is sought to be enforced. Waiver of any default or breach
hereunder shall not constitute a waiver of any other default or
breach whether similar or otherwise.
f. Section headings are for convenience only and do not form any
part of this Agreement and shall not affect the meaning thereof.
g. The validity, interpretation and enforcement of this Agreement
shall be governed by the laws of Rhode Island other than any law
of Renvoir.
8. Binding Effect.
a. This Agreement shall be binding upon and inure to the benefit of
GTECH its legal representatives and permitted assigns and upon
Employee, his/her legal representatives, heirs, executors and
administrators.
b. This Agreement shall be assignable by the Company in whole or in
part, to any successor to substantially all of any major portion
of the Company's business. This Agreement is not assignable by
Employee.
c. The provisions of this Agreement shall survive termination of
Employment.
d. In addition to any other legal and/or equitable remedies
available to GTECH for the enforcement of the terms hereof, GTECH
shall be entitled to specific performance and to injunctive
relief against any actual or actively contemplated violation
thereof, including without limitation, ex parte temporary
restraining orders without proof of irreparable harm, lack of
alternatives at law and other usual prerequisites therefore.
IN WITNESS WHEREOF, the parties hereto have individually, or by their duly
authorized representative(s), executed this Agreement as of the date first above
written.
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FOR GTECH CORPORATION BY:
/s/ Thomas J. Sauser /s/ Margaret M. North
- ------------------------------ ----------------------------------
Employee Signature
Title: CFO Title: Director, HR Admin
---------------------
- ------------------------------ ----------------------------------
Witness Witness
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Annex 3
INDEMNIFICATION AGREEMENT
This Agreement is made as of the 22nd day of October 1999, by and between GTECH
Holdings Corporation, a Delaware corporation (the "Corporation"), and Thomas J.
Sauser ("Indemnitee"), a director and/or officer of the Corporation.
BACKGROUND
Directors and Officers of public companies increasingly have been subjected to
suits by stockholders and third parties, and court decisions, in some instances,
have expanded significantly the scope of directors' and officers' personal
liability. It is deemed to be in the best interests of the Corporation and its
stockholders to attempt to alleviate the increased risks created by these
developments, in order to better enable the Corporation to attract and retain as
directors and officers the most capable persons. Toward this end, the
Corporation desires to enter into this Agreement with Indemnitee.
NOW, THEREFORE, in consideration of the premises, the Corporation and Indemnitee
do hereby agree as follows:
1. DEFINITIONS.
The following terms shall have the following definitions as used in this
Agreement:
(a) "Proceeding" includes any threatened, pending, or completed action,
suit or proceeding, whether brought in the right of the Corporation or otherwise
and whether of a civil, criminal, administrative or investigative nature, in
which Indemnitee may be or may have been involved as a party or otherwise, by
reason of the fact that Indemnitee is or was a director and/or officer of the
Corporation or any subsidiary of the Corporation, by reason of any action taken
by him or of any inaction on his part while acting as such a director and/or
officer, or by reason of the fact that he is or was serving, while a director or
officer of the Corporation, at the request of another corporation, partnership,
joint venture, trust or other enterprise, whether or not he is serving in such
capacity at the time any liability or expense is incurred for which
indemnification or reimbursement can be provided under this Agreement.
(b) "Expenses" includes, without limitation, expenses of investigations,
judicial or administrative proceedings or appeals, amounts paid in settlement by
or on behalf of Indemnitee, attorneys' fees and disbursements and any expenses
of establishing a right to indemnification under Paragraph 5 (c) of this
Agreement, but shall not include the amount of any judgments, fines or penalties
against Indemnitee.
(c) "Independent Legal Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and may include, without
limitation, regular outside counsel to the Corporation.
(d) References to "other enterprise" shall include employee benefit
plans; references to "fines" shall include any excise tax assessed with respect
to any employee benefit plan; and a
<PAGE> 30
person who acted in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the Corporation" as referred to in this Agreement.
2. OBLIGATION TO INDEMNIFY.
(a) General. Subject to Paragraph 8, the Corporation shall indemnify
Indemnitee if Indemnitee is a party to or threatened to be made a party to or
otherwise involved in any Proceeding (including a Proceeding against the
Indemnitee by or in the right of the Corporation to procure a judgment in its
favor) by reason of the fact that Indemnitee is or was a director and/or officer
of the Corporation or any subsidiary of the Corporation or is or was serving
while a director or officer of the Corporation, at the request of another
corporation, partnership, joint venture, trust or other enterprise, against all
Expenses, judgments, fines and penalties, actually and reasonably incurred by
Indemnitee in connection with the defense or settlement of such Proceeding, but
only if Indemnitee acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Corporation.
(b) Indemnification of Successful Party. Notwithstanding any other
provisions of this Agreement, to the extent that Indemnitee has been successful
on the merits or otherwise, in defense of any Proceeding or in defense of any
claim, issue or matter therein, including the dismissal of an action with or
without prejudice, Indemnitee shall be indemnified by the Corporation against
all Expenses actually and reasonably incurred in connection therewith.
(c) Indemnification of a Witness. Notwithstanding any other provision of
this Agreement, to the extent that Indemnitee is, by reason of being a director
or officer of the Corporation or any subsidiary of the Corporation or serving
while a director or officer of the Corporation at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, a witness in any Proceeding, he shall
be indemnified by the Corporation against all expenses actually and reasonably
incurred by him or on his behalf in connection therewith.
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3. ADVANCEMENT OF EXPENSES.
Subject to Paragraph 8, the Expenses actually and reasonably incurred by
Indemnitee pursuant to Paragraph 2 (a) in any Proceeding shall be paid by the
Corporation in advance at the written request of the Indemnitee. Indemnitee
hereby agrees promptly to repay the Corporation any amount so advanced to
Indemnitee if and to the extent that it is ultimately determined that Indemnitee
is not entitled to Indemnification for or to advancement of such Expenses.
4. CERTAIN RIGHTS AND OBLICATIONS CONCERNING THE DEFENSE, SETTLEMENT AND
PAYMENT OF CLAIMS.
(a) Application for Payment. Any indemnification or advance under
Paragraphs 2 and/or 3 shall be made by the Corporation no later than 45 days
after receipt of the written request of the Indemnitee, including therein or
therewith such documentation and information as is reasonably available to
Indemnitee and is reasonably necessary to determine whether and to what extent
Indemnitee is entitled to advancement of expenses or indemnification, as the
case may be, unless within said 45 day period a determination that the
Indemnitee has not met the relevant standards or requirements for
indemnification or advancement of Expenses set forth in Paragraphs 2 and/or 3 is
made (i) by the Board of Directors (by a majority vote of a quorum consisting of
Directors who were not parties to such Proceeding) or (ii) if a quorum of the
Board of Directors consisting of such non-party Directors is not obtainable or,
even if obtainable, such quorum so directs, by Independent Legal Counsel in
written opinion.
(b) Corporation May Assume Defense. The Corporation shall have the
right, upon notice to the Indemnitee, to assume the defense of any Proceeding
with Counsel reasonably satisfactory to the Indemnitee. If the Corporation
notifies the Indemnitee of its election to defend the Proceeding, the
Corporation shall have no liability for the costs (including attorneys' fees) of
the Indemnitee incurred in connection with the defense of such Proceeding
subsequent to such notice, unless (i) such costs (including attorneys' fees)
have been authorized by the Corporation, (ii) the Cooperation shall not have
employed counsel reasonably satisfactory to such Indemnitee to assume the
defense of such Proceeding or (iii) the Corporation shall not, in fact, have
employed counsel on a timely basis to assume the defense of such Proceeding.
Notwithstanding the foregoing, the Indemnitee may elect to retain counsel at the
Indemnitee's own cost and expense to participate with counsel retained by the
Corporation in the defense of such Proceeding.
(c) Settlement. The Corporation shall not be required to obtain the
consent of the Indemnitee to the Settlement of any Proceeding as to which the
Corporation has undertaken the defense of such Indemnitee if (i) the Corporation
assumes the payment of all liability therefore, and (ii) such settlement does
not impose any penalty upon, or restrict the activities of, the Indemnitee.
Indemnitee shall not settle any Proceeding with respect to which indemnification
or advancement of Expenses is sought hereunder, except with the consent of the
Corporation, which consent shall not be unreasonably withheld or delayed.
Failure of Indemnitee to obtain such consent shall release the Corporation from
its obligation to indemnify Indemnitee with respect to such settlement.
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(d) Notice of Claims. Indemnitee shall give to the Corporation notice in
writing as soon as practicable of any claim made against him for which
indemnification will or could reasonably be expected to be sought under this
Agreement, but the good faith failure of Indemnitee to give such notice shall
not constitute a forfeiture of Indemnitee's right of indemnification under this
Agreement. In addition, Indemnitee shall give the Corporation such information
and cooperation as it may reasonably request regarding any such claim and as
shall be within Indemnitee's power to provide.
5. REMEDIES OF INDEMNITEE.
(a) Disputes. In the event of any dispute with respect to entitlement to
payments under this Agreement, Indemnitee shall be entitled, at his option, to
an adjudication in an appropriate court of the State of Delaware, or in any
other court of competent jurisdiction, or in arbitration, of his entitlement to
such payments. Any arbitration shall be conducted pursuant to the rules then
obtaining of the American Arbitration Association in the City of Providence,
Rhode Island (or such other location as the Corporation and Indemnitee shall
mutually agree). Unless otherwise mutually agreed by the Corporation and
Indemnitee, (i) such arbitration shall be conducted before a panel of three
arbitrators, one of whom shall be selected by the Corporation, one by the
Indemnitee and the third by the other two arbitrators, and (ii) the arbitrator
selected by the other two arbitrators shall be required to have served as a
director and/or executive officer of a corporation which, during at least one
year of such service, had equity securities listed for trading on the New York
Stock Exchange or the American Stock Exchange or quoted on the National
Association of Securities Dealers Automated Quotations System. The decision of
the arbitrators shall be final and binding upon the parties and may be entered
in any court of competent jurisdiction. This arbitration provision shall be
specifically enforceable. Indemnitee shall commence any such proceeding seeking
an adjudication within 180 days following the earlier of (i) the expiration of
the 45 day period specified in Paragraph 4 (a) or (ii) the denial by the
Corporation of Indemnitee's demand for such payment.
(b) Proof. The burden of proving that indemnification or advances
requested by Indemnitee are not owed by the Corporation shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors or Independent Legal Counsel) to have made a determination prior to
the commencement of such adjudication proceeding by Indemnitee that
indemnification or advances are proper in the circumstances because Indemnitee
has met the applicable standard of conduct, nor an actual determination by the
Corporation (including its Board of Directors or Independent Legal Counsel) that
Indemnitee has not met such applicable standard of conduct, shall be a defense
to the adjudication proceeding by Indemnitee or create a presumption that the
Indemnitee has not met the applicable standard of conduct. The termination of
any Proceeding by judgment, order of court, settlement, conviction, or upon a
plea of nolo contendere, or its equivalent, shall not, of itself, create a
presumption that Indemnitee did not act in good faith in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation.
(c) Expenses to Pursue Remedies. In the event that Indemnitee seeks an
adjudication proceeding to enforce his rights under, or to recover damages for
breach of, this Agreement, Indemnitee shall be entitled to recover from the
Corporation, and shall be indemnified by the
32
<PAGE> 33
Corporation against, any and all Expenses actually and reasonably incurred by
him in such proceeding, but only if he prevails therein. If it shall be
determined in said proceeding that Indemnitee is entitled to receive part but
not all of the indemnification or advancement of expenses sought, the Expenses
incurred by Indemnitee in connection with such proceeding shall be
appropriately prorated.
6. INDEMNIFICATION AND ADVANCEMENT HEREUNDER NOT EXCLUSIVE.
The indemnification and advancement of expenses provided by this
Agreement shall not be deemed exclusive of any other rights to which Indemnitee
may be entitled under the Corporation's Certificate of Incorporation or By-Laws,
any agreement, any vote of stockholders or disinterested Directors, the General
Corporation Law of the State of Delaware, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office. Notwithstanding the foregoing, unless otherwise expressly agreed to by
the Corporation, the provisions of Paragraphs 4, 5, 8 and 10 (a) of this
Agreement shall govern the rights of Indemnitee to indemnification under the
Corporation's By-Laws.
7. PARTIAL INDEMNIFICATION.
If Indemnitee is entitled under any provision of this Agreement to
indemnification by the Corporation for some or a portion of the Expenses,
judgments, fines or penalties actually and reasonably incurred by him in the
investigation, defense, appeal or settlement of any Proceeding but not, however,
for the total amount thereof, the Corporation shall nevertheless indemnify
Indemnitee for the portion of such Expenses, judgments, fine or penalties to
which Indemnitee is entitled.
33
<PAGE> 34
8. EXCLUSIONS.
Notwithstanding any other provision of this Agreement, the Corporation
shall not be obligated under this Agreement to make payment in regard to any
liability or Expense of Indemnitee:
(a) if such payment is prohibited by applicable law;
(b) to the extent the Indemnitee has received payment in regard to such
liability or Expense under an insurance policy or otherwise;
(c) if such liability or Expense is based upon or attributable to the
Indemnitee gaining any personal profit or advantage to which he was not legally
entitled;
(d) with respect to proceedings or claims for an accounting of profits
made from the purchase or sale by the Indemnitee of securities of the
Corporation within the meaning of Section 16 (b) of the Securities Exchange Act
of 1934 and amendments thereto or similar provisions of any state statutory law
or common law;
(e) if such liability or Expense is determined to have been brought
about by or materially contributed to by the dishonesty of the Indemnitee
seeking payment hereunder or by his acts in bad faith, intentional misconduct or
knowing violation of law or duty of loyalty to the Corporation or its
stockholders; or
(f) with respect to proceedings or claims initiated or brought
voluntarily by the Indemnitee, and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware Corporation Law, but such indemnification or
advancement of Expenses may be provided by the Corporation in specific cases if
the Board of Directors finds it to be appropriate.
9. DURATION OF AGREEMENT.
Unless earlier terminated by mutual agreement of the Corporation and
Indemnitee, this Agreement shall continue until and terminate upon the later of:
(a) 10 years after the date that Indemnitee shall have ceased to serve in all
capacities in respect of which Indemnitee is granted rights of indemnification
hereunder, or (b) the final termination of all pending Proceedings in respect of
which the Indemnitee is granted rights of indemnification or advancement of
Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to
Paragraph 5 of this Agreement relating thereto.
34
<PAGE> 35
10. MISCELLANEOUS.
(a) Subrogation. In the event of any payment by the Corporation to
Indemnitee under this Agreement, the Corporation shall be subrogated to the
extent of such payment to all of the rights of recovery of Indemnitee (including
rights to receive payments under insurance policies), who shall execute all
papers required and take all action necessary to secure such rights, including
execution of such documents as are necessary to enable the Corporation to bring
suit to enforce such rights.
(b) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute the original.
(c) Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
(d) Successors and Assigns. This Agreement shall be binding upon the
Corporation and its successors and assigns and shall inure to the benefit of the
heirs and personal representatives of the Indemnitee.
(e) Headings. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
(f) Modification and Waiver. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar), nor shall such waiver constitute a continuing waiver. Without the
consent of Indemnitee, no amendment, alteration or termination of this Agreement
or any provision hereof shall be effective as to Indemnitee with respect to any
action taken or omitted by Indemnitee prior to such amendment, alteration or
termination.
(g) Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed or if (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
(i) If to Indemnitee, at the address indicated on the signature
page hereof.
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<PAGE> 36
(ii) If to the Corporation, to:
GTECH Corporation
55 Technology Way
West Greenwich, RI 02817
Attention: General Counsel
or to such other address as may have been furnished to Indemnitee by the
Corporation.
(h) Savings Clause. If this Agreement or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify Indemnitee as to Expenses, judgments,
fines and penalties, and advance Expenses to Indemnitee actually and reasonably
incurred, with respect to any Proceeding to the full extent permitted by any
applicable portion of this Agreement that shall not have been invalidated by any
applicable law.
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be duly
executed as of the date first above written.
GTECH HOLDINGS CORP. INDEMNITEE
By: /s/ William Y. O'Connor /s/ Thomas J. Sauser
-------------------------- -----------------------------------------
Address: 5 Cedar Rock Meadows
-----------------------
East Greenwich, RI
---------------------------------
02818
----------------------------------
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