-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VDi/0A+rxgbRWHVKi7FJXb9TgDMCizBqbxt6pfclwkWd6xwIHCT68drZparfJmqC SsUHx9j6uqL3xQmfdm1AaQ== 0001036050-98-001008.txt : 19980616 0001036050-98-001008.hdr.sgml : 19980616 ACCESSION NUMBER: 0001036050-98-001008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980430 FILED AS OF DATE: 19980615 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AUTOTOTE CORP CENTRAL INDEX KEY: 0000750004 STANDARD INDUSTRIAL CLASSIFICATION: CALCULATING & ACCOUNTING MACHINES (NO ELECTRONIC COMPUTERS) [3578] IRS NUMBER: 810422894 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11693 FILM NUMBER: 98647965 BUSINESS ADDRESS: STREET 1: 100 BELLEVUE CITY: NEWARK STATE: DE ZIP: 19714 BUSINESS PHONE: 3027374300 MAIL ADDRESS: STREET 1: 100 BELLEVUE ROAD CITY: NEWARK STATE: NJ ZIP: 19714 FORMER COMPANY: FORMER CONFORMED NAME: UNITED TOTE INC DATE OF NAME CHANGE: 19920317 10-Q 1 AUTOTOTE CORPORATION FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Form 10-Q Mark One [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: APRIL 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition from _______________________ to ____________________________ Commission File number: 0-13063 AUTOTOTE CORPORATION (Exact name of registrant as specified in its charter) Delaware 81-0422894 --------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 750 Lexington Avenue, New York, New York 10022 ---------------------------------------------- (Address of principal executive offices) (Zip Code) (212)-754-2233 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock as of June 10, 1998: Class A Common Stock: 35,936,949 Class B Common Stock: None Page 1 of 19 AUTOTOTE CORPORATION AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND OTHER INFORMATION QUARTER ENDED APRIL 30, 1998 Page ------- PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: Balance Sheets as of April 30, 1998 and October 31, 1997 3 Statements of Operations for the Three Months Ended April 30, 1998 and 1997 4 Statements of Operations for the Six Months Ended April 30, 1998 and 1997 5 Statements of Cash Flows for the Six Months Ended April 30, 1998 and 1997 6 Notes to Consolidated Financial Statements 7-13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14-17 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Stockholders 18 Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 18 2 AUTOTOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts)
APRIL 30, October 31, 1998 1997 ----------------- ----------------- ASSETS (UNAUDITED) Current assets: Cash and cash equivalents........................................................... $ 11,590 18,207 Restricted cash..................................................................... 588 512 Accounts receivable, net............................................................ 11,497 13,560 Inventories......................................................................... 7,727 6,653 Prepaid expenses, deposits and other current assets................................. 1,800 2,276 --------------------- ----------------- Total current assets............................................................. 33,202 41,208 --------------------- ----------------- Property and equipment, at cost....................................................... 190,372 180,170 Less accumulated depreciation....................................................... 110,793 103,781 --------------------- ----------------- Net property and equipment....................................................... 79,579 76,389 --------------------- ----------------- Goodwill, net of amortization......................................................... 5,093 5,916 Operating right, net of amortization.................................................. 15,348 15,848 Other assets and investments.......................................................... 16,471 14,180 --------------------- ----------------- $ 149,693 153,541 ===================== ================= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current installments of long-term debt.............................................. $ 1,790 2,609 Accounts payable.................................................................... 12,500 8,698 Accrued liabilities................................................................. 26,511 24,411 --------------------- ----------------- Total current liabilities........................................................ 40,801 35,718 --------------------- ----------------- Deferred income taxes................................................................. 2,206 2,551 Other long-term liabilities........................................................... 992 1,264 Long-term debt, excluding current installments........................................ 110,964 112,248 Long-term debt, convertible subordinated debentures................................... 35,000 35,000 --------------------- ----------------- Total liabilities................................................................ 189,963 186,781 --------------------- ----------------- Stockholders' equity (deficit): Preferred stock, par value $1.00 per share, 2,000 shares authorized, none outstanding...................................................................... -- -- Class A common stock, par value $0.01 per share, 99,300 shares authorized, 35,844 and 35,335 shares outstanding at April 30, 1998 and October 31, 1997, respectively............................................................... 356 354 Class B non-voting common stock, par value $0.01 per share, 700 shares authorized, none outstanding...................................................... -- -- Additional paid-in capital.......................................................... 148,640 148,238 Accumulated losses.................................................................. (188,611) (181,351) Treasury stock, at cost............................................................. (102) (102) Currency translation adjustment..................................................... (553) (379) --------------------- ----------------- Total stockholders' equity (deficit)............................................. (40,270) (33,240) --------------------- ----------------- $ 149,693 153,541 ===================== =================
See accompanying notes to consolidated financial statements. 3 AUTOTOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended April 30, 1998 and 1997 (Unaudited, in thousands, except per share amounts)
1998 1997 ----------------- ----------------- Operating revenues: Services............................................................................ $ 32,925 34,969 Sales............................................................................... 3,290 6,952 --------------------- ----------------- 36,215 41,921 --------------------- ----------------- Operating expenses (exclusive of depreciation and amortization shown below): Services............................................................................ 20,297 20,865 Sales............................................................................... 1,972 4,620 --------------------- ----------------- 22,269 25,485 --------------------- ----------------- Total gross profit............................................................... 13,946 16,436 Selling, general and administrative expenses.......................................... 5,686 7,389 Gain on sale of business.............................................................. (684) (257) Depreciation and amortization......................................................... 7,230 10,143 --------------------- ----------------- Operating income (loss).......................................................... 1,714 (839) Other deductions: Interest expense.................................................................... 3,825 3,680 Other (income) expense.............................................................. (214) 25 --------------------- ----------------- 3,611 3,705 --------------------- ----------------- Loss before income tax expense...................................................... (1,897) (4,544) Income tax expense.................................................................... 169 147 --------------------- ----------------- Net loss.............................................................................. $ (2,066) (4,691) ===================== ================= Net loss per basic share and diluted share............................................ $ (0.06) (0.14) ===================== ================= Number of shares used in per share calculation........................................ 35,504 34,498 ===================== =================
See accompanying notes to consolidated financial statements. 4 AUTOTOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Six Months Ended April 30, 1998 and 1997 (Unaudited, in thousands, except per share amounts)
1998 1997 ----------------- ----------------- Operating revenues: Services............................................................................ $ 64,252 66,389 Sales............................................................................... 6,394 11,047 --------------------- ----------------- 70,646 77,436 --------------------- ----------------- Operating expenses (exclusive of depreciation and amortization shown below): Services............................................................................ 40,005 39,838 Sales............................................................................... 3,762 7,433 --------------------- ----------------- 43,767 47,271 --------------------- ----------------- Total gross profit............................................................... 26,879 30,165 Selling, general and administrative expenses.......................................... 12,845 14,696 Gain on sale of business.............................................................. (684) (257) Depreciation and amortization......................................................... 14,615 19,852 --------------------- ----------------- Operating income (loss).......................................................... 103 (4,126) Other deductions: Interest expense.................................................................... 7,654 7,314 Other (income) expense.............................................................. (585) 132 --------------------- ----------------- 7,069 7,446 --------------------- ----------------- Loss before income tax expense...................................................... (6,966) (11,572) Income tax expense.................................................................... 294 542 --------------------- ----------------- Net loss.............................................................................. $ (7,260) (12,114) ===================== ================= Net loss per basic share and diluted share............................................ $ (0.20) (0.36) ===================== ================= Number of shares used in per share calculation........................................ 35,447 33,616 ===================== =================
See accompanying notes to consolidated financial statements. 5 AUTOTOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended April 30, 1998 and 1997 (Unaudited, in thousands)
1998 1997 ---------------------- --------------- Cash flows from operating activities: Net loss....................................................................... $ (7,260) (12,114) ---------------------- --------------- Adjustments to reconcile net loss to cash provided by operating activities: Depreciation and amortization.................................................... 14,615 19,852 Changes in operating assets and liabilities...................................... 7,706 1,837 Other............................................................................ (176) 134 --------------------- ----------------- Total adjustments............................................................. 22,145 21,823 ---------------------- --------------- Net cash provided by operating activities............................................. 14,885 9,709 ---------------------- --------------- Cash flows from investing activities: Capital expenditures................................................................ (735) (649) Wagering systems expenditures....................................................... (14,267) (2,773) Proceeds from sale of business and asset disposals, net of cash transferred......... 45 19,451 Increase in other assets and investments............................................ (4,559) (1,606) ---------------------- --------------- Net cash used in investing activities................................................. (19,516) 14,423 ---------------------- --------------- Cash flows from financing activities: Net repayments under revolving credit facilities.................................... -- (4,487) Payments on long-term debt.......................................................... (2,059) (22,701) Net proceeds from issuance of common stock.......................................... 146 956 --------------------- ----------------- Net cash used by financing activities................................................. (1,913) (26,232) ---------------------- --------------- Effect of exchange rate changes on cash............................................... (73) (289) ---------------------- --------------- Decrease in cash and cash equivalents................................................. (6,617) (2,389) Cash and cash equivalents, beginning of period........................................ 18,207 5,988 --------------------- ----------------- Cash and cash equivalents, end of period.............................................. $ 11,590 3,599 ====================== =============== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest....................................................................... $ 7,352 6,785 ====================== =============== Income taxes................................................................... $ 475 825 ====================== =============== The Company issued 2,964 shares of Class A Common Stock during the 1997 period in connection with the settlement of stockholder litigation.
See accompanying notes to consolidated financial statements. 6 AUTOTOTE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 1998 (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1) CONSOLIDATED FINANCIAL STATEMENTS The consolidated balance sheet as of April 30, 1998 and the consolidated statements of operations for the three and six months ended April 30, 1998 and 1997, and the consolidated statements of cash flows for the six months then ended, have been prepared by the Company without audit. In the opinion of management, all adjustments necessary to present fairly the financial position of the Company at April 30, 1998 and the results of its operations for the three and six months ended April 30, 1998 and 1997 and its cash flows for the six months ended April 30, 1998 and 1997 have been made. In the second quarter of fiscal 1998, the Company reversed reserves of $1.3 million in connection with the collection of receivables previously reserved due to concerns about their recoverability and cost savings related to the refurbishment of certain terminals. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended October 31, 1997 (the "1997 Form 10-K"). The results of operations for the period ended April 30, 1998 are not necessarily indicative of the operating results for the full year. Certain items in the prior year's financial statements have been reclassified to conform with the current year presentation. 2) FISCAL 1997 SALE OF THE EUROPEAN LOTTERY BUSINESS On April 15, 1997, the Company completed the sale of its European lottery business through the sale of its stock ownership of Tele Control Kommunikations und Computersysteme Aktien Gesellschaft ("Tele Control") for cash consideration of approximately $26,600, including contingent consideration of approximately $1,600. At closing, the Company provided the purchaser with a letter of credit to secure certain obligations under the sales agreement. At October 31, 1997, $1,500 remained outstanding under the letter of credit, which amount was reduced to $500 at April 30, 1998. The letter of credit is scheduled to expire on October 15, 1998. In connection with the reduction of the letter of credit balance, the Company recorded an additional $684 gain on sale of business in the second quarter of fiscal 1998. The following unaudited information shows the revenues, expenses and operating income of the European lottery business that were included in the Company's Consolidated Statements of Operations for the three months and six months ended April 30, 1997. Interest and income tax expenses have not been included in the table below.
THREE MONTHS SIX MONTHS ENDED ENDED APRIL 30, 1997 APRIL 30, 1997 ---------------------- --------------- Operating revenue.............................................................. $ 2,463 6,119 Operating expenses, including selling, general and administrative expenses, and depreciation and amortization expenses.......................... 2,772 6,181 ---------------------- --------------- Operating loss................................................................. $ (309) (62) ====================== =============== 3) INVENTORIES Inventories consist of the following: APRIL 30, OCTOBER 31, 1998 1997 --------------------- -------------- Parts and work-in-process...................................................... $ 6,594 5,762 Finished goods................................................................. 319 244 Ticket paper................................................................... 814 647 ---------------------- -------------- Total.......................................................................... $ 7,727 6,653 ===================== ==============
7 AUTOTOTE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued) APRIL 30, 1998 (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Work-in-process includes costs for equipment expected to be sold. Costs incurred for equipment associated with specific wagering system service contracts not yet placed in service are classified as construction in progress in property and equipment. 4) DEBT At April 30, 1998, the Company had approximately $22,934 available for borrowing under the Company's revolving Credit Facility (the "Facility"). There were no borrowings outstanding under the Facility at April 30, 1998, however, approximately $2,066 in letters of credit were issued under the Facility. See Note 7 of Notes to the Consolidated Financial Statements for the year ended October 31, 1997 included in the 1997 Form 10-K. 5) EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), which the Company adopted in the first quarter of fiscal 1998. Under SFAS 128, the Company is required to present two earnings per share amounts for each period presented, and all prior period earnings per share amounts are required to be restated to conform with the provisions of SFAS 128. Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted earnings per share gives effect to all dilutive potential common shares that were outstanding during the period. Potential common shares are not included in the calculation of the dilutive net loss per share in the second quarter and first six months of fiscal 1998 and the second quarter and first six months of fiscal 1997, since their inclusion would be anti-dilutive. Basic and diluted net loss per common share for the second quarter and first six months of fiscal 1998 and the restated net loss per common share for the second quarter and first six months of fiscal 1997, therefore, are essentially the same. At April 30, 1998 and 1997, the Company had outstanding stock options, warrants, convertible subordinated debentures, Performance Accelerated Restricted Stock Units, and deferred shares which could potentially dilute basic earnings per share in the future. Quarterly and year-to date computations of per share amounts are made independently, therefore, the sum of per share amounts for the quarters may not equal per share amounts for the year. 6) FINANCIAL INFORMATION FOR GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES The Company conducts substantially all of its business through its domestic and foreign subsidiaries. In July 1997, the Company issued $110 million aggregate principal amount of Senior Notes bearing interest at an annual rate of 10 7/8% (the "Notes"). The Notes are jointly and severally guaranteed by substantially all of the Company's wholly-owned domestic subsidiaries (the "Guarantor Subsidiaries"). Presented below is condensed consolidating financial information for Autotote Corporation (the "Parent Company") which includes the activities of Autotote Management Corporation, the Guarantor Subsidiaries and the wholly-owned foreign subsidiaries and the non-wholly owned domestic and foreign subsidiaries (the "Non-Guarantor Subsidiaries") as of April 30, 1998 (unaudited) and October 31, 1997 (audited) and for the three and six month periods ended April 30, 1998 and 1997 (unaudited). The condensed consolidating financial information has been presented to show the nature of assets held, results of operations and cash flows of the Parent Company, Guarantor Subsidiaries and Non-Guarantor Subsidiaries assuming the guarantee structure of the Notes was in effect at the beginning of the periods presented. Separate financial statements for the Guarantor Subsidiaries are not presented based on management's determination that they would not provide additional information that is material to investors. The condensed consolidating financial information reflects the investments of the Parent Company in the Guarantor and Non-Guarantor Subsidiaries using the equity method of accounting. In addition, corporate interest and administrative expenses have not been allocated to the subsidiaries. 8
AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET April 30, 1998 (Unaudited, in thousands) Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated --------------- -------------- --------------- ------------- -------------- ASSETS Cash and cash equivalents........ $ 9,270 (461) 2,781 -- 11,590 Accounts receivable, net......... -- 9,045 2,452 -- 11,497 Other current assets............. 124 11,729 2,754 (4,492) 10,115 Property and equipment, net...... 293 68,902 6,484 3,900 79,579 Investment in subsidiaries....... 59,000 -- -- (59,000) -- Goodwill......................... 207 2,323 2,563 -- 5,093 Other assets..................... 5,602 27,008 712 (1,503) 31,819 --------------- -------------- --------------- ------------- -------------- Total assets.................. $ 74,496 118,546 17,746 (61,095) 149,693 =============== ============== =============== ============= ============== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities.............. $ 11,747 23,768 3,418 78 39,011 Current installments of long-term debt.................. 1,250 371 184 (15) 1,790 Long-term debt, excluding current installments............ 145,000 193 771 -- 145,964 Other non-current liabilities.... 952 508 1,738 -- 3,198 Intercompany balances............ (44,183) 47,200 (3,017) -- -- Stockholders' equity (deficit)... (40,270) 46,506 14,652 (61,158) (40,270) --------------- -------------- --------------- ------------- -------------- Total liabilities and stockholders' equity (deficit).................... $ 74,496 118,546 17,746 (61,095) 149,693 =============== ============== =============== ============= ============== AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET October 31, 1997 (Audited, in thousands) Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated --------------- -------------- --------------- ------------- -------------- ASSETS Cash and cash equivalents........ $ 15,582 328 2,297 -- 18,207 Accounts receivable, net......... -- 10,547 3,013 -- 13,560 Other current assets............. 711 6,223 2,791 (284) 9,441 Property and equipment, net...... 161 67,071 9,302 (145) 76,389 Investment in subsidiaries....... 54,760 -- -- (54,760) -- Goodwill......................... 211 2,635 3,070 -- 5,916 Other assets..................... 5,937 24,895 528 (1,332) 30,028 --------------- -------------- --------------- ------------- -------------- Total assets.................. $ 77,362 111,699 21,001 (56,521) 153,541 =============== ============== =============== ============= ============== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities.............. $ 14,812 14,515 3,921 (139) 33,109 Current installments of long-term debt.................. 1,250 474 910 (25) 2,609 Long-term debt, excluding current installments............ 145,000 323 1,925 -- 147,248 Other non-current liabilities.... 1,111 538 2,166 -- 3,815 Intercompany balances............ (51,571) 54,467 (3,112) 216 -- Stockholders' equity (deficit)... (33,240) 41,382 15,191 (56,573) (33,240) --------------- -------------- --------------- ------------- -------------- Total liabilities and stockholders' equity (deficit).................... $ 77,362 111,699 21,001 (56,521) 153,541 =============== ============== =============== ============= ==============
9
AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS Three Months Ended April 30, 1998 (Unaudited, in thousands) Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated --------------- -------------- --------------- ------------- -------------- Operating revenues.................. $ -- 33,910 5,005 (2,700) 36,215 Operating expenses.................. -- 21,327 3,424 (2,482) 22,269 --------------- -------------- --------------- ------------- -------------- Gross profit..................... -- 12,583 1,581 (218) 13,946 Selling, general and administrative expenses........................... 2,082 2,862 832 (90) 5,686 Gain on sale of business............ (684) -- -- -- (684) Depreciation and amortization....... 29 6,511 773 (83) 7,230 --------------- -------------- --------------- ------------- -------------- Operating income (loss).......... (1,427) 3,210 (24) (45) 1,714 Interest expense.................... 3,766 30 38 (9) 3,825 Other (income) expense.............. (159) (66) 2 9 (214) --------------- -------------- --------------- ------------- -------------- Income (loss) before equity in income of subsidiaries, and income taxes................. (5,034) 3,246 (64) (45) (1,897) Equity in income of subsidiaries.... 3,057 -- -- (3,057) -- Income tax expense.................. 89 17 63 -- 169 --------------- -------------- --------------- ------------- -------------- Net income (loss)................... $ (2,066) 3,229 (127) (3,102) (2,066) =============== ============== =============== ============= ============== AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS Three Months Ended April 30, 1997 (Unaudited, in thousands) Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated --------------- -------------- --------------- ------------- -------------- Operating revenues.................. $ -- 33,941 8,181 (201) 41,921 Operating expenses.................. -- 20,621 5,366 (502) 25,485 --------------- -------------- --------------- ------------- -------------- Gross profit..................... -- 13,320 2,815 301 16,436 Selling, general and administrative expenses........................... 2,820 3,388 1,181 -- 7,389 Gain on sale of business............ (257) -- -- -- (257) Depreciation and amortization....... 12 7,266 2,860 5 10,143 --------------- -------------- --------------- ------------- -------------- Operating income (loss).......... (2,575) 2,666 (1,226) 296 (839) Interest expense.................... 3,754 11 50 (135) 3,680 Other (income) expense.............. (330) (197) 422 130 25 --------------- -------------- --------------- ------------- -------------- Income (loss) before equity in income of subsidiaries, and income taxes................. (5,999) 2,852 (1,698) 301 (4,544) Equity in income of subsidiaries.... 1,308 -- -- (1,308) -- Income tax expense.................. -- 7 75 65 147 --------------- -------------- --------------- ------------- -------------- Net income (loss)................... $ (4,691) 2,845 (1,773) (1,072) (4,691) =============== ============== =============== ============= ==============
10
AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS Six Months Ended April 30, 1998 (Unaudited, in thousands) Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated --------------- -------------- --------------- ------------- -------------- Operating revenues.................. $ -- 64,164 11,126 (4,644) 70,646 Operating expenses.................. -- 40,567 7,505 (4,305) 43,767 --------------- -------------- --------------- ------------- -------------- Gross profit..................... -- 23,597 3,621 (339) 26,879 Selling, general and administrative expenses........................... 5,062 5,959 1,824 -- 12,845 Gain on sale of business............ (684) -- -- -- (684) Depreciation and amortization....... 56 13,008 1,716 (165) 14,615 --------------- -------------- --------------- ------------- -------------- Operating income (loss).......... (4,434) 4,630 81 (174) 103 Interest expense.................... 7,523 47 101 (17) 7,654 Other (income) expense.............. (476) (60) (66) 17 (585) --------------- -------------- --------------- ------------- -------------- Income (loss) before equity in income of subsidiaries, and income taxes................. (11,481) 4,643 46 (174) (6,966) Equity in income of subsidiaries... 4,373 -- -- (4,373) -- Income tax expense.................. 152 -- 142 -- 294 --------------- -------------- --------------- ------------- -------------- Net income (loss)................... $ (7,260) 4,643 (96) (4,547) (7,260) =============== ============== =============== ============= ============== AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS Six Months Ended April 30, 1997 (Unaudited, in thousands) Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated --------------- -------------- --------------- ------------- -------------- Operating revenues.................. $ -- 60,176 18,479 (1,219) 77,436 Operating expenses.................. -- 37,338 11,118 (1,185) 47,271 --------------- -------------- --------------- ------------- -------------- Gross profit..................... -- 22,838 7,361 (34) 30,165 Selling, general and administrative expenses........................... 5,677 6,327 2,576 116 14,696 Gain on sale of business............ (257) -- -- -- (257) Depreciation and amortization....... 25 14,039 5,972 (184) 19,852 --------------- -------------- --------------- ------------- -------------- Operating income (loss).......... (5,445) 2,472 (1,187) 34 (4,126) Interest expense.................... 7,402 15 111 (214) 7,314 Other (income) expense.............. (330) (406) 659 209 132 --------------- -------------- --------------- ------------- -------------- Income (loss) before equity in income of subsidiaries, and income taxes................. (12,517) 2,863 (1,957) 39 (11,572) Equity in income of subsidiaries.... 403 -- -- (403) -- Income tax expense.................. -- 7 535 -- 542 --------------- -------------- --------------- ------------- -------------- Net income (loss)................... $ (12,114) 2,856 (2,492) (364) (12,114) =============== ============== =============== ============= ==============
11 AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED STATEMENT OF CASH FLOWS Six Months Ended April 30, 1998 (Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated ---------------- -------------- --------------- ------------- -------------- Net income (loss)................... $ (7,260) 4,643 (96) (4,547) (7,260) Depreciation and amortization.... 56 13,008 1,716 (165) 14,615 Equity in income of subsidiaries. (4,373) -- -- 4,373 -- Other non-cash adjustments....... 5 (130) (51) -- (176) Changes in working capital....... (2,008) 5,822 (181) 4,073 7,706 --------------- -------------- --------------- ------------- -------------- Net cash provided by (used in ) operating activities............... (13,580) 23,343 1,388 3,734 14,885 --------------- -------------- --------------- ------------- -------------- Cash flows from investing activities: Capital and wagering systems expenditures.................... (162) (10,091) (869) (3,880) (15,002) Other assets and investments..... (118) (4,626) 59 171 (4,514) --------------- -------------- --------------- ------------- -------------- Net cash provided by (used in) investing activities............... (280) (14,717) (810) (3,709) (19,516) --------------- -------------- --------------- ------------- -------------- Cash flows from financing activities: Payments on long-term debt....... -- (1,907) (162) 10 (2,059) Other, principally intercompany balances........................ 7,542 (7,509) 168 (55) 146 --------------- -------------- --------------- ------------- -------------- Net cash provided by (used in) financing activities............... 7,542 (9,416) 6 (45) (1,913) --------------- -------------- --------------- ------------- -------------- Effect of exchange rate changes on cash............................... 6 1 (100) 20 (73) --------------- -------------- --------------- ------------- -------------- Increase/(decrease) in cash and cash equivalents................... (6,312) (789) 484 -- (6,617) Cash and cash equivalents, beginning of year.................. 15,582 328 2,297 -- 18,207 --------------- -------------- --------------- ------------- -------------- Cash and cash equivalents, end of period............................. $ 9,270 (461) 2,781 -- 11,590 =============== ============== =============== ============= ==============
12 AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED STATEMENT OF CASH FLOWS Six Months Ended April 30, 1997 (Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated --------------- -------------- --------------- ------------- -------------- Net income (loss)................... $ (12,114) 2,856 (2,492) (364) (12,114) Depreciation and amortization.... 25 14,039 5,972 (184) 19,852 Equity in income of subsidiaries. (403) -- -- 403 -- Other non-cash adjustments....... 674 37 (577) -- 134 Changes in working capital....... 1,440 (3,351) 3,679 69 1,837 --------------- -------------- --------------- ------------- -------------- Net cash provided by (used in ) operating activities............... (10,378) 13,581 6,582 (76) 9,709 --------------- -------------- --------------- ------------- -------------- Cash flows from investing activities: Capital and wagering systems expenditures.................... (31) (2,831) (570) 10 (3,422) Proceeds from sale of business and asset disposals............. 21,650 246 (2,445) -- 19,451 Other assets and investments..... (183) (379) (945) (99) (1,606) --------------- -------------- --------------- ------------- -------------- Net cash provided by (used in) investing activities............... 21,436 (2,964) (3,960) (89) 14,423 --------------- -------------- --------------- ------------- -------------- Cash flows from financing activities: Net repayments under revolving credit facilities............... -- (4,500) 13 -- (4,487) Payments on long-term debt....... -- (22,256) (455) 10 (22,701) Other, principally intercompany balances........................ (12,447) 16,081 (2,837) 159 956 --------------- -------------- --------------- ------------- -------------- Net cash provided by (used in) financing activities............... (12,447) (10,675) (3,279) 169 (26,232) --------------- -------------- --------------- ------------- -------------- Effect of exchange rate changes on cash............................... 25 -- (310) (4) (289) --------------- -------------- --------------- ------------- -------------- Increase/(decrease) in cash and cash equivalents................... (1,364) (58) (967) -- (2,389) Cash and cash equivalents, beginning of year.................. 3,376 261 2,351 -- 5,988 --------------- -------------- --------------- ------------- -------------- Cash and cash equivalents, end of period............................. $ 2,012 203 1,384 -- 3,599 =============== ============== =============== ============= ==============
13 AUTOTOTE CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion addresses the financial condition of the Company as of April 30, 1998 and the results of its operations for the three and six month periods ended April 30, 1998, compared to the same periods last year. This discussion should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended October 31, 1997 ("fiscal 1997") included in the Company's Annual Report on Form 10-K for fiscal 1997. THREE MONTHS ENDED APRIL 30, 1998 COMPARED TO THREE MONTHS ENDED APRIL 30, 1997
Second Quarter Fiscal 1998 Second Quarter Fiscal 1997 ----------------------------------------------------- ---------------------------------------------------- Pari- Pari- Mutuel Lottery Mutuel Lottery Operations Operations Total Operations Operations Total ------------------ -------------- ------------ -------------- -------------- ------------- REVENUES: Services $ 30,911 2,014 32,925 30,302 4,667 34,969 Sales 3,035 255 3,290 1,949 5,003 6,952 ------------------ -------------- ------------ -------------- -------------- ------------- Total Revenues $ 33,946 2,269 36,215 32,251 9,670 41,921 ================== ============== ============ ============== ============== ============= GROSS PROFIT (excluding depreciation $ 13,173 773 13,946 12,898 3,538 16,436 and amortization) ================== ============== ============ ============== ============== =============
SECOND QUARTER REVENUE ANALYSIS Revenues decreased 14% or $5.7 million to $36.2 million in the second quarter of the fiscal year ending October 31, 1998 ("fiscal 1998") from $41.9 million in the second quarter of the fiscal year ended October 31, 1997. Pari-mutuel Operations services revenues of $30.9 million for the second quarter of fiscal 1998 improved $0.6 million or 2% compared to the second quarter of the prior year. This improvement reflects revenue increases resulting from the growth in handle in the Company's North American pari-mutuel operations, as well as increases in the Company's simulcasting and German operations. The growth in handle during the second quarter of fiscal 1998 compared to the second quarter of fiscal 1997 is attributable to the addition of four new racetracks and OTB sites, the addition of full card simulcasting at one North American racetrack customer, an increase in interface fees, the addition of three new simulcasting customers, the growth in video gaming, and the increase in simulcasting in Germany. Pari-mutuel Operations equipment sales revenues in the second quarter of fiscal 1998 of $3.0 million increased $1.1 million or 56% compared to the second quarter of the prior year due primarily to $2.3 million in sales of terminals and equipment to a former international customer for which the Company received a long-term note receivable. Lottery Operations services revenues decreased $2.7 million in the second quarter of fiscal 1998 to $2.0 million primarily because of the absence of $2.5 million in revenues provided in the prior year period by the Company's European lottery business which was sold in April 1997. Lottery Operations equipment sales revenues decreased significantly in the second quarter of fiscal 1998 to $0.3 million from $5.0 million in the same period in fiscal 1997. This decrease is primarily attributable to the absence in fiscal 1998 of prior period sales of $1.5 million of terminals to an Italian distributor and $3.3 million of terminals to the Israel lottery, partially offset by fiscal 1998 sales of $0.3 million. GROSS PROFIT ANALYSIS The total gross profit of $13.9 million in the second quarter of fiscal 1998 decreased by $2.5 million, or 15%, compared to the second quarter of fiscal 1997. Lower margins due to the absence of the Company's European lottery services revenues of $1.0 million, higher transponder costs in the simulcasting business, and higher track fees in the OTB business, were partially offset by an increase in margins earned on higher handle in the pari-mutuel operations services business. Gross profit as a percent of revenues in the Company's continuing services businesses was 39% in both second quarter periods, and equal to the gross profit in full fiscal 1997. Gross profit earned on equipment sales of $1.3 million in the second quarter of fiscal 1998 decreased by $1.0 million, or 43%, compared to the second quarter of fiscal 1997 due primarily to the absence of lottery sales in the second quarter of fiscal 1998. Gross profit as a percent of equipment sales was 40% in the second quarter of fiscal 1998, an increase from gross profit of 34% in the second quarter of fiscal 1997 as a result of a change in the mix of equipment and systems sold. 14 AUTOTOTE CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Continued) EXPENSE ANALYSIS Selling, general and administrative expenses include marketing, sales, administrative, engineering and software development, finance, legal and other expenses. Selling, general and administrative expenses decreased $1.7 million or 23% to $5.7 million in the second quarter of fiscal 1998 from $7.4 million in the second quarter of fiscal 1997. The decrease is primarily the result of the collection of receivables previously reserved due to concerns about their recoverability and cost reduction programs in Europe. Depreciation and amortization expenses decreased 29% to $7.2 million in the second quarter of fiscal 1998 compared to $10.1 million in the second quarter of fiscal 1997. The decrease results from the sale of the Company's European lottery business in April 1997, full amortization of certain intangible assets and lower depreciation on lottery assets in fiscal 1998. Interest expense of $3.8 million in the second quarter of fiscal 1998 increased $0.1 million from the second quarter of fiscal 1997, primarily reflecting higher interest rates, partially offset by lower borrowing levels. INCOME TAXES Income tax expense was $0.2 million in the second quarter of fiscal 1998 compared to $0.1 million in the fiscal 1997 second quarter. Income tax expense principally reflects foreign taxes, since no tax benefit has been recognized on domestic operating losses. SIX MONTHS ENDED APRIL 30, 1998 COMPARED TO SIX MONTHS ENDED APRIL 30, 1997
Six Months Fiscal 1998 Six Months Fiscal 1997 ----------------------------------------------------- ---------------------------------------------------- Pari- Pari- Mutuel Lottery Mutuel Lottery Operations Operations Total Operations Operations Total ------------------ -------------- ------------ -------------- -------------- ------------- REVENUES: Services $ 60,007 4,245 64,252 56,917 9,472 66,389 Sales 5,428 966 6,394 3,195 7,852 11,047 ------------------ -------------- ------------ -------------- -------------- ------------- Total Revenues $ 65,435 5,211 70,646 60,112 17,324 77,436 ================== ============== ============ ============== ============== ============= GROSS PROFIT (excluding depreciation and amortization) $ 24,927 1,952 26,879 23,068 7,097 30,165 ================== ============== ============ ============== ============== =============
SIX MONTH REVENUE ANALYSIS Revenues decreased 9% or $6.8 million to $70.6 million in the first six months of the fiscal year ending October 31, 1998 from $77.4 million in the first six months of fiscal 1997. Pari-mutuel Operations services revenues of $60.0 million for the first six months of fiscal 1998 improved $3.1 million or 5% compared to the first six months of the prior year. This improvement reflects revenue increases resulting from the growth in handle in the Company's North American pari-mutuel and Connecticut OTB operations, as well as increases in the Company's simulcasting and German operations. The growth in handle during the first six months of fiscal 1998 compared to the first six months of fiscal 1997 is attributable to the addition of four new racetracks and OTB sites, the addition of full card simulcasting at one North American racetrack customer, an increase in interface fees, the addition of nine new simulcasting customers, the running of the Breeders' Cup in the first six months of fiscal 1998 and the growth in video gaming. Pari-mutuel equipment sales revenues in the first six months of fiscal 1998 of $5.4 million increased $2.2 million or 70% compared to the first six months of the prior year due primarily to $2.3 million in sales of terminals and equipment to a former international customer for which the Company received a long-term note receivable. 15 AUTOTOTE CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Continued) Lottery Operations service revenues decreased $5.2 million in the first six months of fiscal 1998 to $4.2 million primarily because of the absence of $5.2 million in revenue provided in the prior year period by the Company's European lottery business which was sold in April 1997. Lottery equipment sales revenues decreased to $1.0 million in the first six months of fiscal 1998 from $7.9 million in the same period in fiscal 1997. This decrease is primarily attributable to the absence in fiscal 1998 of sales of $2.7 million of terminals to an Italian distributor, $3.5 million of terminals to the Israel lottery, and $0.9 million in equipment provided by the Company's European lottery business. GROSS PROFIT ANALYSIS The total gross profit of $26.9 million in the first six months of fiscal 1998 decreased by $3.3 million, or 11%, compared to the first six months of fiscal 1997. Lower margins due to the absence of the Company's European lottery service revenue of $2.7 million were partially offset by an increase in service margins earned on higher handle in the pari-mutuel operaions services business. Gross profit as a percent of revenues in the Company's continuing services businesses was 38% in the first six months of fiscal 1998, down slightly from gross profit of 39% in the first six months of fiscal 1997, reflecting, primarily, higher operating expenses in the lottery business and higher track fees in the OTB business. Gross profit earned on equipment sales was $2.6 million in the first six months of fiscal 1998, as compared to $3.6 million in the first six months of fiscal 1997 due primarily to the absence of terminal sales to the Israel lottery in fiscal 1998. Gross profit as a percent of equipment sales was 41% in the first six months of fiscal 1998, an increase from gross profit of 33% in the first six months of fiscal 1997 as a result of a change in the mix of equipment and systems sold. EXPENSE ANALYSIS Selling, general and administrative expenses include marketing, sales, administrative, engineering and software development, finance, legal and other expenses. Selling, general and administrative expenses decreased $1.9 million or 13% to $12.8 million in the first six months of fiscal 1998 from $14.7 million in the first six months of fiscal 1997. Expense reductions of $0.5 million resulting from the sale of the Company's European lottery business were complimented by the collection of receivables previously reserved due to concerns about their recoverability and cost reduction programs in Europe. Depreciation and amortization expenses decreased 26% to $14.6 million in the first six months of fiscal 1998 compared to $19.9 million in the first six months of fiscal 1997. The decrease results from the sale of the Company's European lottery business in April 1997, full amortization of certain intangible assets and lower depreciation on lottery assets in fiscal 1998. Interest expense of $7.7 million in the first six months of fiscal 1998 increased $0.3 million over the first six months of fiscal 1997, primarily reflecting higher interest rates, partially offset by lower borrowing levels. INCOME TAXES Income tax expense was $0.3 million in the first six months of fiscal 1998 compared to $0.5 million in the first six months of fiscal 1997. Income tax expense principally reflects foreign taxes, since no tax benefit has been recognized on domestic operating losses. LIQUIDITY AND CAPITAL RESOURCES At April 30, 1998, the Company's available cash and borrowing capacity totaled $34.5 million compared to $41.3 million at October 31, 1997. Net cash provided by operating activities was $14.9 million for the six months ended April 30, 1998. Utilizing cash provided by operating activities and available cash, the Company invested $19.5 million principally in capital and contract expenditures, including construction to date of approximately 3,200 new PROBE-L lottery terminals for the Connecticut State Lottery, and in software systems development. Additionally, $2.0 million of available cash was used to reduce other long-term loans. The Company entered into a $12 million, long-term borrowing arrangement during the third quarter of fiscal 1998 to finance the cost of the Connecticut State Lottery equipment. 16 AUTOTOTE CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Continued) As described above in Note 4 to the Consolidated Financial Statements, the Company had $22.9 million of borrowing availability under its Facility at April 30, 1998. The Company believes that, although it expects to incur a net loss in fiscal 1998, its cash resources, anticipated cash flows from operations and borrowing availability under the Facility will provide sufficient liquidity to meet scheduled interest payments and anticipated capital expenditures during the next twelve months. The Company believes that additional financing will be required to enable it to meet its debt service obligations under the Notes, the Facility and the Subordinated Debentures, and for capital expenditures thereafter. The Company has signed an agreement with its Italian distributor, Elettronica Ingegneria Sistemi, to sell up to 20,000 Extrema terminals, valued at approximately $64 million, to Sisal Sport Italia SpA for use in Italy's pari- mutuel lottery pool. The Company expects to manufacture the terminals in its Irish facility and expects to begin shipping the terminals in the third fiscal quarter of 1998 and continuing through the fiscal year 2000. The Company expects to finance the working capital required to manufacture the terminals with cash advanced under the contract and cash available under the Facility. NEW ACCOUNTING STANDARD In February 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 132, "Employer's Disclosures about Pensions and Other Postretirement Benefits" ("SFAS 132"). SFAS 132 revises employers' disclosures about pension and other postretirement benefit plans in order to standardize disclosure requirements to the extent possible and requires additional information on changes in the benefit obligations and fair values of plan assets that are intended to facilitate financial analysis. SFAS 132 does not change the measurement or recognition of those plans and is effective for the Company's 1997 fiscal year. Adoption of this standard is expected to result in modification of and/or additional disclosures, but should not have an effect on the Company's financial position or results of operations. 17 AUTOTOTE CORPORATION AND SUBSIDIARIES QUARTER ENDED APRIL 30, 1998 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS The Annual Meeting of the stockholders of the Company was held on April 16, 1998 to elect five directors of the Company and to ratify the appointment of KPMG Peat Marwick LLP as auditors for the Company's 1998 fiscal year. All matters put before the stockholders passed as follows:
DIRECTOR NOMINEES/ OTHER MATTERS FOR WITHHELD AGAINST ABSTAIN --------------------------------------------- ----------- ----------- ----------- --------- A. Lorne Weil 30,610,569 370,624 Larry Lawrence 30,635,544 345,649 Sir Brian G. Wolfson 30,635,130 346,063 Alan J. Zakon 30,635,624 345,569 Marshall Bartlett 30,635,134 346,059 Ratification of KPMG Peat Marwick LLP 30,750,335 137,816 93,042
ITEM 5. OTHER INFORMATION Effective November 1, 1997, the Company entered into change in control agreements (the "Agreements") with each of its executive officers (except for A. Lorne Weil as described below), and with certain of its non-executive officers (collectively, the "Officers"). A copy of the Form of such agreements is filed herewith as Exhibit 10.27. The Agreements provide for a term of three years, commencing on November 1, 1997 and ending on October 31, 2000, which shall be automatically extended by one year without further action and on each succeeding year thereafter, unless either party shall have served written notice upon the other six months prior to the end of the term. In the event an Officer's employment is terminated without Cause (as defined in the Agreement) or an Officer terminates his employment for Good Reason (as defined in the Agreement) at the time of or within two years following a Change in Control (as defined in the Agreement), the Company's principal obligations under the Agreement will be to (i) make a lump sum cash payment in an amount equal to two times the sum of such Officer's base salary at the rate payable immediately prior to termination plus the greater of (x) the average bonus paid for the three years preceding the year of termination or (y) the bonus payable to such Officer upon achievement of the target level of performance for the year of termination; (ii) accelerate the exercisability of all stock options held by such Officer at termination, such that all options will become fully vested and exercisable at the date of termination; and (iii) provide such Officer with continued participation in all employee and executive benefit plans for a period not to exceed eighteen months after termination; provided that if any such plan does not permit continued participation, the Officer shall receive quarterly cash payments equal, on an after-tax basis, to the cost to such Officer of obtaining the benefit. In the event an Officer's employment is terminated without Cause, and such Officer is not entitled to any payment or benefit, each of the Agreements provides (except for the Agreements of two of the Officers who have preexisting arrangements with the Company) that the Company will be obligated to make a lump sum cash payment equal to such Officer's base salary at the rate payable immediately prior to termination. Effective November 1, 1997, the Company entered into an employment agreement (the "Weil Employment Agreement") with A. Lorne Weil, the Company's President & CEO, the terms of which include change in control provisions. The principal terms of the Weil Employment Agreement are described under the caption "Employee Agreements" in the Company's Proxy Statement which was filed with the Securities and Exchange Commission on March 2, 1998, and a copy of the Weil Employment Agreement was filed as Exhibit 10.26 to the Company's Quarterly Report on Form 10-Q for the quarter ended January 31, 1998; and the description of the Weil Employment Agreement therein is incorporated herein in its entirety by reference thereto. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.27 Form of Change of Control Agreements effective November 1, 1997 between the Company and its executive officers and certain non-executive officers. 10.28 Agreement between the Company and Elettronica Ingegneria Sistemi dated February 19, 1998. 10.29 General Agreement between the Company and Sisal Sport Italia SpA dated February 19, 1998. 27 Financial Data Schedule. No current reports on Form 8-K were filed during the second quarter of fiscal 1998. 18 AUTOTOTE CORPORATION AND SUBSIDIARIES Quarter Ended April 30, 1998 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AUTOTOTE CORPORATION -------------------- (Registrant) By: /s/ William Luke ---------------- Name: William Luke Title: Vice President & Chief Financial Officer Dated: June 15, 1998 19 EX-10.27 2 FORM OF CHANGE OF CONTROL AGREEMENTS AUTOTOTE CORPORATION Exhibit 10.27 - -------------------------------------------------------------------------------- Change in Control Agreement for _______________ - --------------------------------------------------------------------------------
Page ---- 1. Definitions...................................................... 1 2. Term of Agreement................................................ 3 3. Entitlement to Severance Benefits................................ 3 4 Acceleration of Vesting of Options............................... 6 5. Non-Solicitation; Non-Disclosure; Executive Cooperation; and Non- Disparagement.................................................... 6 6. Remedies......................................................... 7 7. Governing Law; Arbitration....................................... 8 8. Miscellaneous.................................................... 9
THIS AGREEMENT by and between AUTOTOTE CORPORATION, a Delaware corporation (the "Company"), and _____________ ("Executive") shall become effective as of November 1, 1997 (the "Effective Date"). W I T N E S S E T H : --------------------- WHEREAS, Executive is an employee of the Company serving in an executive capacity; WHEREAS, the Board of Directors of the Company (the "Board") believes it is necessary and desirable that the Company be able to rely upon Executive to continue serving in his or her position in the event of a potential or actual change in control of the Company or otherwise; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the receipt of which is mutually acknowledged, the Company and Executive (individually a "Party" and together the "Parties") agree as follows: 1. DEFINITIONS. (a) "Cause" shall mean Executive's gross misconduct (as defined herein) or willful and material breach of Section 5 of this Agreement. For purposes of this definition, "gross misconduct" shall mean (A) a felony conviction in a court of law under applicable federal or state laws, or (B) willfully engaging in one or more acts, or willfully omitting to act in accordance with Executive's material duties, including acts and omissions that constitute gross negligence in the performance of Executive's material duties. For purposes of this Agreement, an act or failure to act on Executive's part shall be considered "willful" if it was done or omitted to be done by him not in good faith, and shall not include any act or failure to act resulting from any incapacity of Executive. The foregoing notwithstanding, Executive may not be terminated for Cause unless and until there shall have been delivered to him, within six months after the Compensation and Stock Option Committee of the Board (the "Committee") (A) had knowledge of conduct or an event allegedly constituting Cause and (B) had reason to believe that such conduct or event could be grounds for Cause, a copy of a resolution duly adopted by a majority affirmative vote of the membership of the Committee at a meeting of the Committee called and held for such purpose (after giving Executive reasonable notice specifying the nature of the grounds for such termination and not less than 30 days to correct the acts or omissions complained of, if correctable, and affording Executive the opportunity, together with his counsel, to be heard before the Committee) finding that, in the good faith opinion of the Committee, Executive was guilty of conduct constituting Cause under this Agreement. Notwithstanding the foregoing, Executive shall not be considered to have terminated for Good Reason unless Executive shall have provided the Company with written notice of the specific reasons for such termination within ninety (90) days after he has knowledge of the event that is the basis for such termination and affords Company at least thirty (30) days to cure the alleged conduct. (b) A "Change in Control" shall be deemed to have occurred if: (i) any "person" as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange Act but excluding the Company and any subsidiary and any employee benefit plan sponsored or maintained by the Company or any subsidiary (including any trustee of such plan acting as trustee), directly or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of securities of the Company representing at least 40% of the combined voting power of the Company's then-outstanding securities; (ii) the stockholders of the Company approve a merger, consolidation, recapitalization, or reorganization of the Company, or a reverse stock split of any class of voting securities of the Company, or the consummation of any such transaction if stockholder approval is not obtained, other than any such transaction which would result in at least 60% of the total voting power represented by the voting securities of the Company or the surviving entity outstanding immediately after such transaction being beneficially owned by persons who together beneficially owned at least 80% of the combined voting power of the voting securities of the Company outstanding immediately prior to such transaction; provided that, for purposes of this paragraph (ii), such continuity of ownership (and preservation of relative voting power) shall be deemed to be satisfied if the failure to meet such 60% threshold is due solely to the acquisition of voting securities by an employee benefit plan of the Company or such surviving entity or of any subsidiary of the Company or such surviving entity; (iii) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of its assets (or any transaction having a similar effect); or (iv) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board, together with any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in paragraph (i), (ii), or (iii) hereof) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved (the "Continuing Directors"), cease for any reason to constitute at least a majority of the Board. (c) "Disability" means the failure of Executive to render and perform the services required of him for a total of 180 days or more during any consecutive 12 month period, because of any physical or mental incapacity or disability as determined by a physician or physicians selected by the Company and reasonably acceptable to Executive unless, within 30 days after Executive has received written notice from the Company of a proposed termination due to such absence, Executive shall have returned to the full performance of his duties and shall have presented to the Company a written certificate of Executive's good health prepared by a physician selected by the Company and reasonably acceptable to Executive. (d) "Good Reason" shall mean, without Executive's prior written consent, (A) a material change, adverse to Executive, in Executive's positions, nature of responsibilities, or authority within the Company, except if occurring in connection with the termination of Executive's employment for Cause, Disability, Retirement, as a result of Executive's death, or as a result of action by Executive, (B) a decrease in annual base salary or other compensation opportunities or a material decrease in the aggregate benefits from the level provided to Executive immediately prior to the date of the Change in Control, (C) a relocation of Executive's principal place of employment by more than 35 miles from the latest location of such principal place of employment prior to the date of the Change in Control, (D) any failure to secure the agreement of any successor corporation or other entity to the Company to fully assume the Company's obligations under this Agreement in a form reasonably acceptable to Executive, and (E) any attempt by the Company to terminate Executive for Cause which does not result in a valid termination for Cause, except in the case that valid grounds for termination for Cause exist but are corrected as permitted under Section 1(a). (e) "Plans" shall mean the plans, programs, and arrangements, including agreements and documents thereunder and including any agreement solely with Executive, providing or relating to compensation or benefits. (f) "Retirement" shall mean Executive's termination of employment with the Company at or after attaining age 65 or, if early retirement is requested by Executive and approved in advance by the Committee, Executive's early retirement prior to age 65. (g) "Term" shall have the meaning set forth in Section 2 below. 2. TERM OF AGREEMENT. The term of this Agreement (the "Term") shall be the period commencing on the Effective Date and ending on October 31, 2000 and any period of extension of the Term in accordance with this Section 2. The Term shall be extended automatically without further action by either party by one additional year (added to the end of the Term) first on October 31, 2000 (extending the Term to October 31, 2001) and on each succeeding October 31 thereafter, unless either party shall have served written notice upon the other party prior to the April 30 preceding the date upon which such extension would become effective electing not to extend the Term further as of the next extension date, in which case the Term shall end at the later of the next October 31 or the date two years after the latest Change in Control occurring on or before the next October 31. 3. ENTITLEMENT TO SEVERANCE BENEFITS. (a) Change in Control Severance Benefits. In the event Executive's ------------------------------------ employment with the Company or any of its subsidiaries is terminated without Cause, other than due to death, Disability or Retirement, or in the event Executive terminates such employment for Good Reason, in either case at the time of or within two years following a Change in Control, the Company will pay and Executive will be entitled to receive the following: (i) The unpaid portion of Executive's annual base salary at the rate payable at the date of termination of employment, pro rated through such date of termination, will be paid in a cash lump sum; (ii) Cash will be paid in a lump sum to Executive in an aggregate amount equal to the sum of Executive's annual base salary at the rate payable immediately prior to termination of employment plus the Severance Annual Incentive Amount (as defined below) multiplied by 2, which amount shall be reduced pro rata to the extent the number of full months remaining until Executive attains age 65 is less than 18 months, and which amount will be further reduced (but not to less than zero) by the amount of any severance payment or benefit provided apart from this Agreement. For purposes of this Section 3(a)(ii) and Section 3(a)(iv) below, the "Severance Annual Incentive Amount" shall be the greater of (1) the average annual incentive compensation paid to Executive for the three years immediately preceding the year of termination or (2) the annual incentive compensation payable to Executive upon achievement of the target level of performance for the year of termination; (iii) All vested, nonforfeitable amounts owing or accrued at the date of termination of employment under any compensation and benefit Plans (including any earned and vested annual incentive compensation) in which Executive theretofore participated will be paid under the terms and conditions of the Plans pursuant to which such compensation and benefits were granted; (iv) In lieu of any annual incentive compensation for the year in which Executive's employment terminated, Executive will be paid a cash amount equal to the Severance Annual Incentive Amount as defined in Section 3(a)(ii) above, multiplied by a fraction the numerator of which is the number of days Executive was employed in the year of termination and the denominator of which is the total number of days in the year of termination; provided, however, that payments under this Section 3(a)(iv) shall be reduced (but not below zero) to the extent it would duplicate a payment for the same year under Section 3(a)(iii); (v) Stock options held by Executive at termination, if not then vested and exercisable, will become fully vested and exercisable at the date of such termination, and any such options which were granted on or after the Effective Date or, if previously granted, were not "in the money" as of the date hereof shall remain exercisable until the earlier of 36 months after termination or the scheduled expiration date, and, in other respects, all such options shall be governed by the Plans pursuant to which such options were granted; (vi) Deferred stock held by Executive at termination will become fully vested and non-forfeitable, and shall be settled upon such termination, without regard to any stated period of deferral otherwise remaining in respect of such amounts; (vii) All deferred compensation arrangements between Executive and the Company or a subsidiary at the date of termination of employment shall be paid or distributed, less applicable withholding taxes under Section 3(d) as promptly as practicable following such date of termination, without regard to any stated period of deferral otherwise remaining in respect of such amounts, and the payment of such amounts shall be deemed to fully settle such accounts; (viii) Reasonable business expenses and disbursements incurred by Executive prior to such termination of employment will be reimbursed in accordance with policies applicable to Executive while still employed; and (ix) Executive shall continue to participate in all employee and executive benefit Plans providing health, medical, and life insurance benefits in which Executive was participating immediately prior to termination, the terms of which allow Executive's continued participation, as if Executive had continued in employment with the Company at the same level of responsibility, for a period that shall extend until the earliest of (A) the expiration of 18 months after termination, (B) the date Executive attains age 65, or (C) the date, or dates, Executive receives equivalent coverage and benefits under the plans, programs or arrangements of a subsequent employer (such coverage and benefits to be determined on a coverage-by-coverage, or benefit-by-benefit, basis); provided that (X) if Executive is precluded from continuing his or her participation in any Plan as provided in this clause (ix) of this Section 3(a), Executive shall receive cash payments equal on an after-tax basis to the cost to Executive of obtaining the benefits provided under the Plan in which Executive is unable to participate for the period specified in this clause (ix) of this Section 3(a), (Y) such cost shall be deemed to be the lowest reasonable cost that would be incurred by Executive in obtaining such benefit on an individual basis, and (Z) payment of such amounts shall be made quarterly in advance; provided, however, that Executive will be entitled to the benefit of any terms of Plans applicable to Executive which are more favorable than those specified in this Section 3(a); and provided further, if any payment or benefit under this Section 3(a) is based on base salary or other level of compensation or benefits at the time of termination and if a reduction in such base salary or other level of compensation or benefit was the basis for Executive's termination for Good Reason, then the base salary or other level of compensation in effect before such reduction shall be used to calculate payments or benefits under this Section 3(a). Except as otherwise expressly provided above, amounts payable under this Section 3(a) will be paid as promptly as practicable after termination of Executive's employment and in no event more than 15 days after such termination. (b) General Severance Benefits. In the event Executive's employment -------------------------- with the Company or any of its subsidiaries is terminated without Cause and Executive is not entitled to any payment or benefit pursuant to Section 3(a) above, the Company will pay and Executive will be entitled to receive the following: (i) The unpaid portion of Executive's annual base salary at the rate payable at the date of termination of employment, pro rated through such date of termination, will be paid in a cash lump sum; (ii) Cash will be paid in a lump sum to Executive in an amount equal to the Executive's annual base salary at the rate payable immediately prior to termination of employment; (iii) All vested, nonforfeitable amounts owing or accrued at the date of termination of employment under any compensation and benefit Plans (including any earned and vested annual incentive compensation) in which Executive theretofore participated will be paid under the terms and conditions of the Plans pursuant to which such compensation and benefits were granted; (iv) The Committee may, but is not required to, extend the period in which any stock options held by Executive at termination shall remain exercisable, and, in all other respects, all such options shall be governed by the Plans pursuant to which such options were granted; and (v) Reasonable business expenses and disbursements incurred by Executive prior to such termination of employment will be reimbursed in accordance with policies applicable to Executive while still employed. With the exception of the amount payable to Executive pursuant to Section 3(b)(iv) above, which will be paid after the end of the year in which Executive's employment terminates in accordance with the Company's normal pay practices with respect to annual incentive compensation, amounts payable under this Section 3(b) will be paid as promptly as practicable after termination of Executive's employment and in no event more than 15 days after such termination. (c) No Mitigation. Executive shall not be required by this Agreement ------------- to seek other employment or otherwise to mitigate Executive's damages upon any termination of employment. (d) Offsets; Withholding. The amounts required to be paid by the -------------------- Company to Executive pursuant to this Agreement shall not be subject to offset other than with respect to any amounts that are owed to the Company by Executive due to his receipt of funds as a result of his fraudulent activity and except as provided in Section 3(a)(ix). The foregoing and other provisions of this Agreement notwithstanding, all payments to be made to Executive under this Agreement or otherwise by the Company will be subject to required withholding taxes and other required deductions. (e) Nature of Payments. Any amounts due under this Section 3 are in ------------------ the nature of severance payments considered to be reasonable by the Company and are not in the nature of a penalty. (f) Exclusivity of Severance Payments. Upon termination of ---------------------------------- Executive's employment during the Term and receipt of benefits hereunder, Executive shall not be entitled to any severance payments or severance benefits from the Company or any payments by the Company on account of any claim by Executive of wrongful termination, including claims under any federal, state or local human and civil rights or labor laws, other than the payments and benefits provided in this Section 3. (g) Release of Employment Claims. Executive agrees, as a condition to ----------------------------- receipt of any termination payments and benefits provided hereunder (other than salary earned through the date of termination), that Executive will execute a general release agreement, in a form satisfactory to the Company, releasing any and all claims arising out of Executive's employment (other than enforcement of this Agreement). 4. ACCELERATION OF VESTING OF OPTIONS. In the event of a Change in Control, all outstanding stock options then held by Executive shall become fully vested and non-forfeitable. 5. NON-SOLICITATION; NON-DISCLOSURE; EXECUTIVE COOPERATION; AND NON- DISPARAGEMENT. (a) Non-Solicitation. Without the consent in writing of the Board, ---------------- Executive will not, at any time during employment and for a period of 18 months following termination of Executive's employment for any reason, acting alone or in conjunction with others, directly or indirectly (i) induce any customers of the Company or any of its subsidiaries with whom Executive has had contacts or relationships, directly or indirectly, during and within the scope of his employment with the Company or any of its subsidiaries, to curtail or cancel their business with the Company or any such subsidiary; (ii) induce, or attempt to influence, any employee of the Company or any of its subsidiaries to terminate employment; or (iii) hire, either directly or through any employee, agent or representative, any employee of the Company or any of its subsidiaries or any person who was employed by the Company or any of its subsidiaries within 180 days preceding such hiring; provided, however, that activities engaged in by or on behalf of the Company are not restricted by this covenant. The provisions of subparagraphs (i), (ii) and (iii) above are separate and distinct commitments independent of each other. (b) Non-Disclosure. Executive shall not, at any time during the Term -------------- and thereafter (including following Executive's termination of employment for any reason), disclose, use, transfer, or sell, except in the course of employment with or other service to the Company, any proprietary information, secrets, or other confidential information belonging or relating to the Company and its subsidiaries so long as such information has not otherwise been disclosed or is not otherwise in the public domain, except as required by law or pursuant to legal process. In addition, upon termination of employment for any reason, Executive will return to the Company or its subsidiaries all documents and other media containing information belonging or relating to the Company or its subsidiaries. (c) Cooperation With Regard to Litigation. Executive agrees to ------------------------------------- cooperate with the Company, during the Term and thereafter (including following Executive's termination of employment for any reason), by making himself available to testify on behalf of the Company or any subsidiary or affiliate of the Company, in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, and to assist the Company, or any subsidiary or affiliate of the Company, in any such action, suit, or proceeding, by providing information and meeting and consulting with the Board or its representatives or counsel, or representatives or counsel to the Company, or any subsidiary or affiliate of the Company, as requested. The Company agrees to reimburse Executive, on an after-tax basis, for all expenses actually incurred in connection with his provision of testimony or assistance. (d) Non-Disparagement. Executive shall not, at any time during the ----------------- Term and thereafter (including following Executive's termination of employment for any reason), make statements or representations, or otherwise communicate, directly or indirectly, in writing, orally, or otherwise, or take any action which may, directly or indirectly, disparage or be damaging to the Company or any of its subsidiaries or affiliates or their respective officers, directors, employees, advisors, businesses or reputations. Notwithstanding the foregoing, nothing in this Agreement shall preclude Executive from making truthful statements that are required by applicable law or legal process. 6. REMEDIES. In addition to whatever other rights and remedies the Company may have at equity or in law, if Executive breaches any of the provisions contained in Section 5 above, (i) the Company shall have the right to immediately terminate all payments and benefits due under this Agreement and cancel all stock options and deferred stock then outstanding, (ii) Executive shall have the obligation to repay to the Company an amount equal to all cash previously paid to Executive pursuant to Sections 3(a)(ii), 3(a)(iii), 3(a)(iv), 3(a)(vi), 3(a)(vii) and 3(a)(ix) or Sections 3(b)(ii), 3(b)(iii) and 3(b)(iv), and (iii) the Company shall have the right to seek injunctive relief. Executive acknowledges that such a breach would cause irreparable injury and that money damages would not provide an adequate remedy for the Company; provided, however, the foregoing shall not prevent Executive from contesting the issuance of any such injunction on the ground that no violation or threatened violation of Section 5 has occurred. Notwithstanding the foregoing, Executive shall not forfeit any payment, benefit or option unless and until there shall have been delivered to him, within six months after the committee (A) had knowledge of conduct or an event allegedly constituting grounds for such forfeiture and (B) had reason to believe that such conduct or event could be grounds for such forfeiture, a copy of a resolution duly adopted by a majority affirmative vote of the membership of the Committee at a meeting of the committee called and held for such purpose (after giving Executive reasonable notice specifying the nature of the grounds for such forfeiture and not less than 30 days to correct the acts or omissions complained of, if correctable, and affording Executive the opportunity, together with his counsel, to be heard before the Committee) finding that, in the good faith opinion of the Committee, Executive has engaged and continues to engage in conduct set forth in section 5 which constitutes grounds for forfeiture; provided, however, that if any payment or benefit is received by Executive or any option is exercised after delivery of such notice and the Committee subsequently makes the determination described in this sentence, Executive shall be required to repay to the Company any amounts received and the amount, if any, equal to the difference between the aggregate value of all shares acquired upon exercise of any option at the date of the Committee's determination and the aggregate exercise price paid by Executive. Any such forfeiture shall apply to such payments, benefits and options notwithstanding any term or provision of any Plan or agreement. 7. GOVERNING LAW; ARBITRATION. (a) Governing Law. This Agreement is governed by and is to be ------------- construed, administered, and enforced in accordance with the laws of the State of Delaware, without regard to conflicts of law principles, except insofar as federal laws and regulations may be applicable. If under the governing law, any portion of this Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation, ordinance, or other principle of law, such portion shall be deemed to be modified or altered to the extent necessary to conform thereto or, if that is not possible, to be omitted from this Agreement. The invalidity of any such portion shall not affect the force, effect, and validity of the remaining portion hereof. (b) Arbitration. Any dispute or controversy arising under or in ----------- connection with this Agreement shall be settled exclusively by arbitration in New York, New York by three arbitrators in accordance with the rules of the American Arbitration Association in effect at the time of submission to arbitration. Judgment may be entered on the arbitrators' award in any court having jurisdiction. For purposes of entering any judgment upon an award rendered by the arbitrators, the Company and Executive hereby consent to the jurisdiction of any or all of the following courts: (i) the United States District Court for the Southern District of New York, (ii) any of the courts of the State of New York or the State of Delaware, or (iii) any other court having jurisdiction. The Company and Executive further agree that any service of process or notice requirements in any such proceeding shall be satisfied if the rules of such court relating thereto have been substantially satisfied. The Company and Executive hereby waive, to the fullest extent permitted by applicable law, any objection which it may now or hereafter have to such jurisdiction and any defense of inconvenient forum. The Company and Executive hereby agree that a judgment upon an award rendered by the arbitrators may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Pending the resolution of any arbitration or court proceeding, the Company shall continue payment of all amounts and benefits due Executive under this Agreement. All reasonable costs and expenses of any arbitration or court proceeding (including fees and disbursements of counsel) shall be paid on behalf of or reimbursed to Executive promptly by the Company; provided, however, that no reimbursement shall be made of such expenses if and to the extent the arbitrators determine that any of Executive's litigation assertions or defenses were in bad faith or frivolous. (c) Interest on Unpaid Amounts. Any amounts that have become payable -------------------------- pursuant to the terms of this Agreement or any decision by arbitrators or judgment by a court of law pursuant to this Section 7 but which are not timely paid shall bear interest at the prime rate in effect at the time such payment first becomes payable, as quoted by the Company's principal bank. 8. MISCELLANEOUS. (a) Effect of Agreement on Other Benefits. Except as specifically ------------------------------------- provided in this Agreement, the existence of this Agreement shall not be interpreted to preclude, prohibit or restrict Executive's participation in any other employee benefit or other Plans in which Executive currently participates. (b) Not an Employment Agreement. This Agreement is not, and nothing --------------------------- herein shall be deemed to create, a contract of employment between Executive and the Company. The Company may terminate the employment of Executive at any time, subject to the terms of any employment agreement between the Company and Executive that may then be in effect. (c) Assignability; Binding Nature. This Agreement shall be binding ----------------------------- upon and inure to the benefit of the parties and their respective successors, heirs (in the case of Executive) and permitted assigns. (d) Non-Transferability. Neither this Agreement nor the rights or ------------------- obligations hereunder of the parties hereto shall be transferable or assignable by Executive, except in accordance with the laws of descent and distribution or as specified in Section 8(f). The Company may assign this Agreement and the Company's rights and obligations hereunder, and shall assign this Agreement, to any Successor (as hereinafter defined) which, by operation of law or otherwise, continues to carry on substantially the business of the Company prior to the event of succession, and the Company shall, as a condition of the succession, require such Successor to agree to assume the Company's obligations and be bound by this Agreement. For purposes of this Agreement, "Successor" shall mean any person that succeeds to, or has the practical ability to control (either immediately or with the passage of time), the Company's business directly, by merger or consolidation, or indirectly, by purchase of the Company's voting securities or all or substantially all of its assets, or otherwise. (e) Indemnification All rights to indemnification by the Company --------------- existing immediately prior to a Change in Control in favor of the Executive as provided in the Company's Certificate of Incorporation or By-Laws or pursuant to other agreements in effect on or immediately prior to a Change in Control shall continue in full force and effect, and the Company shall also advance expenses for which indemnification may be ultimately claimed as such expenses are incurred to the fullest extent permitted under applicable law, subject to any requirement that the Executive provide an undertaking to repay such advances if it is ultimately determined that the Executive is not entitled to indemnification; provided, however, that any determination required to be made with respect to whether the Executive's conduct complies with the standards required to be met as a condition of indemnification or advancement of expenses under applicable law and the Company's Certificate of Incorporation, By-Laws, or other agreement shall be made by independent counsel mutually acceptable to the Executive and the Company (except to the extent otherwise required by law). The Company shall not amend its Certificate of Incorporation or By-Laws or any agreement in any manner which adversely affects the rights of the Executive to indemnification thereunder. Any provision contained herein notwithstanding, this Agreement shall not limit or reduce any rights of the Executive to indemnification pursuant to applicable law. In addition, the Company will maintain directors' and officers' liability insurance in effect and covering acts and omissions of Executive during the Term and for a period of six years thereafter on terms substantially no less favorable than those in effect on the Effective Date. (f) Beneficiaries. Executive shall be entitled to designate (and ------------- change, to the extent permitted under applicable law) a beneficiary or beneficiaries to receive any compensation or benefits payable hereunder following Executive's death. (g) Integration. This Agreement constitutes the entire agreement ----------- among the parties with respect to the matters herein provided, and supersedes all prior agreements, arrangements, communications, whether oral or written, and policies with respect to severance benefits payable by the Company to Executive upon termination of employment following a Change in Control. No modification or waiver of any provision hereof shall be effective unless in writing and signed by the parties hereto. (h) No General Waivers. The failure of any party at any time to ------------------ require performance by any other party of any provision hereof or to resort to any remedy provided herein or at law or in equity shall in no way affect the right of such party to require such performance or to resort to such remedy at any time thereafter, nor shall the waiver by any party of a breach of any of the provisions hereof be deemed to be a waiver of any subsequent breach of such provisions. No such waiver shall be effective unless in writing and signed by the party against whom such waiver is sought to be enforced. (i) Survivorship. The respective rights and obligations of the ------------ Parties hereunder shall survive any termination of Executive's employment to the extent necessary to the intended preservation of such rights and obligations. (j) Notices. Whenever under this Agreement it becomes necessary to ------- give notice, such notice shall be in writing, signed by the party or parties giving or making the same, and shall be served on the person or persons for whom it is intended or who should be advised or notified, by Federal Express or other similar overnight service or by certified or registered mail, return receipt requested, postage prepaid and addressed to such party at the address set forth below or at such other address as may be designated by such party by like notice: If to the Company: Autotote Corporation 750 Lexington Avenue 25th Floor New York, New York 10022 Attention: Secretary If to Executive: ______________________ ______________________ ______________________ If the parties by mutual agreement supply each other with telecopier numbers for the purposes of providing notice by facsimile, such notice shall also be proper notice under this Agreement. In the case of Federal Express or other similar overnight service, such notice or advice shall be effective when sent, and, in the cases of certified or registered mail, shall be effective 2 days after deposit into the mails by delivery to the U.S. Post Office. (k) Reformation. The invalidity of any portion of this Agreement ----------- shall not deemed to render the remainder of this Agreement invalid. (l) Headings. The headings of this Agreement are for convenience of -------- reference only and do not constitute a part hereof. (m) Counterparts. This Agreement may be executed in two or more ------------ counterparts. IN WITNESS WHEREOF, Executive has hereunto set his hand and the Company has caused this instrument to be duly executed as of the day and year first above written. AUTOTOTE CORPORATION By:__________________________________________________ Name: A. Lorne Weil Title:Chairman of the Board, President and CEO EXECUTIVE _____________________________________________________ Name: EX-10.28 3 AGREEMENT WITH ELETTRONICA DATED 02/19/98 Exhibit 10.28 AGREEMENT FEBRUARY 19, 1998 between Autotote Systems, Inc., a corporation with its main offices at 100 Bellevue Road, P.O. Box 6009, Newark, DE 19714 (hereinafter "Autotote"), duly represented by its Vice President, Richard WEIL, and Elettronica Ingegneria Sistemi, a corporation with its main offices at Via Tiburtina Valeria Km. 13,700, 00131 Rome, Italy (hereinafter "EIS"), duly represented by its General Manager and Managing Director, Vincenzo ZANNI, whereas: a) Autotote is engaged in the design, development, manufacture and sale of terminal and computer systems; b) EIS is active in Italy in the field of computer hardware and software systems and has been appointed as exclusive distributor of Autotote's products in Italy; c) Autotote and EIS have agreed about the particular conditions of the distribution of each of Autotote's products in Italy; d) Sisal Sport Italia Spa (hereinafter "Sisal") is active in Italy in the field of betting and is looking for a new, updated and effective computer hardware and software system; e) Autotote and Sisal have agreed that Autotote shall assist Sisal in the development of a new, effective terminal and computer system. EIS agrees that Autotote will be permitted to supply the prototypes and 200 pre- production Terminals directly to Sisal. The production Terminals will be supplied to Sisal through EIS. f) Sisal and EIS have agreed, in a separate document, to the terms and conditions of the supply of the Terminals from EIS to Sisal, a copy of which will be provided by EIS to Autotote; g) Autotote and EIS, in this document, agree to all the particular terms and conditions of the supply of such Terminals from Autotote to EIS; Now therefore, in consideration of the mutual covenants and agreements set forth herein, Autotote and EIS agree as follows: 1. OBJECT OF THE AGREEMENT 1.1. a) EIS hereby orders the manufacture and supply of nineteen thousand eight hundred (19,800) computer hardware and firmware systems (as understood in the trade), hereinafter defined as Terminal, having the features, characteristics and functions described in Exhibit 1. These Terminals are to be supplied to Sisal and Autotote agrees to manufacture, sell and deliver said Terminals through EIS. 1.1. b) Notwithstanding the above, EIS shall have the one time option, based on the final decision of Sisal to be communicated in writing to Autotote and EIS, to confirm to Autotote, after 7,000 Terminals have been supplied by Autotote, the order for the precise amount of Terminals, over 9,800, to be manufactured by Autotote. 1.2. Autotote has granted to Sisal a perpetual, irrevocable, non exclusive, apart from what is provided in art. 7, royalty free license to use the Autotote "Software" (defined in Exhibit 1) and Autotote firmware solely in connection with the Terminals. Autotote or EIS shall provide Sisal with any upgrades to said Software made available to its customers generally. No license has been granted with respect to Autotote's source code for the Software. Autotote or EIS, if the parties agree, shall supply software enhancements, training and support . 1.3. Autotote has sublicensed to Sisal Autotote's license interest in, under and to each and every third party Software. 1.4. EIS has received a copy of the agreement between Autotote and Sisal and agrees to perform all obligations of EIS defined therein. 2 INFORMATION - CONFIDENTIALITY The parties shall exchange all information necessary in order to facilitate the manufacture of the Terminals and shall keep strictly confidential all information. 3 TERMS Autotote shall deliver the Terminals ordered by EIS, as per art. 1.1, within the following dates, at the Autotote's factory indicated: DATE QUANTITY FACTORY a) July 10 - July 31, 1998 100/week Ireland b) from August 7, 1998 *200/week Ireland * it is agreed that if Sisal wishes to increase or decrease the weekly quantity by no more than 20 percent, Sisal will inform Autotote and EIS, and Autotote will comply within fifteen (15) days upon receiving such request in writing. 4 PRICES 4.1 EIS shall pay as the price for the supply of the Terminals ordered as per art. 1.1, the following amounts of US $ per Terminal: - in case EIS orders 9,800 Terminals: US $ 3,250,.00; - in case EIS orders 12,500 Terminals: US $ 3,092.50 on Terminals between 9,801 and 12,500; - in case EIS orders 15,000 Terminals: US $ 3,065.00 on Terminals between 9,801 and 15,000; - in case EIS orders 17,500 Terminals: US $ 3,037.50 on Terminal between 9,801 and 17,500; - in case EIS orders 19,800 Terminals: US $ 3,010 on Terminal between 9,801 and 19,800. 4.2 EIS shall pay the price provided in art. 4.1 as follows: * US $ 3,000,000.00 within 15 days from the execution of the present Agreement; Sisal may elect to pay directly to Autotote said deposit on behalf of EIS; * the remainder of the price for the first 9,800 Terminals, equal, taking into consideration the advance payment provided in the previous point, to the price provided in art. 4.1 less 306 US $ per Terminal (save more precise adjustement), 60 days after the shipment of specific Terminals from Autotote's factory; * after 60 days from the communication of Sisal provided in art. 1.1. b), the 10% of the whole compensation for the Terminals ordered over 9,800, calculated taking into account the prices provided in art. 4.1.; Sisal may elect to pay directly to Autotote said deposit on behalf of EIS; * the remainder of the price for the further Terminals ordered over 9,800, 60 days after the shipment of specific Terminals from Autotote's factory. 4.3 Autotote retains a right of property, as provided in art. 1523 of the Italian Civil Code, in the Terminals until the full price thereof is paid by EIS. 4.3 Autotote retains a right of property, as provided in art. 1523 of the Italian Civil Code, in the Terminals until the full price thereof is paid by EIS. 4.4 Prices do not include any taxes or duties, now or hereafter enacted, applicable to the Terminals or to this transaction, all of which taxes and duties shall be the responsibility of EIS, except for Autotote's franchise taxes and Autotote's income taxes. 4.5 Liability for loss or damages shall pass to EIS when Autotote shall put the Terminals into possession of a carrier for shipment to EIS, the carrier beeing deemed to be an agent for EIS. Accordingly, freight and insurance for the shipment shall be the responsibility of EIS. 4.6 EIS and Sisal shall agree about the final price and other conditions of the supply of Terminals to Sisal by EIS. 5 EXCLUSIVITY EIS is informed that, subject to the requirements of law and/or any applicable regulatory review ("Government Approval"), Autotote shall, in the future, not supply Terminals in Italy or destined to Italy to any third party, unless Sisal agrees. This provision does not apply to such firmware and/or software which Autotote has currently supplied in Italy. 6 INTELLECTUAL PROPERTY RIGHTS 6.1 Autotote shall be the sole owner of the intellectual property rights on Terminal. EIS is informed that Sisal is entitled to use the ideas, patents and other rights embodied in the Terminal and has the right, as owner of the Terminals bought from Autotote or from EIS, to use, adapt and make available in Italy the Terminals supplied by Autotote or by EIS and to sell them after use, also in other countries. This clause shall be amended to comply with any required Government Approval. 6.2 EIS is informed that Sisal shall remain the sole owner of the Trademarks in Italy. Autotote shall have the right to approve the Trademarks, which approval shall not be denied unless for good and serious reasons. 6.3 If EIS, for any reason, is not able to perform under the Agreement, then Autotote may deal directly with Sisal. If Autotote is unable, for any reason, to perform to Sisal's satisfaction, Sisal can terminate the Agreement and demand that Autotote provide to Sisal, on a strictly confidential basis, with all the documents, instructions, schematics, necessary in order to allow Sisal to manufacture such Terminals. 7 DELIVERY AND FORCE MAJEURE Autotote shall deliver the Terminals ordered by EIS strictly complying with a three (3) months rolling forecasts of shipments to be provided by Sisal in accordance to the terms provided in art.1. All parties shall strictly comply with such shipment requirements. Autotote shall not be liable for any delay in performance or for non-performance, in whole or in part, caused by the occurrence of any contingency beyond the control of Autotote, including, but not limited to, acts of God. 8 ACCEPTANCE EIS is informed that Sisal shall perform inspection and final acceptance testing within 30 days after receipt of shipment. If, within 30 days after receipt of shipment, Autotote does not receive notification of non-conformity, then said shipment shall be deemed to have been accepted. Sisal has the option to substitute for the above mentioned procedure, a procedure where Sisal, upon reasonable notice, shall be allowed to conduct acceptance testing at Autotote's plant for a period not exceeding one (1) week. 9 WARRANTIES 9.1 Autotote warrants all Terminals against defects in material and workmanship under normal use and service for a period of thirteen (13) months from the date of shipment, provided, however, that Autotote's liability under said warranty shall be limited, at Autotote's cost, to, within three (3) weeks of determination of entitlement to a warranty remedy, replacing or commencing repair, at Autotote's option, Terminals or parts thereof (including subassemblies) which shall be disclosed to be defective in the form in which it was shipped by Autotote, prior to its use in further manufacture or assembly. This warranty is applicable only if Autotote receives written notice of such defect mailed to its office within said thirteen (13) month period and is given adequate opportunity to verify the existence of a claimed defect. This warranty shall not apply to Terminals of parts thereof that have been (a) subjected to misuse, neglect, accident, damage in transit, abuse or unusual hazard; (b) repaired, altered or modified by anyone other than Autotote unless EIS or Sisal are authorised by Autotote to make repair; (c) used in violation of instructions furnished by Autotote. 9.2 Where Autotote, following acceptance of the working prototype, fails to make delivery or repudiates or breaches any other material provisions of this agreement (other than the warranty against patent infringement), including, without limitation, Autotote's obligations with respect to nonconforming items, Autotote's liability to both Sisal and EIS, collectively, shall not exceed the amount of U.S.$3,300.00 per Terminal. The foregoing are in lieu of all warranties, express, implied or statutory, including, but not limited to, any implied warranty of merchantability or fitness for a particular purpose and any other warranty obligation on the part of Autotote. Autotote's warranties extend to EIS or Sisal and to no other person or entity. In no event will ---------------- Autotote be liable to anyone for incidental or consequential damages for ------------------------------------------------------------------------ breach of any of the provisions of this Agreement, such excluded damages to --------------------------------------------------------------------------- include, without limitation, loss of goodwill, loss of profits or loss of ------------------------------------------------------------------------- use. ---- 10 PATENT INDEMNITY 10.1 Autotote shall defend any suit or proceeding brought against EIS or Sisal to the extent that such suit or proceeding is based on a claim that Terminals manufactured and sold by Autotote constitute direct infringement on any valid Italian patent and Autotote shall pay all damages and costs awarded by final judgement (from which no appeal may be taken) against EIS or Sisal, on condition that Autotote (i) shall be promptly informed and furnished a copy of each communication, notice or other action relating to the alleged infringement, (ii) shall be given authority, information and assistance necessary to defend or settle such suit or proceeding, (iii) shall be in control of the defense (including the right to select counsel), and shall have the sole right to compromise and settle such suit or proceeding. Autotote shall not be obligated to defend or be liable for costs and damages if the infringement arises out from a combination with, an addition to, or modification of, the Terminals after delivery by Autotote, or from a misuse of the Terminals, or any part thereof. 10.2 If any Terminal manufactured and supplied by Autotote shall be held to directly infringe any valid Italian patent and Sisal or EIS are enjoined from using the same, or if Autotote believes such infringement is likely, Autotote shall, at its option and at its expense, have the right: (i) to procure for Sisal or EIS the right to use such Terminals free of liability for patent infringement, or (ii) to replace (or modify) such Terminals with a non-infringing substitute otherwise complying substantially with all the requirements provided by this agreement, or (iii), if (i) and (ii) are not reasonably available, upon return of the goods, refund the purchase price and the transportation cost of such Terminals. 10.3 The foregoing states the sole and exclusive liability of Autotote hereto for infringement of patents, whether direct of contributory, and is in lieu of all warranties, express, implied or statutory in regard thereto. 10.4 Autotote represents that it conducts its business operations so as not to infringe upon any third party proprietary rights. 11 GENERAL PROVISIONS EIS is informed that, with reference to the provisions of arts. 7, 8, 9, 10, 15, Autotote shall be directly responsible to Sisal for all the obligations and warranties provided in such articles, including for the Terminals supplied to Sisal by EIS. EIS shall be responsible to Autotote for all the violations of its obligations provided in this Agreement or the violation of EIS' obligations described in the General Agreement of even date herewith. 12 NO CONFLICT Neither the execution of this agreement and the performance by the Parties of their obligations, nor the use of the Terminals will violate, conflict with, result in any breach of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under any contract or judgement to which Autotote or EIS are party or by which it is bound, or violate any applicable law, statute, rule, ordinance or regulation of any Governmental Body. 13 COMPLIANCE Each party specifically acknowledges that the other party is subject to the gaming and licensing requirements of various jurisdictions and is obliged to take reasonable efforts to determine the suitability of its business associates. Each party agrees to cooperate fully with the other party by providing it with any information, of whatever nature, that the other party deems necessary or appropriate in assuring itself that the party furnishing information possesses the good character, honesty, integrity and reputation applicable to those engaged in the gaming industry and specifically represents that there is nothing in each party's background, history, or reputation that would be deemed unsuitable under the standards applicable to the gaming industry. This agreement is subject to the approval of Autotote Corporation's Corporate Compliance Committee and EIS's Compliance Committee or equivalent body. If, during the term of the agreement, a party is notified by any regulatory agency that the conduct of business with the other party will jeopardize the first party's license or ability to be licensed or if a party concludes, on the basis of serious evidence, that the other party fails to meet the above criteria, this agreement shall terminate upon written notice by the complaining party. 14 TERMINATION 14.1 Except as specifically provided in this art.14, this agreement shall not be terminated by EIS without the prior written consent of Autotote. 14.2 Autotote may, by written notice to EIS, terminate this agreement if EIS does not conform to the payment terms hereunder. EIS shall have thirty (30) days to cure any default hereunder. 14.3 In case of termination of this agreement, Autotote will directly supply Sisal with the Terminals requested by Sisal from EIS. 15 NOTICES All notices or communications required by the provisions of this agreement or desired to be given thereunder shall be in writing and given by registered mail, return receipt requested to the addreess stated above or such other duly notified address. 16 ASSIGNMENT Autotote or EIS shall not assign this agreement or any portion of this agreement, or any interest hereunder, to any third party, except to one of their affiliates, to be considered as corporation or other business entity controlling, controlled or under common control of a party, without the advance written consent of the other Party. 17 ENTIRE AGREEMENT This agreement constitutes the final written expression of all terms of the agreement relating to the transactions described herein and a complete and exclusive statement of those terms. This agreement supersedes all previous communications, representations, agreements, promises or statements, either oral or written, with respect to such transactions and no communications, representations, agreements promises or statements of any kind made by any representative of the Parties which are not stated herein, shall be binding on a Party. No addition to or modificaton of any provision of this agreement will be binding unless made in writing and signed by an authorized representative. No course of dealing or usage of trade or course of performance will be deemed relevant to explain or supplement any term expressed in this agreement. 18 GOVERNING LAW This agreement shall be governed by the Italian Law. 19 ARBITRATION 19.1 All disputes between the Parties arising out of or in relation to this agreement (including any questions as to the validity and enforceability of this arbitration clause), shall be exclusively and finally resolved through arbitration in compliance with the law and in accordance with the Arbitration Rules of the International Chamber of Commerce by three arbitrators, the first of whom shall be appointed by the Party initiating the arbitration proceedings simultaneously with its demand of arbitration, the second of whom shall be appointed by the other Party within 15 (fifteen) days from the date on which it received notice of the demand for arbitration, and the third of whom (who shall act as Chairman of the Arbitration Panel) will be designated by agreement of the first two arbitrators within 20 (twenty) days from the appointment of the second arbitrator or, falling such agreement, by the Court of Arbitration of the International Chamber of Commerce of Paris acting as appointing authority for purposes of such Rules. Such Court shall also designate the second arbitrator (or any arbitrator who may die, resign, or otherwise cease to be an arbitrator) in the same manner, if the party required to make such designation does not do so within the period indicated. 19.2 The arbitration proceedings shall take place in Paris, France, and shall be conducted in the English language. 19.3 The expenses of the arbitration proceedings shall be borne by the Parties in accordance with the determination of the Arbitration Panel. 20. PRIOR AGREEMENT EIS agrees that this agreement is not in violation of any current agreement between EIS and Autotote. IN WITNESS WHEREOF, the Parties hereto have caused this agreement to be executed by their duly empowered representatives as follows, on February 19, 1998. Autotote Systems, Inc. Elettronica Ingegneria Sistemi By : _______________ By: __________________ Name: Richard M.WEIL Name: Vincenzo ZANNI Title: Vice President Title: General Manager & Managing Director EX-10.29 4 AGREEMENT WITH SISAL DATED 02/19/98 Exhibit 10.29 GENERAL AGREEMENT ----------------- FEBRUARY 19, 1998 ----------------- between Autotote Systems, Inc., a corporation with its main offices at 100 Bellevue - ----------------------- Road, P.O. Box 6009, Newark, DE 19714 (hereinafter "Autotote"), duly represented by its Vice President, Richard WEIL, and Sisal Sport Italia SpA, a corporation with its main offices at 6 Via Paleocapa, - ----------------------- 20121 Milano, Italy (hereinafter "Sisal"), duly represented by its Managing Director, Mr. Giorgio SANDI, whereas: * Autotote is engaged in the design, development, manufacture and sale of terminal and computer systems; * Sisal is active in Italy in the field of betting and is looking for a new, updated and effective computer hardware and software system; * Autotote has agreed to assist Sisal in the development of a new computer hardware and software system, in the manufacture of the entire Terminal requirements of Sisal and in directly suppling to Sisal prototypes and a pre- production amount of such equipment; * Autotote and Sisal have agreed that a larger, production amount of such equipment shall be supplied to Sisal by the exclusive distributor in Italy of Autotote's products, Elettronica Ingegneria Sistemi SpA (hereinafter "EIS"); Now therefore, in consideration of the mutual covenants and agreements set forth herein, Autotote and Sisal agree as follows: 2 DEFINITIONS - - ----------- As used in this Agreement, the following capitalized terms shall have the meanings set forth below: 2.1 "Affiliate" of any party shall mean any corporation or other business entity controlling, controlled or under common control with such party; 2.2 "Agreement" shall mean this Agreement and all Exhibits hereto; 2.3 "Business" shall mean the business, operations and activities of Sisal relating to the field of betting; 2.4 "Information" shall mean all information regarding the know-how of Autotote in computer hardware and software systems and the requirements, needs, activities, organization, and programs of Sisal related to the Business; 2.5 "System" shall mean equipment and related software and/or firmware; 2.6 "Intellectual Property Rights" shall mean all the rights for the complete and absolute ownership of the project, ideas and patents related to the Terminal (including prototypes); 2.7 "Terminal" shall mean the computer hardware, to be utilized for the exploitation of the Business, having the main features, characteristics and functions listed in Exhibit 1 of the Agreement; the Terminal shall consist of hardware and firmware (as understood in the trade) as described in Exhibit 1; 2.8 "Territory" shall mean the Republic of Italy, San Marino and Vatican State; 2.9 "Trademarks" shall mean the trademarks developed by Sisal and registered in Italy by Sisal to distinguish the Terminals used in the Territory. 3 OBJECT OF THE AGREEMENT - - ----------------------- 2.1.a. Subject to the terms and conditions of this Agreement, Autotote shall develop and manufacture for Sisal five (5) laboratory prototypes of the Terminal and one (1) working prototype in final assembly form. The laboratory prototype shall perform the appropriate functions (except the scanner shall be 3.25 inches wide without printer) and shall not be in final assembly form. Autotote will own the Intellectual Property Rights to all said prototypes. 2.1.b. The working prototype of the Terminal shall be deemed accepted by Sisal if said working prototype performs all the material functions and has the features, charateristics and functions described in Exhibit 1. 2.2. Autotote grants to Sisal the right to use the ideas, patents and other rights embodied in the Terminal. The Terminals, except for the pre-production amount, shall be supplied to Sisal by the exclusive distributor in Italy of Autotote's products, EIS. Sisal shall have the rights, as owner of the Terminals bought from Autotote or EIS, to use, adapt and make available such Terminals for the exploitation of the Business in the Territory and to sell them also in other countries. 2.3. Autotote grants to Sisal hereby a perpetual, irrevocable, non exclusive, apart from what is provided in art. 7, royalty free license to use the Autotote "Software" (defined in Exhibit 1) and Autotote firmware solely in connection with the Terminals. Autotote warrants that Sisal shall be provided with any upgrades to said Software made available to its customers generally. No license is granted with respect to Autotote's source code for the Software. Autotote, if the parties agree, shall have Sisal supplied with software enhancements, training and support. 2.4. Autotote sublicenses to Sisal Autotote's license interest in, under and to each and every third party Software, which sublicense shall be subject to the terms hereof. 2.5. Sisal, prior to acceptance of the working prototype and of this date, hereby orders the manufacture and supply of two hundred (200) pre-production Terminals, having the features, characteristics and functions described in Exhibit 1, and Autotote agrees to manufacture and directly supply and deliver the said amount of Terminals to Sisal. Sisal shall directly order to EIS the supply of nineteen thousand eight hundred (19,800) Terminals and Autotote shall manufacture and make available such Terminals to Sisal, through EIS. Autotote shall be directly responsible to Sisal for the obligations and warranties for the entire twenty thousand (20,000) Terminals, as per the provisions of this Agreement. Sisal shall have on all the Terminals supplied by Autotote or by EIS all of the rights provided in this art. 2. Notwithstanding what is provided in this art. 2.5., Sisal shall have the one-time option, after 7,000 Terminals have been supplied by Autotote, to confirm, by written notice to Autotote, the order for the precise amount of Terminals, over 10,000, to be manufactured by Autotote and supplied through EIS. 2.6 Sisal will provide Autotote with a copy of Sisal's agreement with EIS. 3. INFORMATION - CONFIDENTIALITY - -- ------------------------------- The parties shall exchange all Information necessary in order to make possible and facilitate the development of the prototypes of the Terminal and the manufacture of the Terminals and shall keep strictly confidential all Information. 4. TERMS - -- ----- 4.1. Autotote shall develop and make available for Sisal a quantity of five (5) laboratory prototypes of the Terminal by February 23, 1998, based on the foam model and the design of the Terminal already approved by Sisal. 4.2. Autotote shall make available to Sisal one (1) working prototype of the Terminal by May 1, 1998. 4.3. The Parties shall complete the check provided in art. 2.1.b and execute a confirmatory acknowledgement within 10 days from the delivery of the working prototype of the Terminal to Sisal. Such approval notification shall not be unreasonably withheld by Sisal. 4.4. In case of non-acceptance of said prototype, Autotote shall be allowed to remedy the defects within 10 days from the notification of Sisal and Sisal shall check if the prototype, after the remedy, is acceptable within 10 days from the delivery of the mended working protype. 4.5. Autotote shall deliver the pre-production Terminals ordered by Sisal, as per art. 2.5, within the following date, at the Autotote's factory indicated: DATE QUANTITY FACTORY ------------------------------------------------------------- . May 29, 1998 200 Delaware It is agreed that the Terminals to be supplied by EIS shall be delivered by Autotote to EIS within the following dates, at the Autotote's factory indicated: DATE QUANTITY FACTORY ------------------------------------------------------------- . July 10 - July 31, 1998 100/week Ireland . from August 7, 1998 *200/week Ireland * it is agreed that if Sisal wishes to increase or decrease the weekly quantity by no more than 20 percent Autotote and EIS will comply within fifteen (15) days upon receiving such request in writing. 5. COMPENSATION AND PRICES - -- ----------------------- 5.1. To compensate the activity of Autotote provided by art. 2.1, Sisal has paid in advance to Autotote the sum of U.S.$50,000.00 (consisting of U.S.$8,000.00 for each of 5 laboratory prototypes and U.S.$10,000.00 for 1 working prototype), U.S.$700,000.00 for development and tooling and U.S.$175,000.00 for firmware as described in Exhibit 1, sec.XX, items A. through N.; 5.2. Sisal shall pay as the price for the supply of the 200 pre-production Terminals ordered as per art. 2.5, the following amount per Terminal: U.S.$4,600.00 5.3. Sisal shall pay the compensation provided in art. 5.2 as follows: * 5% (total of U.S.$46,000.00) within 15 days from the execution of the present Agreement; * the remainder, 60 days after the shipment of specific Terminals from Autotote's factory less the 5% deposit; 5.4. Autotote retains a right of property, as provided in art. 1523 of the Italian Civil Code, in the Terminals ordered as per art. 2.5. until the full price thereof is paid by Sisal. 5.5. Prices do not include any taxes or duties, now or hereafter enacted, applicable to the Terminals supplied by Autotote or to this transaction, all of which taxes and duties shall be the responsibility of Sisal, except for Autotote's franchise taxes and Autotote's income taxes. 5.6. Liability for loss or damages shall pass to Sisal when Autotote shall put the Terminals ordered as per art. 2.5. into possession of a carrier for shipment to Sisal, the carrier beeing deemed to be an agent for Sisal. Accordingly, freight and insurance for the shipment shall be the responsibility of Sisal. 5.7. Final price and other conditions of the supply of the remaining 19,800 Terminals from EIS to Sisal, will be directly agreed to between EIS and Sisal. 6. POSSIBLE REIMBURSEMENT OF THE COMPENSATION - -- ------------------------------------------ In case Autotote will not be able to develop or deliver the laboratory prototypes or the working prototype of the Terminal as per the features, characteristics and functions listed in Exhibit 1, Autotote shall: i) reimburse to Sisal 75% of the total sum advanced as per art. 5.1 within 30 days from the notification of definitive non acceptance provided in art. 4.3. - 4.4.; ii) repay at the same time the down payment (5%) specified in art. 5.3.; iii) repay at the same time any down payment received for the manufacture of 19,800 Terminals, as per art. 2.5., to either EIS or Sisal, depending upon which entity made the down payment. These shall be Autotote's only obligations for failure, for any reason, to deliver the Terminals because the prototypes have not been accepted. 7. EXCLUSIVITY - -- ----------- Subject to the requirements of law and/or any applicable regulatory review ("Government Approval"), and except for sales by Autotote to EIS contemplated by this agreement, Autotote shall, in the future, not supply Terminals in the Territory or destined to the Territory to any third party, or grant rights on Terminal for use in the Territory, unless Sisal agrees and Autotote and Sisal regulate all the conditions of such a supply or grant of rights in a written agreement duly signed by the parties. This clause does not apply to such firmware and/or software which Autotote has currently supplied in the Territory. 8. INTELLECTUAL PROPERTY RIGHTS - -- ---------------------------- 8.1. Autotote shall be the sole owner of the Intellectual Property Rights. Sisal shall have the rights provided in art. 2.2., 2.3., 2.4. This clause shall be amended to comply with any required Government Approval. 8.2. Sisal shall remain the sole owner of the Trademarks in the Territory. Autotote shall have the right to approve the Trademarks, which approval shall not be denied unless for good and serious reasons. 8.3. If EIS for any reason, is not able to perform under the Agreement, then Sisal may deal directly with Autotote. If Autotote in unable, for any reason, to perform to Sisal's satisfaction, Sisal can terminate the Agreement and demand that Autotote provide to Sisal, on astrictly confidential basis, with all the documents, instructions, schematics, necessary in order to allow Sisal to manufacture such Terminals. 9. DELIVERY AND FORCE MAJEURE - -- ---------------------------- Autotote shall strictly comply with the delivery terms provided in art. 4.5. Sisal shall provide EIS and Autotote with three (3) months rolling forecasts of shipments. All parties shall strictly comply with such shipment requirements. Autotote shall not be liable for any delay in performance or for non- performance, in whole or in part, caused by the occurrence of any contingency beyond the control of Autotote, including, but not limited to, acts of God, and non performance by Sisal of any of its obligations under the present Agreement. 10. ACCEPTANCE - --- ---------- Sisal shall perform inspection and final acceptance testing within 30 days after receipt of shipment of Terminals supplied directly by Autotote or by EIS. If, within 30 days after receipt of shipment, Autotote or EIS do not receive notification of non-conformity, then said shipment shall be deemed to have been accepted. Sisal shall have the option to substitute for the above mentioned procedure, a procedure where Sisal, upon reasonable notice, shall be allowed to conduct acceptance testing at Autotote's plant for a period not exceeding one (1) week. 11. WARRANTIES - --- ---------- 11.1. Autotote warrants all Terminals directly supplied by Autotote or supplied by EIS against defects in material and workmanship under normal use and service for a period of thirteen (13) months from the date of shipment, provided, however, that Autotote's liability under said warranty shall be limited, at Autotote's cost, to, within three (3) weeks of determination of entitlement to a warranty remedy, replacing or commencing repair, at Autotote's option, Terminals or parts thereof (including subassemblies) which shall be disclosed to be defective in the form in which it was shipped by Autotote, prior to its use in further manufacture or assembly. This warranty is applicable only if Autotote receives, directly or through EIS, written notice of such defect mailed to its office within said thirteen (13) month period and is given adequate opportunity to verify the existence of a claimed defect. This warranty shall not apply to Terminals of parts thereof that have been (a) subjected to misuse, neglect, accident, damage in transit, abuse or unusual hazard; (b) repaired, altered or modified by anyone other than Autotote or EIS unless Sisal is authorised by Autotote to make repair; (c) used in violation of instructions furnished by Autotote. 11.2. Where Autotote or EIS, following acceptance of the working prototype, fails to make delivery or repudiates or breaches any other material provisions of this Agreement (other than the warranty against patent infringement), including, without limitation, obligations with respect to nonconforming items, Autotote's liability to both Sisal and EIS, collectively, shall not exceed the amount of U.S.$3,300.00 per Terminal. The foregoing are in lieu of all warranties, express, implied or statutory, including, but not limited to, any implied warranty of merchantability or fitness for a particular purpose and any other warranty obligation on the part of Autotote. Autotote's warranties extend to Sisal and to no other person or entity. In no event will Autotote be liable to anyone for incidental or consequential damages for breach of any of the provisions of this Agreement, such excluded damages to include, without limitation, loss of goodwill, loss of profits or loss of use. 12. PATENT INDEMNITY ----------------- 12.1. Autotote shall defend any suit or proceeding brought against Sisal to the extent that such suit or proceeding is based on a claim that Terminals manufactured and sold by Autotote or by EIS to Sisal constitute direct infringement on any valid Italian patent and Autotote shall pay all damages and costs awarded by final judgement (from which no appeal may be taken) against Sisal, on condition that Autotote (i) shall be promptly informed and furnished a copy of each communication, notice or other action relating to the alleged infringement, (ii) shall be given authority, information and assistance necessary to defend or settle such suit or proceeding, (iii) shall be in control of the defense (including the right to select counsel), and shall have the sole right to compromise and settle such suit or proceeding. Autotote shall not be obligated to defend or be liable for costs and damages if the infringement arises out from a combination with, an addition to, or modification of, the Terminals after delivery by Autotote, or from a misuse of the Terminals, or any part thereof. 12.2. If any Terminal manufactured and supplied by Autotote or by EIS to Sisal shall be held to directly infringe any valid Italian patent and Sisal is enjoined from using the same, or if Autotote believes such infringement is likely, Autotote shall, at its option and at its expense, have the right: (i) to procure for Sisal the right to use infringing substitute otherwise complying substantially with all the requirements provided by this Agreement, or (iii), if (i) and (ii) are not reasonably available, upon return of the goods, refund the purchase price and the transportation cost of such Terminals. 12.3. The foregoing states the sole and exclusive liability of Autotote hereto for infringement of patents, whether direct of contributory, and is in lieu of all warranties, express, implied or statutory in regard thereto. 12.4. Autotote represents to Sisal that it conducts its business operations so as not to infringe upon any third party proprietary rights. 13. GENERAL PROVISION ----------------- Autotote and Sisal confirm that the provisions of arts. 9., 10., 11., 12., 16., may be enforced by Sisal directly against Autotote with respect to all Terminals, including the Terminals supplied by EIS, and Sisal may directly claim from Autotote all the possible damages incurred by Sisal covered under said articles. 14. NO CONFLICT ----------- Neither the execution of this Agreement and the performance by the Parties of their obligations, nor the use of the Terminals for the exploitation of the Business will violate, conflict with, result in any breach of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under any contract or judgement to which Autotote or Sisal is party or by which it is bound, or violate any applicable law, statute, rule, ordinance or regulation of any Governmental Body. 15. COMPLIANCE ---------- Each party specifically acknowledges that the other party is subject to the gaming and licensing requirements of various jurisdictions and is obliged to take reasonable efforts to determine the suitability of its business associates. Each party agrees to cooperate fully with the other party by providing it with any information, of whatever nature, that the other party deems necessary or appropriate in assuring itself that the party furnishing information possesses the good character, honesty, integrity and reputation applicable to those engaged in the gaming industry and specifically represents that there is nothing in each party's background, history, or reputation that would be deemed unsuitable under the standards applicable to the gaming industry. This Agreement is subject to the approval of Autotote Corporation's Corporate Compliance Committee and Sisal's Compliance Committee or equivalent body. If, during the term of the Agreement, a party is notified by any regulatory agency that the conduct of business with the other party will jeopardize the first party's license or ability to be licensed or if a party concludes, on the basis of serious evidence, that the other party fails to meet the above criteria, this Agreement shall terminate upon written notice by the complaining party. 16. TERMINATION - --- ----------- 16.1. (a) Except as specifically provided in this art.16., this Agreement and the agreement with EIS for the supply of 19,800 Terminals shall not be terminated by Sisal or EIS without the prior written consent of Autotote. If Sisal defaults, Autotote, in addition to its other legal remedies, shall be reimbursed for all its documented, non-cancelable costs (reduced by Autotote's resale of inventory items undertaken in good faith) incurred to fill the order. (b) Notwithstanding the above, in case Sisal, directly or through EIS, has already ordered at the moment of the cancellation more than 10,000 Terminals, Autotote shall not be entitled to claim any reimboursment or remedy for non-cancellable costs incurred or others damages. 16.2. Sisal may, by written notice to Autotote, terminate, respectively this Agreement in whole or, from time to time, in part if any one of the following occurs: a) Autotote repeatedly fail to meet delivery dates; b) Terminals do not conform to the requirements specified in Exhibit 1; c) Autotote fail to comply with any material obligations contained in this Agreement; d) Autotote become insolvent or commits an act of bankruptcy. Autotote shall have thirty (30) days to cure any default hereunder. In case of failure, Sisal shall be entitled to manufacture, directly or through a third party, the Terminals and to use, adapt, make them available in the Territory and to sell them also in other countries. In case EIS becomes insolvent or repeatedly fails to comply with it's material obligations Autotote shall directly supply Sisal with the Terminals ordered by EIS. In case of failure the above provision shall apply. 16.3. Autotote may, by written notice to Sisal, terminate this Agreement if Sisal does not conform to the payment terms hereunder. Sisal shall have thirty (30) days to cure any default hereunder. 17. NOTICES - --- ------- All notices or communications required by the provisions of this Agreement or desired to be given thereunder shall be in writing and given by registered mail, return receipt requested to the addreess stated above or such other duly notified address. 18. ASSIGNMENT - --- ---------- Autotote or Sisal shall not assign this Agreement or any portion of this Agreement, or any interest hereunder, to any third party, except to one of their Affiliates, without the advance written consent of the other Party. 19. ENTIRE AGREEMENT - --- ---------------- This Agreement constitutes the final written expression of all terms of the Agreement relating to the transactions described herein and a complete and exclusive statement of those terms. This agreement supersedes all previous communications, representations, agreements, promises or statements, either oral or written, with respect to such transactions and no communications, representations, agreements promises or statements of any kind made by any representative of the Parties which are not stated herein, shall be binding on a Party. No addition to or modificaton of any provision of this Agreement will be binding unless made in writing and signed by an authorized representative. No course of dealing or usage of trade or course of performance will be deemed relevant to explain or supplement any term expressed in this Agreement. 20. GOVERNING LAW - --- ------------- This Agreement shall be governed by the Italian Law. 21. ARBITRATION - --- ----------- 21.1. All disputes between the Parties arising out of or in relation to this Agreement (including any questions as to the validity and enforceability of this arbitration clause), shall be exclusively and finally resolved through arbitration in compliance with the law and in accordance with the Arbitration Rules of the International Chamber of Commerce by three arbitrators, the first of whom shall be appointed by the Party initiating the arbitration proceedings simultaneously with its demand of arbitration, the second of whom shall be appointed by the other Party within 15 (fifteen) days from the date on which it received notice of the demand for arbitration, and the third of whom (who shall act as Chairman of the Arbitration Panel) will be designated by agreement of the first two arbitrators within 20 (twenty) days from the appointment of the second arbitrator or, falling such agreement, by the Court of Arbitration of the International Chamber of Commerce of Paris acting as appointing authority for purposes of such Rules. Such Court shall also designate the second arbitrator (or any arbitrator who may die, resign, or otherwise cease to be an arbitrator) in the same manner, if the party required to make such designation does not do so within the period indicated. 21.2. The arbitration proceedings shall take place in Paris, France, and shall be conducted in the English language. 21.3. The expenses of the arbitration proceedings shall be borne by the Parties in accordance with the determination of the Arbitration Panel. IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their duly empowered representatives as follows, on February 19, 1998. Autotote Systems, Inc. Sisal Sport Italia SpA By :__________________ By:__________________ Name: Richard M.Weil Name: Giorgio Sandi Title: Vice President Title: Managing Director EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMETNS OF AUTOTOTE CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS OCT-31-1998 NOV-01-1997 APR-30-1998 11,590 0 13,055 (1,558) 7,727 33,202 190,372 110,793 149,693 40,801 35,000 0 0 356 (40,626) 149,693 70,646 70,646 43,767 43,767 26,191 0 7,654 (6,966) 294 (7,260) 0 0 0 (7,260) (0.20) (0.20)
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