Exhibit 10.3
Employment
Agreement
This Employment Agreement (the
“ Agreement ”) is made as of March 2, 2009
but effective as of April 1, 2009 (the “ Effective
Date ”), by and between Scientific Games Corporation, a
Delaware corporation (the “ Company ”), and Jeff
Lipkin (“ Executive ”). This effectiveness
of this Employment Agreement is subject to the termination of
Executive’s employment with Executive’s prior employer
not later than June 15, 2009.
NOW, THEREFORE, in consideration of
the premises and mutual benefits to be derived herefrom and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by the Company and Executive, the
parties hereto agree as follows.
1.
Employment; Term
. The Company hereby agrees to
employ Executive, and Executive hereby accepts employment with the
Company, in accordance with and subject to the terms and conditions
set forth in this Agreement. This term of employment of
Executive under this Agreement (the “ Term ”)
shall be the period commencing on the Effective Date and ending on
February 29, 2012, as may be extended in accordance with this
Section 1 and subject to earlier termination in accordance
with Section 4 hereof. The Term shall be automatically
extended without further action by either party hereto by one
additional year (added to the end of the Term), and then on each
succeeding annual anniversary thereafter, unless either party
hereto shall have given written notice to the other party hereto
prior to the date which is ninety (90) days prior to the date upon
which such extension would otherwise have become effective electing
not to further extend the Term, in which case Executive’s
employment shall terminate on the date upon which such extension
would otherwise have become effective, unless terminated in
accordance with Section 4 hereof.
2.
Position and Duties
. During the Term,
Executive will serve as (a) Vice President of the Company and
(b) the Company’s Chief Financial Officer
(“CFO”) from and after the date the employment of the
Company’s current Chief Financial Officer is terminated, and
(c) as an officer or director of any subsidiary or affiliate
of the Company if elected to any such position by the stockholders
or by the board of directors of any such subsidiary or affiliate,
as the case may be. In such capacities, Executive shall
perform such duties and shall have such responsibilities as are
normally associated with such positions and as otherwise may be
assigned to the Executive from time to time by the Chief Executive
Officer or upon the authority of the Board. Subject to
Section 4(e) hereof, Executive’s functions, duties
and responsibilities are subject to reasonable changes as the
Company may in good faith determine from time to time.
Executive hereby agrees to accept such employment and to serve the
Company and its subsidiaries and affiliates to the best of
Executive’s ability in such capacities, devoting
substantially all of Executive’s business time to such
employment; provided, however, that Executive shall be entitled to
devote reasonable time to (i) manage his personal investments
and otherwise attend to personal affairs, including family
financial and legal affairs, (ii) teach, lecture or
perform other public-service activities, and (iii) serve on
the boards of directors of up to three public corporations or
other entities with the approval of the Board, each in a manner
that does not materially conflict or unreasonably interfere with
his responsibilities hereunder.
3.
Compensation
.
(a)
Base Salary
. During the
Term, Executive will receive a base salary of four hundred thousand
U.S. Dollars (US$400,000) per annum (pro-rated for 2009), payable
in accordance with the Company’s regular payroll practices
and subject to such deductions or amounts to be withheld
as
1
required by applicable law and regulations or as
may be agreed to by Executive. In the event that the Company,
in its sole discretion, from time to time determines to increase
Executive’s base salary, such increased amount shall, from
and after the effective date of such increase, constitute the
“ base salary ” of Executive for purposes of
this Agreement.
(b)
Incentive Compensation
. Executive shall have the
opportunity annually to earn incentive compensation in amounts
determined by the Compensation Committee of the Board (the “
Compensation Committee ”) in accordance with the
applicable incentive compensation plan of the Company as in effect
from time to time (“ Incentive Compensation
”). Under such plan, Executive shall have the
opportunity annually (beginning with respect to the 2009
performance period) to earn up to 67% of Executive’s base
salary as Incentive Compensation at “target
opportunity” (“ Target Bonus ”) and up to
133% of Executive’s base salary as Incentive Compensation at
“maximum opportunity” (“ Maximum Bonus
”) on the terms and subject to the conditions of such plan;
provided , however , that Executive will receive
minimum Incentive Compensation in the amount of at least two
hundred sixty-eight thousand U.S. Dollars (US$268,000) for 2009,
when bonuses for 2009 are awarded in the first quarter of 2010 (any
such Incentive Compensation to be subject to such deductions or
amounts to be withheld as required by applicable law and
regulations or as may be agreed to by Executive).
(c)
Eligibility for Annual Equity
Awards . Executive
shall be eligible to receive an annual grant of stock options,
restricted stock units or other equity awards in the sole
discretion of the Compensation Committee and in accordance with the
applicable plans and programs for similarly situated Executives of
the Company and subject to the Company’s right to at any time
amend or terminate any such plan or program, so long as any such
change does not adversely affect any accrued or vested interest of
Executive under any such plan or program; provided ,
however , that Executive shall receive one or more equity
award(s) in 2010 with an aggregate value (determined in
accordance with the valuation procedures then employed by the
Company for equity awards generally) of not less than 95% of
Executive’s base salary (to be allocated in the sole
discretion of the Compensation Committee between restricted stock
units (including performance-conditioned restricted stock units)
and stock options).
(d)
Expense Reimbursement
. Subject to
Section 3(g) hereof, the Company shall reimburse
Executive for all reasonable and necessary travel, business
entertainment and other business expenses incurred by Executive in
connection with the performance of Executive’s duties under
this Agreement, on a timely basis upon timely submission by
Executive of vouchers therefor in accordance with the
Company’s standard procedures.
(e)
Health and Welfare
Benefits .
Executive shall be entitled to participate, without discrimination
or duplication, in any and all medical insurance, group health,
disability, life insurance, accidental death and dismemberment
insurance, 401(k) or other retirement, deferred compensation,
stock ownership and such other plans and programs which are made
generally available by the Company to similarly situated Executives
in accordance with the terms of such plans and programs and subject
to the Company’s right to at any time amend or terminate any
such plan or program. Executive shall be entitled to four
(4) weeks of paid vacation per annum, holidays consistent with
the Company’s policies, and any other time off in accordance
with the Company’s policies in effect from time to
time.
(f)
Sign-on incentive
(i)
Sign-on. The Company shall pay Executive a one-time sum
of three hundred eighty-five thousand U.S. dollars (US$385,000)
within thirty (30) days of the Effective Date (subject to such
deductions or amounts to be withheld as required by applicable law
and regulations or as may be agreed to by Executive);
provided , however , that Executive will promptly
refund such money to the Company if Executive terminates
2
Executive’s employment with
the Company for other than “Good Reason” (as defined
below) or the Company terminates Executive’s employment with
the Company for “Cause” (as defined below), in each
case, prior to March 1, 2010.
(ii)
Special Equity Award
. The Company shall grant to
Executive forty thousand (40,000) restricted stock units and thirty
thousand (30,000) stock options priced as of the Effective Date
under the Scientific Games Corporation 2003 Incentive Compensation
Plan, as amended and restated (the “ Plan ”),
pursuant to an equity award agreement (in the form attached hereto)
to be entered into by and between the Company and Executive (the
“ Equity Award Agreement ”). The Equity
Award Agreement shall provide that the equity award shall vest with
respect to twenty percent (20%) of the shares of common stock
subject to such award on each of the first five anniversaries of
the date of grant, subject to any applicable provisions relating to
accelerated vesting and forfeiture as described in this Agreement,
the Equity Award Agreement or the Plan.
(g)
Taxes and Internal Revenue Code
409A . Payment of
all compensation and benefits to Executive specified in this
Section 3 and in Section 4 of this Agreement shall be
subject to all legally required and customary withholdings.
The Company makes no representations regarding the tax implications
of the compensation and benefits to be paid to Executive under this
Agreement, including, without limitation, under Section 409A
of the Internal Revenue Code of 1986, as amended (the “
Code ”), and applicable administrative guidance and
regulations (“ Section 409A ”).
Section 409A governs plans and arrangements that provide
“nonqualified deferred compensation” (as defined under
the Code) which may include, among others, nonqualified retirement
plans, bonus plans, stock option plans, employment agreements and
severance agreements. The Company reserves the right to
provide compensation and benefits under any plan or arrangement in
amounts, at times and in a manner that minimizes taxes, interest or
penalties as a result of Section 409A. In addition, in
the event any benefits or amounts paid hereunder are deemed to be
subject to Section 409A, including payments under
Section 4 of this Agreement, Executive consents to the Company
adopting such conforming amendments as the Company deems necessary,
in its reasonable discretion, to comply with Section 409A
(including, but not limited to, delaying payment until six months
following termination of employment). Notwithstanding
anything herein to the contrary, if (i) at the time of
Executive’s “separation from service” (as defined
in Treas. Reg. Section 1.409A-1(h)) with the Company other
than as a result of Executive’s death, (ii) Executive is
a “specified employee” (as defined in
Section 409A(a)(2)(B)(i) of the Code), (iii) one or
more of the payments or benefits received or to be received by
Executive pursuant to this Agreement would constitute deferred
compensation subject to Section 409A, and (iv) the
deferral of the commencement of any such payments or benefits
otherwise payable hereunder as a result of such separation of
service is necessary in order to prevent any accelerated or
additional tax under Section 409A, then the Company will defer
the commencement of the payment of any such payments or benefits
hereunder to the extent necessary (without any reduction in such
payments or benefits ultimately paid or provided to Executive)
until the date that is six months following Executive’s
separation from service with the Company (or the earliest date as
is permitted under Section 409A). Any remaining payments
or benefits shall be made as otherwise scheduled hereunder.
Furthermore, to the extent any payments of money or other benefits
due to Executive hereunder could cause the application of an
accelerated or additional tax under Section 409A, such
payments or other benefits shall be deferred if deferral will make
such payment or other benefits compliant under Section 409A,
or otherwise such payments or other benefits shall be restructured,
to the extent possible, in a manner determined by the Company that
does not cause such an accelerated or additional tax. To the
extent any reimbursements or in-kind benefits due to Executive
under this Agreement constitute deferred compensation under
Section 409A, any such reimbursements or in-kind benefits
shall be paid to Executive in a manner consistent with Treas. Reg.
Section 1.409A-3(i)(1)(iv). Each payment made under this
Agreement shall be designated as a “separate payment”
within the meaning of Section 409A.
3
4.
Termination of
Employment .
Executive’s employment may be terminated at any time prior to
the end of the Term under the terms described in this
Section 4.
(a)
Termination by Executive for
Other than Good Reason .
Executive may terminate Executive’s employment
hereunder for any reason or no reason upon 60 days’ prior
written notice to the Company referring to this Section 4(a);
provided , however , that a termination by Executive
for “Good Reason” (as defined below) shall not
constitute a termination by Executive for other than Good Reason
pursuant to this Section 4(a). In the event Executive
terminates Executive’s employment for other than Good Reason,
Executive shall be entitled only to the following compensation and
benefits (collectively, the “ Standard Termination
Payments ”):
(i)
any accrued but unpaid base salary
for services rendered by Executive to the date of such termination,
payable in accordance with the Company’s regular payroll
practices and subject to such deductions or amounts to be withheld
as required by applicable law and regulations or as may be agreed
to by Executive;
(ii)
all vested non-forfeitable amounts
owing or accrued at the date of such termination under benefit
plans, programs and arrangements set forth or referred to in
Section 3 hereof in which Executive theretofore participated
will be paid under the terms and conditions of such plans,
programs, and arrangements (and agreements and documents
thereunder);
(iii)
except as provided in
Section 5.6 hereof, all stock options, restricted stock units
and other equity awards will be governed by the terms of the plans
and programs under which such options, restricted stock units or
other awards were granted; and
(iv)
reasonable business expenses and
disbursements incurred by Executive prior to such termination will
be reimbursed in accordance with
Section 3(d) hereof.
(b)
Termination By Reason of
Death . If
Executive dies during the Term, the last beneficiary designated by
Executive by written notice to the Company (or, in the absence of
such designation, Executive’s estate) shall be entitled to
the following compensation and benefits:
(i)
the Standard Termination Payments;
and
(ii)
a lump sum payment equal to
Executive’s annual base salary, payable within 30 days of
death.
(c)
Termination By Reason of Total
Disability . The
Company may terminate Executive’s employment in the event of
Executive’s “Total Disability.” For
purposes of this Agreement, “ Total Disability ”
shall mean Executive’s (1) becoming eligible to receive
benefits under any long-term disability insurance program of the
Company or (2) failure to perform the duties and
responsibilities contemplated under this Agreement for a period of
more than 180 days during any consecutive 12-month period due to
physical or mental incapacity or impairment. In the event
that Executive’s employment is terminated by the Company by
reason of Total Disability, the Company shall pay the following
amounts, and make the following other benefits available, to
Executive:
(i)
the Standard Termination
Payments;
(ii)
an amount equal to the sum of
(A) Executive’s annual base salary and
(B) Executive’s “Severance Bonus Amount” (as
defined below), payable over a period of twelve (12) months after
such termination in accordance with Section 4(g) of this
Agreement; provided such
4
amount shall be reduced by any
disability payments provided to Executive as a result of any
disability plan sponsored or maintained by the Company or its
affiliates providing benefits to Executive. For purposes of
this Agreement, “ Severance Bonus Amount ” shall
mean an amount equal to the highest annual Incentive
Compensation paid to Executive in respect of the two (2) most
recent fiscal years of the Company but not more than the
Executive’s Target Bonus for the-then current fiscal year,
provided, however, that if termination occurs prior to
March 10, 2010, the Severance Bonus Amount shall not be less
than $400,000;
(iii)
no later than March 15
following the end of the year in which such termination occurs, in
lieu of any Incentive Compensation for the year in which such
termination occurs, payment of an amount equal to (A) the
Incentive Compensation which would have been payable to Executive
had Executive remained in employment with the Company during the
entire year in which such termination occurred, multiplied by
(B) a fraction the numerator of which is the number of days
Executive was employed in the year in which such termination occurs
and the denominator of which is the total number of days in the
year in which such termination occurs; and
(iv)
if Executive elects to continue
medical coverage under the Company’s group health plan in
accordance with COBRA, the Company shall pay the monthly premiums
for such coverage for a period of twelve (12) months.
(d)
Termination by the Company for
Cause . The
Company may terminate the employment of Executive at any time for
“Cause.” For purposes of this Agreement, “
Cause ” shall mean: (i) gross neglect by
Executive of Executive’s duties hereunder;
(ii) Executive’s conviction (including conviction on a
nolo contendere plea) of a felony or any non-felony crime or
offense involving the property of the Company or any of its
subsidiaries or affiliates or evidencing moral turpitude;
(iii) willful misconduct by Executive in connection with the
performance of Executive’s duties hereunder;
(iv) intentional breach by Executive of any material provision
of this Agreement; (v) material violation by Executive of a
material provision of the Company’s Code of Conduct; or
(vi) any other willful or grossly negligent conduct of
Executive which would make the continued employment of Executive by
the Company materially prejudicial to the best interests of the
Company. In the event Executive’s employment is
terminated for “Cause,” Executive shall not be entitled
to receive any compensation or benefits under this Agreement except
for the Standard Termination Payments. 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 knowingly, purposefully and not in good faith and shall
not include, without limitation, any act or failure to act
resulting from any disagreement or difference of views between
Executive and one or more directors or officers of the Company or
any of its affiliates with respect to any matter(s) relating
to the business, affairs or operations of the Company and/or any of
its affiliates (including, without limitation, with respect to any
management, business or operational matter, strategy, plan,
proposal, initiative or decision, any issue regarding the hiring,
firing, appointment or removal of any officer, Executive, agent,
consultant, advisor or contractor, any proposed transaction,
venture, affiliation or alliance, or any change in business,
structure, organization, management or operations).
(e)
Termination by the Company
without Cause or by Executive for Good Reason
. The Company may
terminate Executive’s employment at any time without Cause,
for any reason or no reason, and Executive may terminate
Executive’s employment for “Good Reason.”
For purposes of this Agreement “ Good Reason ”
shall mean that, without Executive’s prior written consent,
any of the following shall have occurred: (i) a material
change, adverse to Executive, in Executive’s positions,
titles, offices, or duties as provided in Section 2 hereof,
except, in such case, in connection with the termination
5
of Executive’s employment for Cause, Total
Disability or death; (ii) an assignment of any significant
duties to Executive which are materially inconsistent with
Executive’s positions or offices held under Section 2
hereof; (iii) a material decrease in base salary or material
decrease in Executive’s incentive compensation opportunities
provided under this Agreement; iv) change the location of
Executive’s office or of the Company’s principal
executive offices from the existing location in New York, NY to a
place not within forty (40) miles of the existing location in New
York, NY, or change the location of Executive’s office to a
location other than the location of the Company’s principal
executive office; v) failure to appoint Executive to the position
of CFO on or before January 1, 2010; and (vi) any other
material failure by the Company to perform any material obligation
under, or material breach by the Company of any material provision
of, this Agreement; provided , however , that a
termination by Executive for Good Reason under any of clauses
(i) — (iv) of this Section 4(e) shall not
be considered effective unless Executive shall have provided the
Company with written notice of the specific reasons for such
termination within thirty (30) days after he has knowledge of the
event or circumstance constituting Good Reason and the Company
shall have failed to cure the event or condition allegedly
constituting Good Reason within thirty (30) days after such notice
has been given to the Company. In the event that
Executive’s employment is terminated by the Company without
Cause or by Executive for Good Reason (and not, for the avoidance
of doubt, in the event of a termination pursuant to
Section 4(a), (b), (c) or (d) hereof), the Company
shall pay the following amounts, and make the following other
benefits available, to Executive.
(i)
the Standard Termination
Payments;
(ii)
(A) if such termination by the
Company without Cause or by Executive for Good Reason pursuant to
this Section 4(e) occurs during the Term on or prior to
February 29, 2012, an amount equal to (x) two
(2) multiplied by (y) the sum of
(1) Executive’s annual base salary and
(2) Executive’s Severance Bonus Amount, such amount
payable over a period of twenty-four (24) months after such
termination in accordance with Section 4(g) of this
Agreement, or (B) if such termination by the Company without
Cause or by Executive for Good Reason pursuant to this
Section 4(e) occurs during any extended Term on or after
March 1, 2012, an amount equal to the sum of
(1) Executive’s annual base salary and
(2) Executive’s Severance Bonus Amount, such amount
payable after such termination over a period of twelve (12) months
after such termination in accordance with Section 4(g) of
this Agreement);
(iii)
no later than March 15
following the end of the year in which such termination occurs, in
lieu of any Incentive Compensation for the year in which such
termination occurs, payment of an amount equal to (A) the
Incentive Compensation which would have been payable to Executive
had Executive remained in employment with the Company during the
entire year in which such termination occurred, multiplied by
(B) a fraction the numerator of which is the number of days
Executive was employed in the year in which such termination occurs
and the denominator of which is the total number of days in the
year in which such termination occurs;
(iv)
except to the extent otherwise
provided at the time of grant under the terms of any equity award
made to Executive, all stock options, restricted stock units and
other equity-based awards held by Executive at such termination
will become fully vested and non-forfeitable, and, in all other
respects, all such options and other awards shall be governed by
the plans and programs and the agreements and other documents
pursuant to which the awards were granted; and
(v)
if Executive elects to continue
medical coverage under the Company’s group health plan in
accordance with COBRA, the Company shall pay the monthly premiums
for such coverage for a period of twelve (12) months.
6
(f)
Termination by the Company
without Cause or by Executive for Good Reason
in connection with a Change in
Control . In the event Executive’s employment is
terminated by the Company without Cause or by Executive for Good
Reason pursuant to Section 4(e) hereof and such
termination occurs upon, or within one (1) year immediately
following, a “Change in Control” (as defined below),
Executive shall be entitled (without duplication) to the payments
and benefits described in Section 4(e) hereof, except
that, solely in the case of an amount otherwise payable under
Section 4(e)(ii)(B) hereof, such amount shall be
multiplied by two (2) ( e.g. , if such termination
occurs during any extended Term on or after March 1, 2012,
Executive shall receive an amount equal to two (2) multiplied
by the sum of Executive’s base salary and Executive’s
Severance Bonus Amount) and such amount (or the amount contemplated
by Section 4(e)(ii)(A), as the case may be) shall be payable
over a period of twenty-four (24) months after termination in
accordance with Section 4(g) of this Agreement;
provided , however , to the extent that such amount
under either clause (A) or clause (B) of
Section 4(e)(ii) is exempt from Section 409A and/or
if such Change in Control consti
