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Exhibit 10.4
This EMPLOYMENT AGREEMENT (this "Agreement") is made on August
2, 2006 but as of January 1, 2006 (the "Effective Date"), by and
between SCIENTIFIC GAMES CORPORATION, a Delaware corporation (the
"Company" or "SGC"), and Larry Potts ("Executive").
W I T N E S S E T H
WHEREAS, Executive has been employed pursuant to a letter
agreement with the Company dated July 30, 2004, as modified from
time to time by the Board of Directors (the "Original Agreement");
and
WHEREAS, the Company and Executive desire that this Agreement
replace and supersede the Original Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
benefits to be derived herefrom and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1.
Termination of Existing Employment
Agreements. As of the Effective Date, all existing
employment agreements between the parties, whether oral or written,
including the Original Agreement, are hereby terminated and
superseded. As part of the termination of the Original
Agreement, amounts paid to Executive during 2006 as housing and
transportation allowances are eliminated as of the Effective Date
and shall be deducted from the lump sum catch-up payment of base
salary payable under Section 4 as a result of the increase in
Executive’s base salary rate which will be implemented as of
August 1, 2006.
2.
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 herein. The term of employment of Executive
under this Agreement (the "Term") shall be the period commencing on
the Effective Date and ending on December 31, 2008 as may be
extended in accordance with this Section and subject to earlier
termination in accordance with Section 5. The Term shall be
extended automatically without further action by either party by
one additional year (added to the end of the Term), and then on
each succeeding annual anniversary thereafter, unless either party
shall have given written notice to the other party at least 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 earlier terminated in accordance with
Section 5. It is also intended that your previous term of
employment with the Company shall be included when calculating your
tenure at the Company for all purposes.
3.
Offices and Duties. During the Term, the
Executive will serve as Vice President, Chief Compliance Officer
and Director of Security for the Company, and as an officer or
director of any subsidiary or affiliate of the Company if elected
to any such position by the shareholders or by the Board of
Directors of the Company or any subsidiary or affiliate, as the
case may be. In such capacities, the 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 of
Directors of the Company. Subject to Section 5(e),
Executive’s functions, duties and responsibilities are
subject to reasonable changes as the Company may in good faith
determine. The Executive hereby agrees to accept such employment
and to serve the Company to the best of his ability in such
capacities, devoting substantially all of his business time to such
employment.
4.
Compensation; Benefits
(a)
Base Salary. During the Term
the Company shall pay Executive a base salary (the "Base Salary")
at the initial rate of four hundred and twenty-two thousand dollars
($422,000) per annum, payable in accordance with the
Company’s regular payroll policies and subject to all
withholdings that are legally required or are agreed to by
Executive. In the event that the Company, in its sole discretion,
from time to time determines to increase the Base Salary, such
increased amount shall, from and after the effective date of the
increase, constitute the "Base Salary" 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 of Directors of SGC (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 to earn up to
66.7% of Base Salary as Incentive Compensation at Target
Opportunity ("Target Bonus") and up to 133% of Base Salary as
Incentive Compensation at Maximum Opportunity.
(c)
Eligibility for Annual Equity
Awards . Executive shall be eligible to receive an
annual grant of stock options or other equity awards, in the sole
discretion of the Compensation Committee, in accordance with the
applicable plans and programs for senior 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 under any such
plan or program.
(d)
Expense Reimbursement .
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 submission by Executive of vouchers therefore 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, accidental death,
dismemberment insurance, 401(k) or other retirement, deferred
compensation, profit sharing, stock ownership and such other plans
and programs which are made generally available by the Company to
its other senior 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 paid vacation, holidays, and any other time
off in accordance with the Company’s policies in effect from
time to time.
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(f)
Taxes and Internal Revenue Code
409A . 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. Internal Revenue Code 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 5 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).
5.
Termination of Employment.
Executive’s employment hereunder may be terminated prior to
the end of the Term under the following circumstances:
(a)
Termination by Executive for Other than Good
Reason . Executive may terminate his employment
hereunder for any reason or no reason upon 60 days’ prior
written notice to the Company referring to this Section 5(a);
provided, however, that a termination of Executive’s
employment for "Good Reason" (as defined below) shall not
constitute a termination by Executive for other than Good Reason
pursuant to this Section 5(a). In the event the Executive
terminates his employment for other than Good Reason, the Executive
shall be entitled only to the following compensation and benefits
(collectively, the " Standard Termination
Payments "):
(i)
Any accrued but unpaid Base Salary (as determined
pursuant to Section 4(a)) for services rendered to the date of
termination paid to Executive in accordance with regular payroll
policies;
(ii)
All vested nonforfeitable amounts owing or accrued
at the date of termination under benefit plans, programs, and
arrangements set forth or referred to in Section 4 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 6.6, all stock
options and other equity awards will be governed by the terms of
the plans and programs under which the options 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 4(d).
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(b)
Termination by Reason of Death
. If Executive dies during the Term of this Agreement, the
Company shall pay to the last beneficiary designated by the
Executive by written notice to the Company or, failing such
designation, to Executive’s estate, the following
amounts:
(i)
The Standard Termination Payments (as defined in
Section 5(a)); and
(ii)
A lump sum payment equal to Executive’s annual
Base Salary, payable within 30 days of termination.
(c)
Termination By Reason of Total Disability
. Executive and the Company agree that Executive may not
reasonably be expected to be able to perform his duties and the
essential functions of his office in the event of the
Executive’s "Total Disability." For purposes of this
Agreement, "Total Disability" shall mean Executive’s
(a) becoming eligible to receive benefits under any long-term
disability insurance program or (b) 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 reason of Total
Disability, the Company shall pay the following amounts, and make
the following other benefits available, to Executive:
(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 termination in accordance with Section 5(g) of this
Agreement, provided such amount shall be reduced by any disability
payments provided to Executive as a result of any disability plan
sponsored 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 most
recent fiscal years of the Company but not more than the
Executive’s Target Bonus for the-then current fiscal
year;
(iii)
In lieu of any Incentive Compensation for the year
in which such termination of employment occurs, payment of an
amount equal to (A) the highest annual Incentive Compensation
paid to Executive in respect of the two most recent fiscal years of
the Company but not more than Executive’s Target Bonus for
the year of termination, multiplied by (B) 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, payable as and when such
Incentive Compensation would otherwise have been payable under
Section 4(b); 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 eighteen (18) months.
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(d)
Termination by the Company for Cause
. The Company may terminate Executive’s employment
hereunder for "Cause" upon written notice to Executive referring to
this Section 5(d). For purposes of this Agreement, the term
"Cause" shall mean (i) gross neglect by the Executive of the
Executive’s duties hereunder; (ii) conviction (including
conviction on a nolo contendere plea) of the Executive of any
felony; (iii) conviction (including conviction on a nolo
contendere plea) of the Executive of any non-felony crime or
offense involving the property of the Company or any of its
subsidiaries or affiliates or evidencing moral turpitude;
(iv) willful misconduct by the Executive in connection with
the performance of the Executive’s duties hereunder;
(v) intentional breach by the Executive of any material
provision of this Agreement; (vi) material violation of material
provision of the Company’s Code of Conduct; or (vii) any
other willful or grossly negligent conduct on the part of the
Executive which would make the Executive’s continued
employment by the Company materially prejudicial to the best
interests of the Company; provided, however, that a termination by
the Company under Sections 5(d)(i), 5(d)(v), 5(d)(vi) or 5(d)(vii),
if curable, shall be effective only if, within 21 days following
delivery of a written notice by the Company to Executive that the
Company is terminating Executive’s employment for Cause and
setting forth in reasonable detail the facts and circumstances
allegedly constituting Cause, Executive has failed to cure the
circumstances giving rise to Cause. In the event that
Executive’s employment is terminated by the Company for
Cause, the Executive shall be entitled to receive only the Standard
Termination Payments (as defined in Section 5(a)).
(e)
Termination by the Company Without Cause or by
Executive for Good Reason . The Company may
terminate Executive’s employment hereunder at any time,
without Cause, for any reason or no reason, and Executive may
terminate his employment hereunder for "Good Reason" (as defined
below) if the Company has failed to cure the event or condition
constituting Good Reason within thirty days after Executive gives
written notice to the Company setting forth in reasonable detail
the facts and circumstances allegedly constituting Good Reason and
specifically referencing this Section 5(e). For purposes of
this Agreement, "Good Reason" shall mean that without
Executive’s prior written consent, any of the following shall
have occurred within ninety days prior to the delivery of such
notice: (i) a material change, adverse to Executive, in
Executive’s positions, titles, offices, or duties as provided
in Section 3, except, in such case, in connection with the
termination of Executive’s employment for Cause, Total
Disability or death; (ii) an assignment of any significant
duties to Executive which are inconsistent with Executive’s
positions or offices held under Section 3; (iii) a
decrease in Base Salary or material decrease in Executive’s
incentive compensation opportunities provided under this Agreement;
and (iv) any other failure by the Company to perform any
material obligation under, or breach by the Company of any material
provision of, this Agreement. In the event that Executive’s
employment is terminated by the Company without Cause or by
Executive for Good Reason, the Company shall pay the following
amounts, and make the following other benefits available, to
Executive:
(i)
The Standard Termination Payments (as defined in
Section 5(a));
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(ii)
An amount equal to the sum of (A) Executive’s
annual Base Salary and (B) Executive’s Severance Bonus Amount
payable over a period of twelve (12) months after termination in
accordance with Section 5(g) of this Agreement;
(iii)
Except to the extent otherwise provided at the time
of grant under the terms of any equity award made to Executive, all
stock options, deferred stock, restricted stock and other
equity-based awards held by Executive at 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;
(iv)
In lieu of any Incentive Compensation for the year
in which such termination of employment occurs, payment of an
amount equal to (A) the highest annual Incentive Compensation
paid to Executive in respect of the two most recent fiscal years of
the Company but not more than the Executive’s Target Bonus
for the year of termination, multiplied by (B) 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, payable as and when such
Incentive Compensation would otherwise have been payable under
Section 4(b); 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 eighteen (18) months.
(f)
Change in Control. In the event
Executive’s employment is terminated by the Company without
Cause or by Executive for Good Reason under Section 5(e) and such
termination occurs upon or within one year immediately following a
"Change in Control" (as defined below), Executive shall be entitled
to the payments described in Section 5(e) above except that the
aggregate amount payable under 5(e)(ii) shall be multiplied by two
(i.e., Base Salary plus Severance Bonus Amount multiplied by two)
and such amount, as well as the amount payable under 5(e)(iv),
shall be paid in a lump sum in accordance with Section 5(g) of this
Agreement. Notwithstanding the foregoing, payments pursuant to this
Section 5(f) shall be reduced by the amount necessary, if any, to
ensure that the aggregate compensation to be received by the
Executive in connection with such "Change in Control" does not
constitute a "parachute payment," as such term is defined in 26
U.S.C. § 280G.
For purposes of this Agreement, 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 SGC and any subsidiary or affiliate and any
employee benefit plan sponsored or maintained by SGC or any
subsidiary or affiliate (including any trustee of such plan acting
as trustee) or any current shareholder of 20% or more of the
outstanding common stock, directly or indirectly, becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act) of securities of SGC representing at least 40% of the combined
voting power of SGC’s then-outstanding securities; (ii) the
stockholders of SGC approve a merger, consolidation,
recapitalization, or reorganization of
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SGC, or a reverse stock split of any class of
voting securities of SGC, 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 SGC 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 SGC outstanding immediately prior to such transaction; provided
that, for purposes of this Section 5(f), 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 SGC or such surviving entity or of any subsidiary
of SGC or such surviving entity; (iii) the stockholders of SGC or
the Company, as applicable, approve a plan of complete liquidation
of SGC or the Company, an agreement for the sale or disposition by
SGC or the Company of all or substantially all of its assets (or
any transaction having a similar effect), or SGC sells all or
substantially all of the stock of the Company to any person or
entity other than an affiliate of SGC; 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
Subsection (i), (ii), or (iii) hereof) whose election by the Board
of Directors of SGC or nomination for election by SGC’s
stockholders was approved by a vote of at least two-thirds (2/3)
of
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