DATED APRIL 27, 1999
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INTER LOTTO (UK) LIMITED
and
IFT MANAGEMENT LIMITED
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OPERATING AGREEMENT
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CONTENTS
Clause Subject Matter Page
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1. DEFINITIONS AND INTERPRETATION......................................... 1
2. APPOINTMENT............................................................ 4
3. OPERATING AUTHORITY.................................................... 5
4. SERVICES............................................................... 6
5. EXCLUDED AUTHORITY AND CONTROL OF SERVICES............................. 6
6. FINANCIAL TERMS AND MANAGEMENT FEE..................................... 7
7. INTER LOTTO REVENUE SHARE.............................................. 8
8. NON-DISCLOSURE OF INFORMATION.......................................... 8
9. TERM................................................................... 8
10. LAUNCH................................................................. 8
11. TERMINATION............................................................ 9
12. INTER LOTTO ACTIONS AND DETERMINATIONS................................. 9
13. ACCOUNTING CALCULATIONS................................................ 9
14. SHAREHOLDERS' AGREEMENT................................................ 10
15. COUNTERPARTS........................................................... 10
16. ASSIGNMENT............................................................. 10
17. SUCCESSORS............................................................. 10
18. WAIVER AND FORBEARANCE................................................. 11
19. NO THIRD PARTY BENEFICIARIES........................................... 11
20. ENTIRE AGREEMENT AND VARIATION......................................... 11
21. SEVERANCE.............................................................. 11
22. NO PARTNERSHIP......................................................... 12
23. NOTICES................................................................ 12
24. APPLICABLE LAW AND SUBMISSION TO JURISDICTION.......................... 12
OPERATING AGREEMENT
DATE April 27, 1999
PARTIES
(1) INTER LOTTO (UK) LIMITED (Company number 303 6866) whose registered office
is at ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇ ("Inter Lotto")
(2) IFT MANAGEMENT LIMITED (Company number 3721405) whose registered office is
at ▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇ ▇▇▇ ("the Operating
Company")
RECITALS
(A) Inter Lotto manages Lotteries in the United Kingdom pursuant to a
Certificate issued by the Gaming Board.
(B) Inter Lotto desires to engage the Operating Company to participate in the
conduct and administration of the operation of the Business subject to
Applicable Requirements and to the authority and control of Inter Lotto.
(C) The Operating Company has agreed to such engagement and to provide the
Services described in this Agreement on the terms and subject to the
conditions of this Agreement.
IT IS AGREED AS FOLLOWS:
1. DEFINITIONS AND INTERPRETATION
1.1 In this Agreement (including the Recitals) the following words and
expressions shall have the following meanings:
"Accountants"
The chartered accounting firm of BDO ▇▇▇▇ ▇▇▇▇▇▇▇, or such other firm
of chartered accountants as may be selected by the Board. "Act" The
Lotteries and Amusement ▇▇▇ ▇▇▇▇ (as amended);
"Applicable Requirements"
the Act, The Charities Act 1992 and all other legislation relating to
lotteries and all legal requirements of the Gaming Board from time to
time;
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"Articles"
the Articles of Association of Inter Lotto from time to time;
"Board"
the Directors for the time being of Inter Lotto acting at a duly
convened quorate meeting or otherwise taking decisions and passing
resolutions in conformity with the provisions of the Shareholders
Agreement and the Articles;
"Business"
the business of Inter Lotto of operating Lotteries using On-Line
Facilities and such other business as the Board may agree from time to
time should be carried on by Inter Lotto;
"Capital Participation"
all amounts paid by Inter Lotto, on the one hand, or by all or any of
the IFT Group, on the other hand, for overhead and expenses of Inter
Lotto for the period up to Launch, including standstill payments,
travel expenses, legal fees, audit and accounting expenses, taxes,
finders' fees, back pay payments, consultant fees, advertising and
marketing and development costs. In addition, Capital Participation
shall include advertising costs for the first 12 months after Launch.
The term "Percentage Capital Participation" shall mean the percentage
of the amount of capital participation at any time contributed and
paid by Inter Lotto or by the IFT Group;
"Certificate"
the Certificate to manage Society Lotteries dated 14 March 1997 and
issued by the Gaming Board to Inter Lotto and any amendments and
successors thereto;
"Charity Account"
the Account or Accounts maintained by Inter Lotto for monies due to
Charities from sales of Lottery tickets;
"Director"
any director of Inter Lotto including where applicable any alternate
director;
"First Party"
has the meaning given in Clause 11.1;
"Gaming Board"
the Gaming Board for Great Britain;
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"Gross Revenues"
the face value of all Lottery tickets sold in an applicable period
during the term of this Agreement (consisting of the total receipts to
all persons or entities from such sales), before any expenses or
payments.
"IFT Group"
the Operating Company, IFT Holdings Limited ("Holdings") and
Interactive Flight Technologies, Inc.;
"Inter Lotto Revenue Share"
has the meaning given in Clause 7;
"Launch"
has the meaning given in Clause 10.1;
"Lottery"
a Lottery managed by Inter Lotto pursuant to the terms of this
Agreement;
"On-Line Facilities"
facilities at Outlets which enable the Lotteries to be played on-line
and all equivalent or similar facilities, including the central system
for Lotteries;
"Outlet"
a location or facility at which tickets or other Lottery
participations are sold to the public;
"Party"
a party to this Agreement (and "Parties" shall be construed
accordingly);
"Prize Fund Account"
the Account maintained by Inter Lotto for all monies due on account of
prizes;
"Second Party"
has the meaning given in Clause 11.1;
"Services"
the services to be provided by the Operating Company under Clause 4
and other provisions of this Agreement;
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"Shareholders' Agreement"
the agreement dated April 27, 1999 and made between the Shareholders
and Inter Lotto and others;
1.2 In this Agreement:
1.2.1 the Index and Clause headings are inserted for convenience only and shall
not affect the construction of this Agreement;
1.2.2 words denoting the singular shall include the plural and vice versa;
1.2.3 words denoting one gender shall include each gender and all genders;
1.2.4 references to persons shall be deemed to include references to natural
persons, to firms, to partnerships, to bodies corporate, to associations,
and to trusts (in each case whether or not having separate legal
personality).
1.3 References in this Agreement to "Clauses" and "Paragraphs" are references
to Clauses and Paragraphs of this Agreement.
1.4 Words and phrases defined for the purposes of or in connection with any
statutory provision shall, where the context so requires, be construed as
having the same respective meanings in this Agreement.
1.5 Reference in this Agreement to statutory provisions shall, where the
context so admits, and unless expressly provided otherwise, be construed
as references to those provisions as respectively amended, consolidated,
extended or re-enacted at the date hereof and shall, where the context so
admits or requires, be construed as references to the corresponding
provisions of any earlier legislation (whether repealed or not) directly
or indirectly amended consolidated extended or replaced thereby or
re-enacted and shall include where appropriate any orders, regulations,
instruments or other subordinate legislation made under the relevant
statute.
2. APPOINTMENT
Inter Lotto hereby appoints and engages the Operating Company as Inter
Lotto's exclusive agent and designee throughout the term of this Agreement
to exercise such authority and perform such services as are provided in
this Agreement, subject to Applicable Requirements and the direction and
control of Inter Lotto, and the Operating Company accepts such appointment
and engagement.
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3. OPERATING AUTHORITY
3.1 Subject to the terms of this Agreement and Applicable Requirements, Inter
Lotto grants to the Operating Company the authority to participate as
Inter Lotto's agent and designee in the operation and conduct of all of
the business and affairs and operations of Inter Lotto, including without
limitation the operations and affairs of the Business, throughout the term
of this Agreement.
3.2 Subject to Clauses 3.4, 3.5 and 5 and all other provisions of this
Agreement, the Operating Company's authority under this Agreement shall
include, without limitation, all authority necessary or appropriate to
perform all of the Services provided for in Paragraph 4; authority to make
and implement all decisions and determinations with respect to the day to
day business and affairs of Inter Lotto, the operation of the Business and
all matters relating thereto; the authority to negotiate, execute and
deliver agreements, instruments (including instruments of indebtedness)
and other documents for and in the name of Inter Lotto, subject to such
restrictions as may be imposed by specific action by the Board under the
terms of this Agreement; the authority to receive, hold, invest and expend
the receipts and funds of Inter Lotto, subject to such limitations as may
be imposed by Applicable Requirements or the Board under this Agreement;
and the authority to take all actions that the Operating Company in good
faith believes necessary or appropriate for the conduct of the Business
and Inter Lotto's operations and affairs.
3.3 Subject to Clauses 3.4, 3.5 and 5 and all other provisions of this
Agreement, the Operating Company may exercise its authority and perform
Services through such employees and contractors as it deems appropriate,
and the Operating Company may delegate any portion of its authority under
this Agreement to such employees or contractors; provided that no such
delegation shall relieve the Operating Company of its responsibilities and
obligations to Inter Lotto under this Agreement. The Operating Company
shall notify Inter Lotto in advance of the delegation of any material
portion of its management authority and services under this Agreement to a
contractor who is not the Operating Company's employee.
3.4 The Operating Company shall at such intervals as the Board may determine
(but not less frequently than monthly) submit to the Board a written
summary report of the activities of the Operating Company under this
Agreement for the period to which the report applies. The report shall be
in such format and include such information in such detail as the Board
may from time to time require in writing but shall in any event include
summaries of actions taken by the Operating Company under this Agreement
with respect to the Business for the period to which the report applies
and substantial and material actions outside of the regular course of
business proposed or expected promptly after such period.
3.5 Throughout the term of this Agreement, the Board of Inter Lotto shall at
all times retain and have the authority provided for in Clause 5 and the
full authority to make and implement decisions with respect to the
policies of Inter Lotto in its operations and
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affairs, including general operating policies, management and operating
strategies, and annual and regular periodic budgets, and the authority and
Services of the Operating Company shall be subject to such authority of
the Board.
4. SERVICES
4.1 Throughout the term of this Agreement, the Operating Company shall perform
such services that it deems reasonably necessary or appropriate for the
operation of the Business and the operations and affairs of Inter Lotto
and all services that Inter Lotto directs the Operating Company to perform
in accordance with the terms of this Agreement and subject to the
authority of the Board (including authority under Clauses 3.5 and 5.2) and
all other restrictions herein, including without limitation the following:
4.1.1 Administrative services, including supervision of the administration
and conduct of the Business;
4.1.2 Bookkeeping and accounting services, including the maintenance,
custody and supervision of books of account and other books and
records;
4.1.3 Contract administration, including supervision of contracts and
other agreements for On-Line Facilities and all other aspects of the
Business;
4.1.4 Personnel, including supervision, hiring and firing of personnel
conducting the operations and affairs of the Business, subject to
the authority and responsibility of the Board as to personnel who
are employees of Inter Lotto;
4.1.5 Lottery operations, including supervision of all aspects of On-Line
Facilities and the conduct of the Business through and in connection
with such facilities, subject to Applicable Requirements;
4.1.6 Participation in procedures for receipt and disbursement of funds,
subject to and to the extent permitted by Applicable Requirements;
4.1.7 All other services as may be necessary or appropriate for the
conduct of the Business and all aspects of the operations and
affairs of Inter Lotto in accordance with Applicable Requirements
and the terms of this Agreement.
4.2 The Operating Company will perform all Services for and on behalf of Inter
Lotto diligently in accordance with good business practices and shall use
its best efforts to increase and enhance the business and good will of
Inter Lotto and its Business.
5. EXCLUDED AUTHORITY AND CONTROL OF SERVICES
5.1 Nothing in this Agreement does, or is intended to, grant to the Operating
Company any authority with respect to the Business or grant any right or
obligation to perform any
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services which, under the Act or any other Applicable Requirements, may
not be performed by the Operating Company. In the event that this
Agreement provides, or may be construed to provide, for the Operating
Company to have authority or to perform services which the Operating
Company may not exercise or perform in the manner and under the terms
provided in this Agreement under Applicable Requirements, the Parties
shall cooperate in such manner as may be necessary to cause the services
to be performed and the authority to be exercised in a manner consistent
with Applicable Requirements.
5.2 Inter Lotto shall at all times during the term of this Agreement have
final control over the activities and services of the Operating Company in
connection with the operation of the Business. Inter Lotto may at any
time, by written notice to the Operating Company reverse or "veto" any
action taken or proposed to be taken by the Operating Company with respect
to the operation of the Business; provided that such reversal or veto is
not contrary to Applicable Requirements and does not violate the
contractual or other proprietary rights of any third party. A reversal or
veto by Inter Lotto of any action or proposed action by the Operating
Company may be taken and implemented only by written notice to the
Operating Company expressly authorized by the Board, and no reversal or
veto shall be effective if taken or attempted to be taken orally, by
implication or estoppel or in any manner other than as expressly provided
in this Clause 5.2.
6. FINANCIAL TERMS AND MANAGEMENT FEE
6.1 The Operating Company shall submit to Inter Lotto reports of revenues and
disbursements at such intervals as the Parties may determine on an on-line
basis, and in hard copy at such times and for such periods as the parties
deem appropriate. The reports shall include a statement of Gross Revenues
and disbursements and such other financial information and data as the
Parties may determine to be reasonably appropriate. Within 60 days after
the end of each calendar year during the term of this Agreement, the
Operating Company shall submit to Inter Lotto annual reports of financial
information for each such calendar year, which annual reports shall
reconcile all information in the periodic reports.
6.2 The Operating Company shall pay and be responsible for, at such intervals
and in such manner as may be necessary or appropriate for the proper
operation of the Business and performance of Services, administrative,
overhead and other regular expenses of the Business and operation of Inter
Lotto arising from and after the date of this Agreement.
6.3 The Operating Company shall receive as a management fee the balance of
Gross Revenues for each applicable period, after the payments provided for
in this Paragraph. Inter Lotto hereby authorizes the Operating Company to
make whatever payments or transfers or disbursements of funds may be
necessary or appropriate for the payment of such management fee and shall
take such action and execute such documents, and otherwise cooperate with
the Operating Company in all respects in effecting the payment of the
management fee.
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7. INTER LOTTO REVENUE SHARE
The Inter Lotto Revenue Share for any period for which a determination or
calculation shall be necessary or appropriate shall be four percent of the
Gross Revenues of Inter Lotto for the period and shall be paid to Inter
Lotto or to Holdings, on behalf of the IFT Group, as follows:
7.1 From the date of Launch until the Capital Participation of Inter Lotto and
the IFT Group has been paid in full under the terms of this Paragraph, the
Inter Lotto Revenue Share shall be paid (i) one-half (equal to two percent
of Gross Revenues) to Inter Lotto, and (ii) one-half (equal to two percent
of Gross Revenues) to Inter Lotto and to Holdings (on behalf of the IFT
Group) in proportion to the Percentage Capital Participation of Inter
Lotto and the IFT Group at the time of the payment.
7.2 From and after such time as the payments under Clause 7.1 have repaid the
Capital Participations of Inter Lotto and of the IFT Group in full, the
entire Inter Lotto Revenue Share shall be paid to Inter Lotto.
8. NON-DISCLOSURE OF INFORMATION
Except to the extent necessary to comply with the law or any requirements
of The International Stock Exchange of the United Kingdom and the Republic
of Ireland Limited from time to time in force or any other regulatory
requirements in force from time to time affecting the Parties and save as
permitted pursuant to this Agreement, neither of the Parties shall divulge
or communicate to any person (other than those whose province it is to
know the same or with property authority) or use or exploit for any
purpose whatever any of the trade secrets or confidential knowledge or
information or any financial or trading information relating to the other
which the relevant Party may receive or obtain as a result of entering
into this Agreement, and shall use all reasonable endeavours to prevent
its holding company, subsidiaries or employees from so acting. This
restriction shall continue to apply after the expiration or sooner
termination of this Agreement without limit in point of time but shall
cease to apply to information or knowledge which may properly come into
the public domain through no fault of the Party so restricted.
9. TERM
The term of this Agreement shall begin on the date hereof and shall
continue until this Agreement is terminated pursuant to Paragraph 10 or
Paragraph 11.
10. LAUNCH
10.1 For purposes of this Agreement, the "Launch" of the Business as operated
by the Operating Company shall mean the management by Inter Lotto of a
Lottery in the United Kingdom with 1,000 On-Line Facilities, and the date
of Launch shall be deemed the first day of the first calendar month after
which Launch is complete.
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10.2 The Operating Company may terminate this Agreement by giving Inter Lotto
written notice of termination if Launch has not occurred before October
15, 1999, and Inter Lotto may terminate this Agreement by giving the
Operating Company written notice of termination if Launch has not
occurred by March 15, 2000. If Launch occurs at any time after March 15,
2000 but before either Party has exercised the right of termination
hereunder, the Operating Company may at any time after Launch by written
notice to Inter Lotto extinguish the right of termination under this
Paragraph 10.2, in which event this Agreement may be terminated only as
provided in Paragraph 11.
11. TERMINATION
11.1 Without prejudice to the provisions of Clause 10, this Agreement may be
terminated forthwith by either Party (the "First Party") giving to the
other (the "Second Party") notice in writing in the following
circumstances;
11.1.1 If, in respect of the Second Party, a petition is presented (other than a
petition which is frivolous or vexatious and which is withdrawn or stayed
within 20 Business Days) or a notice of resolution is given for the
winding up of the Second Party (except for the purpose of a solvent
amalgamation or reconstruction) or the Second Party has suffered the
appointment of a receiver, an administrator or administrative receiver to
manage its business affairs and property or if the Second Party has
ceased to be able to pay its debts as they fall due; or
11.1.2 Unless otherwise provided in this Agreement, if the Second Party has
committed a material breach of its obligations under this Agreement and
(where such breach can be remedied) has failed to remedy it within 28
days after service upon it of a written notice specifying the breach in
question and requiring it to be remedied.
12. INTER LOTTO ACTIONS AND DETERMINATIONS
In all instances in which this Agreement makes the authority or
activities of the Operating Company subject to the authority of Inter
Lotto or otherwise provides for or refers to authority of or actions or
determinations by Inter Lotto, such authority, actions and determinations
may be exercised and taken only by proper and duly authorized actions of
Inter Lotto's Board. No authority, action or determination by Inter Lotto
under this Agreement may be exercised or taken in any manner by any of
Inter Lotto's officers or any other person or entity acting or purporting
to act on behalf of Inter Lotto without the express and specific approval
and authorization by Inter Lotto's Board.
13. ACCOUNTING CALCULATIONS
In all instances in which this Agreement requires or permits accounting
calculations or determinations, in the event of a disagreement or
dispute, the calculations or determinations shall be made by the
Accountants and shall be reported in writing to all
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Parties. Unless manifestly arbitrary or unreasonable or made in bad
faith, all calculations or determinations by the Accountants shall be
final and binding on all Parties and not subject to reconsideration or
appeal.
14. SHAREHOLDERS' AGREEMENT
This Agreement is intended to be consistent with the Shareholders'
Agreement and rights and obligations thereunder, and this Agreement shall
be so construed to the extent reasonably practicable. To the extent that
the terms of this Agreement necessarily conflict with the terms of the
Shareholders' Agreement, the Shareholders' Agreement shall prevail.
15. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of which
shall be deemed to be an original, and which together shall constitute
one and the same Agreement. Unless otherwise provided in this Agreement,
this Agreement shall become effective and be dated (and each counterpart
shall be dated) on the date on which this Agreement (or a counterpart of
this Agreement) is signed by the last of the Parties to execute this
Agreement or, as the case may be, a counterpart thereof.
16. ASSIGNMENT
Except as provided in Paragraph 3.3 with respect to subcontracting by the
Operating Company, neither of the Parties shall assign or transfer or
purport to assign or transfer any of its rights or obligations under this
Agreement without the prior written consent of the other Party.
17. SUCCESSORS
This Agreement shall be binding on and shall enure for the benefit of the
respective successors in title of each of the Parties.
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18. WAIVER AND FORBEARANCE
The rights of each of the Parties shall not be prejudiced or restricted
by any indulgence or forbearance extended to the other and no waiver by
either Party in respect of any breach shall operate as a waiver in
respect of any subsequent breach.
19. NO THIRD PARTY BENEFICIARIES
This Agreement does not confer any rights or remedies upon any person or
entity other than the parties hereto and their respective successors and
permitted assigns, and no person or entity other than the parties and
such successors and assigns shall have the right to enforce all or any
portion of this Agreement.
20. ENTIRE AGREEMENT AND VARIATION
20.1 This Agreement together with the agreements referred to herein supersedes
any previous agreement between the Parties in relation to the matters
dealt with herein and represents the entire understanding between the
Parties in relation thereto. Each of the Parties acknowledges that in
entering into this Agreement it has not relied on any warranty,
representation, agreement or statement not set out in this Agreement and
that (in the absence of fraud) it will not have any right or remedy
arising out of such warranty, representation, agreement or statement.
20.2 Save as otherwise expressly provided, no modifications, amendment or
waiver of any of the provisions of the Agreement shall be effective
unless made in writing specifically referring to this Agreement and duly
signed by each of the Parties.
21. SEVERANCE
21.1 Each provision of this Agreement shall be enforceable independently of
all other provisions and its validity, legality or enforceability shall
not be affected if any other provision becomes invalid, illegal or
unenforceable in any respect under any law.
21.2 In respect of all provisions of this Agreement if at any time any
provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect under any law but would be or become valid,
legal or enforceable if some part of the provision were deleted or
amended, the provision in question shall remain in force with such
deletion or with such amendment as may be necessary to make the provision
valid, legal and enforceable.
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22. NO PARTNERSHIP
22.1 Nothing in this Agreement shall be deemed to constitute a partnership
between the Parties nor constitute either Party the agent of the other
for any purpose.
22.2 Neither Party shall (save as expressly provided herein) have any
authority to bind the other in any way.
23. NOTICES
23.1 Any notice given under this Agreement shall either be delivered
personally or sent by first class recorded delivery post (air mail if
overseas) or telex, facsimile transmission or comparable means of
communication. The address for service of each Party shall be (in the
case of an individual) the address set out at the head of this Agreement
or at such other address within the United Kingdom for service previously
notified to the other parties or (in the case of a company) its
registered office for time being. A notice shall be deemed to have been
served as follows:
23.1.1 if personally delivered, at the time of delivery;
23.1.2 if posted, at the expiration of 48 hours or (in the case of air mail)
seven days after the envelope containing the same was delivered into the
custody of the postal authorities; and
23.1.3 if sent by facsimile transmission or comparable means of communication,
at the time of transmission (if the notice is sent before 5 pm on a
Business Day) otherwise at 9 am on the next following Business Day.
23.2 In proving such service (without prejudice to any other means of proof)
it shall be sufficient to prove that personal delivery was made or that
the envelope containing such notice was properly addressed and delivered
into the custody of the postal authority of the country of dispatch as a
prepaid first class recorded delivery or air mail letter (as appropriate)
or that in relation to a facsimile transmission or other comparable means
of communication, that a confirming copy thereof was personally delivered
or sent by first class recorded delivery or air mail letter (as
appropriate) within 24 hours after transmission.
24. APPLICABLE LAW AND SUBMISSION TO JURISDICTION
This Agreement shall be governed by and construed in accordance with
English law and
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each of the Parties submits the non-exclusive jurisdiction of the Supreme
Court of Judicature of England in relation to any claim, dispute or
difference which may arise in relation to the Agreement.
IN WITNESS of which this Agreement has been duly signed for and on behalf of
each of the Parties on the day and year first above written.
INTER LOTTO (UK) LIMITED
By:
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IFT MANAGEMENT LIMITED
By:
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