CONNECTICUT LOTTERY CORPORATION Board of Directors. Minutes of Meeting. September 10, 2009 At 1:30 p.m.

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1 CONNECTICUT LOTTERY CORPORATION Board of Directors Minutes of Meeting September 10, 2009 At 1:30 p.m. held at the Connecticut Lottery Corporation 777 Brook Street Rocky Hill, Connecticut Board Members P resent: Absent: Staff Members: Visitors: Call to Order: John Paul, Chairman of the Board; Gale Mattison, Vice Chairman of the Board, designee of ex-officio member, Robert L. Genuario, Secretary, Office of Policy and Management; Robert Morgan; Marty Stauffer; Margaret Morton; Pat Racz; Kenneth Saccente, Wendy Kingsbury; Patrick Birney and Carolyn Long. Steven Bafundo. Anne M. Noble, President & CEO; John Ramadei; Barbara Porto; Paul Sternburg; and Helen Duffy. Joseph Tontini, State of Connecticut, Division of Special Revenue; Kendra Eckhart, Cashman + Katz Integrated Communications; Jeffrey Castiglioni and Michael Brooder, UHY, LLP. Chairman Paul called the meeting to order at 1:35 p.m. On behalf of the Board of Directors, he recognized and thanked retiring Lottery staff members for their hard work and dedication to the Lottery. I. Approval of Minutes: On motion made by Mr. Morgan, seconded by Mr. Mattison, and unanimously approved, it was: Resolved, That the minutes of the June 25, 2009 Board Meeting be approved. II. President s Report: Ms. Noble reported on current initiatives underway at the Lottery. She spoke of the New York Giants promotion and media tour held at the Lottery and two off-site locations on August 26 th. Ticket buying was noteworthy yesterday as players bought tickets based on the calendar date of Year-end financial results are in and, while 2009 sales were down, the Lottery was still able to transfer $283 million to the General Fund, which is exactly what was transferred in This is a significant accomplishment, given industry trends and declines. Sales this year are slightly ahead of last year, and the Lottery is working hard to meet its commitment to return $295 million to the General Fund by the end of this fiscal year. The Lottery continues to monitor initiatives at the Capitol. Although Keno was not included in the budget, the Lottery is continuing to negotiate with Scientific Games and other vendors to plan for Keno authorization. A Securitization Plan must be submitted to the Legislature by February 10, Because the Lottery may be included in this Plan, Ms. Noble has directed John Ramadei to spearhead the fact-finding and response efforts internally. In response to a previous question by Mr. Stauffer, Ms. Noble assured the Board that the Lottery would retain counsel for the Board if so needed.

2 Page 2 The status of Senate Bill 938, which would modify the approval process for regulatory costs, submitted by the Division of Special Revenue, is still undecided. In preparation for the upcoming session, the Lottery will develop a legislative agenda to address any future regulatory and compliance issues that it might face. Ms. Noble reported on the Lottery s long term strategic plans. These will include an expansion of its retailer network and distribution base, enhancement of its player and retailer rewards program, innovations and incentives for draw games, and increased use of technology and social media. The Lottery will continue to be mindful of its commitment to responsible play, public good and trust, and fraud mitigation measures. The Lottery recently met with the Partnership for Responsible Gambling to collaborate on joint efforts, and senior Lottery staff members will attend the Connecticut Council for Problem Gambling s annual forum this November. Members of the Lottery plan to attend a meeting with representatives from the Division of Special Revenue and the casinos. Within the next several months, the Lottery will invite a guest speaker from McGill University to speak to senior management about issues related to problem gambling. Ms. Noble thanked Lottery warehouse staff for their commendable efforts over the Labor Day weekend to package and ready the Fortune Cookie game. This was accomplished on time and without any problems. The network security assessment is underway; L3 Communications will visit the Lottery next week to report on their findings and recommendations. The Lottery recently issued a Request for Proposals for Legal Services. Ms. Noble reported to the Board that the Lottery recently augmented the Lucky-4-Life game in the amount of $1.4 million. The Operations Department has been responsible for bringing multiple software projects successfully to market. For example, the Lottery will soon install software to support instant ticket balancing on the terminal, cross-promotions and enhancements to the network monitoring system, also known as RAVEN. The Lottery will also continue to make any necessary improvements to the communications network as it begins its second winter season after the conversion. Essential positions left open as a result of recent retirements are in the process of being filled. Ms. Noble acknowledged the contributions of the retirees and said that a retirement celebration will take place tonight at UConn s Rentschler Field in their honor. Pandemic flu mitigation measures are underway at the Lottery, and sexual harassment training will be held in late September. To conclude her report, Ms. Noble said that the Lottery industry is changing rapidly and assured the Board that the Lottery is making every effort to be poised and ready for these changes. Marketing Report: Mr. Sternburg opened his report by showing two New York Giants commercials and gave highlights on Joe Morris s (ex running back for the NY Giants) visit to the Lottery on August 26 th. Sales of this game are doing well. Fortune Cookie, the Lottery s newest scratch game, was also recently launched. This game provides for a chance to win a free $2.00 Lucky-4-Life ticket as one of the prizes in the game. If successful, the Lottery will consider using this cross-promotion for Classic Lotto. Mr. Sternburg continued with an overview of game sales trends compared to the same period last year. His summary follows:

3 Page 3 Play3 Day and Play4 Day sales continue to do well. However, Play3 Night sales continue to decline. Play4 Night sales are up largely due to higher prize payouts. Classic Lotto sales are down due to the lower jackpot, and Cash5 also saw a decrease in sales due to cannibalization from the Lucky-4-Life game. Powerball sales are up, attributable to the recent jackpot roll. In order to meet the budget numbers, Mr. Sternburg explained that Powerball sales must reach $2 million per week. Lucky-4-Life sales are doing very well, and on target with projections. To date, we have had three Lucky-4-Life winners: two have claimed and one remains unclaimed. Overall instant ticket sales are down compared to last year. However, on-line sales are up compared both to actual and to budget. Mr. Morgan asked if the new 180-day prize claim deadline would apply to the unclaimed Lucky-4-Life win. Mr. Sternburg stated it would because the ticket was purchased after the August 2, 2009 cutover date. The Lottery would continue to advise the public of the unclaimed prize via press releases and other media. The 180-day policy is also posted on our website. This concluded the President s Report. III. Committee Reports: Audit: Mr. Stauffer reported that the independent auditors had completed their examination for the year ended June 30, 2009 and met with the Audit Committee on September 9, Mr. Michael Brooder and Mr. Jeffrey Castiglioni of UHY LLP were present at the Board Meeting and were asked to present their findings to the full Board. UHY LLP rendered a clean opinion on the financial statements for fiscal year 2009, and Mr. Brooder noted that the financial records were in excellent condition and that no material weaknesses or deficiencies in internal controls were found. Mr. Brooder also stated for the record that this year was the final year that UHY was eligible to audit the records of the Lottery and that he wished to express his pleasure on behalf of the firm for the long and successful relationship with the CLC. Mr. Stauffer thanked UHY for the fine services rendered to the Lottery on behalf of the Audit Committee and the full Board. Mr. Stauffer then reported on the Draft State Audit Report for the fiscal year ended June 30, The Draft State Audit Report was also reviewed at the Audit Committee Meeting of September 9, Mr. Stauffer noted that the Draft findings resulted in a No Comments conclusion, which was an excellent outcome for the examination. Mr. Stauffer commended the entire staff of the Lottery, especially noting the Finance staff, for the positive results of both audits. Mr. Stauffer next reported on the process of engaging a new audit firm for the year ending June 30, 2010 and subsequent periods. The Audit Committee and senior management will cooperate in the development of a Request for Proposals for a new audit firm. When the process is concluded, the Audit Committee will provide a recommendation for the new audit firm to the full Board of Directors for approval. Finally, Mr. Stauffer noted that the Network Security Assessment performed by L-3 Communications was nearing completion and that members of management would meet with L-3 in the near future to review comments related to L-3 s findings. The Audit Committee will then review the L-3 report prior to presentation to the full Board. Games & Marketing: Mr. Mattison reported briefly that the Games and Marketing Committee had met on September 9 th to review Committee initiatives, budget and strategies. He stated that new games initiatives would be covered in today s Executive Session.

4 Page 4 Personnel/Compensation: Ms. Racz reported that the Personnel and Compensation Committees had met jointly to review compensation plans and policies. The Committees also reviewed the compensatory time report for the fiscal year. Ms. Racz noted that the amount of compensatory time earned and used by eligible managers during this period was reasonable and appropriate. Ms. Racz then requested to have a brief meeting with Chairman Paul and Ms. Noble concerning the Personnel/Compensation report. Ms. Racz, Chairman Paul and Ms. Noble left the Board meeting at 2:05 p.m. and rejoined the meeting at 2:10 p.m. Ms. Racz then asked that the record reflect the following correction to the Management Compensation Plan: The last paragraph, or footnote 2, should read, An employee who receives an overall rating of Does Not Fully Meet Standards for the first time shall be awarded a 0% salary increase and such employee shall not be given an increase if a second such rating is received. Ms. Racz continued with her report and provided highlights and committee recommendations for each of the Lottery s incentive plans. Her summary follows: Management Compensation Plan The Committee recommended that there be no merit increases awarded or changes to the managerial salary levels in light of the state s economic issues. Management Incentive Compensation Plan The Committee recommended only one change from last year s plan. Instead of a budget-to-budget sales increase comparison, the Committee recommended that the prior year actual-to-budget sales increase be used as the performance measure (e.g., last year s performance compared to this year s budget). Sales Incentive Compensation Plan The Committee recommended that no increases in base salaries accrue during the fiscal year to be consistent with the wage freezes negotiated as part of the SEBAC 2009 Agreement. However, lump sum payments would be paid if sales goals were achieved. Ms. Racz read the following three resolutions related to each of the plans: Committee, the Board of Directors hereby approves and adopts the Management Compensation Plan for Fiscal Year Be It Further Resolved, That salary adjustments provided for under the Management Compensation Plan are retroactive to July 1, Committee, the Board of Directors hereby approves and adopts the Management Incentive Compensation Plan for Fiscal Year Be It Further Resolved, That changes provided for under the Management Incentive Compensation Plan shall be effective as of July 1, 2009.

5 Page 5 Committee, the Board of Directors hereby approves and adopts the Sales Incentive Compensation Program for Fiscal Year Be It Further Resolved, That changes provided for under the Sales Incentive Compensation Program shall be effective as of July 1, IV. Executive Session: At 2:20 p.m., Chairman Paul called for a motion to enter into Executive Session to discuss new games initiatives and pending claims and litigation. Chairman Paul invited Ms. Noble, Ms. Porto and Mr. Sternburg to remain for the new games initiatives portion of Executive Session, and Ms. Noble and Mr. McCormack to remain for the pending claims and litigation portion of Executive Session. On motion made by Mr. Birney, seconded by Mr. Morgan, and unanimously approved, the Board moved into Executive Session. The Board reconvened in regular session at 2:45 p.m. Chairman Paul reported that no votes or actions were taken during Executive Session. V. Old Business: None. VI. New Business: None. VII. Next Scheduled Board Meeting Date: The next Board of Directors meeting will be held on November 12, VIII. Adjournment: On motion made by Mr. Mattison, seconded by Mr. Saccente, and unanimously approved, the meeting was adjourned at 2:50p.m. Respectfully submitted, Barbara Porto Corporation Secretary By: Helen Duffy Secretary to Anne M. Noble President & CEO/Connecticut Lottery Corporation