<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Autotote Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
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Notes:
<PAGE>
[AUTOTOTE LOGO]
July 16, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Autotote Corporation (the "Company") to be held at 2:00 p.m., local time, on
Wednesday, August 13, 1997, at the Hotel du Pont, Eleventh and Market Streets,
Wilmington, Delaware.
At the Annual Meeting you will be asked to elect five Directors, to approve
the Autotote Corporation 1997 Incentive Compensation Plan and to ratify the
appointment of KPMG Peat Marwick as Auditors for the Company's next fiscal
year.
The Board of Directors recommends that you vote FOR the election of all five
nominees as Directors, FOR the approval of the Autotote Corporation 1997
Incentive Compensation Plan and FOR ratification of the appointment of the
Auditors.
Regardless of the number of shares you may own, it is important that they
are represented and voted at the Annual Meeting. Therefore, please sign, date
and mail the enclosed proxy in the return envelope provided.
At the Annual Meeting, we will also report to you on the Company's current
operations and outlook. Members of the Board and management will be pleased to
respond to any questions you may have.
Sincerely,
A. Lorne Weil
Chairman of the Board
<PAGE>
AUTOTOTE CORPORATION
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
AUGUST 13, 1997
----------------
Notice is hereby given that the Annual Meeting of Stockholders of Autotote
Corporation (the "Company") will be held at 2:00 p.m., local time, on
Wednesday, August 13, 1997, at the Hotel du Pont, Eleventh and Market Streets,
Wilmington, Delaware, for the following purposes:
1. To elect five members of the Board of Directors to serve for the
ensuing year and until their respective successors are duly elected and
qualified.
2. To approve the Autotote Corporation 1997 Incentive Compensation Plan.
3. To ratify the appointment of KPMG Peat Marwick as independent
accountants for the Company for the fiscal year ending October 31, 1997.
4. To consider and act upon any other matters that may properly come
before the meeting or any adjournment thereof. The Board of Directors is
not presently aware of any such matters.
All holders of Class A Common Stock whose names appear of record on the
Company's books at the close of business on June 20, 1997 will be entitled to
receive notice of and to vote at the meeting and any adjournment thereof.
WHETHER OR NOT YOU PLAN TO BE PERSONALLY PRESENT AT THE MEETING, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE. IF YOU LATER DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO AT
ANY TIME BEFORE IT IS EXERCISED.
By Order of the Board of Directors
MARTIN E. SCHLOSS
Secretary
Dated: July 16, 1997
<PAGE>
AUTOTOTE CORPORATION
750 LEXINGTON AVENUE, 25TH FLOOR
NEW YORK, NEW YORK 10022
----------------
PROXY STATEMENT
----------------
INTRODUCTION
The Board of Directors (the "Board") of Autotote Corporation, a Delaware
corporation (the "Company"), is furnishing this Proxy Statement to holders of
shares of Class A Common Stock, $.01 par value per share, of the Company (the
"Class A Common Stock") in connection with the solicitation of the enclosed
proxy for use at the Annual Meeting of Stockholders to be held on Wednesday,
August 13, 1997 at 2:00 p.m., local time, at the Hotel du Pont, Eleventh and
Market Streets, Wilmington, Delaware, and any adjournment thereof (the "Annual
Meeting"), for the purposes set forth in the Notice of Annual Meeting of
Stockholders. Shares of the Company's Class A Common Stock represented by
proxies in the form solicited will be voted in the manner directed by a
stockholder. If no direction is given, shares represented by proxies will be
voted FOR the election of the five nominees for director named in this Proxy
Statement and FOR the proposals set forth in Items 2 and 3. Proxies may be
revoked at any time prior to their being voted by giving written notice of
revocation or by giving a duly executed proxy bearing a later date to the
Secretary of the Company or by voting in person at the Annual Meeting.
It is expected that this Proxy Statement and enclosed form of proxy will be
mailed to stockholders on or about July 17, 1997.
All holders of Class A Common Stock whose names appear of record on the
Company's books at the close of business on June 20, 1997, the record date for
the determination of stockholders of the Company entitled to notice of and to
vote at the Annual Meeting, will be entitled to vote at the Annual Meeting. At
the close of business on June 20, 1997, a total of 35,334,868 shares of Class
A Common Stock were outstanding. Each share of Class A Common Stock is
entitled to one vote.
Expenses in connection with the solicitation of proxies will be paid by the
Company. Proxies are being solicited primarily by mail, but, in addition,
officers and regular employees of the Company who will receive no extra
compensation for their services may solicit proxies by telephone, telecopy,
telex or personal calls. The Company also has retained D.F. King & Co., Inc.
to assist in soliciting proxies at a fee of $4,000 plus reimbursement of
reasonable out-of-pocket costs and expenses.
The Company is not aware of any matters other than those described in this
Proxy Statement that will be acted upon at the Annual Meeting. In the event
that any other matter properly comes before the meeting for a vote of
stockholders, the persons named as proxies in the enclosed form of proxy will
vote in accordance with their best judgment on such other matters.
The annual report of the Company for the fiscal year ended October 31, 1996
is being mailed to the Company's stockholders with this proxy statement.
<PAGE>
VOTING
A majority of the shares outstanding and entitled to vote, present in person
or represented by proxy, constitutes a quorum for the transaction of business
at the Annual Meeting. Votes cast by proxy or in person at the Annual Meeting
will be counted by persons appointed by the Company to act as inspectors of
election at the meeting.
The five nominees for election as directors at the Annual Meeting who
receive the greatest number of votes for the election of directors shall be
elected directors. In all matters other than the election of directors, a
majority vote of the number of shares entitled to vote present in person or
represented by proxy at the Annual Meeting is necessary, unless the law or the
Company's certificate of incorporation or by-laws require otherwise.
The inspectors of election will treat abstentions and broker non-votes
(i.e., shares held by brokers or nominees that the broker or nominee does not
have discretionary power to vote on a particular matter and as to which
instructions have not been received from the beneficial owners or persons
entitled to vote) as shares that are present and entitled to vote for purposes
of determining a quorum. With regard to the election of directors, votes may
be cast in favor of or withheld and directors will be elected by a plurality
of the votes cast by proxy or in person at the Annual Meeting. Accordingly,
votes that are withheld for the election of directors and broker non-votes
will be excluded entirely from the vote and will have no effect on the outcome
of the election except to the extent that the failure to vote for a particular
nominee results in another nominee receiving a larger number of votes. In
matters requiring a majority of the shares for approval, abstentions are
considered to be shares present and entitled to vote and therefore will have
the effect of a negative vote on the matter. Broker non-votes on such matters
are not counted as shares entitled to vote and will have no effect on the
outcome of the matter.
2
<PAGE>
SECURITY OWNERSHIP
The following table sets forth certain information as of June 13, 1997 as to
the security ownership of those persons known to the Company to be the
beneficial owners of more than five percent of the outstanding Class A Common
Stock of the Company, each of the Company's directors, each of the current
executive officers listed in the Summary Compensation Table under "Executive
Compensation" below and all of the Company's directors and executive officers
as a group. Except as otherwise indicated, the stockholders listed in the
table below have sole voting and investment power with respect to the shares
indicated.
SHARES OF CLASS A COMMON STOCK
<TABLE>
<CAPTION>
NAME NUMBER PERCENT(1)
- ---- ---------- ----------
<S> <C> <C>
A. Lorne Weil........................................ 2,746,392(2) 7.40%
750 Lexington Avenue
25th Floor
New York, New York 10022
Thomas H. Lee........................................ 4,037,070(3) 11.25%
c/o Thomas H. Lee Company
75 State Street
Boston, MA 02109
Larry J. Lawrence.................................... 2,684,540(4) 7.38%
c/o Lawrence, Smith & Horey
29th Floor
515 Madison Avenue
New York, New York 10022
Marshall Bartlett.................................... 39,999(5) *
Gerald Lawrence...................................... 48,500(6) *
William Luke......................................... 37,500(7) *
Martin E. Schloss.................................... 80,000(8) *
Sir Brian Wolfson.................................... 106,667(9) *
Alan J. Zakon........................................ 333,667(10) *
All current directors and executive officers as a
group
(consisting of 9
persons)(2)(3)(4)(5)(6)(7)(8)(9)(10)................ 10,114,335(11) 25.96%
State of Wisconsin Investment Board.................. 2,810,500(12) 7.95%
P.O. Box 7842
Madison, WI 54707
Oaktree Capital Management, LLC...................... 2,000,000(13) 5.36%
550 South Hope Street
Los Angeles, CA 90071
Lawrence, Tyrrell, Ortale & Smith.................... 1,886,245(14) 5.19%
515 Madison Avenue
New York, New York 10022
</TABLE>
- --------
* Represents less than 1% of the outstanding shares of Class A Common Stock.
(1) For purposes of determining beneficial ownership of the Company's Class A
Common Stock, owners of Class A warrants and options exercisable within
sixty days of June 13, 1997 are considered to be the beneficial owners of
the shares of Class A Common Stock for which such securities are
exercisable. The percentage ownership of the outstanding Class A Common
Stock reported herein is based on the assumption that only the person whose
ownership is being reported has exercised his warrants or options for Class
A Common Stock.
3
<PAGE>
(2) Includes (a) 216,644 shares held in the name of the Lorne Weil 1989
Trust, of which Mr. Weil is Trustee, (b) 588,870 shares issuable upon
exercise of warrants some of which warrants are held in the name of the
Lorne Weil 1989 Trust, which warrants were to expire in October 1996 and
were extended by the Board of Directors to October 1999, and (c)
1,193,250 shares subject to currently exercisable stock options, 525,000
and 600,000 of which were to expire in March 1997 and October 1997,
respectively, and were extended by the Stock Option Committee to March
2002 and October 2002, respectively. Effective March 25, 1994, Mr. Weil
entered into a swap transaction (the "Swap") with Bankers Trust Company
("BTC") in respect of 500,000 shares of the Class A Common Stock of the
Company held by him (the "Swap Shares"). Mr. Weil continues to hold sole
voting power over the Swap Shares which serve as collateral for the Swap
transaction; however, Mr. Weil may substitute other collateral for the
Swap Shares. Under the Swap arrangement (i) Mr. Weil is obligated to pay
BTC (a) at the end of each quarter during the five (5) year term of the
Swap (the "Term") the amount of any dividends declared during such
quarter on the Swap and (b) at the end of the Term, any appreciation
during the Term in the price of the Swap Shares above $26.7769 per share,
(ii) BTC is obligated to pay Mr. Weil (x) at the end of each quarter
during the Term, the amount equal to the three (3) month London Interbank
Offered Rate less 2.125% of the Calculation Amount (as defined in the
Swap documents) of $13,388,500, and (y) at the end of the Term, an amount
equal to any depreciation during the Term in the price of the Swap Shares
below $26.7769 per share. Mr. Weil will pay BTC an annual fee in
consideration of its entering into the Swap. The Swap is for a five (5)
year period, but will terminate if Mr. Weil dies or if certain other
events occur during such period.
(3) Includes (a) 1,535,100 shares and 552,381 shares issuable upon exercise
of warrants that were to expire in October 1996 and were extended by the
Board of Directors to October 1999 owned by the 1989 Thomas H. Lee
Nominee Trust, and (b) 1,946,256 shares owned by Thomas H. Lee Equity
Partners, L.P. Mr. Lee is a general partner of THL Equity Advisors
Limited Partnership, which is general partner of Thomas H. Lee Equity
Partners, L.P.
(4) Includes 42,533 shares issuable upon exercise of warrants that were to
expire in October 1996 and were extended by the Board of Directors to
October 1999. Also includes (a) 902,483 shares, and (b) 983,762 shares
issuable upon exercise of warrants held by Lawrence, Tyrrell, Ortale &
Smith. Mr. Lawrence is the general partner of Lawrence Venture Partners,
the sole general partner of Lawrence, Tyrrell, Ortale & Smith.
(5) Consists of 30,000 shares subject to currently exercisable stock options,
7,500 and 22,500 of which were to expire in December 1996 and December
1997, respectively, and were extended by the Stock Option Committee to
December 2001 and December 2002, respectively.
(6) Includes 37,500 shares subject to currently exercisable stock options.
(7) Consists of 37,500 shares subject to currently exercisable stock options.
(8) Includes 65,000 shares subject to currently exercisable stock options,
40,000 of which were to expire in October 1997 and were extended by the
Stock Option Committee to October 2002.
(9) Includes (a) 45,000 shares subject to currently exercisable stock options
that were to expire in June 1998 and were extended by the Stock Option
Committee to June 2003, and (b) 25,000 shares held by Millco Limited as
nominee.
(10) Includes 45,000 shares subject to currently exercisable stock options
that were to expire in July 1998 and were extended by the Stock Option
Committee to July 2003.
(11) Includes (a) 2,167,546 shares issuable upon exercise of warrants and (b)
1,453,250 shares subject to currently exercisable stock options.
(12) Based upon a Schedule 13G filed with the Securities and Exchange
Commission on February 3, 1997.
(13) Consists of 2,000,000 shares currently issuable upon the conversion of
debentures.
(14) Includes 983,762 shares issuable upon exercise of warrants that were to
expire in October 1996 and were extended by the Board of Directors to
October 1999.
4
<PAGE>
PROPOSAL 1--ELECTION OF DIRECTORS
NOMINEES
The Board has set the number of directors to be elected for the coming year
at five. Each director shall be elected at the Annual Meeting of Stockholders
for a term of one year and until his successor is duly elected and qualified.
The Board recommends that the stockholders elect the nominees named below as
directors of the Company for the ensuing year, and the persons named as
proxies in the enclosed form of proxy will vote the proxies received by them
for the election as directors of the nominees named below unless otherwise
indicated. Cumulative voting is not permitted. Each nominee is presently a
director of the Company. Each nominee has indicated a willingness to serve,
but in case any nominee is not a candidate at the meeting for reasons not now
known to the Company, the proxies named in the enclosed proxy may vote for a
substitute nominee at their discretion. Certain information regarding the
nominees as of June 13, 1997 is set forth below.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION SINCE
- ---- --- -------- --------
<S> <C> <C> <C>
A. Lorne Weil.................. 51 Chairman of the Board and
Chief Executive Officer 1989
Marshall Bartlett.............. 72 Director(2)(3) 1991
Larry J. Lawrence.............. 54 Director(1)(2)(3) 1989
Sir Brian Wolfson.............. 61 Vice Chairman of the Board(1) 1988
Alan J. Zakon.................. 61 Vice Chairman of the Board(1)(2)(3) 1993
</TABLE>
- --------
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation and Stock Option Committee
Mr. A. Lorne Weil has been a director of the Company since December 1989,
Chairman of the Board since October 31, 1991 and Chief Executive Officer of
the Company since April 1992. From 1982 to October 1989, Mr. Weil was a
director and consultant to the holding company of Autotote Systems,
Incorporated. From October 1990 until April 1992, Mr. Weil held various
senior management positions at the Company and its subsidiaries. From 1979 to
November 1992, he was the President of Lorne Weil, Inc., a firm providing
strategic planning and corporate development services to high technology
industries. Mr. Weil is currently a director of Fruit of the Loom, Inc. and
General Growth Properties, Inc.
Mr. Marshall Bartlett has been a director of the Company since December
1991. From June 1994 until June 1995, Mr. Bartlett acted as a consultant to
the Company. From June 1993 to June 1994, Mr. Bartlett was employed by the
Company in various capacities. Mr. Bartlett was Executive Vice President and
Chief Operating Officer of Bourns Inc., an electronic component manufacturer,
from 1979 until his retirement in 1991.
Mr. Larry J. Lawrence has been a director of the Company since December
1989. He is co-founder and since 1985 has been managing partner of Lawrence
Venture Partners, the general partner of Lawrence, Tyrrell, Ortale & Smith, a
private equity fund manager. Since 1990, he has been managing partner of LTOS
II Partners, the general partner of Lawrence, Tyrrell, Ortale & Smith II, and
since May 1995 has been the general partner of LSH Partners III, L.P., the
general partner of Lawrence, Smith & Horey III. Mr. Lawrence is currently a
director of several private companies. Mr. Lawrence served as a director of
Autotote Systems, Inc. until it was acquired by the Company in 1989.
Sir Brian Wolfson has been a director of the Company since 1988 and a Vice
Chairman of the Board since May 1995. He served as Acting President and Chief
Executive Officer of the Company from June 1991 to October 31, 1991. Sir
Brian was Chairman from 1987 to May 1995, and Deputy Chairman from May 1995 to
September 1995, of Wembley plc, a United Kingdom corporation. Sir Brian is
currently a director of Kepner-Tregoe, Inc., Fruit of the Loom, Inc. and
Playboy Enterprises, Inc.
5
<PAGE>
Mr. Alan J. Zakon has been a director of the Company since 1993 and a Vice
Chairman of the Board since May 1995. From 1989 to April 1995, he served as a
managing director of Bankers Trust Corporation. From 1989 until 1990, Mr.
Zakon served as Chairman of the Strategic Policy Committee of Bankers Trust
Corporation. From 1986 until 1989, Mr. Zakon served as Chairman of the Board
of Boston Consulting Group. Mr. Zakon is currently a director of Arkansas Best
Corporation, Hechinger Corporation and Boyle Leasing Technologies.
THE BOARD RECOMMENDS A VOTE "FOR" EACH OF THE FIVE NOMINEES.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors held a total of five meetings in fiscal 1996. All
directors attended each meeting, except for Thomas H. Lee who attended two
meetings, and all directors attended each meeting of the committees of the
Board of which they were members that were held while they were serving on
such committee, except as indicated below.
The Audit Committee of the Board of Directors met three times during fiscal
1996 and currently consists of Larry J. Lawrence (Chairman), Marshall Bartlett
and Alan J. Zakon. The Audit Committee recommends engagement of the Company's
independent accountants and is primarily responsible for approving their
services and for reviewing with the independent auditors and management and
evaluating the Company's accounting policies and its system of internal
accounting controls.
The Compensation Committee met six times in fiscal 1996 and consisted of
Marshall Bartlett (Chairman), Alan J. Zakon and Larry J. Lawrence. The
Compensation Committee determines the compensation of executive officers of
the Company and makes recommendations to the Board with regard to the adoption
of new employee benefit plans.
The Stock Option Committee acted seven times during fiscal 1996. The Stock
Option Committee makes awards of options outside the Company's stock option
plans and administers the Company's 1984 Stock Option Plan, the 1992 Equity
Incentive Plan, as amended and restated (the "1992 Plan"), and the 1995 Equity
Incentive Plan, as amended (the "1995 Plan") and makes awards under such
plans. The Stock Option Committee consisted of Larry J. Lawrence and Thomas H.
Lee through May 1996; and Marshall Bartlett and Thomas H. Lee for the
remainder of the fiscal year.
In December 1996, following the end of the fiscal year, the Board of
Directors combined the Compensation Committee and the Stock Option Committee
into a single committee named the "Compensation and Stock Option Committee,"
the current members of which are Marshall Bartlett, Larry J. Lawrence and Alan
J. Zakon.
The Executive Committee met sixteen times in fiscal 1996. The Executive
Committee currently consists of Larry J. Lawrence (Chairman), Thomas H. Lee
(who is not standing for reelection at the Annual Meeting), Sir Brian Wolfson
and Alan J. Zakon. Thomas H. Lee attended two meetings and Sir Brian Wolfson
attended seven meetings. The Executive Committee is authorized to exercise
all of the powers and authority of the Board in the management of the business
and affairs of the Company between regular meetings of the full Board, subject
to Delaware law.
The Company has no nominating committee.
6
<PAGE>
EXECUTIVE COMPENSATION; CERTAIN ARRANGEMENTS
EXECUTIVE COMPENSATION
The following table shows the compensation awarded or paid by the Company
for services rendered for the years ended October 31, 1994, 1995 and 1996 to
the Chief Executive Officer and the individuals who, in fiscal 1996, were the
other four highest paid Executive Officers of the Company who received in
excess of $100,000 in salary and bonuses in that year (collectively the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------ ------------------------
(A) (B) (C) (D) (F) (G) (I)
----------- ---- ------- -------- ---------- ---------- ------------
RESTRICTED SECURITIES
NAME AND STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION SALARY BONUS(1) AWARD OPTIONS COMPENSATION
AT FISCAL YEAR-END YEAR ($) ($) ($)(2) (#) ($)
------------------ ---- ------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
A. Lorne Weil........... 1996 441,400(3) -- -- 273,000 17,200(4)
Chief Executive 1995 408,800 -- 534,001(5) -- 12,700(6)
Officer 1994 408,800 -- -- -- 13,500(7)
William Luke............ 1996 168,300 -- -- 150,000 --
Vice President and
Chief Financial Officer
Martin E. Schloss....... 1996 195,700 -- -- 100,000 7,500(4)
Vice President, General 1995 175,000 13,000 70,272(8) -- 7,600(6)
Counsel and Secretary 1994 135,600 115,000(9) -- 65,000(8) 6,200(7)
Gerald Lawrence......... 1996 219,300 -- -- 150,000 11,100(4)
Vice President 1995 184,600 50,000 137,000(10) 100,000(10) --
Thomas DeFazio(11)...... 1996 253,100 -- -- 140,000(12) 37,400(4)
1995 148,100 60,000 -- 200,000(12) 113,000(6)
</TABLE>
- --------
(1) See "Report of The Compensation Committee and the Stock Option
Committee," which describes performance based bonuses awarded to the
Named Executive Officers. Bonuses paid in any fiscal year are based on
results of the previous year.
(2) The number and value of the aggregate restricted Deferred Shares at
October 31, 1996, is as follows:
(i) Number of Deferred Shares: Mr. Weil, 129,298; Mr. Schloss, 17,015;
Mr. G. Lawrence, 33,172.
(ii) Value of Deferred Shares: Mr. Weil, $169,704; Mr. Schloss, $22,332;
Mr. G. Lawrence, $43,535.
(iii) In the event the Company declares a dividend on the Class A Common
Stock, the Deferred Shares listed above would also receive the
dividend(s).
(3) Mr. Weil's 1996 annual compensation consisted of $430,300 in base salary
plus a CPI adjustment of $11,100 owed during fiscal year 1995.
(4) Amounts of All Other Compensation for fiscal 1996 include the following:
(i) Contributions to the Company's defined contribution retirement plan
for salaried employees: Mr. Weil, $7,500; Mr. Schloss, $7,500; Mr. G.
Lawrence, $7,500.
(ii) Life insurance coverage: Mr. Weil, $9,700.
(iii) Automobile allowance: Mr. G. Lawrence, $3,600.
(iv) Relocation expenses: Mr. DeFazio, $37,400.
(5) On May 25, 1995, Mr. Weil exchanged options received in 1993 to purchase
600,000 shares of Class A Common Stock, constituting all of his options
having exercise prices in excess of $4.13 per share (the average of the
bid and asked trading prices of the Class A Common Stock on May 25, 1995)
("Underwater Options"), for an award under the 1992 Plan of 129,298
deferred shares of Class A Common Stock ("Deferred Shares") which will be
issued in the future. The vesting of such Deferred Shares will require
either a lengthy period of future service or the achievement of certain
performance goals for the Company as measured by the price of the Class A
Common Stock.
7
<PAGE>
(6) Amounts of All Other Compensation for fiscal 1995 include the following:
(i) Contributions to the Company's defined contribution retirement plan
for salaried employees: Mr. Weil, $7,500; Mr. Schloss, $7,500.
(ii) Life insurance coverage: Mr. Weil, $5,200; Mr. Schloss, $100.
(iii) COBRA medical coverage: Mr. DeFazio, $3,000.
(iv) Relocation expenses; Mr. DeFazio, $110,000.
(7) Amounts of All Other Compensation for fiscal 1994 include the following:
(i) Contributions to the Company's defined contribution retirement plan
for salaried employees: Mr. Weil, $7,500; Mr. Schloss, $5,800.
(ii) Life insurance coverage: Mr. Weil $6,000; Mr. Schloss, $400.
(8) On May 25, 1995, Mr. Schloss exchanged all of his Underwater Options,
constituting options to purchase 65,000 shares of Class A Common Stock,
for an award of 17,015 Deferred Shares under the 1992 Plan. The vesting
of such Deferred Shares will require either a lengthy period of future
service or the achievement of certain performance goals for the Company
as measured by the price of the Class A Common Stock.
(9) Consists of fiscal 1994 bonus of $60,000 and special bonus of $55,000 to
recognize contributions to the Company's longer-term strategic goals.
These bonuses were initially payable in three equal installments in 1995,
1996 and 1997 as long as Mr. Schloss is employed by the Company. However,
the Compensation Committee of the Board of Directors decided to terminate
the deferred compensation plan and to pay out the second and third
installments in 1996.
(10) On May 25, 1995, Mr. G. Lawrence exchanged all of his Underwater Options,
constituting options to purchase 100,000 shares of Class A Common Stock,
for an award of 33,172 Deferred Shares under the 1992 Plan. The vesting
of such Deferred Shares will require either a lengthy period of future
service or the achievement of certain performance goals for the Company
as measured by the price of the Class A Common Stock.
(11) Mr. DeFazio ceased as an officer and employee of the Company on August 5,
and October 18, 1996, respectively.
(12) Unexercisable options of 273,333 were cancelled on October 18, 1996 and
exercisable options of 66,667 were cancelled on January 17, 1997.
8
<PAGE>
STOCK OPTIONS
The following table sets forth information regarding stock options granted
to the Named Executive Officers during the fiscal year ended October 31, 1996.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE
AT ASSUMED
ANNUAL RATES
OF STOCK
PRICE
APPRECIATION
OPTIONS GRANTED IN FISCAL YEAR 1996 FOR
INDIVIDUAL GRANTS OPTION TERM(1)
------------------------------------------ -------------------
(B) (C)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES EXERCISE
GRANTED IN PRICE EXPIRATION 5% 10%
NAME #(2) FISCAL YEAR ($/SH) DATE ($) ($)
---- ---------- ----------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
A. Lorne Weil........... 273,000 12.26% $ 3.00 12-14-05 $515,065 $1,305,275
William Luke............ 150,000 6.73% $3.0625 2-26-06 $288,898 $ 732,125
Martin E. Schloss....... 50,000 2.24% $2.8750 11-01-05 $ 90,404 $ 229,100
Martin E. Schloss....... 50,000 2.24% $ 3.00 12-14-05 $ 94,334 $ 239,061
Gerald Lawrence......... 75,000 3.37% $2.8750 11-01-05 $135,605 $ 343,651
Gerald Lawrence......... 50,000 2.24% $ 3.00 12-14-05 $ 94,334 $ 239,061
Gerald Lawrence......... 25,000 1.12% $3.3750 3-22-06 $ 53,063 $ 134,472
Thomas DeFazio(3)....... 140,000 6.29% $ 3.00 12-14-05 $264,136 $ 669,372
</TABLE>
- --------
(1) Represents the product of (i) the difference between (A) the per-share
fair market price at the time of the grant compounded annually at the
assumed rate of appreciation over the term of the option, and (B) the per-
share exercise price of the option, and (ii) the number of shares
underlying the grant at the fiscal year-end.
(2) All options were granted under the 1992 Plan. Options become exercisable
in four equal installments on the first, second, third and fourth
anniversaries of the date of grant. The options may, subject to certain
requirements, be exercised through the delivery of cash and/or Class A
Common Stock. The options permit the optionee to request that the Company
withhold shares sufficient to satisfy withholding tax requirements. The
options are not transferable otherwise than by will or the laws of descent
and distribution, in which case, and in the case of disability, they are
exercisable for the following 12 months or the term of the option,
whichever is shorter, for the full number of shares the optionee was
entitled to purchase at the time of his death or disability. In the event
of a termination of employment by the Company other than for cause or
death or disability, an optionee has the right to exercise his option at
any time within the three months following such termination or the term of
the option, whichever is shorter, for the full number of shares he was
entitled to purchase at the time of termination. In the event of
termination for cause, the option terminates immediately.
(3) These options were cancelled on October 18, 1996.
9
<PAGE>
The following table sets forth information for the Named Executive Officers
with respect to fiscal 1996 year-end option values.
AGGREGATE OPTION EXERCISES IN
FISCAL YEAR 1996, AND 1996 FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
--- ----------- ------------ ----------------- -----------------
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES OCT. 31, 1996(#) OCT. 31, 1996 ($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- ----------- ------------ ----------------- -----------------
<S> <C> <C> <C> <C>
A. Lorne Weil..... -0- -0- 1,125,000/273,000 -0- / -0-
William Luke...... -0- -0- -0-/150,000 -0- / -0-
Martin E. Schloss. -0- -0- 40,000/100,000 -0- / -0-
Gerald Lawrence... -0- -0- -0-/150,000 -0- / -0-
</TABLE>
REPORT OF THE COMPENSATION COMMITTEE
AND THE STOCK OPTION COMMITTEE
The Compensation Committee of the Board of Directors of the Company for
fiscal 1996 consisted of Marshall Bartlett, Larry J. Lawrence, and Alan J.
Zakon. The Committee's responsibilities include determining the compensation
of the Company's executive officers and making recommendations to the Board of
Directors with regard to the adoption of new employee benefit plans. No member
of this committee was an officer or employee of the Company during fiscal
1996.
The Stock Option Committee of the Board consisted of Larry J. Lawrence and
Thomas H. Lee through May 1996 and during the remainder of the fiscal year
consisted of Marshall Bartlett and Thomas H. Lee. This committee has primary
responsibility for the grant of options outside the Company's stock option
plans as well as awards under the Company's 1984 Stock Option Plan, the 1992
Plan and the 1995 Plan. No member of this committee was an officer or employee
of the Company during fiscal 1996.
COMPENSATION COMPONENTS AND PHILOSOPHY
The components of the Company's compensation program consist of base
salaries, cash bonuses and stock options. The Company's compensation program
is designed to align management and stockholder interests by providing
incentive compensation through stock option awards and performance-based
bonuses. The Compensation and Stock Option Committees receive input from the
Company's Chief Executive Officer and review his proposals concerning
executive compensation before making a final determination concerning the
scope and nature of compensation arrangements. It is the Company's current
policy to establish, structure and administer compensation plans and
arrangements so that the deductibility to the Company of such compensation
will not be limited under Section 162(m) of the Internal Revenue Code.
Executive Officer Compensation
Base salaries for key employees are reviewed by the Compensation
Committee on an annual basis in conjunction with the Company's annual
budget for the upcoming fiscal year. The Company's philosophy is to
provide base salaries at a level comparable to positions of similar
responsibility in similar industries in order to retain the services of
key employees who are in a position to make significant contributions
to the Company's attainment of its objectives.
10
<PAGE>
Annual Incentive Compensation
During fiscal 1996, the Company established an Annual Incentive
Compensation Plan which provides bonus opportunities for the Company's
key executive personnel based on three criteria: (1) the Company's
overall financial performance relative to the budget for a given fiscal
year as approved by the Board of Directors, (2) the overall financial
performance of individual business units of the Company for executives
directly involved with the operation of those units, and (3) a
qualitative assessment by the Compensation Committee pursuant to
recommendations made by the Company's Chief Executive Officer of
significant individual contribution not directly measurable by
financial results. During fiscal 1996, bonuses were paid to certain
executives of the Company under this Plan. Potential payments under the
Annual Incentive Compensation Plan range from 22.5% to 45% of base
salary. The purpose of this Plan is to reward employees who have made
significant contributions to the Company's achievement of its
objectives and to provide an incentive for further contributions.
Stock Option Plan
While the base salary and Annual Incentive Compensation components are
tied to employee responsibility and the Company's financial
performance, the purpose of stock option grants is to align stockholder
and employee interests by providing a component of compensation tied
directly to the performance of the Company's stock price. During fiscal
1996, grants of options to purchase a total of 813,000 shares of Class
A Common Stock were made to executive officers at exercise prices
ranging from $2.8750 to $3.3750 per share.
CEO Compensation
Effective November 1, 1992, the Company and A. Lorne Weil entered a
five-year employment agreement (the "Employment Agreement"). Pursuant
to the Employment Agreement, Mr. Weil's base salary for fiscal 1996 was
$430,300. Mr. Weil also had the potential to earn an annual incentive
bonus based on the attainment of certain Company performance targets
and individual objectives approved by the Compensation Committee and
Board of Directors. No bonus payments were made to Mr. Weil for the
Company's fiscal year ended October 31, 1996.
Compensation Committee and Stock Option Committee
Marshall Bartlett
Larry J. Lawrence
Thomas H. Lee
Alan J. Zakon
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors consisted of Marshall
Bartlett, Larry J. Lawrence and Alan J. Zakon. None of these individuals had
any "interlock" relationship to report during 1996.
CERTAIN ARRANGEMENTS BETWEEN THE COMPANY AND ITS DIRECTORS AND OFFICERS
Employee Agreements
Effective November 1, 1992, the Company and Mr. Weil entered into a five-
year employment agreement (the "Weil Employment Agreement") that provides for
a base salary of $400,000, subject to annual increases in accordance with the
Consumer Price Index, a performance bonus of 25% of base salary if the Company
meets its budgeted earnings per share, an additional performance bonus based
on excess earnings per share, not to exceed an additional 25% of base salary,
and a performance bonus of up to 50% of base salary at the discretion of the
Board. If the Company terminates Mr. Weil's employment under the Weil
Employment Agreement other than for cause, Mr. Weil will be entitled to
collect his base salary for twelve months following such termination,
11
<PAGE>
plus a portion of the annual earnings per share-based performance bonuses. In
connection with the Weil Employment Agreement, Mr. Weil received a five-year
option to purchase 600,000 shares of Class A Common Stock of the Company at an
exercise price of $3.50 per share. The option originally was exercisable in
equal annual installments on November 1, 1993, November 1, 1994 and November
1, 1995. In August 1993, the Compensation Committee accelerated the vesting
period of the option such that the option became exercisable in full. On May
25, 1995, Mr. Weil exchanged such stock options to purchase 600,000 Shares of
Class A Common Stock for 129,298 Deferred Shares under the 1992 Plan. The
vesting of such Deferred Shares will require either a lengthy period of future
service or the achievement of certain performance goals of the Company as
measured by the price of the Class A Common Stock.
By letter, dated January 3, 1995, the Company confirmed to Mr. Martin
Schloss that in the event the Company terminates Mr. Schloss' employment, he
will be entitled to receive severance pay, at the time of such termination, of
not less than one year's base salary plus all accrued but unpaid bonus
installments earned by him and Mr. Schloss will retain all unexercised options
to purchase Class A Common Stock held by him at the time of such termination,
which options will remain exercisable in accordance with their terms.
Effective February 26, 1996, the Company and Mr. Luke entered into an
employment agreement (the "Luke Employment Agreement") pursuant to which Mr.
Luke assumed the position of Vice President and Chief Financial Officer of the
Company. The Luke Employment Agreement provides for an annual base salary of
$250,000, an annual bonus of up to 45% of base salary and for participation in
the Company's stock option plan. Accordingly, Mr. Luke received options to
purchase 150,000 shares of Class A Common Stock at the average price of the
Class A Common Stock on the date of employment ($3.0625), which options become
exercisable in four equal annual increments of 37,500 on each of February 26,
1997, 1998, 1999 and 2000. Mr. Luke's agreement provides for a relocation
allowance for reimbursement of moving expenses and transaction costs incurred
by Mr. Luke as well as a temporary housing allowance of up to $12,000. In the
event that the Company terminates Mr. Luke's employment other than for cause,
Mr. Luke is entitled to receive one year's salary following such termination.
Mr. DeFazio's employment with the Company terminated on October 18, 1996. In
connection therewith, the Company and Mr. DeFazio entered into an agreement
pursuant to which the Company will pay Mr. DeFazio approximately $419,574 over
a period of eighteen months.
Directors' Compensation
In June 1996 each Director of the Company who is not an employee of the
Company received an award of 10,000 shares of Class A Common Stock issuable in
the future ("Non-Employee Director Deferred Stock"). The shares of Non-
Employee Director Deferred Stock were awarded under the 1992 Plan and vest, on
a cumulative basis, as to one-third of the shares, on each of the first three
anniversaries of the date of grant or in full if the non-employee director
ceases to serve as a director as a result of death, disability, retirement at
or after the age of 65, the failure to be renominated or reelected, or in the
event of a consolidation or merger of the Company or a sale of substantially
all of the Company's assets.
Effective as of May 25, 1995, each director who is not an employee of the
Company is paid an annual retainer of $20,000, as well as $1,000 plus expenses
for each Board meeting attended, $1,000 plus expenses for each committee
meeting attended in person and held on a day other than on which a Board
meeting is held and $500 plus expenses for each committee meeting attended
that is held on the same day as a Board meeting or that is held by telephone
conference call. Members of the Executive Committee do not receive fees for
attending meetings thereof. In lieu of the foregoing cash compensation, Thomas
H. Lee Company, of which Mr. Lee is President, receives $5,000 per month for
his services as a director.
CERTAIN TRANSACTIONS
On May 13, 1996, the Company extended a loan to A. Lorne Weil in the
principal amount of $250,000. Such loan bears interest at the rate of 5.5% per
annum and is payable on May 13, 2004.
12
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return from
October 31, 1991 to October 31, 1996, on (a) the Company's Class A Common
Stock, (b) the American Stock Exchange, in which the Company's Class A Common
Stock has been listed since April 1996, (c) the National Association of
Security Dealers Automated Quotation System ("NASDAQ") market index of
companies, the index included in the stock performance graph in last year's
proxy statement because the Class A Common Stock was then listed on NASDAQ,
and (d) a peer group index of companies that provide services similar to those
of the Company. The peer group consists of International Game Technology and
Video Lottery Technologies for the entire five-year period, GTECH Holdings
Corp. from October 31, 1992 through October 31, 1996, Bally Gaming
International, Inc., which was acquired by Alliance Gaming Corp. ("Alliance")
in June of 1996, from October 31, 1992 through October 31, 1995 and Alliance
for October 31, 1996. The Company elected to use the peer group index rather
than a published industry or line of business index because the Company is not
aware of any such published index of companies which are as comparable in
terms of their businesses. The peer group companies have been weighted based
upon their relative market capitalizations each year.
AUTOTOTE CORPORATION
COMPARISON OF FIVE YEAR CUMULATIVE RETURNS*
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Autotote AMEX Stock Nasdaq Stock Market Peer
Date Corporation Market (US Companies) Group
<S> <C> <C> <C> <C>
10/31/91 100 100 100 100
10/31/92 350 99 113 207
10/31/93 2,271 124 145 304
10/31/94 1,500 118 146 165
10/31/95 257 131 135 197
10/31/96 113 147 232 196
</TABLE>
*$100 INVESTED ON 10/31/91 IN STOCK OR INDEX INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING OCTOBER 31.
13
<PAGE>
PROPOSAL 2--AUTOTOTE CORPORATION 1997 INCENTIVE COMPENSATION PLAN
On July 15, 1997, the Board of Directors of the Company adopted the Autotote
Corporation 1997 Incentive Compensation Plan (the "1997 Plan"), subject to the
approval of the Company's stockholders.
The Board believes that attracting and retaining key employees is essential
to the Company's growth and success. In addition, the Board believes that the
long-term success of the Company is enhanced by a competitive and
comprehensive compensation program, which may include incentives designed to
motivate and reward such persons for outstanding service, including awards
that link compensation to applicable measures of Company performance and the
creation of stockholder value. Such awards will enable the Company to attract
and retain key employees and enable such persons to acquire or increase their
proprietary interest in the Company and thereby align their interests with the
interests of the Company's stockholders. The Board has concluded that the
Compensation and Stock Option Committee of the Board or other body designated
to administer the 1997 Plan (the "Committee") should be given as much
flexibility as possible to provide for incentive awards contingent on
performance.
An additional reason for the adoption of the 1997 Plan and its submission to
stockholders for approval is to respond to changes in regulations affecting
the Company's executive compensation plans. Section 162(m) of the Internal
Revenue Code (the "Code") and the regulations thereunder generally limit the
Company's tax deductions for compensation to certain executive officers to the
extent the individual's compensation exceeds $1 million. Stockholder approval
of the 1997 Plan is being sought in order that certain awards that may be
granted under the Plan will qualify as "performance-based compensation" that
is tax deductible by the Company without limitation under Code Section 162(m).
For purposes of Code Section 162(m), stockholder approval of the Plan relates
particularly to eligibility, per-person award limitations, the performance
objectives inherent in stock options and stock appreciation rights ("SARs"),
and the business criteria incorporated in performance objectives under certain
designated awards. See "Shares Subject to the 1997 Plan; Other Limitations on
Awards," "Eligibility," "Stock Options and SARs," and "Performance Goals"
below. The 1997 Plan also conforms to the modified version of Rule 16b-3 under
the Securities Exchange Act of 1934 ("Rule 16b-3") adopted by the Securities
and Exchange Commission during 1996. Neither the adoption of the Plan nor its
submission to stockholders limits the Board's power to adopt other incentive
arrangements, including arrangements that do not qualify under Code Section
162(m).
The following is a brief description of the material features of the 1997
Plan. Such description is qualified in its entirety by reference to the full
text of the 1997 Plan, which is attached hereto as Exhibit A.
Types of Awards. The terms of the 1997 Plan provide for grants of stock
options, SARs, restricted stock, deferred stock, and other stock-related
awards ("Awards").
Shares Subject to the 1997 Plan; Other Limitations on Awards. Under the 1997
Plan, the total number of shares of Class A Common Stock ("Stock") reserved
and available for delivery to participants in connection with Awards is 1.6
million. As of July 15, 1997, 368,213 shares remained available for grant
under the Company's existing executive compensation plans and 4,849,726 shares
were subject to outstanding options and other awards under such existing
plans. Any shares of Stock delivered under the 1997 Plan may consist of
authorized and unissued shares or treasury shares. Stock subject to an Award
that is canceled, expired, forfeited, settled in cash, or otherwise terminated
without a delivery of shares to the participant, including Stock withheld or
surrendered in payment of any exercise or purchase price of an Award or taxes
relating to an Award, will again be available for Awards under the 1997 Plan.
On July 15, 1997, the closing sales price of Stock on the consolidated
reporting tape of the American Stock Exchange was $1.81 per share.
In addition, the 1997 Plan imposes individual limitations on the amount of
certain Awards in order to comply with Section 162(m) of the Code. Under these
limitations, during any fiscal year the number of options, SARs, shares of
restricted stock, shares of deferred stock, shares of Stock issued as a bonus
or in lieu of other obligations, and other stock-based Awards granted to any
one participant shall not exceed one million shares for each type of such
Award, subject to adjustment in certain circumstances.
14
<PAGE>
The Committee is authorized to adjust the number and kind of shares subject
to the aggregate share limitations and annual limitations under the 1997 Plan
and subject to outstanding Awards (including adjustments to exercise prices
and number of shares of options and other affected terms of Awards) in the
event that a dividend or other distribution (whether in cash, shares, or other
property), recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event affects the Stock so that an adjustment
is appropriate. The Committee is also authorized to adjust performance
conditions and other terms of Awards in response to these kinds of events or
in response to changes in applicable laws, regulations, accounting principles,
or other special events.
Eligibility. Executive officers and other officers and employees of the
Company or any subsidiary, including such persons who may also be directors of
the Company, non-employee directors of the Company, and other persons
designated by the Committee if such persons provide substantial services to
the Company or its subsidiaries and who are designated as eligible by the
Committee, shall be eligible to be granted Awards under the 1997 Plan. The
Company has approximately 650 full-time employees. Since the inception of the
Company, under prior plans maintained by the Company, approximately 200
individuals have been granted stock options. The Awards that would be received
or allotted to any individual or group of employees under the Plan are not
determinable.
Administration. The 1997 Plan initially will be administered by the
Compensation and Stock Option Committee. The Board may, however, itself
perform the functions of the Committee or may appoint a different committee to
administer the 1997 Plan. If any member of a Board committee designated to
administer the 1997 Plan does not qualify as a "Non-Employee Director" under
Rule 16b-3 or an "outside director" under Code Section 162(m), the Committee
may function through a subcommittee composed solely of two or more qualifying
members, or the non-qualifying member of the Committee may abstain or recuse
himself or herself from actions that would be affected by his or her non-
qualifying status.
Subject to the terms and conditions of the 1997 Plan, the Committee is
authorized to select participants, determine the type and number of Awards to
be granted and the number of shares of Stock to which Awards will relate,
specify times at which Awards will be exercisable (including performance
conditions that may be required as a condition thereof), set other terms and
conditions of such Awards, prescribe forms of Award agreements, interpret and
specify rules and regulations relating to the 1997 Plan, and make all other
determinations that may be necessary or advisable for the administration of
the 1997 Plan. The 1997 Plan provides that Committee members shall not be
personally liable, and shall be fully indemnified, in connection with any
action, determination, or interpretation taken or made in good faith under the
1997 Plan.
Stock Options and SARs. The Committee is authorized to grant stock options,
including both ISOs that can result in potentially favorable tax treatment to
the participant and non-qualified stock options (i.e, options not qualifying
as ISOs), and SARs entitling the participant to receive the excess of the fair
market value of a share of Stock on the date of exercise over the grant price
of the SAR. The exercise price per share subject to an option and the grant
price of an SAR is determined by the Committee, but must not be less than the
fair market value of a share of Stock on the date of grant (except to the
extent of in-the-money awards or cash obligations surrendered by the
participant at the time of grant). The maximum term of each option or SAR, the
times at which each option or SAR will be exercisable, and provisions
requiring forfeiture of unexercised options or SARs at or following
termination of employment generally is fixed by the Committee, except no
option or SAR may have a term exceeding ten years. Options may be exercised by
payment of the exercise price in cash, Stock, outstanding Awards, or other
property (possibly including notes or obligations to make payment on a
deferred basis) having a fair market value equal to the exercise price, as the
Committee may determine from time to time. Methods of exercise and settlement
and other terms of the SARs are determined by the Committee.
Restricted and Deferred Stock. The Committee is authorized to grant
restricted stock and deferred stock. Restricted stock is a grant of Stock
which may not be sold or disposed of and which may be forfeited in the event
of certain terminations of employment and/or failure to meet certain performance
requirements prior to the end of a restricted period specified by the Committee.
15
<PAGE>
A participant granted restricted stock generally has all of the rights of a
stockholder of the Company, including the right to vote the shares and to
receive dividends thereon, unless otherwise determined by the Committee. An
Award of deferred stock confers upon a participant the right to receive shares
at the end of a specified deferral period, subject to possible forfeiture of the
Award in the event of certain terminations of employment and/or failure to meet
certain performance requirements prior to the end of a specified restricted
period (which restricted period need not extend for the entire duration of the
deferral period). Prior to settlement, an Award of deferred stock carries no
voting or dividend rights or other rights associated with share ownership,
although dividend equivalents may be granted, as discussed below.
Dividend Equivalents. The Committee is authorized to grant dividend
equivalents conferring on participants the right to receive, currently or on a
deferred basis, cash, shares, other Awards, or other property equal in value
to dividends paid on a specific number of shares or other periodic payments.
Dividend equivalents may be granted on a free-standing basis or in connection
with another Award, may be paid currently or on a deferred basis, and, if
deferred, may be deemed to have been reinvested in additional shares, Awards,
or other investment vehicles specified by the Committee.
Bonus Stock and Awards in Lieu of Cash Obligations. The Committee is
authorized to grant shares as a bonus free of restrictions, or to grant shares
or other Awards in lieu of obligations to pay cash under other plans or
compensatory arrangements, subject to such terms as the Committee may specify.
Other Stock-Based Awards. The 1997 Plan authorizes the Committee to grant
Awards that are denominated or payable in, valued by reference to, or
otherwise based on or related to shares. Such Awards might include convertible
or exchangeable debt securities, other rights convertible or exchangeable into
shares, purchase rights for shares, Awards with value and payment contingent
upon performance of the Company or any other factors designated by the
Committee, and Awards valued by reference to the book value of shares or the
value of securities of or the performance of specified subsidiaries. The
Committee determines the terms and conditions of such Awards, including
consideration to be paid to exercise Awards in the nature of purchase rights,
the period during which Awards will be outstanding, and forfeiture conditions
and restrictions on Awards.
Performance Goals. The right of a participant to exercise or receive a grant
or settlement of restricted stock, deferred stock or other stock-based awards,
and the timing thereof, may be subject to such performance conditions as may
be specified by the Committee. Awards granted to persons the Committee expects
will, for the year in which a deduction arises, be among the Chief Executive
Officer and four other most highly compensated executive officers, will, if so
intended by the Committee, be subject to provisions that should qualify such
Awards as "performance-based compensation" not subject to the limitation on
tax deductibility by the Company under Code Section 162(m).
The performance goals to be achieved as a condition of payment or settlement
will consist of (i) one or more business criteria and (ii) a targeted level or
levels of performance with respect to each such business criteria. In the case
of Awards intended to meet the requirements of Code Section 162(m), the
business criteria used must be one of those specified in the 1997 Plan,
although for Awards not intended to meet the requirements of Code Section
162(m), the Committee may specify any other criteria. The business criteria
specified in the 1997 Plan are: (1) earnings per share; (2) revenues; (3) cash
flow; (4) cash flow return on investment; (5) return on net assets, return on
assets, return on investment, return on capital, return on equity; (6)
economic value added; (7) operating margin; (8) net income; pretax earnings;
pretax earnings before interest, depreciation and amortization; pretax
operating earnings after interest expense and before incentives, service fees,
and extraordinary or special items; operating earnings; (9) total stockholder
return; and (10) any of the above goals as compared to the performance of a
published or special index deemed applicable by the Committee including, but
not limited to, the Standard & Poor's 500 Stock Index or a group of comparable
companies.
Other Terms of Awards. Awards may be settled in the form of Stock, other
Awards, or other property, in the discretion of the Committee. The Committee
may require or permit participants to defer the settlement of all or part of
an Award in accordance with such terms and conditions as the Committee may
establish, including payment or crediting of interest or dividend equivalents on
deferred amounts, and the crediting of earnings, gains, and losses based on
deemed investment of deferred amounts in specified investment vehicles.
16
<PAGE>
The Committee is authorized to place cash, shares, or other property in trusts
or make other arrangements to provide for payment of the Company's obligations
under the 1997 Plan. The Committee may condition any payment relating to an
Award on the withholding of taxes and may provide that a portion of any shares
or other property to be distributed will be withheld (or that previously
acquired shares or other property will be surrendered by the participant) to
satisfy withholding and other tax obligations. Awards granted under the 1997
Plan generally may not be pledged or otherwise encumbered and are not
transferable except by will or by the laws of descent and distribution, or to a
designated beneficiary upon the participant's death, except that the Committee
may, in its discretion, permit transfers for estate planning or other purposes.
Awards under the 1997 Plan are generally granted without a requirement that
the participant pay consideration in the form of cash or property for the
grant (as distinguished from the exercise), except to the extent required by
law. The Committee may, however, grant Awards in exchange for other Awards
under the 1997 Plan, awards under other Company plans, or other rights to
payment from the Company, and may grant Awards in addition to and in tandem
with such other Awards, awards, or rights as well.
Acceleration of Vesting. The Committee may, in its discretion, accelerate
the exercisability, the lapsing of restrictions, or the expiration of deferral
or vesting periods of any Award, and such accelerated exercisability, lapse,
expiration and vesting shall occur automatically in the case of a "change in
control" of the Company except to the extent otherwise determined by the
Committee at the date of grant. In addition, the Committee may provide that
the performance goals relating to any performance-based award will be deemed
to have been met upon the occurrence of any change in control. Upon the
occurrence of a change in control, except to the extent otherwise determined
by the Committee at the date of grant, previously unvested options may at the
election of the participant be cashed out based on a defined "change in
control price," which will be the higher of (i) the cash and fair market value
of property that is the highest price per share of Stock paid (including
extraordinary dividends) in any change in control, or (ii) the highest fair
market value per share of Stock (generally based on market prices) at any time
during the 60 days before a change in control. "Change in control" is defined
in the 1997 Plan to include a person or group becoming a beneficial owner of
40% or more of the combined voting power of the Company or the occurrence of
an acquisition of the Company by merger, consolidation, asset purchase or
otherwise requiring stockholder approval.
Amendment and Termination of the 1997 Plan. The Company's Board of Directors
may amend, alter, suspend, discontinue, or terminate the 1997 Plan or the
Committee's authority to grant Awards without further stockholder approval,
except stockholder approval must be obtained for any amendment or alteration
if required by law or regulation or under the rules of any stock exchange or
automated quotation system on which the Company's shares are then listed or
quoted. Stockholder approval will not be deemed to be required under laws or
regulations, such as those relating to ISOs, that condition favorable
treatment of participants or the Company upon such approval, although the
Board may, in its discretion, seek stockholder approval in any circumstance in
which it deems such approval advisable. Thus, stockholder approval will not
necessarily be required for amendments that might increase the cost of the
1997 Plan or broaden eligibility. Unless earlier terminated by the Board, the
1997 Plan will terminate at such time as no shares remain available for
issuance under the 1997 Plan and the Company has no further rights or
obligations with respect to outstanding Awards under the 1997 Plan.
Federal Income Tax Implications of the 1997 Plan. The following is a brief
description of the federal income tax consequences generally arising with
respect to Awards under the 1997 Plan.
The grant of an option or SAR will create no tax consequences for the
participant or the Company. A participant will not recognize taxable income
upon exercising an ISO (except that the alternative minimum tax may apply).
Upon exercising an option other than an ISO, the participant must generally
recognize ordinary income equal to the difference between the exercise price
and fair market value of the nonforfeitable shares acquired on the date of
exercise. Upon exercising an SAR, the participant must generally recognize
ordinary income equal to the cash or the fair market value of the
nonforfeitable shares received.
17
<PAGE>
Upon a disposition of shares acquired upon exercise of an ISO before the end
of the applicable ISO holding periods, the participant must generally
recognize ordinary income equal to the lesser of (i) the fair market value of
the shares at the date of exercise of the ISO minus the exercise price, or
(ii) the amount realized upon the disposition of the ISO shares minus the
exercise price. Otherwise, a participant's disposition of shares acquired upon
the exercise of an option (including an ISO for which the ISO holding periods
are met) or SAR generally will result in short-term or long-term capital gain
or loss measured by the difference between the sale price and the
participant's tax basis in such shares (the tax basis generally being the
exercise price plus any amount previously recognized as ordinary income in
connection with the exercise of the option or SAR).
The Company generally will be entitled to a tax deduction equal to the
amount recognized as ordinary income by the participant in connection with an
option or SAR. The Company generally is not entitled to a tax deduction
relating to amounts that represent a capital gain to a participant.
Accordingly, the Company will not be entitled to any tax deduction with
respect to an ISO if the participant holds the shares for the ISO holding
periods prior to disposition of the shares.
With respect to Awards granted under the 1997 Plan that result in the
payment or issuance of cash or shares or other property that is either not
restricted as to transferability or not subject to a substantial risk of
forfeiture, the participant must generally recognize ordinary income equal to
the cash or the fair market value of shares or other property received. Thus,
deferral of the time of payment or issuance will generally result in the
deferral of the time the participant will be liable for income taxes with
respect to such payment or issuance. The Company generally will be entitled to
a deduction in an amount equal to the ordinary income recognized by the
participant.
With respect to Awards involving the issuance of shares or other property
that is restricted as to transferability and subject to a substantial risk of
forfeiture (e.g., restricted stock), the participant must generally recognize
ordinary income equal to the fair market value of the shares or other property
at the first time the shares or other property becomes transferable or is not
subject to a substantial risk of forfeiture, whichever occurs earlier. A
participant may elect to be taxed at the time of receipt of shares or other
property rather than upon lapse of restrictions on transferability or
substantial risk of forfeiture, but if the participant subsequently forfeits
such shares or property, the participant would not be entitled to any tax
deduction, including as a capital loss, for the value of the shares or
property on which he previously paid tax. The participant must file such
election with the Internal Revenue Service within 30 days of receipt of the
shares or other property. The Company generally will be entitled to a
deduction in an amount equal to the ordinary income recognized by the
participant.
Awards that are granted, accelerated or enhanced upon the occurrence of a
change in control may give rise, in whole or in part, to excess parachute
payments within the meaning of Code Section 280G and, to such extent, will be
non-deductible by the Company and subject to a 20% excise tax by the
participant.
As discussed above, Code Section 162(m) disallows certain tax deductions by
the Company. The Company intends that options and SARs granted under the 1997
Plan, and designated performance awards granted under the 1997 Plan, will
qualify as "performance-based compensation" not subject to Code Section
162(m). A number of requirements must be met in order for particular
compensation to so qualify, however, so there can be no assurance that such
compensation under the 1997 Plan will be fully deductible under all
circumstances. In addition, other awards under the 1997 Plan, such as other
stock-based awards and performance awards not designated as qualifying Code
Section 162(m) awards, generally will not so qualify, so that compensation
paid to a named executive officer in connection with such awards could be
subject to the Code Section 162(m) limitation. Finally, under current
regulations performance awards granted under the 1997 Plan after the Company's
Annual Meeting of Stockholders in the year 2002 and thereafter will require
further stockholder approval in order to qualify as "performance-based
compensation."
The foregoing general discussion of federal income tax consequences is
intended for the information of stockholders considering how to vote with
respect to this proposal and not as tax guidance to participants in the 1997
Plan. Different tax rules may apply to specific participants and transactions
under the 1997 Plan. Interested parties should consult their own advisors as
to specific tax consequences, including the application and effect of foreign,
state, and local tax laws.
18
<PAGE>
THE BOARD RECOMMENDS A VOTE "FOR" THIS PROPOSAL
PROPOSAL 3--APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board has appointed KPMG Peat Marwick as independent accountants for the
Company to examine the Company's financial statements for the current fiscal
year ending October 31, 1997 and recommends that the stockholders of the
Company ratify that appointment. KPMG Peat Marwick has served as the Company's
independent accountants for all fiscal years since the fiscal year ended
October 31, 1982 and has no relationship with the Company other than that
arising from its employment as independent accountants, consultants and
assistants in the Company's performance of its internal audit function.
Representatives of KPMG Peat Marwick are expected to be present at the Annual
Meeting. They will have an opportunity to make a statement if they desire to
do so and will be available to respond to questions from stockholders.
It is intended that the proxies will be voted for the ratification of the
appointment of KPMG Peat Marwick unless otherwise indicated. If the
appointment is not ratified by stockholders, the Board is not obligated to
appoint other auditors, but the Board will give consideration to such
unfavorable vote.
THE BOARD RECOMMENDS A VOTE "FOR" THIS PROPOSAL
FINANCIAL STATEMENTS
The Company's audited financial statements for the fiscal year ended October
31, 1996 and certain other related financial and business information of the
Company are contained in the Company's Annual Report to stockholders which
accompanies this Proxy Statement. The Company's Annual Report on Form 10-K,
without exhibits, for the fiscal year ended October 31, 1996, filed by the
Company with the Securities and Exchange Commission, is included in the
Company's Annual Report to stockholders. Additional copies of the Annual
Report on Form 10-K may be obtained without charge by contacting William Luke,
Vice President and Chief Financial Officer, Autotote Corporation, 750
Lexington Avenue, 25th Floor, New York, New York 10022 (telephone: 212-754-
2233).
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's directors, its
executive officers, and any persons holding more than ten percent of the
Company's Class A Common Stock are required to report certain information,
including ownership or changes in ownership of the Company's Class A Common
Stock, to the Securities and Exchange Commission (the "SEC"). Specific due
dates for these reports have been established and the Company is required to
report in this Proxy Statement any failure to file these reports by these
dates during fiscal year 1996. The following filings were not made on a timely
basis in fiscal 1996: On January 22, 1997, Gerald Lawrence filed a Form 5 with
respect to stock options he was granted on November 1, 1995, December 14, 1995
and March 22, 1996. On January 22, 1997, DeWayne E. Laird filed a Form 3 in
connection with his becoming an officer of the Company in October 1996. On
January 22, 1997, A. Lorne Weil and Martin E. Schloss each filed an amended
Form 5 with respect to stock options Mr. Weil received on December 14, 1995
and Mr. Schloss received on November 1, 1995 and December 14, 1995. On January
24, 1997, Robert C. Becker filed a Form 3 in connection with his becoming an
officer of the Company in October 1996. On April 10, 1997, Sir Brian Wolfson
and Alan J. Zakon, and on April 18, 1997, Marshall Bartlett, each filed an
amended Form 5 with respect to the vesting of deferred shares. On May 19,
1997, Thomas H. Lee filed an amended Form 5 with respect to an award of
deferred stock in June 1996. In making these statements, the Company has
primarily relied on copies of the reports that the directors, officers and 10%
holders have filed with the SEC.
19
<PAGE>
OTHER BUSINESS
The Board of Directors has no reason to believe that any other business in
addition to the foregoing will be presented at the Annual Meeting, but if any
other business is presented, votes pursuant to the proxy will be cast thereon
in accordance with the judgment of the persons named in the accompanying
proxy.
PROPOSALS FOR THE NEXT ANNUAL MEETING
Proposals of stockholders intended to be presented at the next annual
meeting must be received by the Company at its principal offices, 750
Lexington Avenue, 25th Floor, New York, New York 10022, for inclusion in the
Company's proxy materials not later than March 27, 1998, except that if next
year's annual meeting is more than thirty days earlier or later than the date
of this year's annual meeting, proposals must be received a reasonable time
before proxy materials are distributed in connection with next year's annual
meeting.
Your cooperation in giving this matter your immediate attention and in
returning your proxy promptly will be appreciated.
By Order of the Board of Directors
MARTIN E. SCHLOSS
Secretary
Dated: July 16, 1997
20
<PAGE>
PROXY
AUTOTOTE CORPORATION
750 Lexington Avenue, 25th Floor, New York, New York 10022
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS - AUGUST 13, 1997
The undersigned hereby appoints Martin E. Schloss and William Luke, or
either of them, as Proxy or Proxies of the undersigned with full power of
substitution to act for the undersigned and to vote the full number of shares of
the Class A Common Stock of the Company that the undersigned is entitled to vote
at the Annual Meeting of Stockholders of Autotote Corporation (the "Company")
to be held at the Hotel duPont, Eleventh and Market Streets, Wilmington,
Delaware at 2:00 p.m., on Wednesday, August 13, 1997, and at any adjournments or
postponements thereof, in accordance with the instructions set forth on this
proxy card, and in their discretion, with respect to all other matters that may
properly come before the meeting. Any proxy heretofore given by the undersigned
with respect to such shares is hereby revoked.
------------
(To be Signed on Reverse Side) SEE REVERSE
SIDE
------------
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Stockholders
AUTOTOTE CORPORATION
August 13, 1997
Please Detach and Mail in the Envelope Provided
- --------------------------------------------------------------------------------
[X] Please mark your votes as in this example.
Directors recommend a vote "FOR" each proposal.
FOR ALL WITHHOLD
NOMINEES AUTHORITY
from all nominees
1. Election of Nominees: A. Lorne Weil
Directors [ ] [ ] Sir Brian Wolfson
Alan J. Zakon
Larry J. Lawrence
Marshall Bartlett
INSTRUCTION: To withhold authority to vote for any individual nominee(s), place
an "X" in the left box (FOR ALL NOMINEES) and write that nominee's name in the
space provided below.
- ------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Approval of Autotote Corporation
1997 Incentive Compensation Plan. [ ] [ ] [ ]
3. Ratification of KPMG Peat Marwick
as independent auditors of the
Company for the fiscal year
ending October 31, 1997. [ ] [ ] [ ]
4. On such other matters as may properly come before the meeting.
Unless otherwise specified in the spaces provided, the undersigned's vote is to
be cast FOR the election of the nominees for director listed in Proposal [1] and
FOR approval of Proposal [2] and [3], as more fully described in the
accompanying Proxy Statement.
Please check if you plan to attend the meeting. [ ]
Please mark, date and sign this proxy and return it in the enclosed envelope.
SIGNATURE(S) DATED 1997
-------------------------------- -------------------
DATED 1997
-------------------------------- -------------------
NOTE: Please sign exactly as your name appears above. For joint accounts, each
joint owner must sign. Please give full title if signing in a
representative capacity.
<PAGE>
EXHIBIT A
AUTOTOTE CORPORATION
1997 INCENTIVE COMPENSATION PLAN
<PAGE>
AUTOTOTE CORPORATION
1997 INCENTIVE COMPENSATION PLAN
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
1. Purpose.............................................................. A-1
2. Definitions.......................................................... A-1
3. Administration....................................................... A-2
(a)Authority of the Committee........................................ A-2
(b)Manner of Exercise of Committee Authority......................... A-3
(c)Limitation of Liability........................................... A-3
4. Limitations on Plan Awards........................................... A-3
(a)Overall Number of Shares Available for Delivery................... A-3
(b)Application of Limitation to Grants of Awards..................... A-3
(c)Availability of Shares Not Delivered under Awards................. A-3
5. Eligibility; Per-Person Award Limitations............................ A-4
6. Specific Terms of Awards............................................. A-4
(a)General........................................................... A-4
(b)Options........................................................... A-4
(c)Stock Appreciation Rights......................................... A-4
(d)Restricted Stock.................................................. A-5
(e)Deferred Stock.................................................... A-6
(f)Bonus Stock and Awards in Lieu of Obligations..................... A-6
(g)Dividend Equivalents.............................................. A-6
(h)Other Stock-Based Awards.......................................... A-6
(i)Performance Goals Applicable to Designated Covered Employees...... A-6
7. Certain Provisions Applicable to Awards.............................. A-7
(a)Stand-Alone, Additional, Tandem, and Substitute Awards............ A-7
(b)Term of Awards.................................................... A-8
(c)Form and Timing of Payment under Awards; Deferrals................ A-8
(d)Exemptions from Section 16(b) Liability........................... A-8
8. Change in Control.................................................... A-8
(a)Effect of "Change in Control"..................................... A-8
(b)Definition of "Change in Control"................................. A-9
(c)Definition of "Change in Control Price"........................... A-9
9. General Provisions................................................... A-9
(a)Compliance with Legal and Other Requirements...................... A-9
(b)Limits on Transferability; Beneficiaries.......................... A-9
(c)Adjustments....................................................... A-10
(d)Taxes............................................................. A-10
(e)Changes to the Plan and Awards.................................... A-10
(f)Limitation on Rights Conferred under Plan......................... A-11
(g)Unfunded Status of Awards; Creation of Trusts..................... A-11
(h)Nonexclusivity of the Plan........................................ A-11
(i)Payments in the Event of Forfeitures; Fractional Shares........... A-11
(j)Governing Law..................................................... A-11
(k)Plan Effective Date and Shareholder Approval...................... A-11
</TABLE>
i
<PAGE>
AUTOTOTE CORPORATION
1997 INCENTIVE COMPENSATION PLAN
1. PURPOSE. The purpose of this 1997 Incentive Compensation Plan (the
"Plan") is to assist Autotote Corporation, a Delaware corporation (the
"Company"), and its subsidiaries in attracting, retaining, and rewarding
executives, directors, employees, and other persons who provide services to
the Company and/or its subsidiaries, enabling such persons to acquire or
increase a proprietary interest in the Company in order to strengthen the
mutuality of interests between such persons and the Company's stockholders,
and providing such persons with performance incentives to expend their maximum
efforts in the creation of stockholder value. The Plan is also intended to
qualify certain compensation awarded under the Plan for tax deductibility
under Code Section 162(m) (as hereafter defined) to the extent deemed
appropriate by the Committee which administers the Plan.
2. DEFINITIONS. For purposes of the Plan, the following terms shall be
defined as set forth below, in addition to such terms defined in Section 1
hereof:
(a) "Award" means any award of an Option, SAR (including Limited SAR),
Restricted Stock, Deferred Stock, Stock granted as a bonus or in lieu of
another award, Dividend Equivalent, or Other Stock-Based Award, together
with any other right or interest granted to a Participant under the Plan.
(b) "Beneficiary" means the person, persons, trust, or trusts which have
been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant's death or to which Awards
or other rights are transferred if and to the extent permitted under
Section 9(b) hereof. If, upon a Participant's death, there is no designated
Beneficiary or surviving designated Beneficiary, then the term Beneficiary
means person, persons, trust, or trusts entitled by will or the laws of
descent and distribution to receive such benefits.
(c) "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 13d-3 under the Exchange Act and any successor to such Rule.
(d) "Board" means the Company's Board of Directors.
(e) "Change in Control" means Change in Control as defined with related
terms in Section 8 of the Plan.
(f) "Change in Control Price" means the amount calculated in accordance
with Section 8(c) of the Plan.
(g) "Code" means the Internal Revenue Code of 1986, as amended from time
to time, including regulations thereunder and successor provisions and
regulations thereto.
(h) "Committee" means a committee of two or more directors designated by
the Board to administer the Plan; provided, however, that directors
appointed as members of the Committee shall not be employees of the Company
or any subsidiary. In appointing members of the Committee, the Board will
consider whether a member is or will be a Qualified Member, but such
members are not required to be Qualified Members at the time of appointment
or during their term of service on the Committee.
(i) "Covered Employee" means an Eligible Person who is a "covered
employee" within the meaning of Code Section 162(m).
(j) "Deferred Stock" means a right, granted to a Participant under
Section 6(e) hereof, to receive Stock, at the end of a specified deferral
period.
(k) "Dividend Equivalent" means a right, granted to a Participant under
Section 6(g), to receive cash, Stock, other Awards, or other property equal
in value to dividends paid with respect to a specified number of shares of
Stock, or other periodic payments.
(l) "Effective Date" means the date of approval of the Plan by
stockholders of the Company.
A-1
<PAGE>
(m) "Eligible Person" means each executive officer and other officer or
employee of the Company or of any subsidiary, including each such person
who may also be a director of the Company, each non-employee director of
the Company, and each other person who provides substantial services to the
Company and/or its subsidiaries and who is designated as eligible by the
Committee. An employee on leave of absence may be considered as still in
the employ of the Company or a subsidiary for purposes of eligibility for
participation in the Plan.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, including rules thereunder and successor provisions and
rules thereto.
(o) "Fair Market Value" means the fair market value of Stock, Awards, or
other property as determined by the Committee or under procedures
established by the Committee. Unless otherwise determined by the Committee,
the Fair Market Value of Stock shall be the average of the high and low
sales prices of Stock on a given date or, if there are no sales on that
date, on the latest previous date on which there were sales, reported for
composite transactions in securities listed on the principal trading market
on which Stock is then listed.
(p) "Incentive Stock Option" or "ISO" means any Option intended to be and
designated as an incentive stock option within the meaning of Code Section
422 or any successor provision thereto.
(q) "Limited SAR" means a right granted to a Participant under Section
6(c) hereof.
(r) "Option" means a right, granted to a Participant under Section 6(b)
hereof, to purchase Stock or other Awards at a specified price during
specified time periods.
(s) "Other Stock-Based Awards" means Awards granted to a Participant
under Section 6(h) hereof.
(t) "Participant" means a person who has been granted an Award under the
Plan which remains outstanding, including a person who is no longer an
Eligible Person.
(u) "Qualified Member" means a member of the Committee who is a "Non-
Employee Director" within the meaning of Rule 16b-3(b)(3) and an "outside
director" within the meaning of Regulation 1.162-27 under Code Section
162(m).
(v) "Restricted Stock" means Stock granted to a Participant under Section
6(d) hereof, that is subject to certain restrictions and to a risk of
forfeiture.
(w) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(x) "Stock" means the Company's Class A Common Stock, $.01 par value, and
such other securities as may be substituted (or resubstituted) for Stock
pursuant to Section 9(c) hereof.
(y) "Stock Appreciation Rights" or "SAR" means a right granted to a
Participant under Section 6(c) hereof.
3. ADMINISTRATION.
(a) Authority of the Committee. Except as otherwise provided below, the
Plan shall be administered by the Committee. The Committee shall have full
and final authority, in each case subject to and consistent with the
provisions of the Plan, to select Eligible Persons to become Participants,
grant Awards, determine the type, number, and other terms and conditions
of, and all other matters relating to, Awards, prescribe Award agreements
(which need not be identical for each Participant) and rules and
regulations for the administration of the Plan, construe and interpret the
Plan and Award agreements and correct defects, supply omissions, or
reconcile inconsistencies therein, and to make all other decisions and
determinations as the Committee may deem necessary or advisable for the
administration of the Plan. The foregoing notwithstanding, the Board shall
perform the functions of the Committee for purposes of granting Awards
under the Plan to non-employee directors, and may perform any function of
the Committee under the Plan for any other purpose, including for the
purpose of ensuring that transactions under the Plan by Participants who
are then subject to Section 16 of the Exchange Act in respect of the
Company are exempt under Rule 16b-3. In any case in which the Board is
performing a function of the Committee under the Plan, each reference to the
Committee herein shall be deemed to refer to the Board, except where the
context otherwise requires.
A-2
<PAGE>
(b) Manner of Exercise of Committee Authority. At any time that a member
of the Committee is not a Qualified Member, any action of the Committee
relating to an Award granted or to be granted to a Participant who is then
subject to Section 16 of the Exchange Act in respect of the Company, or
relating to an Award intended by the Committee to qualify as "performance-
based compensation" within the meaning of Code Section 162(m) and
regulations thereunder, may be taken either (i) by a subcommittee,
designated by the Committee, composed solely of two or more Qualified
Members, or (ii) by the Committee but with each such member who is not a
Qualified Member abstaining or recusing himself or herself from such
action; provided, however, that, upon such abstention or recusal, the
Committee remains composed of two or more Qualified Members. Such action,
authorized by such a subcommittee or by the Committee upon the abstention
or recusal of such non-Qualified Member(s), shall be the action of the
Committee for purposes of the Plan. Any action of the Committee shall be
final, conclusive and binding on all persons, including the Company, its
subsidiaries, Participants, Beneficiaries, transferees under Section 9(b)
hereof, or other persons claiming rights from or through a Participant, and
stockholders. The express grant of any specific power to the Committee, and
the taking of any action by the Committee, shall not be construed as
limiting any power or authority of the Committee. The Committee may
delegate to officers or managers of the Company or any subsidiary, or
committees thereof, the authority, subject to such terms as the Committee
shall determine, to perform such functions, including administrative
functions, as the Committee may determine, to the extent that such
delegation will not result in the loss of an exemption under Rule
16b-3(d)(1) for Awards granted to Participants subject to Section 16 of the
Exchange Act in respect of the Company and will not cause Awards intended
to qualify as "performance-based compensation" under Code Section 162(m) to
fail to so qualify. The Committee may appoint agents to assist it in
administering the Plan.
(c) Limitation of Liability. The Committee and each member thereof shall
be entitled to, in good faith, rely or act upon any report or other
information furnished to him or her by any executive officer, other officer
or employee of the Company or a subsidiary, the Company's independent
auditors, consultants, or any other agents assisting in the administration
of the Plan. Members of the Committee and any officer or employee of the
Company or a subsidiary acting at the direction or on behalf of the
Committee shall not be personally liable for any action or determination
taken or made in good faith with respect to the Plan, and shall, to the
extent permitted by law, be fully indemnified and protected by the Company
with respect to any such action or determination.
4. LIMITATIONS ON PLAN AWARDS.
(a) Overall Number of Shares Available for Delivery. Subject to
adjustment as provided in Section 9(c) hereof, the total number of shares
of Stock reserved and available for delivery in connection with Awards
under the Plan shall be 1.6 million. Any shares of Stock delivered under
the Plan shall consist of authorized and unissued shares or treasury
shares.
(b) Application of Limitation to Grants of Awards. No Award may be
granted if the number of shares of Stock to which such Award relates, when
added to the number of shares of Stock to which other then-outstanding
Awards relate and the number of shares of Stock issued or delivered upon
settlement of previously granted Awards, exceeds the number of shares of
Stock reserved for issuance under this Section 4. The Committee may adopt
reasonable counting procedures to ensure appropriate counting, avoid double
counting (as, for example, in the case of tandem or substitute awards) and
make adjustments if the number of shares of Stock actually delivered
differs from the number of shares previously counted in connection with an
Award.
(c) Availability of Shares Not Delivered under Awards. Shares of Stock
subject to an Award under the Plan that is cancelled, expired, forfeited,
settled in cash, or otherwise terminated without a delivery of shares to
the Participant, including (i) the number of shares withheld in payment of
any exercise or purchase price of an Award or taxes relating to Awards, and
(ii) the number of shares surrendered in payment of any exercise or purchase
price of an Award or taxes relating to any Award, will again be available for
Awards under the Plan, except that if any such shares could not again be
available for Awards to a particular Participant under any applicable law or
regulation, such shares shall be available exclusively for Awards to
Participants who are not subject to such limitation.
A-3
<PAGE>
5. ELIGIBILITY; PER-PERSON AWARD LIMITATIONS. Awards may be granted under
the Plan only to Eligible Persons. In each fiscal year during any part of
which the Plan is in effect, an Eligible Person who is an employee of the
Company or any of its subsidiaries may not be granted Awards relating to more
than one million shares of Stock, subject to adjustment as provided in Section
9(c), under each of Sections 6(b), 6(c), 6(d), 6(e), 6(f), 6(g), and 6(h).
6. SPECIFIC TERMS OF AWARDS.
(a) General. Awards may be granted on the terms and conditions set forth
in this Section 6. In addition, the Committee may impose on any Award or
the exercise thereof, at the date of grant or thereafter (subject to
Section 9(e)), such additional terms and conditions, not inconsistent with
the provisions of the Plan, as the Committee shall determine, including
terms requiring forfeiture of Awards in the event of termination of
employment by the Participant and terms permitting a Participant to make
elections relating to his or her Award. The Committee shall retain full
power and discretion to accelerate, waive or modify, at any time, any term
or condition of an Award that is not mandatory under the Plan. Except as
expressly provided by the Committee (including for purposes of complying
with requirements of the Delaware General Corporation Law relating to
lawful consideration for issuance of shares), no consideration other than
services will be required for the grant (but not the exercise) of any
Award.
(b) Options. The Committee is authorized to grant Options to Participants
on the following terms and conditions:
(i) Exercise Price. The exercise price per share of Stock purchasable
under an Option shall be determined by the Committee, provided that
such exercise price shall be not less than the Fair Market Value of a
share of Stock on the date of grant of such Option except as provided
under Section 7(a) hereof.
(ii) Time and Method of Exercise. The Committee shall determine the
time or times at which or the circumstances under which an Option may
be exercised in whole or in part (including based on achievement of
performance goals and/or future service requirements), the methods by
which such exercise price may be paid or deemed to be paid, the form of
such payment, including, without limitation, cash, Stock, other Awards
or awards granted under other plans of the Company or any subsidiary,
or other property (including notes or other contractual obligations of
Participants to make payment on a deferred basis), and the methods by
or forms in which Stock will be delivered or deemed to be delivered to
Participants.
(iii) ISOs. The terms of any ISO granted under the Plan shall comply
in all respects with the provisions of Code Section 422. Anything in
the Plan to the contrary notwithstanding, no term of the Plan relating
to ISOs (including any SAR in tandem therewith) shall be interpreted,
amended or altered, nor shall any discretion or authority granted under
the Plan be exercised, so as to disqualify either the Plan or any ISO
under Code Section 422, unless the Participant has first requested the
change that will result in such disqualification. ISOs may be granted
only to employees of the Company or any of its subsidiaries. To the
extent that the aggregate Fair Market Value (determined as of the time
the Option is granted) of the Stock with respect to which ISOs granted
under this Plan and all other plans of the Company and any subsidiary
are first exercisable by any employee during any calendar year shall
exceed the maximum limit (currently, $100,000), if any, imposed from
time to time under Code Section 422, such Options shall be treated as
Options that are not ISOs.
(c) Stock Appreciation Rights. The Committee is authorized to grant SARs
to Participants on the following terms and conditions:
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(i) Right to Payment. A SAR shall confer on the Participant to whom
it is granted a right to receive, upon exercise thereof, the excess of
(A) the Fair Market Value of one share of Stock on the date of exercise
(or, in the case of a "Limited SAR," the Fair Market Value determined
by reference to the Change in Control Price, as defined under Section
8(c) hereof) over (B) the grant price of the SAR as determined by the
Committee.
(ii) Other Terms. The Committee shall determine at the date of grant
or thereafter, the time or times at which and the circumstances under
which a SAR may be exercised in whole or in part (including based on
achievement of performance goals and/or future service requirements),
the method of exercise, method of settlement, form of consideration
payable in settlement, method by or forms in which Stock will be
delivered or deemed to be delivered to Participants, whether or not a
SAR shall be in tandem or in combination with any other Award, and any
other terms and conditions of any SAR. Limited SARs that may only be
exercised in connection with a Change in Control or other event as
specified by the Committee may be granted on such terms, not
inconsistent with this Section 6(c), as the Committee may determine.
SARs and Limited SARs may be either freestanding or in tandem with
other Awards.
(d) Restricted Stock. The Committee is authorized to grant Restricted
Stock to Participants on the following terms and conditions:
(i) Grant and Restrictions. Restricted Stock shall be subject to such
restrictions on transferability, risk of forfeiture and other
restrictions, if any, as the Committee may impose, which restrictions
may lapse separately or in combination at such times, under such
circumstances (including based on achievement of performance goals
and/or future service requirements), in such installments or otherwise,
as the Committee may determine at the date of grant or thereafter.
Except to the extent restricted under the terms of the Plan and any
Award agreement relating to the Restricted Stock, a Participant granted
Restricted Stock shall have all of the rights of a stockholder,
including the right to vote the Restricted Stock and the right to
receive dividends thereon (subject to any mandatory reinvestment or
other requirement imposed by the Committee). During the restricted
period applicable to the Restricted Stock, subject to Section 9(b)
below, the Restricted Stock may not be sold, transferred, pledged,
hypothecated, margined, or otherwise encumbered by the Participant.
(ii) Forfeiture. Except as otherwise determined by the Committee,
upon termination of employment during the applicable restriction
period, Restricted Stock that is at that time subject to restrictions
shall be forfeited and reacquired by the Company; provided that the
Committee may provide, by rule or regulation or in any Award agreement,
or may determine in any individual case, that restrictions or
forfeiture conditions relating to Restricted Stock shall be waived in
whole or in part in the event of terminations resulting from specified
causes, and the Committee may in other cases waive in whole or in part
the forfeiture of Restricted Stock.
(iii) Certificates for Stock. Restricted Stock granted under the Plan
may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Stock are registered in the name
of the Participant, the Committee may require that such certificates
bear an appropriate legend referring to the terms, conditions and
restrictions applicable to such Restricted Stock, that the Company
retain physical possession of the certificates, and that the
Participant deliver a stock power to the Company, endorsed in blank,
relating to the Restricted Stock.
(iv) Dividends and Splits. As a condition to the grant of an Award of
Restricted Stock, the Committee may require that any cash dividends
paid on a share of Restricted Stock be automatically reinvested in
additional shares of Restricted Stock or applied to the purchase of
additional Awards under the Plan. Unless otherwise determined by the
Committee, Stock distributed in connection with a Stock split or Stock
dividend, and other property distributed as a dividend, shall be
subject to restrictions and a risk of forfeiture to the same extent as
the Restricted Stock with respect to which such Stock or other property
has been distributed.
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(e) Deferred Stock. The Committee is authorized to grant Deferred Stock
to Participants, which are rights to receive Stock at the end of a
specified deferral period, subject to the following terms and conditions:
(i) Award and Restrictions. Settlement of an Award of Deferred Stock
shall occur upon expiration of the deferral period specified for such
Deferred Stock by the Committee (or, if permitted by the Committee, as
elected by the Participant). In addition, Deferred Stock shall be
subject to such restrictions (which may include a risk of forfeiture)
as the Committee may impose, if any, which restrictions may lapse at
the expiration of the deferral period or at earlier specified times
(including based on achievement of performance goals and/or future
service requirements), separately or in combination, in installments or
otherwise, as the Committee may determine.
(ii) Forfeiture. Except as otherwise determined by the Committee,
upon termination of employment during the applicable deferral period or
portion thereof to which forfeiture conditions apply (as provided in
the Award agreement evidencing the Deferred Stock), all Deferred Stock
that is at that time subject to deferral (other than a deferral at the
election of the Participant) shall be forfeited; provided that the
Committee may provide, by rule or regulation or in any Award agreement,
or may determine in any individual case, that restrictions or
forfeiture conditions relating to Deferred Stock shall be waived in
whole or in part in the event of terminations resulting from specified
causes, and the Committee may in other cases waive in whole or in part
the forfeiture of Deferred Stock.
(iii) Dividend Equivalents. Unless otherwise determined by the
Committee at date of grant, Dividend Equivalents on the specified
number of shares of Stock covered by an Award of Deferred Stock shall
be either (A) paid with respect to such Deferred Stock at the dividend
payment date in cash or in shares of unrestricted Stock having a Fair
Market Value equal to the amount of such dividends, or (B) deferred
with respect to such Deferred Stock and the amount or value thereof
automatically deemed reinvested in additional Deferred Stock, other
Awards or other investment vehicles, as the Committee shall determine
or permit the Participant to elect.
(f) Bonus Stock and Awards in Lieu of Obligations. The Committee is
authorized to grant Stock as a bonus, or to grant Stock or other Awards in
lieu of obligations to pay cash or deliver other property under the Plan or
under other plans or compensatory arrangements. Stock or Awards granted
hereunder shall be subject to such other terms as shall be determined by
the Committee.
(g) Dividend Equivalents. The Committee is authorized to grant Dividend
Equivalents to a Participant, entitling the Participant to receive cash,
Stock, other Awards, or other property equal in value to dividends paid
with respect to a specified number of shares of Stock, or other periodic
payments. Dividend Equivalents may be awarded on a free-standing basis or
in connection with another Award. The Committee may provide that Dividend
Equivalents shall be paid or distributed when accrued or shall be deemed to
have been reinvested in additional Stock, Awards, or other investment
vehicles, and subject to such restrictions on transferability and risks of
forfeiture, as the Committee may specify.
(h) Other Stock-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants such other
Awards that may be denominated or payable in, valued in whole or in part by
reference to, or otherwise based on, or related to, Stock, as deemed by the
Committee to be consistent with the purposes of the Plan, including,
without limitation, convertible or exchangeable debt securities, other
rights convertible or exchangeable into Stock, purchase rights for Stock,
Awards with value and payment contingent upon performance of the Company or
any other factors designated by the Committee, and Awards valued by
reference to the book value of Stock or the value of securities of or the
performance of specified subsidiaries. The Committee shall determine the
terms and conditions of such Awards. Stock delivered pursuant to an Award
in the nature of a purchase right granted under this Section 6(h) shall be
purchased for such consideration, paid for at such times, by such methods,
and in such forms, including, without limitation, cash, Stock, other
Awards, or other property, as the Committee shall determine.
(i) Performance Goals Applicable to Designated Covered Employees. If the
Committee determines that an Award described in Sections 6(d), 6(e) or 6(h)
to be granted to an Eligible Person who is designated by the Committee as
likely to be a Covered Employee should qualify as "performance-based
compensation" for purposes of Code Section 162(m), the grant, exercise, and/or
settlement of such Award shall be contingent upon achievement of
preestablished performance goals and other terms set forth in this Section
6(i).
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(i) Performance Goals Generally. The performance goals for such
Awards shall consist of one or more business criteria and a targeted
level or levels of performance with respect to each of such criteria,
as specified by the Committee consistent with this Section 6(i).
Performance goals shall be objective and shall otherwise meet the
requirements of Code Section 162(m) and regulations thereunder
(including Regulation 1.162-27 and successor regulations thereto),
including the requirement that the level or levels of performance
targeted by the Committee result in the achievement of performance
goals being "substantially uncertain." The Committee may determine that
such Awards shall be granted, exercised, and/or settled upon
achievement of any one performance goal or that two or more of the
performance goals must be achieved as a condition to grant, exercise,
and/or settlement of such Awards. Performance goals may differ for
Awards granted to any one Participant or to different Participants.
(ii) Business Criteria. One or more of the following business
criteria for the Company, on a consolidated basis, and/or for specified
subsidiaries or business units of the Company (except with respect to
the total stockholder return and earnings per share criteria), shall be
used by the Committee in establishing performance goals for such
Awards: (1) earnings per share; (2) revenues; (3) cash flow; (4) cash
flow return on investment; (5) return on net assets, return on assets,
return on investment, return on capital, return on equity; (6) economic
value added; (7) operating margin; (8) net income; pretax earnings;
pretax earnings before interest, depreciation and amortization; pretax
operating earnings after interest expense and before incentives,
service fees, and extraordinary or special items; operating earnings;
(9) total stockholder return; and (10) any of the above goals as
compared to the performance of a published or special index deemed
applicable by the Committee including, but not limited to, the Standard
& Poor's 500 Stock Index or a group of comparator companies.
(iii) Performance Period; Timing for Establishing Performance
Goals. Achievement of performance goals in respect of such Awards shall
be measured over a performance period of up to ten years, as specified
by the Committee. Performance goals shall be established not later than
90 days after the beginning of any performance period applicable to
such Awards, or at such other date as may be required or permitted for
"performance-based compensation" under Code Section 162(m).
(iv) Other Terms. The Committee may, in its discretion, reduce the
amount of a settlement otherwise to be made in connection with such
Awards, but may not exercise discretion to increase any such amount
payable to a Covered Employee in respect of an Award subject to this
Section 6(i). All determinations by the Committee as to the
establishment of performance goals, and the achievement of performance
goals relating to Awards subject to this Section 6(i), shall be made in
writing in the case of any Award intended to qualify under Code Section
162(m). The Committee may not delegate any responsibility relating to
such Awards, and the Board shall not perform such functions at any time
that the Committee is composed solely of Qualified Members. Because the
Committee cannot determine with certainty whether a given Participant
will be a Covered Employee with respect to a fiscal year that has not
yet been completed, the term Covered Employee as used herein shall mean
only a person designated by the Committee, at the time of grant of an
Award, as likely to be a Covered Employee with respect to that fiscal
year. If any provision of the Plan as in effect on the date of adoption
or any agreements relating to Awards that are designated as intended to
comply with Code Section 162(m) does not comply or is inconsistent with
the requirements of Code Section 162(m) or regulations thereunder, such
provision shall be construed or deemed amended to the extent necessary
to conform to such requirements.
7. CERTAIN PROVISIONS APPLICABLE TO AWARDS.
(a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution or exchange
for, any other Award or any award granted under another plan of the Company,
any subsidiary, or any business entity to be acquired by the Company or a
subsidiary, or any other right of a Participant to receive payment from the
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Company or any subsidiary. Such additional, tandem, and substitute or exchange
Awards may be granted at any time. If an Award is granted in substitution or
exchange for another Award or award, the Committee shall require the surrender
of such other Award or award in consideration for the grant of the new Award.
In addition, Awards may be granted in lieu of cash compensation, including in
lieu of cash amounts payable under other plans of the Company or any
subsidiary, in which the value of Stock subject to the Award is equivalent in
value to the cash compensation (for example, Deferred Stock or Restricted
Stock), or in which the exercise price, grant price, or purchase price of the
Award in the nature of a right that may be exercised is equal to the Fair
Market Value of the underlying Stock minus the value of the cash compensation
surrendered (for example, Options granted with an exercise price "discounted"
by the amount of the cash compensation surrendered).
(b) Term of Awards. The term of each Award shall be for such period as
may be determined by the Committee; provided that in no event shall the
term of any Option or SAR exceed a period of ten years (or, in the case of
an ISO, such shorter term as may be required under Code Section 422).
(c) Form and Timing of Payment under Awards; Deferrals. Subject to the
terms of the Plan and any applicable Award agreement, payments to be made
by the Company or a subsidiary upon the exercise of an Option or other
Award or settlement of an Award may be made in Stock, other Awards, or
other property, and may be made in a single payment or transfer, in
installments, or on a deferred basis. The settlement of any Award may be
accelerated in the discretion of the Committee or upon occurrence of one or
more specified events (in addition to a Change in Control). Installment or
deferred payments may be required by the Committee (subject to Section 9(e)
of the Plan, including the consent provisions thereof in the case of any
deferral of an outstanding Award not provided for in the original Award
agreement) or permitted at the election of the Participant on terms and
conditions established by the Committee. Payments may include, without
limitation, provisions for the payment or crediting of reasonable interest
on installment or deferred payments or the grant or crediting of Dividend
Equivalents or other amounts in respect of installment or deferred payments
denominated in Stock.
(d) Exemptions from Section 16(b) Liability. It is the intent of the
Company that the grant of any Awards to or other transaction by a
Participant who is subject to Section 16 of the Exchange Act shall be
exempt under Rule 16b-3 (except for transactions which a Participant has
been advised in advance are non-exempt). Accordingly, if any provision of
this Plan or any Award agreement does not comply with the requirements of
Rule 16b-3 as then applicable to any such transaction, such provision shall
be construed or deemed amended to the extent necessary to conform to the
applicable requirements of Rule 16b-3 so that such Participant shall avoid
liability under Section 16(b).
8. CHANGE IN CONTROL.
(a) Effect of "Change in Control." In the event of a "Change in Control,"
the following provisions shall apply unless otherwise provided in the Award
agreement:
(i) Any Award carrying a right to exercise that was not previously
exercisable and vested shall become fully exercisable and vested as of
the time of the Change in Control;
(ii) If any optionee holds an Option immediately prior to a Change in
Control that was not previously exercisable and vested in full
throughout the 60-day period preceding the Change in Control, he shall
be entitled to elect, during the 60-day period preceding the Change in
Control, in lieu of acquiring the shares of Stock covered by the
portion of the Option that was not vested and exercisable within such
60-day period, to receive, and the Company shall be obligated to pay,
in cash the excess of the Change in Control Price over the exercise
price of such Option, multiplied by the number of shares of Stock
covered by such portion of the Option;
(iii) The restrictions, deferral of settlement, and forfeiture
conditions applicable to any other Award granted under the Plan shall
lapse and such Awards shall be deemed fully vested as of the time
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of the Change in Control, except to the extent of any waiver by the
Participant and subject to applicable restrictions set forth in Section
9(a) hereof; and
(iv) With respect to any outstanding Award subject to achievement of
performance goals and conditions under the Plan, such performance goals
and other conditions will be deemed to be met if and to the extent so
provided by the Committee in the Award agreement relating to such
Award.
(b) Definition of "Change in Control." A "Change in Control" shall mean
the occurrence of any of the following:
(i) when any "person" as defined in Section 3(a)(9) of 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% (or such greater
percentage as the Committee may specify in connection with the grant of
any Award) of the combined voting power of the Company's then-
outstanding securities; or
(ii) the occurrence of a transaction requiring stockholder approval
for the acquisition of the Company by an entity other than the Company
or a subsidiary through purchase of assets, or by merger, or otherwise.
(c) Definition of "Change in Control Price." The "Change in Control
Price" means an amount in cash equal to the higher of (i) the amount of
cash and fair market value of property that is the highest price per share
paid (including extraordinary dividends) in any transaction triggering the
Change in Control, or (ii) the highest Fair Market Value per share at any
time during the 60-day period preceding the Change in Control.
9. GENERAL PROVISIONS.
(a) Compliance with Legal and Other Requirements. The Company may, to the
extent deemed necessary or advisable by the Committee, postpone the
issuance or delivery of Stock or payment of other benefits under any Award
until completion of such registration or qualification of such Stock or
other required action under any federal or state law, rule, or regulation,
listing or other required action with respect to any stock exchange or
automated quotation system upon which the Stock or other securities of the
Company are listed or quoted, or compliance with any other obligation of
the Company, as the Committee may consider appropriate, and may require any
Participant to make such representations, furnish such information and
comply with or be subject to such other conditions as it may consider
appropriate in connection with the issuance or delivery of Stock or payment
of other benefits in compliance with applicable laws, rules, and
regulations, listing requirements, or other obligations. The foregoing
notwithstanding, in connection with a Change in Control, the Company shall
take or cause to be taken no action, and shall undertake or permit to arise
no legal or contractual obligation, that results or would result in any
postponement of the issuance or delivery of Stock or payment of benefits
under any Award or the imposition of any other conditions on such issuance,
delivery or payment, to the extent that such postponement or other
condition would represent a greater burden on a Participant than existed on
the 90th day preceding the Change in Control.
(b) Limits on Transferability; Beneficiaries. No Award or other right or
interest of a Participant under the Plan shall be pledged, hypothecated or
otherwise encumbered or subject to any lien, obligation or liability of
such Participant to any party, or assigned or transferred by such
Participant otherwise than by will or the laws of descent and distribution
or to a Beneficiary upon the death of a Participant, and such Awards or
rights that may be exercisable shall be exercised during the lifetime of
the Participant only by the Participant or his or her guardian or legal
representative, except that Awards and other rights (other than ISOs and
SARs in tandem therewith) may be transferred to one or more Beneficiaries
or other transferees during the lifetime of the Participant, and may be
exercised by such transferees in accordance with the terms of such Award,
but only if and to the extent such transfers are permitted by the Committee
pursuant to the express terms of an Award agreement (subject to any terms and
conditions which the Committee may impose thereon).
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A Beneficiary, transferee, or other person claiming any rights under the Plan
from or through any Participant shall be subject to all terms and conditions
of the Plan and any Award agreement applicable to such Participant, except as
otherwise determined by the Committee, and to any additional terms and
conditions deemed necessary or appropriate by the Committee.
(c) Adjustments. In the event that any dividend or other distribution
(whether in the form of cash, Stock, or other property), recapitalization,
forward or reverse split, reorganization, merger, consolidation, spin-off,
combination, repurchase, share exchange, liquidation, dissolution or other
similar corporate transaction or event affects the Stock such that an
adjustment is determined by the Committee to be appropriate under the Plan,
then the Committee shall, in such manner as it may deem equitable, adjust
any or all of (i) the number and kind of shares of Stock which may be
delivered in connection with Awards granted thereafter, (ii) the number and
kind of shares of Stock by which annual per-person Award limitations are
measured under Section 5 hereof, (iii) the number and kind of shares of
Stock subject to or deliverable in respect of outstanding Awards and (iv)
the exercise price, grant price or purchase price relating to any Award
and/or make provision for payment of cash or other property in respect of
any outstanding Award. In addition, the Committee is authorized to make
adjustments in the terms and conditions of, and the criteria included in,
Awards (including performance goals) in recognition of unusual or
nonrecurring events (including, without limitation, events described in the
preceding sentence, as well as acquisitions and dispositions of businesses
and assets) affecting the Company, any subsidiary or any business unit, or
the financial statements of the Company or any subsidiary, or in response
to changes in applicable laws, regulations, accounting principles, tax
rates and regulations or business conditions or in view of the Committee's
assessment of the business strategy of the Company, any subsidiary or
business unit thereof, performance of comparable organizations, economic
and business conditions, personal performance of a Participant, and any
other circumstances deemed relevant; provided that no such adjustment shall
be authorized or made if and to the extent that such authority or the
making of such adjustment would cause Options, SARs, or Awards granted
under Section 6(i) hereof to Participants designated by the Committee as
Covered Employees and intended to qualify as "performance-based
compensation" under Code Section 162(m) and regulations thereunder to
otherwise fail to qualify as "performance-based compensation" under Code
Section 162(m) and regulations thereunder.
(d) Taxes. The Company and any subsidiary is authorized to withhold from
any Award granted, any payment relating to an Award under the Plan,
including from a distribution of Stock, or any payroll or other payment to
a Participant, amounts of withholding and other taxes due or potentially
payable in connection with any Award, and to take such other action as the
Committee may deem advisable to enable the Company and Participants to
satisfy obligations for the payment of withholding taxes and other tax
obligations relating to any Award. This authority shall include authority
to withhold or receive Stock or other property and to make cash payments in
respect thereof in satisfaction of a Participant's tax obligations, either
on a mandatory or elective basis in the discretion of the Committee.
(e) Changes to the Plan and Awards. The Board may amend, alter, suspend,
discontinue, or terminate the Plan or the Committee's authority to grant
Awards under the Plan without the consent of stockholders or Participants,
except that any amendment or alteration to the Plan shall be subject to the
approval of the Company's stockholders not later than the annual meeting
next following such Board action if such stockholder approval is required
by any federal or state law or regulation or the rules of any stock
exchange or automated quotation system on which the Stock may then be
listed or quoted, and the Board may otherwise, in its discretion, determine
to submit other such changes to the Plan to stockholders for approval;
provided that, without the consent of an affected Participant, no such
Board action may materially and adversely affect the rights of such
Participant under any previously granted and outstanding Award. The
Committee may waive any conditions or rights under, or amend, alter,
suspend, discontinue, or terminate any Award theretofore granted and any
Award agreement relating thereto, except as otherwise provided in the Plan;
provided that, without the consent of an affected Participant, no such
Committee action may materially and adversely affect the rights of such
Participant under such Award. Notwithstanding anything in the Plan to the
contrary, if any right under this Plan would cause a transaction to be
ineligible for pooling of interest accounting that would, but for the right
hereunder, be eligible for such accounting treatment, the Committee may modify
or adjust the right so that pooling of interest accounting shall be available,
including the substitution of Stock having a Fair Market Value equal to the
cash otherwise payable hereunder for the right which caused the transaction to
be ineligible for pooling of interest accounting.
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(f) Limitation on Rights Conferred under Plan. Neither the Plan nor any
action taken hereunder shall be construed as (i) giving any Eligible Person
or Participant the right to con tinue as an Eligible Person or Participant
or in the employ or service of the Company or a subsidiary, (ii)
interfering in any way with the right of the Company or a subsidiary to
terminate any Eligible Person's or Participant's employment or service at
any time, (iii) giving an Eligible Person or Participant any claim to be
granted any Award under the Plan or to be treated uniformly with other
Participants and employees, or (iv) conferring on a Participant any of the
rights of a stockholder of the Company unless and until the Participant is
duly issued or transferred shares of Stock in accordance with the terms of
an Award.
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is intended
to constitute an "unfunded" plan for incentive and deferred compensation.
With respect to any payments not yet made to a Participant or obligation to
deliver Stock pursuant to an Award, nothing contained in the Plan or any
Award shall give any such Participant any rights that are greater than
those of a general creditor of the Company; provided that the Committee may
authorize the creation of trusts and deposit therein cash, Stock, other
Awards or other property, or make other arrangements to meet the Company's
obligations under the Plan. Such trusts or other arrangements shall be
consistent with the "unfunded" status of the Plan unless the Committee
otherwise determines with the consent of each affected Participant. The
trustee of such trusts may be authorized to dispose of trust assets and
reinvest the proceeds in alternative investments, subject to such terms and
conditions as the Committee may specify and in accordance with applicable
law.
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board nor its submission to the stockholders of the Company for approval
shall be construed as creating any limitations on the power of the Board or
a committee thereof to adopt such other incentive arrangements as it may
deem desirable including incentive arrangements and awards which do not
qualify under Code Section 162(m).
(i) Payments in the Event of Forfeitures; Fractional Shares. Unless
otherwise determined by the Committee, in the event of a forfeiture of an
Award with respect to which a Participant paid cash or other consideration,
the Participant shall be repaid the amount of such cash or other
consideration. No fractional shares of Stock shall be issued or delivered
pursuant to the Plan or any Award. The Committee shall determine whether
cash, other Awards or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights
thereto shall be forfeited or otherwise eliminated.
(j) Governing Law. The validity, construction and effect of the Plan, any
rules and regulations under the Plan, and any Award agreement shall be
determined in accordance with the Delaware General Corporation Law, without
giving effect to principles of conflicts of laws, and applicable federal
law.
(k) Plan Effective Date and Stockholder Approval. The Plan has been
adopted by the Board on July 15, 1997, and shall become effective upon
approval by the stockholders of the Company not less than one year after
that date.
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