<PAGE> 1
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 /X/
Check the appropriate box:
<TABLE>
<S> <C>
/ / 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 sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
GTECH HOLDINGS 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/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / 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:
------------------------------------------------------------------------
<PAGE> 2
LOGO
GTECH HOLDINGS CORPORATION
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 9, 1996
------------------------
To Our Shareholders:
The Annual Meeting of Shareholders of GTECH Holdings Corporation (the
"Company") will be held at 8:00 o'clock a.m. on September 9, 1996, at the New
York Marriott World Trade Center, 3 World Trade Center, New York, New York, for
the following purposes:
1. To elect three directors to serve for a three-year term and one director
to serve for a one-year term;
2. To vote on a proposal to amend the Company's 1994 Stock Option Plan, to
increase the number of shares authorized for issuance under the Plan;
3. To vote on a proposal to approve the Company's 1996 Non-Employee
Directors' Stock Option Plan; and
4. To transact such other business as may properly come before the Meeting
and any adjournments thereof.
The Board of Directors has fixed the close of business on August 5, 1996,
as the record date for the determination of shareholders entitled to notice of,
and to vote at, the Meeting and any adjournments thereof.
All shareholders are cordially invited to attend the Meeting in person.
HOWEVER, WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE SIGN, DATE AND MAIL PROMPTLY
THE ENCLOSED PROXY CARD IN THE ENCLOSED RETURN ENVELOPE, WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES. Returning your proxy card does not
deprive you of your right to attend the Meeting and vote your shares in person.
By order of the Board of Directors,
Cynthia A. Nebergall, Secretary
August 6, 1996
<PAGE> 3
GTECH HOLDINGS CORPORATION
55 TECHNOLOGY WAY
WEST GREENWICH, RI 02817
PROXY STATEMENT
This proxy statement, which is being sent to shareholders on or about
August 9, 1996, is furnished in connection with the solicitation of proxies by
the Board of Directors of GTECH Holdings Corporation (the "Company") for use at
the forthcoming Annual Meeting of Shareholders to be held on September 9, 1996
(the "Meeting"), and at any adjournments thereof.
At the close of business on August 5, 1996, the record date for
determination of shareholders entitled to notice of, and to vote at, the
Meeting, there were outstanding an aggregate of 43,067,587 shares of the
Company's Common Stock, $.01 par value (the "Common Stock"), the Company's only
class of securities entitled to vote at the Meeting.
VOTING AND REVOCABILITY OF PROXIES
Each share of Common Stock is entitled to one vote on all matters to come
before the Meeting. In the election of directors, assuming a quorum is present,
the four nominees receiving the highest number of votes cast at the Meeting will
be elected. The affirmative vote of a majority of the shares of Common Stock
present in person or by proxy at the Meeting is required for approval of
Proposal 2 and Proposal 3, assuming that the total vote cast with respect to
each such Proposal represents a majority of the outstanding shares of Common
Stock entitled to vote at the Meeting. If a proxy is marked as "withhold
authority" or "abstain" on any matter, or if specific instructions are given
that no vote be cast on any specific matter (a "Specified Non-Vote"), the shares
represented by such proxy will not be voted on such matter. Abstentions on
Proposal 2 or Proposal 3 will be included within the number of shares present at
the Meeting and entitled to vote for purposes of determining whether such
matters have been authorized, but broker and other Specified Non-Votes will not
be so included.
Your proxy may be revoked at any time prior to its exercise by giving
written notice to the Secretary of the Company at the offices of the Company set
forth above, by presenting a duly executed proxy bearing a later date or by
voting in person at the Meeting, but your mere attendance at the Meeting will
not revoke your proxy. Your proxy, when properly executed, will be voted in
accordance with the specific instructions indicated on your proxy card. Unless
contrary instructions are given, your proxy will be voted FOR the election of
the four nominees for director, as provided under "Election of Directors" below;
FOR approval of the amendment to the Company's 1994 Stock Option Plan, as
provided in Proposal 2 below; FOR approval of the Company's 1996 Non-Employee
Directors' Stock Option Plan, as provided in Proposal 3 below; and, to the
extent permitted by applicable rules of the Securities and Exchange Commission,
in accordance with the judgment of the persons voting the proxies upon such
other matters as may come before the Meeting and any adjournments.
1. ELECTION OF DIRECTORS
The Certificate of Incorporation and the By-laws of the Company provide
that the number of directors shall be nine, to be divided into three classes as
nearly equal in number as possible. At the Meeting three directors will be
elected for a three-year term and one director will be elected for a one-year
term. As described in "Voting Agreements and Related Matters" below, the Board
of Directors has nominated, and recommends the election of, the following three
persons to serve as directors of the Company until the 1999 Annual Meeting, and
until their successors are elected and have qualified, subject to earlier death,
resignation, retirement or removal from office:
Victor Markowicz
William Y. O'Connor
Anthony Ruys
<PAGE> 4
In addition, the Board of Directors has nominated and recommends the
election of the following person (see "Voting Agreements and Related Matters"
below) to serve as a director of the Company until the 1997 Annual Meeting and
until his successor is elected and has qualified, subject to earlier death,
resignation or removal from office:
Carl H. Freyer
Messrs. Markowicz, O'Connor and Freyer presently are serving as directors
of the Company.
Although the Board of Directors has no reason to believe any of the
nominees will be unable to serve, if such should occur, proxies will be voted
(unless marked to the contrary) for such person or persons, if any, as shall be
recommended by the Board of Directors. However, proxies will not be voted for
the election of more than four directors.
The following table sets forth, as of August 1, 1996, certain information
with respect to each of the above nominees for election as a director at the
Meeting and each director whose term of office will continue after the Meeting:
NOMINEES FOR ELECTION AT THE MEETING:
<TABLE>
<CAPTION>
PRESENT
DIRECTOR TERM
NAME, AGE AND OCCUPATION (1) SINCE EXPIRES
- ----------------------------------------------------------------------- -------- -------
<S> <C> <C>
Victor Markowicz, 52................................................... 1980 1996
Co-Chairman and Member of the Executive Operating Committee of the
Company. Mr. Markowicz was a co-founder of GTECH Corporation (the
Company's Chief operating subsidiary) and served as Vice Chairman
from 1987 to 1990, Senior Vice President from 1988 to 1989 and
Executive Vice President and Secretary from 1981 to 1988.
William Y. O'Connor, 52................................................ 1995 1996(2)
President, Chief Operating Officer and Member of the Executive
Operating Committee of the Company since December 1994. Previously,
Mr. O'Connor was the President and Chief Executive Officer of Ascom
Timeplex, a telecommunications company, from 1992 to 1994, and prior
to this was Corporate Senior Vice President and President of the
Broadband Communications Group of Scientific Atlanta, Inc. from 1987
to 1992.
Anthony Ruys, 49....................................................... (3) (3)
A member of the Executive Board of Heineken N.V., a Netherlands-based
brewer, since 1993. He served in increasingly senior positions within
the Unilever Group, a Netherlands and U.K.-based consumer goods
conglomerate, from 1974 to 1993.
Carl H. Freyer, 57..................................................... 1990(4) 1997(5)
President of the investment management firms of Freyer Corporation
and Freyer Capital Management, and Vice President of the investment
management firm of Caribbean Basin Capital Consultants, Inc. since
its organization in February 1992.
DIRECTORS WHOSE TERMS CONTINUE BEYOND THE MEETING:
Guy B. Snowden, 50..................................................... 1980 1998
Co-Chairman, Chief Executive Officer and Member of the Executive
Operating Committee of the Company. Mr. Snowden was a co-founder of
GTECH Corporation and has been its Chief Executive Officer since its
inception in 1980. He served as Chairman from 1987 to 1990 and was
President from 1981 to 1987 and 1989 through December 1994. Mr.
Snowden is a director of Bugaboo Creek Steak House, Inc.
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
PRESENT
DIRECTOR TERM
NAME, AGE AND OCCUPATION (1) SINCE EXPIRES
- ----------------------------------------------------------------------- -------- -------
<S> <C> <C>
Robert M. Dewey, Jr., 65............................................... 1995 1998
Chairman of Autranet, Inc., a wholly-owned subsidiary of Donaldson,
Lufkin & Jenrette, Inc. ("DLJ"), an investment banking firm. Mr.
Dewey was Managing Director, Institutional Equities Division, of
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJSC"), a
subsidiary of DLJ from 1983 through 1995.
Burnett W. Donoho, 57.................................................. 1992(6) 1997
Self-employed Retail Consultant since December 1994. Previously, Mr.
Donoho was the Vice Chairman and Chief Operating Officer of Macy's
East, a division of R. H. Macy & Co., Inc., a department store chain,
from July 1992 until December 1994; Mr. Donoho was a member of Ernst
& Young's Great Lakes Management Consulting Group from June 1991 to
June 1992; consultant to and superintendent of the Chicago Public
Schools from November 1990 to May 1991; and President of Marshall
Field and Co., a department store chain, from 1984 to June 1990. In
January 1992, R. H. Macy & Co., Inc. filed a petition for protection
under Chapter 11 of the Federal bankruptcy laws. Mr. Donoho is also a
director of OfficeMax, Inc.
The Rt. Hon. Lord Moore of Lower Marsh, P.C., 58....................... 1992 1998
European Chairman and a director of The Monitor Company, a strategic
consulting company, since October 1990. Previously, Lord Moore held
various ministerial posts in the Government of the United Kingdom,
most recently as Secretary of State for Social Security from July
1988 to July 1989 and as Secretary of State for Health and Social
Security from 1987 to 1988. Lord Moore is also the Chairman and a
director of Credit Suisse Investment Management Group Limited, Credit
Suisse Investment Management Limited and Credit Suisse Asset
Management Ltd.; a director of BEA Associates, Inc., Blue Circle
Industries plc, C S First Boston Australia Investment Management
Limited, Marvin & Palmer Inc., Rolls-Royce plc, The Central European
Growth Fund plc and Camelot Holdings Limited; a member of the
supervisory board of ITT Automotive Europe Gmbh; and the President of
Energy Saving Trust Ltd., a not-for-profit energy conservation
organization.
</TABLE>
- ---------------
(1) Except as otherwise noted, the named individuals have had the occupations
indicated (other than directorships) for at least five years. The indicated
employment and directorship histories with the Company for periods prior to
the acquisition of GTECH Corporation by the Company in February 1990 refer
to positions held with GTECH Corporation. The Company was formed in 1989 for
the purpose of making the acquisition.
(2) Mr. O'Connor, who had been elected at the 1995 Annual Meeting to serve as a
director until the 1997 Annual Meeting, has been redesignated by the Board
of Directors to the class of directors whose terms expire at the time of the
Meeting in order to fill a vacancy recently created in this class. Mr.
O'Connor's redesignation to this class is conditional upon his election at
the Meeting to the class of directors whose terms expire at the 1999 Annual
Meeting. If Mr. O'Connor is not so elected, he will remain a member of the
class of directors whose terms expire at the 1997 Annual Meeting. See
"Voting Agreements and Related Matters" below.
(3) Has not previously served as a director of the Company.
(4) Mr. Freyer was a director of GTECH Corporation from 1983 to February 1990
and was elected a director of the Company in May 1990.
(5) Mr. Freyer, whose term was to expire at the Meeting, was appointed by the
Board of Directors to the class of directors whose terms expire at the time
of the 1997 Annual Meeting in order to fill a vacancy created in this class
by the recent resignation of Joel J. Cohen. Mr. Freyer's appointment to this
class is
3
<PAGE> 6
conditional upon his election at the Meeting as a director to the class
whose terms expire at the 1997 Annual Meeting. If Mr. Freyer is not so
elected, his term will expire at the Meeting. See "Voting Agreements and
Related Matters" below.
(6) Mr. Donoho was a director of the Company from May 1990 to June 1991 and was
again elected a director of the Company in October 1992.
VOTING AGREEMENTS AND RELATED MATTERS
The Company and certain of its stockholders entered into a Stockholders
Agreement dated as of July 20, 1992, as amended (the "Stockholders Agreement"),
providing, among other things, for the nomination of and voting for directors of
the Company. The principal parties to these provisions were: (i) DLJ Capital
Corporation ("DLJCC"), a subsidiary of DLJ, and related persons (other than the
employees or former employees of DLJSC); (ii) Messrs. Snowden, Markowicz and the
certain other members of management of the Company (collectively, the
"Management Investors"); and (iii) Norwest Bank Fort Wayne, N.A. (formerly known
as Lincoln National Bank and Trust Company of Fort Wayne), as trustee (the
"Voting Trustee") under the Second Amended and Restated Voting Trust Agreement,
dated as of July 29, 1992 (the "Voting Trust Agreement"), pursuant to which
DLJCC and related persons deposited all of their shares of Common Stock in
excess of 5% of the Company's outstanding Common Stock.
The Voting Trustee had the sole power and discretion to act as and to
exercise the rights and powers of a shareholder with respect to the shares in
the Voting Trust, except that DLJCC and related persons were entitled to receive
dividends, distributions and payments in respect of their shares of Common Stock
held by the Voting Trustee, if and when the same were paid by the Company
(except that shares of Common Stock issued as a dividend, distribution or other
payment of the shares held by the Voting Trustee were also to be subject to the
Voting Trust Agreement).
The applicable voting provisions of the Stockholders Agreement required
that each of the parties subject to such provisions who held shares of voting
stock of the Company vote for the election to the Board of Directors of the
Company of the following individuals: (i) three individuals nominated by DLJCC;
(ii) three individuals nominated from among and by the Management Investors;
(iii) one individual nominated by the Voting Trustee; and (iv) two individuals
who are not affiliated with any of the current principal stockholders.
The obligations described above of each such party to vote for the nominees
of another party were to terminate once such nominating party's ownership of
Common Stock dropped below a certain level. The right of DLJCC, the Voting
Trustee and the Management Investors to nominate individuals as directors were
to cease: (a) in the case of each of DLJCC and the Voting Trustee, once DLJCC
and its affiliates and the Voting Trustee collectively held less than 5% of the
outstanding Common Stock and (b) in the case of Management Investors, once the
Management Investors as a group owned less than 5% of the Common Stock. In
addition, the obligations of DLJCC, the Voting Trustee and the Management
Investors and certain related parties to vote for the Nominees of another party
were to terminate once: (1) in the case of DLJCC Nominees or a Voting Trustee
Nominee, the aggregate number of shares of Common Stock held by DLJCC and its
affiliates and the Voting Trustee became less than approximately 3,607,000 or
(2) in the case of the Management Investor Nominees, the aggregate number of
shares of Common Stock held collectively by the Management Investors became less
than one-third (approximately 3,000,000) of the aggregate number of shares
originally purchased by them from the Company or earned under certain of the
Company's stock award plans.
Pursuant to the Stockholders Agreement, the present directors were
nominated as follows: Messrs. Dewey and Carl B. Menges by DLJCC; Messrs.
Snowden, Markowicz and O'Connor by the Management Investors; and Mr. Freyer by
the Voting Trustee. Mr. Donoho and Lord Moore were selected by the Board as the
Independent Nominees not affiliated with the Company's current principal
shareholders.
In June 1996, DLJCC and related persons and certain Management Investors
consummated an underwritten public offering of 10,786,957 shares of Common Stock
of the Company. In this offering, DLJCC and related persons sold a total of
9,207,802 shares of Common Stock, representing approximately 21.4% of
4
<PAGE> 7
the outstanding shares of Common Stock of the Company, and Management Investors,
principally Messrs. Snowden and Markowicz and related trusts, sold a total of
1,579,155 shares of Common Stock, representing approximately 3.7% of the
outstanding shares of Common Stock of the Company. As a result of this offering,
the Voting Trust Agreement and the voting provisions of the Stockholders
Agreement described above terminated.
Following the offering, Joel J. Cohen, a director nominated by DLJCC who
had served as a director since 1992 and whose term was scheduled to expire in
1997, resigned as director of the Company. Carl B. Menges, a director also
nominated by DLJCC, indicated his intention not to stand for reelection when his
term expired at the time of the Meeting.
The Board appointed a Nominating Committee consisting of Messrs. Snowden
and Donoho and Lord Moore to advise the Board respecting the composition of the
Board of Directors in light of the developments described above. Based upon
recommendations of the Nominating Committee, the Board recently took action (i)
subject to his election at the Meeting, to appoint Mr. Freyer, formerly a
director whose term was to expire at the time of the Meeting, to fill the
vacancy created by the resignation of Mr. Cohen and (ii) subject to his election
at the Meeting, to redesignate Mr. O'Connor, formerly a director whose term was
to expire at the time of the 1997 Annual Meeting, to fill the vacancy in the
class of directors whose term was to expire at the time of the Meeting created
by the appointment of Mr. Freyer to the class of 1997. The Nominating Committee
also recommended to the Board of Directors that the Board approve Mr. Anthony
Ruys, an individual who has not previously served as director, as a nominee for
election at the Meeting. The Nominating Committee is currently considering
nominees to fill the vacancy in the Board of Directors that will remain after
the Meeting.
Messrs. Markowicz, O'Connor, Ruys and Freyer have been approved by the
Board as the Board's nominees for election.
INFORMATION CONCERNING MEETINGS AND CERTAIN COMMITTEES
The Board of Directors held five formal meetings during fiscal 1996, and
also conferred informally and took formal action by unanimous written consent on
a number of additional occasions. The Board has an Audit Committee and a
Compensation (Stock Award) Committee. In addition, after the close of fiscal
1996, the Board appointed a Nominating Committee. The Audit Committee's present
members are Messrs. Donoho and Freyer and Lord Moore. In addition, Mr. Cohen,
who recently resigned from the Board, was a member of the Audit Committee during
all of fiscal 1996. The Audit Committee makes recommendations to the Board of
Directors concerning the engagement and retention of the Company's independent
auditors and reviews with the Company's management and financial personnel and
with the Company's independent auditors the results of the independent auditors'
auditing engagement, the adequacy of the Company's system of internal controls,
and matters relating to the Company's financial statements. The Audit Committee
held two formal meetings during fiscal 1996. The Compensation Committee's
current members are Messrs. Freyer and Donoho. Mr. Donoho was appointed to the
Compensation Committee to fill the vacancy created by the recent resignation of
Mr. Cohen, who was a member of the Compensation Committee during all of fiscal
1996. The Compensation Committee is responsible for granting awards from
time-to-time pursuant to the Company's stock benefit plans and is authorized to
review specific executive compensation arrangements referred to it and to
recommend policies respecting the compensation of executive officers of the
Company generally. The Compensation Committee did not hold any formal meetings
during fiscal 1996 but had several informal meetings and took formal action by
unanimous consent on a number of occasions. After the close of fiscal 1996, the
Board appointed a Nominating Committee consisting of Messrs. Snowden and Donoho
and Lord Moore. The Nominating Committee makes recommendations to the Board
concerning qualified candidates for election as directors. The Nominating
Committee has no formal procedure for considering potential candidates
recommended by shareholders.
During fiscal 1996, all directors attended in person or by conference
telephone at least 75% of the total number of formal meetings of the Board of
Directors and committees of the Board on which they served.
5
<PAGE> 8
COMPENSATION OF DIRECTORS
During fiscal 1996, directors who were not employees of the Company or of
DLJCC and its affiliates received annual directors' fees of $20,000, plus $750
per day (other than for a day on which there was a meeting of the Board) for
attending committee or other meetings or functions relating to Company business,
plus $750 per day (other than a day for which such director received the
aforementioned $750 per diem) for any day during which such director was
required to spend more than five hours in connection with certain administrative
matters relating to the Company's business.
The Board of Directors currently is considering increasing the annual
directors' fee paid to non-employee directors from $20,000 to $30,000 and
increasing the per diem fees paid to them from $750 to $1,000.
Mr. Donoho and Lord Moore participate in the Company's 1992 Outside
Directors' Director Stock Unit Plan (the "DSU Plan"). Under the DSU Plan, Mr.
Donoho and Lord Moore were automatically granted, respectively, 3,000 and 4,500
Director Stock Units ("DSUs") upon their election to the Board in 1992. Mr.
Donoho and Lord Moore were automatically granted additional grants of,
respectively, 4,500 and 3,000 DSUs upon their reelection to serve additional
three-year terms as director at, respectively, the 1994 and 1995 Annual Meeting.
Each DSU essentially vests at the end of the term with respect to which it was
granted and, upon vesting, entitles the director to one share of Common Stock,
subject to adjustment. Mr. Donoho's initial 3,000 share grant vested at the time
of the 1994 Meeting, and Lord Moore's initial 4,500 share grant vested at the
time of the 1995 Meeting, in each case upon the expiration of their respective
initial terms as director. No director may receive grants of more than an
aggregate of 7,500 DSUs under the DSU Plan, subject to adjustment. The DSU Plan
requires that the Company make cash tax offset payments (each, a "Tax Offset
Payment") to each director receiving a grant under the DSU Plan equal to the
amount necessary to pay essentially all of the director's taxes, at the highest
applicable rate, relating to such grant.
See Item 3. "1996 Non-Employee Directors' Stock Option Plan" and
"Additional Information" herein for additional information concerning the
Company's directors, principal shareholders and related persons.
2. APPROVAL OF AMENDMENT TO THE 1994 STOCK OPTION PLAN
At the Meeting, the shareholders also will be asked to approve an amendment
to the Company's 1994 Stock Option Plan (the "1994 Plan") to increase the number
of shares authorized for issuance under the 1994 Plan. The 1994 Plan was
originally adopted by the Company's Board of Directors in May 1994, and approved
by the shareholders of the Company at the Annual Meeting in July 1994. In 1995,
the Board of Directors unanimously amended the 1994 Plan, and the shareholders
of the Company approved such amendment at the Annual Meeting in July 1995, so as
to increase the number of shares of Common Stock ("Shares") authorized for
issuance under the Plan from 850,000 Shares to 1,650,000 Shares.
In August 1996, the Board of Directors unanimously further amended the 1994
Plan, subject to shareholder approval, so as to increase the number of Shares
authorized for issuance under the 1994 Plan by an additional 150,000 Shares
(from 1,650,000 Shares to 1,800,000 Shares). The Board of Directors believes
that this increase in the number of Shares covered by the 1994 Plan is necessary
in order for the Plan to continue to fulfill its purpose of assisting the
Company in attracting and retaining officers and other key employees, motivating
them to increase shareholder value and enabling them to participate in the value
which has been created and to have a mutuality of interests with other
shareholders.
As of August 1, 1996, of the 1,650,000 Shares authorized for issuance under
the 1994 Plan, as amended, 1,373,500 Shares were subject to outstanding options,
and 57,500 Shares had been issued upon the exercise of options, leaving only
219,000 Shares available for the grant of future options. Of the 1,373,500
Shares which were subject to outstanding options under the 1994 Plan as of
August 1, 1996, the Company's current executive officers had been granted
options with respect to a total of 662,000 Shares. Included within this are a
total of 512,000 options granted to Mr. O'Connor (a director, a nominee for
director and one of the Company's four most highly compensated executive
officers with respect to 1996) pursuant to an Employment Agreement entered into
in October 1994, including 300,000 options granted in fiscal 1996, and 100,000
options granted to Thomas J. Sauser, an executive officer who commenced
employment with the Company in
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<PAGE> 9
February 1996. (See "Additional Information - Employment -- Severance
Agreements" below.) Other employees of the Company have been granted options
with respect to all of the remaining 711,500 Shares subject to outstanding
options. In this regard, it should be noted that Messrs. Guy B. Snowden and
Victor Markowicz, who are executive officers and Co-Chairmen of the Company, are
not eligible to receive options under the 1994 Plan.
The Board believes, as previously indicated, that the proposed increase in
Shares authorized for issuance under the 1994 Plan is necessary in order to
attract, retain and motivate executive officers and other employees integral to
the success of the Company.
SUMMARY OF THE 1994 PLAN AS AMENDED
The following description of the 1994 Plan, as amended, is intended merely
as a summary of the principal features of the 1994 Plan and is qualified in its
entirety by reference to the provisions of the 1994 Plan itself.
The 1994 Plan, as amended by the Board, authorizes up to an aggregate of
1,800,000 Shares for the granting of incentive stock options (within the meaning
of Section 422 of the Internal Revenue Code) ("ISOs") and nonqualified stock
options ("NQSOs"). Generally, Shares subject to options granted under the 1994
Plan which remain unexercised upon expiration or earlier termination of such
options will once again become available for the granting of options under the
1994 Plan. Authorized but unissued Shares or treasury Shares may be issued under
the 1994 Plan.
The 1994 Plan is to be administered by a Committee of the Board (currently
the Compensation Committee, the "Committee") consisting of not less than two
directors, which Committee is given broad discretion under the 1994 Plan.
Committee members are not eligible to participate in the 1994 Plan. The 1994
Plan authorizes the Committee to grant ISOs and NQSOs to officers (including
officers who also are directors) and other key employees of the Company and its
subsidiaries other than Messrs. Snowden, and Markowicz. There currently are 23
officers eligible for participation in the 1994 Plan, although this number is
subject to increase or decrease in the future. The Committee may, in its
discretion, select key employees of the Company from among other individuals who
are from time-to-time employed by the Company for participation in the 1994
Plan.
The exercise price of options granted under the 1994 Plan must be at least
equal to the fair market value of the Shares on the date of grant of the option.
No participant in the Plan may be granted options under the 1994 Plan in any
calendar year to purchase more than 12 1/2% of the total number of Shares
authorized for issuance under the Plan. Options under the 1994 Plan may not
extend for more than ten years and become exercisable at such time or times as
the Committee may specify, but not earlier than six months from the date of
grant, except in limited circumstances. Under certain circumstances, the 1994
Plan permits the exercise price of options to be paid in whole or in part by
having the Company withhold Shares issuable pursuant to the options or by
delivery to the Company by the optionee of other previously acquired shares of
Common Stock of the Company. The 1994 Plan similarly permits the withholding of
Shares issuable upon exercise of NQSOs to satisfy withholding taxes. Options
under the 1994 Plan are not transferable by optionees other than by will or
pursuant to the laws of descent and distribution.
In the event of termination of an optionee's employment by reason of death,
disability, retirement, or without Cause (as defined in the 1994 Plan), the
Committee has broad discretion in determining if and to what extent options held
by such optionee will be terminated, will remain exercisable or will be
exercisable on an accelerated basis, except that no such option may be exercised
after the earlier of the expiration of the stated term of such option or one
year (or, in the case of ISOs, such shorter period as may be required under the
Internal Revenue Code) after the date of termination of such optionee's
employment. If an optionee's employment is terminated for Cause, all such
optionee's unexercised options will terminate unless otherwise determined by the
Committee.
The number of Shares authorized for issuance under the 1994 Plan, the
maximum number of Shares with respect to which options may be granted to any
individual optionee, and the number of Shares issuable under (and the option
price of) outstanding options are subject to adjustment in the event of a stock
split, stock
7
<PAGE> 10
dividend or similar change in the capitalization of the Company. The 1994 Plan
further provides that, in the event of a merger, consolidation or other
specified corporate transactions, options shall be assumed by the surviving or
successor corporation, if any. However, the 1994 Plan authorizes the Committee,
in its discretion, to terminate all or a portion of the outstanding options in
the event of such a corporate transaction and further authorizes the Committee,
in its discretion, to accelerate the exercise date of all or a portion of any
options to be so terminated. Subject to certain limitations, the Committee also
has the authority under the 1994 Plan to change the terms of any outstanding
option to reflect any such corporate transaction. In the event of a Change-
In-Control (as defined in the 1994 Plan) of the Company, all unexercised vested
and nonvested outstanding options will automatically vest and become fully
exercisable unless otherwise determined by the Committee.
The Committee may amend the terms of any Option prospectively or
retroactively subject to certain limitations. The Committee also may substitute
new options for previously granted options, including previously granted options
having higher exercise prices. Subject to certain limitations, the Board of
Directors may discontinue or amend the 1994 Plan as it deems necessary, but no
discontinuance or amendment which would materially impair the rights of an
optionee with respect to an outstanding option may be made without his or her
consent. Further, subject to certain exceptions, shareholder approval generally
will be required for any amendment which would materially: (i) increase the
benefits accruing to executive officers or directors under the 1994 Plan; (ii)
increase the number of Shares which may be issued under the Plan; (iii) modify
the requirements as to eligibility to participate in the 1994 Plan; or (iv)
extend the duration of the 1994 Plan. Unless earlier terminated by the Board of
Directors, the 1994 Plan will automatically terminate in May 2004, although
options granted prior to such termination may be exercised after termination in
accordance with their terms.
As of August 1, 1996, the Committee had made no determination to grant any
specific options with respect to the additional 150,000 Shares for which
shareholder approval is being sought.
On August 1, 1996, the closing price of a Share on the New York Stock
Exchange was $27 3/8.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Company has been advised that, under present federal tax laws and
regulations, the Federal income tax consequences to the Company and to the
employees receiving stock options pursuant to the 1994 Plan are as described
below. The following discussion is only a brief summary of such tax
consequences, is not intended to be all inclusive or to constitute tax advice,
and, among other things, does not cover possible state, local or foreign tax
consequences.
Upon the grant or exercise of an ISO, no income will be realized by the
optionee for federal income tax purposes (although, upon exercise, the excess of
the fair market value of the Shares over the exercise price will generally be
included in the optionee's alternative minimum taxable income), and the Company
will not be entitled to any deduction. If the Shares received on the exercise of
an ISO are not disposed of within one year following the date of the transfer of
such shares to the optionee, or within two years following the date of the grant
of the option, any profit realized by the optionee upon the disposition of such
Shares will be taxed as long-term capital gain. In such event, no deduction will
be allowed to the Company. If the Shares are disposed of within the aforesaid
one-year or two-year periods, the excess of the fair market value of the Shares
on the date of exercise or, if less, the amount realized on disposition of such
Shares, over the exercise price of such Shares generally will be taxable as
ordinary income to the optionee at the time of disposition, and the Company will
be entitled to a corresponding deduction at such time, subject to the extent
applicable, to limitations on deductibility imposed by Internal Revenue Code
Section 162(m) discussed below.
Upon the grant of a NQSO, no income will be realized by the optionee for
federal income tax purposes. Upon the exercise of such an option, the amount by
which the fair market value of the Shares at the time of exercise exceeds the
exercise price will be taxed as ordinary income to the optionee, and the Company
will be entitled to a corresponding deduction, subject to possible limitations
imposed by Internal Revenue Code Section 162(m) discussed below.
8
<PAGE> 11
Section 162(m) of the Internal Revenue Code of 1986, as amended, disallows
tax deductions to public companies for compensation in excess of $1 million paid
or accrued in taxable years beginning after January 1, 1994 to certain executive
officers (generally consisting of the chief executive officer and the four other
highest paid executive officers), unless such compensation is of a type that
qualifies for exemption from that limitation. One such exemption is for
performance based compensation, which can include compensation under a stock
option plan, provided that certain requirements, including administration of the
plan by "outside directors" and shareholder approval of the plan are met. The
Board of Directors intends to try to comply with such requirements with respect
to the 1994 Plan to the extent reasonably practicable, but there can be no
assurance that the 1994 Plan will so comply.
Various additional tax consequences may apply to the granting, acceleration
and exercise of options and to the disposition of Shares acquired thereunder,
but such consequences are beyond the scope of this summary.
THE BOARD OF DIRECTORS BELIEVES THE PROPOSED AMENDMENT TO THE 1994 STOCK
OPTION PLAN IS IN THE BEST INTERESTS OF THE COMPANY AND RECOMMENDS A VOTE FOR
APPROVAL OF SUCH AMENDMENT.
3. APPROVAL OF 1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In addition, at the Meeting the shareholders will be asked to approve the
Company's Non-Employee Directors' Stock Option Plan (the "Outside Directors'
Plan"). The Outside Directors' Plan was unanimously approved by the Company's
Board of Directors in August 1996 for submission to the shareholders of the
Company for their approval at the 1996 Annual Meeting.
The purpose of the Outside Directors' Plan is to enable the Company,
through the grant of stock options to non-employee ("outside") directors of the
Company, to attract and retain highly-qualified outside directors and, by
providing them with such a stock based incentive, to motivate them to promote
the best interests of the Company and its shareholders. For the purposes of the
Plan, outside directors are directors who, at the time of granting of options
under the Plan, are not and for the prior twelve months have not been employees
of the Company or any of its subsidiaries.
SUMMARY OF THE OUTSIDE DIRECTORS' PLAN
The text of the Outside Directors' Plan is attached as an Appendix to this
proxy statement. The following description of the Plan is intended merely as a
summary of the principal features of the Plan and is qualified in its entirety
by reference to the provisions of the Plan itself.
The Outside Directors' Plan is to be administered by the Board of Directors
and authorizes up to an aggregate of 180,000 shares of Common Stock ("Shares")
for the granting of nonqualified stock options ("Options"). Generally, Shares
subject to Options that remain unexercised upon expiration or earlier
termination of such Options will once again become available for the granting of
options under the Plan. Authorized but unissued Shares or treasury Shares may be
issued under the Plan, and the Company may purchase Shares to issue under the
Plan.
The Outside Directors' Plan provides for the automatic granting to each
outside director, shortly following each of the 1996, 1997 and 1998 Annual
Meetings, of an Option for 10,000 Shares, with an exercise price equal to 100%
of the fair market value of a Share at the date of grant. Each 10,000 Share
Option will become exercisable approximately one year after date of grant and
will expire five years after date of grant, subject to earlier exercise and
termination in certain circumstances. If an outside director ceases to be a
director due to death, any of his outstanding Options which have not yet become
exercisable will accelerate, and all of his outstanding Options will remain
exercisable for various specified periods of time up to a maximum of
approximately 18 months. If an outside director ceases to be a director for any
other reason, including a disability, all of his or her outstanding Options
immediately will terminate, except that, in the case of an outside director who
has served as a director for at least 18 months, any of his outstanding
unexercisable Options which have been outstanding for at least four months will
accelerate, and all of his outstanding
9
<PAGE> 12
Options will remain exercisable for various specified periods of time up to a
maximum of approximately one year.
The number of Shares authorized for issuance under the Outside Directors'
Plan, the number of Shares with respect to which Options automatically will be
granted, and the number of Shares issuable under (and the exercise price of)
outstanding Options are subject to adjustment in the event of a stock split,
stock dividend or similar change in the capitalization of the Company. The Plan
further provides that, in the event of a merger, consolidation or other
specified corporate transactions, the Board of Directors, in its discretion, may
terminate the outstanding Options and may accelerate the exercise date of
Options to be so terminated.
The Board of Directors, at any time, may suspend or discontinue the Plan
and, subject to certain limitations, may amend the Plan and any outstanding
Options in any respect (including, without limitation, to increase the number of
Shares authorized for issuance under the Plan and to extend the duration of the
Plan) without shareholder approval, unless such shareholder approval is required
by applicable law, rule or regulation. The Plan will become effective upon its
approval by the Company's shareholders and will expire on December 31, 1998,
unless earlier terminated by the Board of Directors.
No Options have yet been granted under the Outside Directors' Plan.
Assuming the Plan is approved by the shareholders at the 1996 Annual Meeting and
the Board of Directors' nominees for election as directors are elected, on the
third business day following the Meeting, Options for an aggregate of 50,000
shares, or 10,000 shares each, automatically will be granted to the five
non-employee directors (Messrs. Dewey, Dohoho, Freyer, and Ruys and Lord Moore).
The other directors (Messrs. Snowden, Markowicz and O'Connor) are employees of
the Company and, as such, are currently ineligible to receive Options under the
Outside Directors' Plan. Following subsequent Annual Meetings during the term of
the Plan, the number of automatic 10,000 share Option grants under the Plan will
depend upon the number of non-employee directors who are elected at such
Meetings or whose terms as directors are continuing. The exercise price of the
1996 Options and of future Option grants under the Plan will be equal to 100% of
the fair market value of the Common Stock on the date of grant. On August 1,
1996, the closing price of a Share on the New York Stock Exchange was $27 3/8.
None of the five above-named non-employee directors/nominees who would be
granted Options under the Plan currently holds or is eligible to receive options
under any other option plan of the Company. However, Mr. Donoho and Lord Moore
have received and will receive shares of Common Stock upon vesting of Director
Stock Units under the Company's 1992 Outside Directors' Director Stock Unit Plan
(See Item 1. "Election of Directors -- Compensation of Directors" above for
further information concerning compensation paid and to be paid to non-employee
directors of the Company.)
Assuming the Directors' Option Plan is approved by the shareholders at the
1996 Annual Meeting, the 1992 Outside Directors' Director Stock Unit Plan will
be terminated, and no further grants of Director Stock Units will be made
thereunder, but such termination will not affect the outstanding Director Stock
Units held by Mr. Donoho and Lord Moore.
The federal tax consequences to the Company and to outside directors
receiving Options under the Directors' Option Plan are expected to be
essentially similar to the consequences of granting NQSO's under the Company's
1994 Stock Option Plan, except that possible Internal Revenue Code Section
162(m) limitations on deductibility by the Company would not be applicable. (See
Item 2. "Approval of Amendment to the 1994 Stock Option Plan -- Certain Federal
Income Tax Consequences" above.)
THE BOARD OF DIRECTORS BELIEVES THE 1996 NON-EMPLOYEE DIRECTORS' STOCK
OPTION PLAN IS IN THE BEST INTERESTS OF THE COMPANY AND RECOMMENDS A VOTE FOR
APPROVAL OF SUCH PLAN.
10
<PAGE> 13
4. OTHER MATTERS
The Board of Directors knows of no matters to be presented for action at
the Meeting other than those set forth in the attached Notice and customary
procedural matters. However, if any other matters should properly come before
the Meeting or any adjournments thereof, the proxies solicited hereby will be
voted on such matters, to the extent permitted by applicable rules of the
Securities and Exchange Commission, in accordance with the judgment of the
persons voting such proxies.
ADDITIONAL INFORMATION
BENEFICIAL OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth, as of August 1, 1996, certain information
concerning the beneficial ownership of Common Stock by: (i) each person who was
known by the Company to be the beneficial owner of more than 5% of such shares;
(ii) each director and nominee for director of the Company; (iii) each of the
other executive officers of the Company named in the Summary Compensation Table
appearing later in this proxy statement; and (iv) all directors and executive
officers of the Company, as a group. Such information is based upon information
provided to the Company by such persons.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER OWNED(1) CLASS(1)
- ---------------------------------------------------------------------- ------------ ----------
<S> <C> <C>
Tiger Management Corporation.......................................... 7,100,355 16.4%
101 Park Avenue
New York, New York 10178
Guy B. Snowden, director and executive officer........................ 775,598(2) 1.8%
c/o GTECH Corporation
55 Technology Way
W. Greenwich, RI 02817
Victor Markowicz, director and executive officer...................... 777,136(3) 1.8%
c/o GTECH Corporation
55 Technology Way
West Greenwich, RI 02817
Michael R. Chambrello, executive officer.............................. 13,374(4) *
Robert M. Dewey, Jr., director........................................ 20,635 *
Burnett W. Donoho, director........................................... 3,000 *
Carl H. Freyer, director.............................................. -- --
Carl B. Menges, director.............................................. -- --
The Rt. Hon. Lord Moore of Lower Marsh, P.C., director................ 4,500 *
William Y. O'Connor, director and executive officer................... 79,250(5) *
Anthony Ruys, nominee................................................. -- --
Thomas J. Sauser, executive officer................................... -- --
All directors and executive officers, as a group (10 persons)......... 1,674,743 3.9%
</TABLE>
- ---------------
* Less than 1%
(1) The shareholdings reflected in this table do not include rights to receive
stock or options granted under various Company plans to directors, executive
officers and other Management Investors that do not vest or become exercised
within 60 days of the date of this table.
(2) Includes 44,000 shares held by five trusts established by Mr. Snowden for
the benefit of family members as to which shares he disclaims beneficial
ownership.
(3) Includes 302,026 shares held by a trust established by Mr. Markowicz for the
benefit of family members as to which he disclaims beneficial ownership.
(4) Includes 8,750 shares subject to vested but unexercised stock options
awarded under the Company's 1994 Stock Option Plan.
(5) Includes 78,000 shares subject to unexercised stock options awarded under
the Company's 1994 Stock Option Plan which either have vested or will vest
within 60 days.
11
<PAGE> 14
EXECUTIVE COMPENSATION REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS
Policies regarding executive compensation are set primarily by the
Compensation Committee of the Board of Directors, subject to the terms of
applicable employment contracts, as discussed below, and possible consultation
with and ratification by the Board in certain circumstances.
Compensation Policies: General Principles.
The Compensation Committee is committed to ensuring that policies of the
Company respecting executive compensation effectively support the achievement of
the Company's business objectives. Accordingly, such policies have been and
continue to be based on the following general principles:
- a pay-for-performance philosophy pursuant to which a significant portion
of an executive's compensation is dependent upon the degree of attainment
of the Company's established goals;
- the use of multiple compensation components in order to optimize the
impact of executive compensation in balancing the Company's short-term
and long-term interests; and
- a system of annual review and evaluation of the contribution of each
executive to managing the Company in the context of previously defined
goals.
The Compensation Committee is mindful of the potential impact upon the
Company of Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), which prohibits public companies from deducting certain employee
remuneration in excess of $1,000,000. While reserving the right of the Company
to offer such compensation arrangements as may be from time-to-time necessary to
attract and retain top-quality management, the Compensation Committee intends to
structure such arrangements, to the extent feasible, so as to minimize or
eliminate the impact of the limitations of Section 162(m) of the Code.
Executive Officer Employment Agreements.
Two of the Company's five executive officers (the co-founders of GTECH
Corporation, Mr. Snowden, Co-Chairman and Chief Executive Officer of the
Company, and Mr. Markowicz, Co-Chairman of the Company) entered into multi-year
employment agreements with the Company several years ago providing for the
payment of a fixed or determinable annual salary, an annual bonus and various
fringe benefits. One additional executive officer (Mr. O'Connor, President and
Chief Operating Officer) entered into an employment agreement with the Company
during the 1995 fiscal year on terms which were believed necessary to induce him
to join the Company. Each of these employment agreements is structured to
appropriately recognize the performance and contribution of the individual
executive officers, as well as to retain and motivate top-quality management.*
The remaining two executive officers currently are not party to employment
contracts with the Company. These other executive officers receive annual
compensation in the discretion of their superiors based upon a consideration of
the principles set forth above.
Principal Components of Executive Compensation.
Principal components of executive compensation include base salary, annual
bonuses, grants of stock options under the 1994 Stock Option Plan (except with
respect to Messrs. Snowden and Markowicz who are not eligible for such grants)
and, with respect to periods through fiscal 1994, grants of Restricted Stock
Units under the 1990 Restricted Stock Unit Plan.
Base Salary. Executive officers (other than Messrs. Snowden and Markowicz)
are reviewed annually by their superiors. In assessing whether salary increases
are warranted with respect to those executive officers without employment
agreements or in connection with the extension or renewal of an executive
officer's
- ---------------
*See "Employment-Severance Agreements" and "Summary Compensation Table"
herein for further discussion of the Snowden/Markowicz/O'Connor employment
arrangements.
12
<PAGE> 15
employment agreement, the Company considers a number of factors, including
performance on the job, internal compensation equity, external pay practices for
comparable companies (not necessarily including the Peer Group companies
referred to in the Shareholder Return Performance Graph below) and the executive
officer's level of responsibility, experience and expertise, which factors may
be given varying weights depending upon the circumstances.
Annual Bonus. The Company's policy respecting the granting of annual
bonuses is based upon the aims of recognizing individual merit and providing
incentives for the achievement of corporate performance goals. Executive
officers with employment agreements receive annual bonuses in accordance with
such agreements, certain of which provide for a specified bonus based on a
performance formula (as measured by the Company's earnings before depreciation,
amortization, interest and taxes for the relevant fiscal year or as otherwise
set by the Compensation Committee or the Board.) Certain other employment
contracts provide for annual bonuses based upon discretionary elements, subject
to a specified annual bonus floor. Executive officers without employment
agreements receive annual bonuses in the discretion of their superiors
consistent with the principles outlined above.
Stock Option Plan. The Company's 1994 Stock Option Plan, as amended (the
"1994 Plan"), was approved by the shareholders of the Company at the Annual
Meetings in July 1994 and July 1995. The 1994 Plan provides for the granting,
for no cash consideration, of stock options to officers and other key employees
of the Company and its subsidiaries, other than Messrs. Snowden and Markowicz.
The 1994 Plan is administered by the Compensation Committee sitting as the Stock
Award Committee. Although the Committee is given broad discretion under the 1994
Plan, grants of options are subject to various restrictions as set forth in the
1994 Plan. The principal purpose of the 1994 Plan is to assist the Company in
attracting and retaining officers and other key employees, motivating them to
increase shareholder value, enabling them to participate in the value which has
been created and to have a mutuality of interests with other shareholders.
Grants under the 1994 Plan are wholly within the discretion of the
Compensation (Stock Award) Committee. Nevertheless, in making awards, the
Committee takes into account numerous factors including the prospective
recipient's level of responsibility, experience and expertise and years of
service as well as internal compensation equity.
Rationale for Fiscal 1996 Compensation of Co-Chairmen.
Because of the importance of each of them to the Company's operations,
Messrs. Snowden (who is the Chief Executive Officer) and Markowicz are treated
virtually identically for compensation purposes by the Compensation Committee.
Messrs. Snowden and Markowicz are parties to employment agreements (the
"Employment Agreements") each dated January 23, 1990, as amended, with the
Company. By their terms, the Employment Agreements extended through February 28,
1996, subject to automatic extension commencing on March 1, 1996 for two years
unless the Company or the executive had given notice prior to March 1, 1995 of
non-renewal. As neither the Company nor Messrs. Snowden or Markowicz gave such
notice, the Employment Agreements were automatically extended through February
28, 1998, subject to automatic extension commencing on March 1, 1998 for two
years unless the Company or the executive gives the required prior notice of
nonrenewal.
As indicated above, neither Mr. Snowden nor Mr. Markowicz is eligible to
receive grants of stock options under the 1994 Plan.
The fiscal 1996 base salaries and bonuses of Messrs. Snowden and Markowicz
were determined strictly in accordance with the Employment Agreements as
follows:
(i) Base Salary. Each Employment Agreement provides for an initial
annual base salary of $375,000 (increased annually based upon the Consumer
Price Index). The base salaries paid to Messrs. Snowden and Markowicz with
respect to fiscal 1996 were determined in strict accordance with this
formula.
13
<PAGE> 16
(ii) Annual Bonus. The Employment Agreements provide for annual
bonuses to be paid to Messrs. Snowden and Markowicz according to a formula
based upon the Company's performance as measured by its earnings before
depreciation, amortization, interest and taxes. The annual bonuses of
Messrs. Snowden and Markowicz paid with respect to fiscal 1996 ($3,078,550
to each of the Co-Chairmen) were determined in strict accordance with this
formula.*
Date: August 2, 1996
The Fiscal 1996 Compensation Committee
of
the Board of Directors:
Joel J. Cohen**
Carl H. Freyer
- ---------------
* See "Employment-Severance Agreements" and "Summary Compensation Table" below
for further discussion of the Snowden/Markowicz/O'Connor employment
arrangements.
** Mr. Cohen, a Member of the Compensation Committee of the Board of Directors
during all of fiscal 1996, resigned as a director after the close of fiscal
1996. Mr. Donoho has been appointed to fill the vacancy on the Compensation
Committee created by Mr. Cohen's resignation. See Item 1. "Election of
Directors -- Voting Agreements and Related Matters."
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning the annual
and long-term compensation paid for fiscal years 1996, 1995, and 1994 to or for:
(i) the Company's Chief Executive Officer and (ii) each of the Company's other
executive officers whose total annual salary and bonus for fiscal year 1996
exceeded $100,000 (collectively, the "Named Officers") for services rendered to
the Company and its subsidiaries:
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------- -------------------- ---------------------
OTHER RESTRICTED LONG- TERM ALL OTHER
ANNUAL STOCK COMPEN- COMPEN-
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS/ SATION SATION
POSITION(1) YEAR ($)(2) ($) ($)(3) ($)(4) SARS(5) PAYOUTS ($)(6)
- ---------------------------- ---- ------- --------- ------------ ---------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Guy B. Snowden.............. 1996 445,207 3,078,550 223,413 -- -- -- 156,789
Co-Chairman & Chief 1995 433,502 2,302,480 147,330 -- -- -- 96,173
Executive Officer 1994 418,216 1,215,670 108,017 -- -- -- 73,537
Victor Markowicz............ 1996 445,207 3,078,550 212,155 -- -- -- 151,454
Co-Chairman 1995 433,502 2,302,480 149,087 -- -- -- 91,864
1994 418,216 1,215,670 96,434 -- -- -- 68,252
William Y. O'Connor......... 1996 430,000 860,000 183,765 -- 300,000 -- 2,692
President & Chief 1995(7) 94,269 450,000 6,805 83,750 212,000 -- 199
Operating Officer
Michael R. Chambrello....... 1996 210,000 160,000 77,147 -- 15,000 -- 21,279
Vice President-United 1995 185,000 100,000 82,938 -- 35,000 -- 14,501
States Operations 1994 157,923 80,000 67,317 174,400 -- -- 14,418
</TABLE>
- ---------------
(1) Sets forth the names and principal positions of the Named Officers as of the
end of fiscal 1996. Thomas J. Sauser, who is also an executive officer of
the Company, commenced employment with the Company in February 1996 at an
annual starting salary of $300,000 and bonus which will be at least $150,000
for fiscal 1997. In addition, Mr. Sauser was granted 100,000 stock options
under the Company's 1994 Stock Option Plan.
(2) Includes salary deferred under the Company's 401(k) retirement plan (the
"Retirement Plan").
(3) Includes: (i) personal benefits provided by the Company and payments under
the Company's Executive Perquisites Program (which provides officers above a
certain rank with up to a pre-established dollar
14
<PAGE> 17
amount of specified benefits from which they may select), (ii) taxable
fringe benefits provided by the Company, including automobile usage; and
(iii) gross-ups for taxes with respect to benefits provided under the
Executive Perquisites Program and the Company's 1992 supplemental retirement
plan (the "SRP"). The Company made payments under the Executive Perquisites
Program (a) to Messrs. Snowden, Markowicz and Chambrello of $27,500 in each
of fiscal years 1996, 1995 and 1994 and (b) to Mr. O'Connor of $27,500 and
$2,292 for fiscal years 1996 and 1995, respectively. In addition, the
Company provided taxable fringe benefits to the Named Officers in the
following amounts: Mr. Snowden -- $20,833 (1996); $8,424 (1995); and $11,583
(1994); Mr. Markowicz -- $9,575 (1996) and $10,181 (1995); Mr.
O'Connor -- $66,697 (including imputed interest on certain loans made by the
Company to Mr. O'Connor pursuant to his employment agreement) (1996) and
$2,084 (1995); and Mr. Chambrello -- $8,339 (1996); $8,644 (1995); and
$7,592 (1994). The gross-up payments for taxes were: Mr. Snowden -- $175,081
(1996), $111,406 (1995) and $68,934 (1994); Mr. Markowicz -- $175,081
(1996), $111,406 (1995) and $68,934 (1994); Mr. O'Connor -- $74,527 (1996)
and $2,429 (1995); and Mr. Chambrello -- $41,308 (1996), $35,113 (1995) and
$32,225 (1994).
(4) Represents, with respect to Mr. Chambrello, the assumed dollar value of
awards of restricted stock units ("RSUs") granted under the Company's 1990
Restricted Stock Unit Plan (the "RSU Plan") and, with respect to Mr.
O'Connor, grants of restricted stock rights ("RSRs"), as described below.
The RSU Plan expired in 1994 and no more RSUs may be granted under it. The
RSU Plan provided for the granting of RSUs for no cash consideration to
officers and other key employees of the Company selected by the
Compensation (Stock Award) Committee of the Board of Directors. Upon
vesting, each RSU is payable in one share of Common Stock, subject to
adjustment. The RSU Plan also provides for the payment, upon vesting, of
any dividends which may have been paid on the Common Stock during the
vesting period. However, the Company never has paid any dividends and does
not plan to do so in the foreseeable future. At June 1, 1996, 2,943,405
shares had been issued and 21,808 unvested RSUs were outstanding under the
RSU Plan.
No grants were made under the RSU Plan to any of the Named Officers in
fiscal 1996 or in fiscal 1995. A grant under the RSU Plan of 5,000 RSUs was
made to Mr. Chambrello in fiscal 1994 (in April 1993). The dollar value of
this grant of RSUs reflected in the table is based on the closing market
price of the Company's Common Stock on the date of grant, which was $34.88.
Mr. O'Connor received, for no cash consideration, a grant of 5,000 RSRs on
December 20, 1994. RSRs granted to Mr. O'Connor vest ratably in four equal
installments on the respective anniversaries of the grant date occurring in
December 1995 through December 1998 and, upon vesting, each RSR is payable
in one share of Common Stock, subject to adjustment. The terms of Mr.
O'Connor's grant of RSRs also provide for the payment, upon vesting, of any
dividends which may have been paid on the Common Stock during the vesting
period. However, as indicated above, the Company has never paid any
dividends and does not plan to do so in the foreseeable future. The dollar
value of the grant of RSRs reflected in the table is based on the closing
market price of the Company's Common Stock on the date of grant, which was
$16.75.
At February 24, 1996, the 5,000 RSRs held by Mr. O'Connor (1,250 vested
shares and 3,750 unvested RSRs)and the 5,000 RSUs held by Mr. Chambrello
(2,500 vested shares and 2,500 unvested RSUs) each had an aggregate value
of $157,500 to Messrs. O'Connor and Chambrello, based upon the closing
market price of the Company's Common Stock on the last business day of
fiscal 1996, which was $31.50.
(5) Represents the number of shares of Common Stock underlying stock options
granted pursuant to the Company's 1994 Stock Option Plan. See "Option Grants
Table" below.
(6) Includes the dollar value of insurance premiums paid by the Company during
the covered fiscal year with respect to life insurance maintained on the
lives of each of the Named Officers, matching contributions and profit
sharing contributions paid by the Company with respect to the Named Officers
under the Retirement Plan, and amounts provided under the Company's SRP.
During fiscal year 1996, the Company: (i) paid insurance premiums with
respect to life insurance maintained on the lives of the Named Officers in
the following amounts: Mr. Snowden -- $9,872; Mr. Markowicz -- $4,537; Mr.
O'Connor -- $2,692; and Mr. Chambrello -- $594; (ii) made matching
contributions under the
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<PAGE> 18
Retirement Plan with respect to each of the Named Officers other than Mr.
O'Connor in the amount of $3,750; (iii) made profit sharing contributions
under the Retirement Plan with respect to each of the Named Officers other
than Mr. O'Connor in the amount of $6,000; and (iv) made contributions under
the SRP with respect to each of the Named Officers other than Mr. O'Connor
in the following amounts: Mr. Snowden -- $137,167; Mr.
Markowicz -- $137,167; and Mr. Chambrello -- $10,935.
(7) Reflects compensation information with respect to the period from December
1994, the month in which Mr. O'Connor commenced his employment with the
Company, through the end of fiscal 1995.
OPTION GRANTS TABLE
The following table sets forth certain information concerning individual
grants of stock options made during fiscal 1996 to Messrs. O'Connor and
Chambrello. No grants of stock options were made during fiscal 1996 to any other
Named Officer. No stock options were exercised by any Named Executive during
fiscal 1996. All grants of stock options reflected in the following table were
made pursuant to the Company's 1994 Stock Option Plan (the "1994 Plan") and are
subject to its terms.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
INDIVIDUAL GRANTS(1) RATES OF STOCK PRICE
-------------------------------
PERCENT OF APPRECIATION FOR
NO. OF SHARES OPTIONS OPTION TERM
OF COMMON STOCK GRANTED TO EXERCISE OF -------------------------
UNDERLYING EMPLOYEES IN BASE PRICE EXPIRATION 5% 10%
NAME OPTIONS GRANTED FISCAL YEAR ($/SH) DATE ($) ($)
- -------------------------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
William Y. O'Connor....... 100,000 14.43 26.875 8/8/05 1,909,037 4,980,251
200,000 28.86 25.688 1/3/06 3,649,368 9,520,387
Michael R. Chambrello..... 15,000 2.16 26.187 12/28/05 286,356 4,980,251
</TABLE>
- ---------------
(1) Grants reflected in this table were non-qualified options made to Mr.
O'Connor on August 9, 1995 and January 4, 1996, respectively, and to Mr.
Chambrello on December 29, 1995. These stock options become exercisable in
annual ratable installments on the four successive anniversary dates of the
respective dates of grant, subject to possible acceleration in the event of
the termination of the Named Officers' employment or otherwise as provided
in the Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1996, decisions regarding executive compensation were made
primarily by the Compensation Committee, subject to the terms of applicable
employment agreements and ratification by the full Board in certain
circumstances. Mr. Snowden, Co-Chairman and Chief Executive Officer, Mr.
Markowicz, Co-Chairman, and Mr. O'Connor, President and Chief Operating Officer
participated in deliberations of the Company's Board of Directors concerning
executive officer compensation.
Messrs. Cohen and Freyer constituted the members of the Compensation
Committee during all of fiscal 1996. Mr. Cohen resigned as director after the
close of fiscal 1996 and Mr. Donoho has been appointed to fill the vacancy on
the Compensation Committee created by Mr. Cohen's resignation.
EMPLOYMENT -- SEVERANCE AGREEMENTS
Messrs. Snowden and Markowicz are parties to employment agreements, each
dated January 23, 1990, as amended (the "Employment Agreements"). Each
Employment Agreement provides for an initial annual base salary of $375,000
(increased annually based upon the Consumer Price Index) and annual bonuses
based upon the Company's earnings before depreciation, amortization, interest
and taxes ("EBDAIT"). As discussed below, the initial terms of these Employment
Agreements were extended for two years commencing March 1, 1996. Under the terms
of the Employment Agreements, the annual bonus for fiscal 1996 and any such
extension year thereafter is as follows: (i) $2,000 for each $1 million of
EBDAIT if EBDAIT is less than $65 million; (ii) $6,000 for each $1 million of
EBDAIT less $260,000 if EBDAIT is equal to or greater than
16
<PAGE> 19
$65 million but less than $85 million; and (iii) $15,000 for each $1 million of
EBDAIT less $1.025 million if EBDAIT is equal to or greater than $85 million.
EBDAIT for fiscal 1996 was approximately $273.57 million. If the Company has not
been operated in the ordinary course of business with respect to a fiscal year,
the Employment Agreements provide that appropriate adjustments to EBDAIT shall
be negotiated.
By their terms, each Employment Agreement extended through February 28,
1996, subject to automatic extension commencing on March 1, 1996 for two years
unless either the Company or the executive had given written notice of
non-renewal prior to March 1, 1995. As neither the Company nor Messrs. Snowden
or Markowicz gave such prior notice of non-renewal, the Employment Agreements
were automatically extended through February 28, 1998, subject to automatic
extension commencing on March 1, 1998 for two years unless the Company or the
executive gives the required prior notice of non-renewal. If the Company had
elected or in the future elects not to renew, it is required to pay the
executive 50% of his salary and bonus and to provide other fringe benefits the
executive would otherwise have received for three years following expiration.
The Employment Agreements also provide that the executive may not compete with
the Company in certain specified activities for three years following
termination of employment, except in connection with a "change of control." A
"change of control" is deemed to have occurred under the Employment Agreements
if any of the following occurs: (i) individuals appointed by DLJCC, the Voting
Trustee and the Management Investors cease to constitute a majority of the Board
of Directors; (ii) any "person" or "group" (as defined under the Securities
Exchange Act of 1934) becomes a "beneficial owner" (as defined under the
Exchange Act), directly or indirectly, of more than 50% of the combined voting
power of the Company's then-outstanding common equity securities or (iii) all or
substantially all of the assets of the Company have been sold to a third party.
Under the agreements with Messrs. Snowden and Markowicz, if either
executive's employment is terminated by the Company without Cause or due to
disability or by the executive for Good Reason, the executive is entitled to
receive his salary and bonus through the end of the term and 50% of his salary
and bonus for three years thereafter, plus other benefits the executive
otherwise would have been entitled to receive for three years following
termination. If the executive's employment is terminated by the Company for
Cause or by the executive other than for Good Reason or upon a change of
control, the executive is entitled to his accrued salary and benefits and, in
certain circumstances, a pro rata portion of his bonus. Upon termination as a
result of a change of control, the executive is entitled to accrued salary and
benefits and to a specified portion of any bonus received for the prior year.
"Good Reason" is defined in these agreements to mean: (i) the assignment to the
executive of duties that are materially inconsistent with the scope of the
executive stated duties; (ii) the Company's failure to pay the executive any
amounts vested and due under his employment agreement or any other Company plan;
(iii) a reduction in benefits to the executive; (iv) a change in title of the
executive; or (v) a breach of the Company's obligations not to relocate the
executive without his consent. "Cause" is defined to mean: (i) any willful
failure by the executive to substantially perform his employment duties; (ii)
any engagement by the executive in serious misconduct which is injurious to the
Company; (iii) any breach by the executive of the Company's policies with
respect to confidentiality, protection of intellectual property or
non-competition; (iv) the executive's conviction of a crime involving fraud,
misrepresentation, gambling or a felony; or (v) the executive's habitual
intoxication or abuse of drugs or controlled substances.
Mr. O'Connor entered into an employment agreement with the Company on
October 27, 1994. The term of Mr. O'Connor's employment under this agreement
commenced on December 15, 1994 and continues through November 1997, subject to
automatic one-year extensions commencing December 1, 1997 (and December 1 of
each successive year) unless either party gives prior notice of non-renewal. The
agreement provides for a minimum annual base salary of $430,000 (increased
annually starting on March 1, 1996, based upon the Consumer Price Index and
otherwise in the discretion of the Board or the Compensation Committee) and an
annual incentive bonus. For fiscal 1996, Mr. O'Connor was, and in subsequent
fiscal years Mr. O'Connor will be, eligible to earn an incentive bonus up to a
maximum of 200% of his base salary for such fiscal year. The agreement provides
that a portion of such incentive bonus is to be based upon the extent to which
certain specified minimum, target and maximum annual earnings per share levels
and management objectives (to be agreed to each year by the Compensation
Committee or the Board of Directors after
17
<PAGE> 20
consultation with Mr. O'Connor) have been obtained. Since the management
objectives and maximum annual earnings per share levels established for fiscal
1996 were exceeded, Mr. O'Connor received the maximum incentive bonus for which
he was eligible in fiscal 1996.
Pursuant to the agreement, as amended, the Company granted Mr. O'Connor
5,000 Restricted Stock Rights in December 1994 (on terms generally similar to
the terms under which Restricted Stock Units have been issued under the
Company's 1990 Restricted Stock Plan). In accordance with the agreement, the
Company also granted Mr. O'Connor options to purchase a total of 512,000 shares
of Common Stock of the Company under the Company's 1994 Stock Option Plan, as
follows: 106,000 options (granted December 1994); 106,000 options (granted
January 1995); 100,000 options (granted August 1995); and 200,000 options
(granted January 1996).
Pursuant to the agreement, Mr. O'Connor was nominated for election, and
elected, as director at the 1995 Annual Meeting.
If Mr. O'Connor's employment with the Company is terminated by reason of
his death, retirement from active employment (with the consent of the Board and
in accordance with the retirement policies of the Company), resignation (other
than for Good Reason) or discharge by the Company for Cause, Mr. O'Connor (or
his estate, as the case may be) is entitled to receive his base salary, benefits
and bonus amounts, if any, accrued through the date of termination. If Mr.
O'Connor's employment is terminated by the Company by reason of disability,
discharge by the Company without Cause, his resignation for Good Reason or
failure by the Company to renew the employment term through November 2008, in
certain circumstances, he is entitled to receive, in addition to all salary,
bonuses and benefits accrued through the end of the then-current term, his base
salary and the life insurance coverage provided for under the agreement for
three years thereafter, plus medical benefits for up to one year thereafter. The
agreement provides that, irrespective of the reason for his termination of
employment with the Company, Mr. O'Connor may not compete with the Company in
certain specified businesses for three years after the date of such termination.
"Cause" and "Good Reason" are defined in Mr. O'Connor's agreement in generally
the same manner as in the employment agreements of Messrs. Snowden and
Markowicz.
SHAREHOLDER RETURN PERFORMANCE GRAPH
The Company's Common Stock first commenced active public trading at the
time of the Company's public offering of Common Stock on July 22, 1992. The
graph set forth below compares, for the period July 1992 through February 24,
1996 (the end of the Company's 1996 fiscal year), the cumulative total return to
holders of Common Stock of the Company with the cumulative total return of the
Standard & Poor's Composite 500 Index ( the "S&P 500") and of a peer group index
of four companies selected by the Company (the "Peer Group").
The Peer Group consists of Video Lottery Technologies, Inc. (on-line
lottery and video lottery); International Totalizator Systems, Inc. (on-line
lottery and totalizator); International Game Technology (video lottery) and
Autotote Corporation (on-line lottery). 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. For the purposes of the Peer Group
Index, the Peer Group companies have been weighted based upon their relative
market capitalizations.
18
<PAGE> 21
COMPARISON OF 43 MONTH CUMULATIVE TOTAL RETURN*
AMONG GTECH HOLDINGS CORPORATION, THE S&P 500 INDEX
AND A PEER GROUP
<TABLE>
<CAPTION>
GTECH HOLD-
MEASUREMENT PERIOD INGS CORPORA-
(FISCAL YEAR COVERED) TION PEER GROUP S&P 500
<S> <C> <C> <C>
7/22/92 100 100 100
2/93 200 166 110
2/94 195 177 119
2/95 110 79 128
2/96 181 78 172
</TABLE>
* The above graph assumes an investment of $100 in the Company and the S&P 500
companies on July 22, 1992 and in the Peer Group companies on June 30, 1992
and that all dividends were reinvested. The performances indicated in the
above table are not necessarily indicative of future performance.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 1995 the Company implemented a loan program under the
Company's 1990 Restricted Stock Unit Plan, which is available through February
1, 1997, under which employees whose Restricted Stock Units become taxable
compensation to them can obtain loans from the Company to assist them in paying
applicable federal and state income tax withholding. No loans were made under
this program to any of the Company's executive officers during fiscal 1996.
Pursuant to the program, the Company made loans during fiscal 1995 to Messrs.
Snowden and Chambrello, two of the Company's executive officers, in the
following amounts which loans remained outstanding during all or a portion of
fiscal 1996: Guy B. Snowden ($1,376,028.66) and Michael R. Chambrello, Vice
President -- U.S. Operations ($130,636.04). Each such loan bears interest at the
rate of 7.1% per annum, is payable (principal plus all accrued interest) in full
in a single payment on February 1, 1997 and is evidenced by a Promissory Note or
Notes. As of June 1, 1996, the outstanding principal amounts with respect to
these loans were: Mr. Snowden ($1,376,028.66) and Mr. Chambrello ($0).
During fiscal 1995 the Company, pursuant to the terms of its employment
agreement with Mr. O'Connor, made loans to Mr. O'Connor in the aggregate amount
of $900,000, which amount remained outstanding during fiscal 1996, to enable Mr.
O'Connor to retire certain third-party indebtedness. The loans to
19
<PAGE> 22
Mr. O'Connor consist of a $400,000 loan under a line of credit arrangement which
bears no interest and a loan in the amount of $500,000 bearing interest at the
rate of 6.0% per annum which is repayable in full on or before November 1, 1999.
As of June 1, 1996, the aggregate outstanding principal amount due with respect
to the loans was $758,587.50, consisting of $258,587.50 outstanding with respect
to the $400,000 interest free loan and $500,000 outstanding with respect to the
other loan.
During fiscal 1996 the Company paid Lord Moore, a director, in accordance
with the terms of the Outside Directors' Plan, a Tax Offset Payment in the
amount of $4,224.21. See Item 1. "Election of Directors -- Compensation of
Directors" above.
The officers and directors of the Company also are parties to
indemnification agreements with the Company providing for, and the By-Laws of
the Company also provide for, their indemnification by the Company against
certain liabilities (including legal fees and expenses) incurred in legal
proceedings or otherwise in connection with their present or past status as an
officer or director of the Company. Certain legal proceedings and governmental
investigations, including, for example, those respecting Richard Branson
relating to allegations made by and against the Company's Co-Chairman and Chief
Executive Officer and its press spokesman, involve both the Company and one or
more of its executive officers. During fiscal 1996, the Company paid an
aggregate of $735,527 in attorneys' fees in connection with such matters
directly or indirectly involving executive officers.
In May 1994, several class action lawsuits were brought against the Company
and various of its then executive officers (including Messrs. Snowden and
Markowicz) relating to the Company's May 25, 1994 announcement that earnings for
its 1995 fiscal year could be at or below fiscal 1994 levels. In September 1994,
the plaintiffs in these actions filed an Amended Consolidated Class Action
Complaint, which generally alleged that the defendants violated federal
securities laws in disseminating materially false and misleading statements
about the Company's prospects and failing to disclose on a timely basis the fact
that fiscal 1995 earnings were expected to be less than allegedly anticipated by
the public. The complaint sought to recover monetary damages from the Company
and the individual defendants. This complaint was eventually dismissed for
failing sufficiently to state a meritorious claim, and in May, 1995, the
plaintiffs filed a Second Consolidated Amended Class Action Complaint making
essentially similar allegations. On June 9, 1995, the Company announced that, in
order to avoid the costs and disruptions of further proceedings, it had reached
a settlement of this lawsuit. Under the terms of the settlement, the Company and
its insurer have agreed to pay an aggregate of $1,250,000 in full settlement of
all claims against the Company and the other defendants. On June 21, 1996, the
Federal District Court of Rhode Island approved the terms of the settlement.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's directors and
officers and persons, or a "group" of persons, who own more than 10% of a
registered class of the Company's equity securities, to file initial reports of
beneficial ownership of certain equity securities of the Company, and reports of
subsequent changes in ownership, with the SEC and the New York Stock Exchange.
Such persons are also required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms which they file relating to securities of the
Company.
Based solely on its review of the copies of such forms received by it with
respect to fiscal 1996, the Company believes that all filing requirements
applicable to its directors, officers and persons known to the Company to own
more than 10% of a registered class of the Company's equity securities have been
complied with, on a timely basis.
INDEPENDENT AUDITORS
The firm of Ernst & Young LLP served as the Company's independent public
accountants for fiscal 1996. The Company anticipates that Ernst & Young LLP will
serve as its independent public accountants for fiscal 1997, subject to the
formal recommendation of the Audit Committee and approval of the Board of
Directors.
20
<PAGE> 23
A representative of Ernst & Young LLP is expected to be present at the
Meeting and will be available to respond to appropriate questions. The
representative will also have the opportunity to make a statement if he or she
desires to do so.
SOLICITATION OF PROXIES
The cost of soliciting the proxies will be paid by the Company. Directors,
officers and employees of the Company may solicit proxies in person, or by mail,
telephone or telegraph, but no such person will be specifically compensated for
such services. The Company will request banks, brokers and other nominees to
forward proxy materials to beneficial owners of stock held of record by them and
will reimburse them for their reasonable out-of-pocket expenses in so doing. In
addition, the Company has retained D.F. King & Co., Inc. to solicit proxies on
its behalf. Under the terms of its agreement with the Company, D.F. King & Co.,
Inc. shall provide such services to the Company for a fee estimated at $3,500,
plus reimbursement of expenses.
SHAREHOLDER PROPOSALS
In order to be eligible for inclusion in the Company's proxy material for
the 1997 Annual Meeting of Shareholders, shareholders' proposals to take action
at such meeting must comply with applicable Securities and Exchange Commission
rules and regulations, must be directed to the Secretary of the Company at its
offices set forth on page 1 of this proxy statement, and must be received by the
Company not later than March 1, 1997.
MISCELLANEOUS
A copy of the Company's 1996 Annual Report to Shareholders has been mailed
in advance of this proxy statement but is not to be regarded as proxy
solicitation material.
THE COMPANY, UPON REQUEST, WILL FURNISH TO RECORD AND BENEFICIAL HOLDERS OF
ITS COMMON STOCK, FREE OF CHARGE, A COPY OF ITS ANNUAL REPORT ON FORM 10-K
(INCLUDING FINANCIAL STATEMENTS AND SCHEDULES BUT WITHOUT EXHIBITS) FOR FISCAL
1996. COPIES OF EXHIBITS TO THE FORM 10-K ALSO WILL BE FURNISHED UPON REQUEST
AND THE PAYMENT OF A REASONABLE CHARGE. ALL REQUESTS SHOULD BE DIRECTED TO THE
INVESTOR RELATIONS DEPARTMENT OF THE COMPANY AT THE OFFICES OF THE COMPANY SET
FORTH ON PAGE 1 OF THIS PROXY STATEMENT.
By order of the Board of Directors,
CYNTHIA A. NEBERGALL,
Secretary
August 6, 1996
21
<PAGE> 24
APPENDIX
GTECH HOLDINGS CORPORATION
1996 NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN
1. PURPOSE
This GTECH HOLDINGS CORPORATION 1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION
PLAN (the "Plan") is intended to provide a means whereby GTECH Holdings
Corporation (the "Company") may, through the grant of non-qualified stock
options ("Options") to purchase common stock of the Company ("Common Stock") to
Non-Employee Directors (as defined in Section 3 hereof), attract and retain
capable outside directors and motivate such outside directors to promote the
best interests of the Company, its related corporations and shareholders.
For purposes of the Plan, a Related Corporation of the Company shall mean a
corporate subsidiary of the Company, as defined in section 424(f) of the
Internal Revenue Code of 1986, as amended ("Code"). Further, as used in the
Plan, the term "non-qualified stock option" shall mean an option which, at the
time such option is granted, does not qualify as an incentive stock option
within the meaning of section 422 of the Code.
2. ADMINISTRATION
The Plan shall be administered by the Company's Board of Directors (the
"Board"). The Board shall have all the powers vested in it by the terms of the
Plan, such powers to include authority (within any limitations described herein)
to prescribe the form of the agreement embodying awards of Options. The Board
shall, subject to the provisions of the Plan, implement the grant of Options
under the Plan and shall have the power to construe the Plan, to determine all
questions arising thereunder and to adopt and amend such rules and regulations
for the administration of the Plan as it may deem desirable. Any decisions of
the Board in the administration of the Plan, as described herein, shall be final
and conclusive. The Board may authorize any one or more of its number or the
Secretary or any other officer of the Company to execute and deliver documents
on behalf of the Board. No member of the Board shall be liable for anything done
or omitted to be done by him or by any other member of the Board in connection
with the Plan, except for his own willful misconduct or as expressly provided by
statute.
3. ELIGIBILITY
The persons who shall be eligible to receive Options under the Plan
("Non-Employee Directors") shall be those directors of the Company who:
(a) Are not employees of the Company or of any Related Corporation;
and
(b) Have not been employees of the Company or of any Related
Corporation during the immediately preceding twelve (12) month period.
4. AUTHORIZED SHARES
Options may be granted under the Plan to purchase up to a maximum of one
hundred eighty thousand (180,000) shares of Common Stock, par value $.01 per
share, subject to adjustment as hereinafter provided. Shares issuable under the
Plan may be authorized but unissued shares or reacquired shares, and the Company
may purchase shares of Common Stock against which Options may be granted
hereunder, from time to time, if it deems such purchases to be advisable.
If any Option granted under the Plan expires or otherwise terminates, in
whole or in part, for any reason whatever (including, without limitation, a
Non-Employee Director's surrender thereof) without having been
A-1
<PAGE> 25
exercised, the shares subject to the unexercised portion of such Option shall
continue to be available for the granting of Options under the Plan as fully as
if such shares had never been subject to an Option.
5. GRANTING OF OPTIONS
Each year, commencing in 1996, on the third business day following the date
of the Company's Annual Meeting of Stockholders, each person elected, reelected
or continuing as a Non-Employee Director automatically shall be granted an
Option to purchase ten thousand (10,000) shares of Common Stock, subject to the
terms of the Plan, including, without limitation, Sections 7 and 12(d) hereof.
6. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Plan shall include expressly or by
reference the following terms and conditions:
(a) Number of Shares. A statement of the number of shares to which
the Option pertains.
(b) Price. A statement of the Option exercise price (the "Option
Price"). The Option Price shall be the greater of one hundred percent
(100%) of the Fair Market Value of the Common Stock, or the par value
thereof, on the date the Option is granted. For the purposes of the Plan,
the Fair Market Value of the Common Stock shall be:
(i) The average of the high and low sale prices of a share of
Common Stock as reported on the New York Stock Exchange Composite
Transactions Tape or, if the New York Stock Exchange is closed on that
date, on the last preceding date on which the New York Stock Exchange
was open for trading; or
(ii) If paragraph (b)(i) above is inapplicable, such other method
of determining Fair Market Value as shall be authorized by the Code, or
the rules or regulations thereunder, and adopted by the Board.
(c) Term. Subject to earlier termination as provided in Sections
6(e), (f) and (g) and in Section 8 hereof, the term of each Option shall be
five (5) years from the date of grant.
(d) Exercise. Options shall be exercisable commencing one (1) year
after the date of grant, except that, if the date of the next succeeding
annual meeting of shareholders is less than one (1) year from the date of
grant of the Options, then such Options shall be exercisable, commencing on
the day preceding the date of the annual meeting of shareholders next
succeeding the date of grant of such Options. Except as otherwise provided
in Sections 6(e), (f) and (g) hereof, Options shall only be exercisable
while a Non-Employee Director remains a director of the Company. Any Option
shares, the right to the purchase of which has accrued, may be purchased at
any time up to the expiration or termination of the Option. Exercisable
Options may be exercised, in whole or in part, from time to time by giving
written notice of exercise to the Company at its principal office,
specifying the number of shares to be purchased and accompanied by payment
in full of the aggregate price for such shares. Only full shares shall be
issued under the Plan, and any fractional share which might otherwise be
issuable upon exercise of an Option granted hereunder shall be forfeited.
The Option Price shall be payable:
(1) In United States dollars by cash or check; or
(2) In lieu thereof, by tendering to the Company Common Stock owned
by the person exercising the Option and having a Fair Market Value on
the date of exercise equal to the Option Price applicable to such
Option; or
(3) By a combination of United States dollars and Common Stock as
aforesaid.
(e) Termination of Service as a Director. If a Non-Employee
Director's service as a director of the Company terminates prior to the
expiration date of his or her Options for any reason (such as,
A-2
<PAGE> 26
without limitation, failure to be re-elected by the shareholders or
resignation) other than those set forth in Sections 6(f) and (g) below, all
such Non-Employee Director's outstanding options immediately shall
terminate, except that if such Non-Employee Director has been a director of
the Company for at least eighteen (18) months immediately prior to his or
her termination of service as a director, any of his or her unexercisable
Options which have been outstanding for at least four (4) months
immediately shall become fully exercisable, and all his or her outstanding
Options may be exercised by the Non-Employee Director, at any time prior to
the earlier of:
(1) The expiration date specified in such Options; or
(2) Nine (9) months after the date of such termination of service
as a director.
(f) Disability of Non-Employee Director. If a Non-Employee Director
shall become disabled (within the meaning of section 22(e)(3) of the Code)
during the period in which he or she is a director of the Company and,
prior to the expiration date fixed for his or her Options, his or her
service as a director with the Company is terminated as a consequence of
such disability, all such Non-Employee Director's outstanding options
immediately shall terminate, except that if such Non-Employee Director has
been a director of the Company for at least eighteen (18) months
immediately prior to his or her termination of service as a director, any
of his or her unexercisable Options which have been outstanding for at
least four (4) months immediately shall become fully exercisable, and all
his or her outstanding Options may be exercised, at any time prior to the
earlier of:
(1) The expiration date specified in such Options; or
(2) One (1) year after the date of the Non-Employee Director's
ceasing to be a director by reason of disability.
In the event of a Non-Employee Director's legal disability, such
Options may be so exercised by the Non-Employee Director's legal
representative.
(g) Death of Non-Employee Director. If a Non-Employee Director ceases
to be a director of the Company by reason of his or her death prior to the
expiration date fixed for his or her Options, all of such Non-Employee
Director's outstanding Options immediately shall become fully exercisable,
and such Options may be exercised at any time prior to the earlier of:
(1) The expiration date specified in such Options; or
(2) Eighteen (18) months after the date of the Non-Employee
Director's death.
If a Non-Employee Director who ceases to be a director for reasons
described in Sections 6(e) and (f) hereof shall die following his or her
ceasing to be a director but prior to the earlier of the expiration date
fixed for his or her Options, or the expiration of the period determined
under Sections 6(e) and (f) hereof, as the case may be, such Options may be
exercised, to the extent of the number of shares with respect to which the
Non-Employee Director could have exercised it on the date of his or her
death, at any time prior to the earlier of:
(1) The expiration date specified in such Option; or
(2) One (1) year after the date of the Non-Employee Director's
death.
In the event of a Non-Employee Director's death, such Options may be
so exercised by the Non-Employee Director's estate, personal representative
or beneficiary who acquired the right to exercise such Option by bequest or
inheritance or by reason of the death of the Non-Employee Director.
(h) Non-Transferability. Except as otherwise provided in any Option
Agreement (as defined in Section 7 hereof), no Option shall be assignable
or transferable by the Non-Employee Director otherwise than by will or by
the laws of descent and distribution, and during the lifetime of the
Non-Employee Director, the Option shall be exercisable only by him or by
his or her guardian or legal representative. If the Non-Employee Director
is married at the time of exercise and if the Non-Employee Director so
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requests at the time of exercise, the share certificate or certificates
shall be registered in the name of the Non-Employee Director and the
Non-Employee Director's spouse, jointly, with right of survivorship.
(i) Rights as a Shareholder. An optionee under the Plan shall have no
rights as a shareholder with respect to any shares covered by his or her
Option until the issuance of a stock certificate to him or her for such
shares.
(j) Listing and Registration of Shares. Each Option shall be subject
to the requirement that, if at any time the Board shall determine, in its
discretion, that the listing, registration or qualification of the shares
covered thereby upon any securities exchange or under any state or federal
law, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in connection with, the
granting of such Option or the purchase of shares thereunder, or that
action by the Company or by a Non-Employee Director should be taken in
order to obtain an exemption from any such requirement, no such Option may
be granted or be exercised, in whole or in part, unless and until such
listing, registration, qualification, consent, approval, or action shall
have been effected, obtained, or taken under conditions acceptable to the
Board. Without limiting the generality the foregoing, each Non-Employee
Director or his or her legal representative or beneficiary may also be
required to give satisfactory assurance that shares purchased upon exercise
of an Option are being purchased for investment and not with a view to
distribution, and certificates representing such shares may be legended
accordingly.
7. OPTION AGREEMENTS -- OTHER PROVISIONS
Options granted under the Plan shall be evidenced by written documents
("Option Agreements") in such form as the Board shall, from time to time,
approve, which Option Agreements shall contain such provisions, not inconsistent
with the provisions of the Plan as the Board shall deem advisable. Each
Non-Employee Director shall enter into, and be bound by, such Option Agreements.
8. CAPITAL ADJUSTMENTS
The number of shares of Common Stock which may be issued under the Plan, as
stated in Section 4 hereof, the number of shares covered by future Option
grants, as stated in Section 5 hereof, and the number of shares issuable upon
exercise of outstanding Options under the Plan (as well as the Option price per
share under such outstanding Options) shall be adjusted proportionately to
reflect any stock dividend, stock split, share combination, or similar change in
the capitalization of the Company.
In the event of a corporate transaction (as that term is described in
section 424(a) of the Code and the Treasury Regulations issued thereunder as,
for example, a merger, consolidation, acquisition of property or stock,
separation, reorganization, or liquidation) and provision is not made for the
continuance and assumption of Options under the Plan, or the substitution for
such Options of new Options to acquire securities or other property to be
delivered in connection with the transaction, the Board shall, upon written
notice to the holders of Options, provide that all unexercised Options will
terminate immediately prior to the consummation of such merger, consolidation,
acquisition, reorganization, liquidation, sale or transfer unless exercised (to
the extent then exercisable or to such greater extent as the Board in its
discretion may determine) by the holder within a specified number of days (which
shall not be less than fourteen (14) days) following the date of such notice.
9. AMENDMENT, SUSPENSION AND DISCONTINUANCE OF THE PLAN
The Board, from time to time, may suspend or discontinue the Plan or amend
the Plan or any Option outstanding under it in any respect whatsoever,
including, without limitation, increasing the number of shares authorized for
issuance under the Plan and extending the duration of the Plan, provided,
however, that no amendment to the Plan shall become effective without
shareholder approval if such shareholder approval is required by applicable law,
rule or regulation, and provided further, that no amendment shall materially
impair the rights of any holder of an outstanding Option without the consent of
such holder.
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<PAGE> 28
10. EFFECTIVE DATE
The Plan shall become effective when the Plan is approved and adopted by
the Company's shareholders.
11. TERMINATION OF PLAN
Unless earlier terminated as provided in the Plan, the Plan and all
authority granted hereunder shall terminate absolutely at 12:00 midnight on
December 31, 1998, and no Options hereunder shall be granted thereafter. Nothing
contained in this Section 11, however, shall terminate or affect the continued
existence in accordance with their terms of Options outstanding on the date of
termination of the Plan.
12. GENERAL PROVISIONS
(a) Nothing contained in the Plan shall prevent the Board from adopting
other or additional compensation arrangements for directors (subject to
shareholder approval if such approval is required); and such arrangements may be
either generally applicable or applicable only in specific cases.
(b) The adoption of the Plan and the receipt of grants hereunder shall not
confer upon any person any right to continued services as a director of the
Company.
(c) In the event of exercise of an Option, the optionee shall pay to the
Company, upon its demand, such amount as may be requested by the Company for the
purpose of satisfying any liability to withhold Federal, state, local, or
foreign income or other taxes (which payment may be made in any manner
prescribed in Section 6(d) hereof). The obligations of the Company under the
Plan shall be conditioned on such payment, and the Company shall have the right
to withhold the issuance of shares to the optionee and, to the extent permitted
by law, shall have the right to deduct any such taxes from any payment of any
kind otherwise due to the Non-Employee Director.
(d) At the time of grant of any Option, the Board may provide that any
shares of Common Stock received as a result of exercise of such Option shall be
subject to a right of first refusal, pursuant to which the Non-Employee Director
shall be required to offer to the Company any such shares that he or she wishes
to sell, with the price being the then Fair Market Value of the shares, subject
to such other terms and conditions as the Board may specify at the time of
grant.
(e) Each person who is or shall have been a member of the Board shall be
indemnified and held harmless by the Company, to the fullest extent permissible
by Delaware Law, against and from any loss, cost, liability, or expense that may
be imposed upon or reasonably incurred by such person in connection with or
resulting from any claim, action, suit, or proceeding to which such person may
be made a party or in which such person may be involved by reason of any action
taken or failure to act under or with respect to the Plan and against and from
any and all amounts paid by such person in settlement thereof, with the
Company's approval, or paid by such person in satisfaction of any judgement in
any such action, suit, or proceeding against such person, provided such person
shall give the Company an opportunity, at the Company's expense, to handle and
defend the same before such person undertakes to handle and defend it on such
person's own behalf. The foregoing right of indemnification shall not be
exclusive and shall be independent of any other rights of indemnification to
which such persons may be entitled under the Company's Certificate of
Incorporation or By-laws, by contract, as a matter of law, or otherwise.
(f) The Plan and all awards made and actions taken thereunder shall be
governed by and construed in accordance with laws of the State of Delaware.
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<PAGE> 29
/ /
(1) Election of Victor Markowicz, William Y. O'Connor and Anthony Ruys as
directors of GTECH Holdings Corporation for a three-year term of office
expiring in 1999 and election of Carl H. Freyer as director of GTECH
Holdings Corporation for a one-year term of office expiring in 1997.
VOTE FOR WITHHOLD AUTHORITY VOTE FOR ALL EXCEPT FOR
ALL NOMINEE(S) FOR ALL NOMINEE(S) THE FOLLOWING NOMINEE(S)
/ X / / X / / X /
(Insert the name(s) of the nominee(s) for whom you do not wish to vote in
the space(s) provided.)
__________________________________________________________________________
__________________________________________________________________________
(2) Approve Amendment to the GTECH Holdings Corporation 1994 Stock
Option Plan.
FOR AGAINST ABSTAIN
/ X / / X / / X /
(3) Approve the GTECH Holdings Corporation 1996 Non-Employee Directors'
Stock Option Plan.
FOR AGAINST ABSTAIN
/ X / / X / / X /
(4) In their discretion on such other business as may properly come before
the meeting.
Change of Address and
or Comments Mark Here / X /
Please sign your name exactly as it appears hereon. When signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such. If a corporation, please sign in full corporate name by President
or other authorized officer. If a partnership, please sign name by authorized
person.
Dated: ________________________________________________________________, 1996
_____________________________________________________________________________
(Signature of Shareholder)
_____________________________________________________________________________
(Signature of Additional Shareholder)
VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE INK. / X /
SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
PROXY
GTECH HOLDINGS CORPORATION
ANNUAL MEETING OF SHAREHOLDERS, SEPTEMBER 9, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints DENISE M. OGILVIE, BRENDAN J. RADIGAN
and XIAOWEI WALDRON and each or any of them as Proxies of the undersigned, with
full power of substitution, and hereby authorizes them to represent and to
vote, as designated on the reverse side, all of the shares of Common Stock of
GTECH HOLDINGS CORPORATION, held of record by the undersigned on August 5,
1996, at the Annual Meeting of Shareholders of GTECH Holdings Corporation to be
held September 9, 1996, and at any adjournment thereof.
The Board of Directors recommends a vote FOR Proposals Nos. 1, 2 and 3.
This Proxy, when properly executed, will be voted as specified on the reverse
side. THIS PROXY WILL BE VOTED FOR PROPOSALS NOS. 1, 2 AND 3 IF NO
SPECIFICATION IS MADE.
(Continued and to be dated and signed on the reverse side)
GTECH HOLDINGS CORPORATION
P.O. BOX 11349
NEW YORK, N.Y. 10203-0349
