<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 [X]
Filed by a Party other than the Registrant [ ]
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 Section 240.14a-11(c) or Section 240.14a-2.
</TABLE>
GTECH HOLDINGS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-12.
(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 JULY 14, 1997
------------------------
To Our Shareholders:
The Annual Meeting of Shareholders of GTECH Holdings Corporation (the
"Company") will be held at 9:00 o'clock a.m. on Monday, July 14, 1997, at the
Holiday Inn at the Crossings, 801 Greenwich Avenue, Warwick, Rhode Island, for
the following purposes:
1. To elect two directors to serve for a three-year term;
2. To vote on a proposal to approve the Company's 1997 Stock Option Plan;
and
3. 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 May 28, 1997, 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
June 3, 1997
<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 June
6, 1997, 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 July 14, 1997 (the
"Meeting"), and at any adjournments thereof.
At the close of business on May 28, 1997, the record date for determination
of shareholders entitled to notice of, and to vote at, the Meeting, there were
outstanding an aggregate of 42,024,810 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 two 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, assuming that the total vote cast with respect to 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 will be included
within the number of shares present at the Meeting and entitled to vote for
purposes of determining whether such matter has 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 two nominees for director, as provided under "Election of Directors" below,
FOR approval of the Company's 1997 Stock Option Plan 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 such number not less than six and not more
than twelve, as the Board may designate, from time to time, by resolution, to be
divided into three classes as nearly equal in number as possible, and the Board
of Directors has by resolution designated that eight directors shall constitute
the whole Board. The class which comes up for election at the Meeting consists
of two directors to be elected for a three-year term. Carl H. Freyer, who has
been a director since 1990 and whose present term expires at the Meeting, is
retiring from the Board effective as of the Meeting. The Board of Directors has
nominated, and recommends the election by the shareholders of, the following two
persons to serve as directors of the Company until the 2000 Annual Meeting, and
until their successors are elected and have qualified, subject to earlier death,
resignation, retirement or removal from office:
Burnett W. Donoho
Lt. Gen. (Ret.) Emmett Paige, Jr. (USA)
Mr. Donoho presently is serving as a director of the Company.
<PAGE> 4
Although the Board of Directors has no reason to believe that either 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 two directors.
The following table sets forth, as of May 12, 1997, 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>
Burnett W. Donoho, 57.................................................... 1992(2) 1997
Vice Chairman and Chief Operating Officer of Montgomery Ward, Inc., a
privately held department store, since February 1997. Previously, Mr.
Donoho was a self-employed Retail Consultant from December 1994 through
February 1997; 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; 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.
Lt. Gen. (Ret.) Emmett Paige, Jr. (USA), 66.............................. (3) (3)
President and Chief Operating Officer of OAO Corporation, a systems
engineering and information systems and services company, from August
1988 through May 1993 and again since May 24, 1997. Previously, General
Paige had spent a 41-year career with the United States Army, working
his way up through the Army ranks and had served as the Assistant
Secretary of Defense for command, control, communications, computers
and intelligence from May 1993, and as the Department of Defense chief
information officer from August 1996, until May 23, 1997.
DIRECTORS WHOSE TERMS CONTINUE BEYOND THE MEETING:
Guy B. Snowden, 51 (4)................................................... 1980 1998
Chairman, Chief Executive Officer and Member of the Executive Operating
Committee of the Company. Mr. Snowden was a co-founder of GTECH
Corporation (the Company's chief operating subsidiary) 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 Pendaries Petroleum
Limited.
Victor Markowicz, 52..................................................... 1980 1999
Vice Chairman and Member of the Executive Operating Committee of the
Company. Mr. Markowicz was a co-founder of GTECH Corporation and served
as Vice Chairman from 1987 to 1990, Senior Vice President from 1988 to
1989 and Executive Vice President, Secretary from 1981 to 1988 and
Co-Chairman from 1992 to 1996.
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
PRESENT
DIRECTOR TERM
NAME, AGE AND OCCUPATION (1) SINCE EXPIRES
- ------------------------------------------------------------------------- -------- -------
<S> <C> <C>
William Y. O'Connor, 52 (4).............................................. 1995 1999
President and Chief Operating Officer 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.
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, a subsidiary of DLJ, from
1983 through June 1995.
The Rt. Hon. Lord Moore of Lower Marsh, P.C., 59......................... 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 Services from
1987 to 1988. Lord Moore is also the Chairman and a director of Credit
Suisse Asset Management (UK) Holding Limited, Credit Suisse Asset
Management Limited and Credit Suisse Asset Management (Australia);
Deputy Chairman and a director of Rolls-Royce plc; a director of BEA
Associates, Inc., Blue Circle Industries plc, C S First Boston
Australia Investment Management Limited, Marvin & Palmer Inc., The
Central European Growth Fund plc and Camelot Holdings Limited; and the
President of Energy Saving Trust Ltd., a not-for-profit energy
conservation organization.
Anthony Ruys, 49......................................................... 1996 1999
Vice Chairman of the Executive Board of Heineken N.V., a
Netherlands-based international brewery group, since 1996 and a Board
Member 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.
</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. 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.
(3) General Paige has not previously served as a director of the Company.
(4) In May 1997, the Company and Mr. Snowden announced that Mr. O'Connor had
been elected Chief Executive Officer of the Company by the Company's Board
of Directors effective July 14, 1997, the date of the Meeting. See
"Additional Information -- Employment-Severance Agreements and
Arrangements," below.
VOTING AGREEMENTS, NOMINATION OF DIRECTORS AND RELATED MATTERS
The Company and certain of its shareholders entered into an Amended and
Restated Stockholders Agreement in July 1992, which was subsequently 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 certain related persons; (ii) Messrs. Snowden, Markowicz and certain
other members of management of the Company
3
<PAGE> 6
(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 a voting trust agreement (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 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 other principal stockholders. The
following current directors originally were nominated to serve their respective
terms pursuant to the Stockholders Agreement: Mr. Dewey, 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.
In June 1996, DLJCC and related persons and certain Management Investors
consummated an underwritten public offering of shares of Common Stock of the
Company pursuant to which DLJ and its affiliates ceased to be major shareholders
of the Company. As a result of this offering, the Voting Trust Agreement and the
voting provisions of the Stockholders Agreement described above terminated, and
Joel J. Cohen and Carl B. Menges, who were serving as directors as the nominees
of DLJCC, retired from the Board.
The Company's Nominating Committee (see below) has recommended to the Board
of Directors that Mr. Donoho and General Paige be approved, and Mr. Donoho and
General Paige have been approved, as the Board's nominees for election as
directors at the Meeting.
The Company's By-laws (Article III, Section 3) also permit shareholders
entitled to vote in the election of directors to nominate candidates for
election as directors, but only if written notice of a shareholder's intention
to do so has been received by the Company: (i) with respect to an election to be
held at an Annual Meeting of shareholders, not less than 60 nor more than 90
days prior to the first anniversary date of the preceding year's Annual Meeting,
except that if the date of the Annual Meeting at which the election is to be
held is more than 20 days earlier or later than such anniversary date (as is the
case with the 1997 Annual Meeting), such notice must be received by the Company
not later than 10 days after the date the Company mails to shareholders the
notice of the Annual Meeting; and (ii) with respect to an election to be held at
a special meeting of shareholders, not later than 10 days after the Company
mails to shareholders notice of such special meeting. The By-laws set forth
specific requirements for a shareholder's notice of intention to nominate
directors, including, without limitation, specified information concerning the
nominating shareholder and the person(s) proposed to be nominated, and reference
is made to such By-laws for such requirements.
INFORMATION CONCERNING MEETINGS AND CERTAIN COMMITTEES
The Board of Directors held five formal meetings during fiscal 1997, and
also conferred informally and took formal action by unanimous written consent on
a number of additional occasions. The Board has an Audit Committee, a
Compensation Committee and, since October 1996, a Nominating Committee. The
Audit Committee's present members are Messrs. Donoho and Freyer and Lord Moore.
In addition, Joel J. Cohen, a former director of the Company, who retired from
the Board in June 1996, was a member of the Audit Committee during a portion of
fiscal 1997. 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 1997. 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 June 1996 resignation
of Mr. Cohen, who was a member of the Compensation Committee during a portion of
fiscal 1997. The Compensation Committee is responsible for administering the
Company's stock option and certain other compensation plans and is authorized to
review specific executive compensation arrangements
4
<PAGE> 7
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 1997 but had several informal meetings,
conferred informally and took formal action by unanimous consent on a number of
occasions. During fiscal 1997, 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. The Nominating
Committee did not hold any formal meetings during fiscal 1997, but conferred
informally and made recommendations to the Board of Directors on several
occasions respecting nominees to fill vacancies in the Board of Directors.
During fiscal 1997, 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.
COMPENSATION OF DIRECTORS
During most of fiscal 1997, directors who were not employees of the Company
or nominees of DLJCC received annual directors' fees at the rate of $20,000 per
year, 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. Effective January 31,
1997, the annual directors' fee paid to non-employee directors was increased to
$30,000 and the per diem fees paid to them was increased to $1,000. Mr. Dewey,
who had been a nominee of DLJCC, commenced receiving such director's fees in
July 1996 following DLJCC's and its affiliates' ceasing to be major shareholders
in the Company.
At the 1996 Annual Meeting, the Company's shareholders approved the
adoption of the Company's 1996 Non-Employee Directors' Stock Option Plan (the
"1996 Plan") which provides for the automatic grant to each non-employee
("outside") director, shortly following the 1996, 1997 and 1998 Annual Meetings,
of a nonqualified stock option for 10,000 shares of Common Stock with a per
share exercise price equal to the fair market value of a share of Common Stock
on the date of grant. Pursuant to the 1996 Plan, on September 12, 1996, each of
the five then outside directors (Messrs. Dewey, Donoho, Freyer and Ruys and Lord
Moore) was granted such a 10,000 share option with an exercise price of $27 5/8
per share. Mr. Donoho and Lord Moore also hold 4,500 and 3,000 stock units,
respectively, granted under the Company's 1992 Outside Directors' Stock Unit
Plan (the "DSU Plan") in 1994 and 1995, respectively. Mr. Donoho's stock units
will vest into a similar number of shares of Common Stock at the time of the
1997 Annual Meeting, and Lord Moore's stock units will so vest at the time of
the 1998 Annual Meeting. No other directors hold stock units under the DSU Plan,
and that Plan terminated in 1996.
2. APPROVAL OF THE 1997 STOCK OPTION PLAN
At the meeting, the shareholders also will be asked to approve the 1997
Stock Option Plan (the "1997 Plan") which was unanimously adopted by the
Company's Board of Directors in May 1997. A summary of the terms of the 1997
Plan appears below, and a copy of the Plan is attached as an Appendix to this
proxy statement.
The Board approved the 1997 Plan, which authorizes the granting of options
to purchase up to 2,800,000 shares of Common Stock ("Shares"), because it firmly
believes that having such Shares available for the granting of options is an
essential element of compensation if the Company is to be able, in this highly
competitive environment, to hire, retain and motivate the highly qualified
officers and other key employees upon which the Company's continued success
will, in large part, depend. (It should be noted that non-employee directors and
Messrs. Snowden and Markowicz are not eligible to receive options under the 1997
Plan.) The Board further believes that the type of options which would be
granted under the 1997 Plan are a particularly beneficial form of compensation
because, since their exercise price is equal to the fair market value on the
date of grant, the options only become of real value if the price of the Shares
rises. Thus, the
5
<PAGE> 8
interests of optionees and other shareholders are closely aligned in having the
Company prosper and Share value increase.
The Company currently has another option plan for officers and key
employees, the 1994 Stock Option Plan (the "1994 Plan"), but, as of May 24, 1997
only 341,500 Shares remained available for future grants of options under that
Plan. That number is clearly insufficient to meet the Company's needs and has
led the Board to request shareholder approval of the 1997 Plan. If the 1997 Plan
is approved at the 1997 Annual Meeting, it is the intention of the Board to
freeze the 1994 Plan and not grant any further options under the 1994 Plan after
the Annual Meeting.
As of the date of this proxy statement, no options have been granted under
the new 1997 Plan, and the Compensation Committee (which is responsible for
granting options under the 1997 Plan) has not made any final determination as to
the granting of any specific options under the Plan. In fact, it is presently
anticipated that, except possibly for new hires, relatively few, if any, options
will be granted under the 1997 Plan until after the end of fiscal 1998 (which
ends February 28, 1998). While it can be expected that significant numbers of
options will be granted to executive and other officers under the 1997 Plan, it
is the intention of the Compensation Committee to grant options under the Plan
to a considerably broader number of persons than previously has been the case.
At present, approximately 300 persons (consisting of approximately 15 officers
of the Company and 285 other key employees) would be eligible for grants under
the 1997 Plan. It is presently believed that the number of shares authorized for
issuance under the 1997 Plan will satisfy the Company's anticipated need for
option grants through fiscal 2001. Reference is made to "Additional
Information -- Fiscal Year-End Options Value Table" herein for additional
information concerning grants, exercises and holdings of options under the 1994
Plan during fiscal 1997.
THE BOARD OF DIRECTORS BELIEVES THAT THE 1997 STOCK OPTION PLAN IS IN THE
BEST INTERESTS OF THE COMPANY AND RECOMMENDS A VOTE FOR APPROVAL OF SUCH PLAN.
SUMMARY OF THE 1997 PLAN
The following description of the 1997 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 which is attached as an Appendix
to this proxy statement.
The 1997 Plan authorizes up to an aggregate of 2,800,000 Shares for the
granting of incentive stock options (within the meaning of Section 422 of the
Internal Revenue Code) ("ISOs") and/or nonqualified stock options ("NQSOs").
Generally, Shares subject to options granted under the 1997 Plan which remain
unexercised upon expiration or earlier termination of such options will once
again become available for the granting of options under the Plan, but the Plan
does not permit, without shareholder approval, the repricing of options, except
in connection with capital adjustments and corporate transactions as
contemplated in Section 3(b) of the Plan. Authorized but unissued Shares or
treasury Shares may be issued under the Plan.
The 1997 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 Plan. Committee
members are not eligible to participate in the Plan. The Plan authorizes the
Committee to grant ISOs and/or NQSOs to officers (including officers who also
are directors, but excluding Messrs. Snowden and Markowicz who are ineligible)
and other key employees of the Company and its subsidiaries. There currently are
approximately 300 officers and employees eligible for participation in the Plan,
although this number is subject to increase or decrease in the future.
The exercise price of options granted under 1997 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 Plan in any calendar
year to purchase more than 150,000 Shares. Options under the 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 Plan permits
the exercise price of options to be paid in whole or in part by having the
Company withhold
6
<PAGE> 9
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
Plan similarly permits the withholding of Shares issuable upon exercise of NQSOs
to satisfy withholding taxes. Options under the Plan are not transferable by
optionees other than by will, or pursuant to the laws of descent and
distribution, except to the extent otherwise permitted by the Committee and,
with respect to ISOs, by the Internal Revenue Code.
In the event of termination of an optionee's employment by reason of death,
disability, retirement, or without Cause (as defined in the 1997 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: (i) the expiration of the stated term of such option; or
(ii) three years (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 1997 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 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, options shall be assumed by the surviving or
successor corporation, if any. However, the 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 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 1997 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. Subject to certain limitations,
the Board of Directors also may discontinue or amend the 1997 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
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 Plan; or
(iv) extend the duration of the Plan. Unless earlier terminated by the Board of
Directors, the Plan will automatically terminate in May 2007, although options
granted prior to such termination may be exercised after termination in
accordance with their terms.
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 1997 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 or proposed changes in the federal tax laws currently being
discussed in the U.S. Congress.
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
7
<PAGE> 10
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.
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 1997 Plan to the extent reasonably practicable, but there can be no
assurance that the 1997 Plan will initially or in the future so comply.
Various additional tax consequences may apply to the granting, acceleration
and exercise of options and to the disposition of Shares thereunder, but such
consequences are beyond the scope of this summary.
3. 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.
8
<PAGE> 11
ADDITIONAL INFORMATION
BENEFICIAL OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth, as of May 28, 1997, 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
five 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 L.L.C................................................ 7,106,455(2) 16.9%
101 Park Avenue
New York, New York 10178
Morgan Stanley Group, Inc............................................. 4,574,906(3) 10.9%
1585 Broadway
New York, New York
Guy B. Snowden, director and executive officer........................ 768,598(4) 1.8%
Victor Markowicz, director and executive officer...................... 753,186(5) 1.8%
William Y. O'Connor, director and executive officer................... 183,500(6) *
Robert M. Dewey, Jr., director........................................ 30,635(7) *
Burnett W. Donoho, director........................................... 17,500(7) *
Carl H. Freyer, retiring director..................................... 10,000(7) *
The Rt. Hon. Lord Moore of Lower Marsh, P.C., director................ 14,500(7) *
Anthony Ruys, director................................................ 10,000(7) *
Lt. Gen. (Ret.) Emmett Paige, Jr., director nominee................... -- --
Michael R. Chambrello, executive officer.............................. 27,124(8) *
Thomas J. Sauser, executive officer................................... 25,000(9) *
All directors and executive officers, as a group (10 persons)......... 1,851,543 4.4%
</TABLE>
- ---------------
* Less than 1%
(1) The shareholdings reflected in this table do not include rights to receive
stock granted under various Company plans to directors and executive
officers that do not vest within 60 days of the date of this table.
(2) Based upon information set forth in the Form 13G/A filed by Tiger Management
L.L.C. with the Securities and Exchange Commission as of February 12, 1997.
Includes beneficial shareholdings of Tiger Performance L.L.C., Panther
Partners, L.P. and Panther Management Company, L.P., affiliates of Tiger
Management L.L.C.
(3) Based upon information set forth in the Form 13G/A filed by Morgan Stanley
Group, Inc. and Miller Anderson & Sherrard, L.L.P., a wholly-owned
subsidiary of Morgan Stanley Group, Inc., with the Securities and Exchange
Commission as of May 7, 1997.
(4) 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.
(5) 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.
(6) Includes 181,000 shares subject to unexercised stock options granted under
the Company's 1994 Plan which either have vested or will vest within 60
days.
(7) Includes 10,000 shares subject to unexercised stock options automatically
granted under the Company's 1996 Plan following the Company's 1996 Annual
Meeting, which options, subject to the terms and conditions of such plan,
become exercisable on July 13, 1997.
(8) Includes 21,250 shares subject to vested but unexercised stock options
granted under the Company's 1994 Plan.
(9) Shares subject to unexercised stock options granted under the Company's 1994
Plan which either have vested or will vest within 60 days.
9
<PAGE> 12
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 executive
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, Chairman and current Chief Executive Officer of the
Company, and Mr. Markowicz, Vice Chairman of the Company) entered into
multi-year employment agreements with the Company in 1990 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
current 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 currently include base
salary, annual bonuses, and 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).
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 amendment, extension or renewal of an
executive officer's employment agreement, the Company considers a number of
factors, including performance on the
- ---------------
* See "Employment-Severance Agreements and Arrangements" and "Summary
Compensation Table" below for further discussion of the
Snowden/Markowicz/O'Connor employment arrangements.
10
<PAGE> 13
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 Options.** The Company's 1994 Stock Option Plan, as amended (the
"1994 Plan"), originally was approved by the shareholders of the Company at the
1994 Annual Meeting. The 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. Although the Committee is
given broad discretion under the Plan, grants of options are subject to various
restrictions as set forth in the Plan. The principal purpose of the 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 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 1997 Compensation of the Chairman and Vice Chairman.
Messrs. Snowden (who currently is the Chief Executive Officer) and
Markowicz are treated virtually identically for compensation purposes, in
accordance with the terms of their 1990 employment agreements (the "Employment
Agreements"), as amended, with the Company. The fiscal 1997 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 1997 were determined in strict accordance with this
formula.
(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 1997 ($3,865,810
to each) were determined in strict accordance with this formula. As
indicated above, neither Mr. Snowden nor Mr. Markowicz is eligible to
receive grants of stock options under the 1994 Plan or under the proposed
1997 Stock Option Plan.
- ---------------
** See Proposal 2 above for information concerning the proposed 1997 Stock
Option Plan.
11
<PAGE> 14
Mr. O'Connor was hired in 1994 under an employment agreement which
contemplated his becoming Chief Executive Officer of the Company in due
course, and he recently was elected to that office, effective at the July
14, 1997 Annual Meeting, to succeed Mr. Snowden who will remain as
Chairman. Mr. Markowicz will remain as Vice Chairman. Under the provisions
of their Employment Agreements, the employment terms of Messrs. Snowden and
Markowicz are scheduled to expire on February 28, 1998.
Date: May 23, 1997
The Fiscal 1997 Compensation Committee
of
the Board of Directors:
Burnett W. Donoho***
Carl H. Freyer
- ---------------
*** Joel J. Cohen was a Member of the Compensation Committee of the Board of
Directors until late June 1996, when he retired from the Board. Mr. Donoho
was appointed to fill the vacancy on the Compensation Committee created by
Mr. Cohen's retirement.
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning the annual
and long-term compensation paid for fiscal years 1997, 1996, and 1995 to or for:
(i) the Company's Chief Executive Officer; and (ii) each of the Company's four
other executive officers whose total annual salary and bonus for fiscal year
1997 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.............. 1997 456,337 3,865,810 249,824 -- -- -- 190,028
Chairman & 1996 445,207 3,078,550 223,413 -- -- -- 156,789
Chief Executive Officer 1995 433,502 2,302,480 147,330 -- -- -- 96,173
Victor Markowicz............ 1997 456,337 3,865,810 242,629 -- -- -- 183,832
Vice Chairman 1996 445,207 3,078,550 212,155 -- -- -- 151,454
1995 433,502 2,302,480 149,087 -- -- -- 91,864
William Y. O'Connor......... 1997 440,750 910,600 207,061 -- -- -- 62,669
President & Chief 1996 430,000 860,000 183,765 -- 300,000 -- 2,692
Operating Officer 1995(7) 94,269 450,000 6,805 83,750 212,000 -- 199
Thomas J. Sauser............ 1997 300,000 250,000 190,416 -- -- -- 2,393
Senior Vice President &... 1996(8) 13,846 50,000 56 -- 100,000 -- --
Chief Financial Officer
Michael R. Chambrello....... 1997 261,077 300,000 84,937 -- -- -- 28,672
Executive Vice President 1996 210,000 160,000 77,147 -- 15,000 -- 21,279
1995 185,000 100,000 82,938 -- 35,000 -- 14,501
</TABLE>
- ---------------
(1) Sets forth the names and principal positions of the Named Officers as of the
end of fiscal 1997. After the close of fiscal 1997, William Y. O'Connor was
named Chief Executive Officer of the Company. See "Employment -- Severance
Agreements and Arrangements" below.
(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 amount of specified
benefits from which they may select); (ii) taxable fringe benefits provided
by the
12
<PAGE> 15
Company, including automobile usage and the payment of relocation expenses;
and (iii) gross-ups for taxes with respect to benefits provided by the
Company, including with respect to the Company's 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 and Chambrello of $27,500 in each of fiscal years 1997, 1996
and 1995; (b) to Mr. O'Connor of $27,500 in each of fiscal years 1997 and
1996 and $2,292 for fiscal year 1995; (c) to Mr. Markowicz of $25,868 for
fiscal year 1997 and $27,500 for each of fiscal years 1996 and 1995; and (d)
to Mr. Sauser of $27,500
for fiscal year 1997. In addition, the Company provided taxable fringe
benefits to the Named Officers
in the following amounts: Mr. Snowden -- $13,397 (1997); $20,833 (1996) and
$8,424 (1995); Mr. Markowicz -- $9,742 (1997); $9,575 (1996) and $10,181
(1995); Mr. O'Connor -- $36,876 (1997) and $66,697 (1996) (including imputed
interest on certain loans made by the Company to Mr. O'Connor pursuant to
his employment agreement) and $2,084 (1995); Mr. Sauser -- $91,193 (1997)
and $33 (1996); and Mr. Chambrello -- $8,453 (1997); $8,339 (1996) and
$8,644 (1995). The gross-up payments for taxes were: Mr. Snowden -- $208,927
(1997); $175,081 (1996) and $111,406 (1995); Mr. Markowicz -- $207,019
(1997); $175,081 (1996) and $111,406 (1995); Mr. O'Connor -- $142,686
(1997); $74,527 (1996) and $2,429 (1995); and Mr. Chambrello -- $48,984
(1997); $41,308 (1996) and $35,113 (1995).
(4) Represents grants of restricted stock rights ("RSRs") to Mr. O'Connor, as
described below. Mr. O'Connor received, for no cash consideration, a grant
of 5,000 RSRs in December 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 22, 1997, the 5,000 RSRs held by Mr. O'Connor (2,500 vested
shares and 2,500 unvested RSRs) had an aggregate value of $157,500 to Mr.
O'Connor, based upon the closing market price of the Company's Common Stock
on the last business day of fiscal 1997, 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 "Fiscal
Year-End Options Value 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 1997, 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 -- $11,022; Mr. Markowicz -- $4,962; Mr.
O'Connor -- $2,492; Mr. Sauser -- $2,393; and Mr. Chambrello -- $594; (ii)
made matching contributions under the Retirement Plan with respect to each
of the Named Officers other than Mr. Sauser in the amount of $3,900; (iii)
made profit sharing contributions under the Retirement Plan with respect to
each of the Named Officers other than Mr. Sauser in the amount of $6,000;
and (iv) made contributions under the SRP with respect to each of the Named
Officers other than Mr. Sauser in the following amounts: Mr.
Snowden -- $169,106; Mr. Markowicz -- $168,970; Mr. O'Connor -- $50,277; and
Mr. Chambrello -- $18,178.
(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.
(8) Reflects compensation information only with respect to a portion of February
1996, the final month of fiscal 1996, when Mr. Sauser commenced his
employment with the Company.
13
<PAGE> 16
FISCAL YEAR-END OPTIONS VALUE TABLE
During fiscal 1997 no grants of stock options were made to any Named
Officer, nor were any stock options exercised by any Named Officer.
The following table sets forth the value of all unexercised stock options
held by Named Officers, as well as the number of shares of Common Stock of the
Company underlying unexercised stock options held by Named Officers, as of the
close of the Company's 1997 fiscal year on February 22, 1997:
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
OF COMMON STOCK IN-THE-MONEY
UNDERLYING STOCK OPTIONS(1) STOCK OPTIONS(2)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Guy B. Snowden............................ -- -- -- --
Victor Markowicz.......................... -- -- -- --
William Y. O'Connor....................... 181,000 331,000 $ 1,698,125 $ 2,510,625
Thomas J. Sauser.......................... 25,000 75,000 $ 64,063 $ 192,188
Michael R. Chambrello..................... 21,250 28,750 $ 275,859 $ 335,694
</TABLE>
- ---------------
(1) All stock options reflected in this table were non-qualified options granted
pursuant to the Company's 1994 Plan and are subject to its terms. 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 1994 Plan.
(2) Calculated based upon the aggregate of the differences between $31.50, the
per-share market value of the Company's Common Stock as of the close of
business on February 21, 1997, and the per-share exercise prices for the
respective grants of stock options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1997, 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, Chairman and Chief Executive Officer, Mr. Markowicz,
Vice 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, Donoho and Freyer were members of the Compensation Committee
during fiscal 1997. Mr. Cohen retired as director during fiscal 1997 and Mr.
Donoho was appointed to fill the vacancy on the Compensation Committee created
by Mr. Cohen's retirement. Mr. Cohen is Managing Director of the Investment
Banking Division of Donaldson, Lufkin & Jenrette Securities Corporation
("DLJSC") which served as lead underwriter of the Company's secondary public
offering of Common Stock by certain selling shareholders in June 1996 (the "June
Offering") for which DLJSC received customary underwriting discounts and
commissions which were paid by the selling shareholders. Further, pursuant to
the Stockholders Agreement, the Company bore certain of the expenses, not
including underwriting discounts and commissions, of the selling shareholders
(which included DLJCC and its affiliates and certain directors and the executive
officers of the Company and certain related trusts), aggregating approximately
$553,000 in connection with the June Offering. The Company has agreed to
indemnify the selling shareholders and underwriters against liabilities arising
in connection with the June Offering.
EMPLOYMENT-SEVERANCE AGREEMENTS AND ARRANGEMENTS
Messrs. Snowden and Markowicz are parties to employment agreements, each
originally entered into in January 1990 (the "Employment Agreements"). Each
Employment Agreement provides for an initial annual
14
<PAGE> 17
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"). 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 $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 1997 was approximately
$326.1 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. The Employment Agreements
also provide for life insurance and other benefits.
Each Employment Agreement automatically was extended on March 1, 1996 for
two years, and each is scheduled to expire on February 28, 1998. Under the terms
of the Employment Agreements, the Company 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, subject to
acceleration in certain circumstances. 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" generally 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 (as defined in the Agreements) 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 by the
executive 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's 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 in
October 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), an
annual incentive bonus up to a maximum of 200% of his then-current base salary
and life insurance and various other benefits. 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
15
<PAGE> 18
management objectives (to be agreed to each year by the Compensation Committee
or the Board of Directors after consultation with Mr. O'Connor) have been
obtained. Since the management objectives and maximum annual earnings per share
levels established for fiscal 1997 were exceeded, Mr. O'Connor received the
maximum incentive bonus for which he was eligible in fiscal 1997 calculated on
the basis of his March 1, 1997 base salary.
Pursuant to the agreement, as amended, the Company granted Mr. O'Connor
5,000 Restricted Stock Rights in December 1994 which vest over four years,
subject to acceleration. 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 between December
1994 and January 1996. Such options will accelerate in the event of a change of
control.
Pursuant to the agreement, Mr. O'Connor was nominated for election, and
initially elected, as a director of the Company at the 1995 Annual Meeting.
Under the agreement, 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. With certain exceptions, "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.
As previously indicated, Mr. O'Connor has been elected Chief Executive
Officer of the Company, effective at the Meeting. In connection with this
promotion, the Company and Mr. O'Connor are negotiating a new employment
agreement, the terms of which have not been finalized, but which are expected to
include, among other things, an increase in base and incentive compensation and
certain benefits, as well as provisions affording Mr. O'Connor certain rights
and benefits in the event of a change of control of the Company.
The Company does not currently have formal employment agreements with the
other two Named Officers: Messrs. Chambrello and Sauser. However, the Board of
Directors has authorized change of control agreements with them which agreements
are expected to provide for: (i) acceleration of their stock options upon a
change of control; and (ii) if their employment is terminated in certain
circumstances following a change of control, for a lump sum payment equal to
2.99 times current base salary and most recent annual incentive compensation,
plus certain gross-up tax payments.
The Company has two defined contribution 401(k) retirement savings and
profit sharing plans (the "Plans") covering (subject to applicable time of
service requirements) substantially all full-time employees in the United
States, including the Named Officers. Under these Plans, an eligible employee
may elect to defer receipt of a portion of base pay for each year in which case
the Company will contribute this amount on the employee's behalf to the Plans
and also will make a matching contribution equal to 50% of the amount that the
employee has elected to defer, up to a maximum matching contribution of 2 1/2%
of the employee's base pay. The Company, at its discretion, may contribute
additional amounts to the Plans on behalf of employees based upon its profits
for a given fiscal year. Participants are 100% vested at all times in their
entire account balance in the Plans. Benefits under the Plans generally will be
paid to participants upon retirement or in certain other limited circumstances.
The Company also has a Supplemental Retirement Plan, that is a defined
contribution plan that provides to certain key employees, including the Named
Officers, additional retirement benefits. The Company, at its discretion, may
contribute additional amounts to the plan on behalf of such key employees equal
to the percentage of profit sharing contributions contributed for the calendar
year multiplied by the key employees' compensation (as defined) for such year.
See "Summary Compensation Table," above.
16
<PAGE> 19
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 22,
1997 (the end of the Company's 1997 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.
COMPARISON OF 55 MONTH CUMULATIVE TOTAL RETURN*
AMONG GTECH HOLDINGS CORPORATION, THE S&P 500 INDEX
AND A PEER GROUP
<TABLE>
<CAPTION>
MEASUREMENT PERIOD GTECH HOLDINGS
(FISCAL YEAR COVERED) S & P 500 PEER GROUP CORPORATION
<S> <C> <C> <C>
7/22/92 100 100 100
FEB-93 110 166 200
FEB-94 119 177 196
FEB-95 128 79 110
FEB-96 172 78 181
FEB-97 217 89 174
</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.
17
<PAGE> 20
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 1995 the Company implemented a loan program under the
Company's 1990 Restricted Stock Unit Plan 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 1997. Pursuant to the program, the Company made
a loan during fiscal 1995 to Mr. Snowden, the Company's Chairman, in the amount
of $1,376,028.66, which loan remained outstanding during a portion of fiscal
1997. Such loan bore interest at the rate of 7.1% per annum, was payable
(principal plus all accrued interest) in full in a single payment on or before
February 1, 1997, and was evidenced by a Promissory Note. Mr. Snowden repaid
such indebtedness in full in June 1996.
During fiscal 1995 the Company, pursuant to the terms of its employment
agreement with Mr. O'Connor, made loans to him in the aggregate amount of
$900,000, to enable him to retire certain third-party indebtedness. The loans to
Mr. O'Connor consisted of a $400,000 loan under a line of credit arrangement
which bore no interest and which was repaid in full during fiscal 1997, 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, 1997, an
aggregate outstanding principal amount of $500,000 remained with respect to such
loan.
During fiscal 1997, DLJSC served as lead underwriter of the Company's
secondary public offering of Common Stock by certain selling shareholders in
June 1996 (the "June Offering") for which DLJSC received customary underwriting
discounts and commissions which were paid by the selling shareholders. Further,
pursuant to the Stockholders Agreement, the Company bore certain of the
expenses, not including underwriting discounts and commissions, of the selling
shareholders (which included DLJCC and its affiliates and certain directors and
the executive officers of the Company and certain related trusts) aggregating
approximately $553,000 in connection with the June Offering. The Company has
agreed to indemnify the selling shareholders and underwriters against
liabilities arising in connection with the June Offering.
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 Chairman and its press
spokesman, involve both the Company and one or more of its executive officers.
During fiscal 1997, the Company paid an aggregate of approximately $3,930,000 in
attorneys' fees in connection with such matters directly or indirectly involving
executive officers.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 1997, the Company believes that such 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.
18
<PAGE> 21
INDEPENDENT AUDITORS
The firm of Ernst & Young LLP served as the Company's independent public
accountants for fiscal 1997. The Company anticipates that Ernst & Young LLP will
serve as its independent public accountants for fiscal 1998, subject to the
formal recommendation of the Audit Committee and approval of the Board of
Directors.
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 $4,000,
plus reimbursement of expenses.
SHAREHOLDER PROPOSALS
In order to be eligible for inclusion in the Company's proxy material for
the 1998 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 February 6, 1998.
MISCELLANEOUS
A copy of the Company's 1997 Annual Report to Shareholders is being mailed
with 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
1997. 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
June 3, 1997
19
<PAGE> 22
APPENDIX
GTECH HOLDINGS CORPORATION
1997 STOCK OPTION PLAN
SECTION 1. PURPOSE; DEFINITIONS
The name of this plan is the GTECH Holdings Corporation 1997 Stock Option
Plan (the "Plan"). The purpose of the Plan is to enable officers and other key
employees of GTECH Holdings Corporation (the "Company") and its Affiliates to
own shares of stock in the Company, participate in the shareholder value which
has been created, and have a mutuality of interest with other shareholders, and
to enable the Company to attract, retain and motivate key employees.
For the purposes of the Plan the following terms shall be defined as set
forth below:
(a) "Affiliate" means any corporation which is a subsidiary of the
Company within the definition of "subsidiary corporation" under Section
424(f) of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means (i) the willful failure by the Participant to
perform substantially his duties as an employee of the Company (other than
due to physical or mental illness) after reasonable notice to the
Participant of such failure, (ii) the Participant's engaging in serious
misconduct that is injurious to the Company, (iii) the Participant's having
been convicted of, or entered a plea of nolo contendere to a crime that
constitutes a felony, (iv) the breach by the Participant of any written
covenant or agreement with the Company not to disclose any information
pertaining to the Company or not to compete or interfere with the Company,
or (v) abuse of illegal drugs or other controlled substances, or habitual
intoxication.
(d) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
(e) "Committee" means the Committee referred to in Section 2 below.
If at any time no Committee shall be in office, then the functions of the
Committee specified in the Plan shall be exercised by the Board.
(f) "Company" means GTECH Holdings Corporation, a corporation
organized under the laws of the State of Delaware, or any successor
organization.
(g) "Disability" means permanent and total disability as determined
under the Company's long-term disability program.
(h) "Fair Market Value" means, as of any given date, the mean of the
highest and lowest quoted selling prices of the Stock on the New York Stock
Exchange (consolidated trading) or such other method of determining Fair
Market Value as shall be authorized by the Code, or the rules and
regulations thereunder, and adopted by the Committee.
(i) "Incentive Stock Option" means any Stock Option intended to be
and designated as an "Incentive Stock Option" within the meaning of Section
422 of the Code.
(j) "Non-Qualified Stock Option" means any Stock Option that is not
an Incentive Stock Option.
(k) "Participant" means a key employee to whom a grant is made under
the Plan.
(l) "Plan" means the GTECH Holdings Corporation 1997 Stock Option
Plan, as hereinafter amended from time to time.
(m) "Retirement" means retirement from active employment with the
Company and any Affiliates with the consent of the Board or in accordance
with the retirement policies of the Company.
(n) "Rules" means the regulations promulgated under Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
(o) "Securities Broker" means a registered securities broker
acceptable to the Company who agrees to effect the cashless exercise of an
Option pursuant to paragraph 5(d) below.
A-1
<PAGE> 23
(p) "Stock" means the Common Stock $.01 par value per share, of the
Company.
(q) "Stock Option" or "Option" means any Incentive or Non-Qualified
Stock Option to purchase shares of Stock granted pursuant to Section 5
below.
In addition, the terms "Change-in-Control" and "Incumbent Director" shall
have meanings set forth, respectively, in Section 6.
SECTION 2. ADMINISTRATION
The Plan shall be administered by a Committee of not fewer than two (2)
"non-employee directors" (within the meaning of Rule 16b-3(b) (3) under the
Exchange Act, or any successor thereto) of the Company who are also "outside
directors" (within the meaning of Treasury Regulation Section 1.162-27(e) (3),
or any successor thereto), who shall be appointed by the Board of Directors of
the Company and who shall serve at the pleasure of the Board.
The Committee shall have the authority to grant Stock Options to eligible
employees, pursuant to the terms of the Plan.
In particular, the Committee shall have the authority, subject to the terms
of the Plan, to:
(a) select the officers and other key employees of the Company and its
Affiliates to whom Stock Options may from time to time be granted
hereunder;
(b) determine whether and to what extent Incentive Stock Options and
Non-Qualified Stock Options or any combination thereof, are to be granted
hereunder;
(c) determine the number of shares to be covered by each such grant
hereunder; and to
(d) determine the terms and conditions of any grant hereunder
including, but not limited to: the share price, any restriction or
limitation regarding, or any vesting acceleration or forfeiture relating
to, any Stock Option or the shares of Stock relating thereto, based on such
factors as the Committee shall determine, in its sole discretion, from time
to time.
The Committee shall be responsible for the administration of the Plan. The
Committee, by majority action thereof, is authorized to prescribe, amend, and
rescind rules and regulations relating to the Plan, to provide for conditions
deemed necessary or advisable to protect the interests of the Company, and to
make all other determinations (including, without limitation, whether a
Participant has incurred a Disability) necessary or advisable for the
administration and interpretation of the Plan in order to carry out its
provisions and purposes. Determinations, interpretations, or other actions made
or taken by the Committee pursuant to the provisions of the Plan shall be final,
binding, and conclusive for all purposes and upon all persons including the
Company and Plan participants.
SECTION 3. AUTHORIZED SHARES AND ADJUSTMENTS
(a) Stock Subject to Plan. The stock to be subject or related to
grants under the Plan shall be shares of the Company's Stock and may be
either shares held in the treasury of the Company or authorized and
unissued shares. Subject to adjustment in accordance with paragraph 3(b)
below, up to an aggregate maximum of 2,800,000 shares shall be authorized
for Stock Options under the Plan, any or all of which may be granted in the
form of Incentive Stock Options; provided however, that in any calendar
year in which the Plan is in existence, Stock Options granted to any one
Participant in the Plan may not cover more than 150,000 shares of Stock
authorized under the Plan.
Any shares of Stock subject to a Stock Option which expires or otherwise
terminates for any reason whatever (including, without limitation, the
surrender thereof) without having been exercised, shall continue to be
available for the granting of Options under the Plan; provided, however,
that except as contemplated in paragraph 3(b) below, no Stock Option shall
be exchanged for another Stock Option with a lower exercise price.
(b) Capital Adjustments. The number of shares which may be issued
under the Plan, the maximum number of shares with respect to which Stock
Options may be granted to any individual Participant under the Plan, both
as stated in paragraph 3(a) above, the number of shares issuable upon
exercise of outstanding Stock Options under the Plan (as well as the Option
exercise price per share
A-2
<PAGE> 24
under such outstanding Options), shall, subject to the applicable
provisions of Section 424(a) of the Code, be adjusted, as may be deemed
appropriate by the Committee, 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,
reorganization, or liquidation), each outstanding Stock Option shall be
assumed by the surviving or successor corporation; provided, however, that,
in the event of a proposed corporate transaction, the Committee may
terminate all or a portion of the outstanding Stock Options if it
determines that such termination is in the best interests of the Company.
If the Committee decides to terminate outstanding Stock Options, the
Committee shall give each Participant holding a Stock Option to be
terminated not less than fourteen days' notice prior to any such
termination by reason of such a corporate transaction, and any such Stock
Option which is to be so terminated may be exercised (to the extent that it
is then exercisable or to any greater extent as the Committee, in its sole
discretion, shall determine) up to and including the date immediately
preceding such termination.
The Committee also, in its discretion, may change the terms of any
outstanding Stock Option to reflect any such corporate transaction,
provided that, in the case of Incentive Stock Options, such change is
excluded from the definition of a "modification" under Section 424(h) of
the Code.
SECTION 4. ELIGIBILITY
Officers and other key employees of the Company and its Affiliates (but
excluding members of the Committee, any person who serves only as a director of
the Company and/or of its Affiliates and Messrs. Guy B. Snowden and Victor
Markowicz) who are responsible for or contribute to the management, growth
and/or profitability of the business of the Company and/or its Affiliates and
who are selected by the Committee are eligible for grants under the Plan.
Selection of an employee for a grant at any time does not give an employee the
right to receive any additional grants in the future, unless such employee is
again selected by the Committee.
SECTION 5. STOCK OPTIONS
The Committee shall have the authority to grant any optionee Incentive
Stock Options, Non-Qualified Stock Options, or both types of Stock Options. To
the extent that any Stock Option does not qualify as an Incentive Stock Option,
it shall constitute a separate Non-Qualified Stock Option. Any Stock Option
granted under the Plan shall be in such form as the Committee may from time to
time approve.
Each Stock Option shall be evidenced by a Stock Option (i.e., Grant)
agreement that shall specify the type of Option granted, the exercise price, the
duration of the Option, the number of shares of Stock to which the Option
pertains, and such other terms and conditions not inconsistent with the Plan as
the Committee shall determine.
Anything in the Plan to the contrary notwithstanding, no term of this Plan
relating to Incentive Stock Options shall be interpreted, amended or altered,
nor shall any discretion or authority granted under the Plan be so exercised, so
as to disqualify the Plan under Section 422 of the Code, or, without the consent
of the optionee(s), so as to disqualify any Incentive Stock Option under such
Section 422.
Options granted under the Plan shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem
appropriate:
(a) Option Price. The option exercise price per share of Stock shall
be determined by the Committee at the time of grant but shall be not less
than the 100% of the Fair Market Value of the Stock on the date of grant.
However, any Incentive Stock Option granted to any optionee who, at the
time such Option is granted, owns more than 10% of the voting power of all
classes of stock of the Company or of a "Parent" or "Subsidiary"
corporation (as such terms are defined in the Code and the regulations
promulgated thereunder), shall have an exercise price not less than 110% of
Fair Market Value per share on date of the grant.
A-3
<PAGE> 25
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Stock Option shall be exercisable more than ten years
after the date the Option is granted. However, any Incentive Stock Option
granted to any optionee who, at the time the option is granted owns more
than 10% of the voting power of all classes of Stock of the Company, or of
a Parent or Subsidiary corporation, may not have a term of more than five
years. No Option may be exercised by any person after expiration of the
term of such Option.
(c) Exercisability. Subject to Section 7 below, Stock Options shall
be exercisable at such time or times (including on an accelerated basis)
and subject to such terms and conditions as shall be determined by the
Committee at or after grant; provided however, that except as provided in
paragraph 5(f) or Section 6 below, unless otherwise determined by the
Committee at or after grant, no Stock Option shall be exercisable during
the six months following the date of the granting of such Option. Only full
shares shall be issued under the Plan, and any fractional share which might
otherwise be issuable upon the exercise of an Option granted under the Plan
shall be forfeited.
(d) Method of Exercise. Subject to the terms and conditions
established by the Committee under paragraph 5(c) above, Stock Options may
be exercised, in whole or in part to the extent exercisable, at any time
and from time to time during the option exercise period, by giving written
notice of exercise to the Company specifying the number of shares to be
purchased.
Such notice shall be accompanied by payment in full of the purchase
price, either by certified or bank check, or such other instrument as the
Committee may accept. As determined by the Committee, in its sole
discretion, at or after grant, payment in full or in part may also be made
in the form of unrestricted Stock already owned by the optionee; provided
however, that in the case of an Incentive Stock Option, the right to make a
payment in the form of currently owned shares may be authorized only at the
time such Option is granted.
If payment of the option exercise price of a Stock Option is made in
whole or in part in the form of stock already owned by the Participant, the
Company may require that the Stock be owned by the Participant for a period
of time so that such payment would not result in a charge to the Company's
earnings as a result of the exercise. Such provision also may be used by
the Company to prevent a pyramid exercise.
As soon as practicable after receipt of a written exercise notice and
full payment of the exercise price, the Company shall deliver to the
Participant a certificate or certificates representing the acquired shares
of Stock.
Notwithstanding the foregoing, the Committee, in its sole discretion,
may permit a "cashless exercise" of an Option. Any such cashless exercise
shall be effected by the Participant delivering to the Securities Broker
instructions to sell a sufficient number of shares of Common Stock to cover
the costs and expenses associated therewith.
(e) Transferability of Options. No Stock Option shall be transferable
by the optionee other than by will or by the laws of descent and
distribution, and all Stock Options shall be exercisable, during such
optionee's lifetime, only by the optionee, except to the extent otherwise
permitted by the Committee and, in the case of Stock Options intended to be
Incentive Stock Options, under the applicable provisions of Code Section
422 and the regulations promulgated thereunder.
A transferred Stock Option shall continue to be subject to the same
terms and conditions as were applicable to such Stock Option immediately
prior to transfer, and the original optionee shall remain subject to tax
withholding under paragraph 8(d) below with respect to such Stock Option.
Further, the events of termination of employment of paragraphs 5(f) and (g)
below shall continue to be applied with respect to the original optionee,
following which events the transferred Stock Option shall be exercisable by
the transferee only to the extent, and for the periods specified in, said
paragraphs 5(f) and (g).
(f) Termination of Employment. Subject to Section 7 below, at or
after the date of grant, the Committee shall determine, in its sole
discretion, the extent to which any unexercised Options held by the
optionee shall be exercised during the remaining term of such Options,
including whether such Options shall be exercised on an accelerated basis,
in the event an optionee's employment by the
A-4
<PAGE> 26
Company terminates by reason of death, Disability, Retirement, or
termination without Cause; provided however, that the exercise period for
any Option shall not exceed the shorter of (i) three years (or such shorter
period required by Section 422 of the Code in the case of Incentive Stock
Options) from the date of such termination or (ii) the stated term of such
Stock Option.
(g) Termination for Cause. Unless otherwise determined by the
Committee, in its sole discretion, if an optionee's employment by the
Company terminates for Cause, all unexercised vested and non-vested
outstanding Options held by such optionee shall lapse and be forfeited.
(h) Incentive Stock Option Limitations. To the extent required for
"Incentive Stock Option" status under Section 422 of the Code, the
aggregate Fair Market Value (determined as of the time of grant) of the
Stock with respect to which Incentive Stock Options granted are exercisable
for the first time by the optionee during any calendar year under the Plan
and/or any other stock option plan of the Company or a Parent or Subsidiary
of the Company (within the meaning of Section 424 of the Code) shall not
exceed $100,000.
SECTION 6. CHANGE-IN-CONTROL PROVISIONS
(a) Impact of Event. In the event of a "Change-In-Control" as defined
in paragraph 6(b) below, unless otherwise determined by the Committee at or
after grant, but prior to the occurrence of such Change-In-Control and
subject to paragraph 3(b) above, any and all Stock Options awarded under
the Plan not previously exercisable and vested shall become fully vested
and exercisable.
(b) Definition of "Change-In-Control." For purposes of paragraph 6(a)
above, a "Change-In-Control" means the happening of any of the following:
(i) the members of the Board at the beginning of any consecutive
twenty-four calendar month period (the "Incumbent Directors") cease for
any reason other than due to death to constitute at least a majority of
the members of the Board, provided that any director whose election, or
nomination for election by the Company's stockholders, was approved by a
vote of at least a majority of the members of the Board then still in
office who were members of the Board at the beginning of such
twenty-four calendar month period shall be deemed an Incumbent Director;
(ii) any "person," including a "group" (as such terms are used in
Sections 13(d) and (14(d) of the Exchange Act, but excluding the
Company, any of its Affiliates or any employee benefit plan of the
Company or any of its Affiliates) is or becomes the "beneficial owner"
(as defined in Rule 13(d)(3) under the Exchange Act), directly or
indirectly, of securities of the Company representing the greater of 30%
or more of the combined voting power of the Company's then outstanding
securities;
(iii) the stockholders of the Company shall approve a definitive
agreement (1) for the merger or other business combination of the
Company with or into another corporation if (A) a majority of the
directors of the surviving corporation were not directors of the Company
immediately prior to the merger or (B) the stockholders of the Company
immediately prior to the effective date of such merger own less than 50%
of the combined voting power in the then outstanding securities in such
surviving corporation or (2) for the sale or other disposition of all or
substantially all of the assets of the Company; or
(iv) the purchase of Stock pursuant to any tender or exchange offer
made by any "person", including a "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), other than the Company,
any of its Affiliates or any employee benefit plan of the Company or any
of its Affiliates, for 30% or more of the Stock of the Company.
SECTION 7. AMENDMENTS AND TERMINATION
The Board may amend, alter, or discontinue the Plan at any time and from
time to time, but no amendment, alteration, or discontinuation shall be made
which would materially impair the rights of a
A-5
<PAGE> 27
Participant with respect to a Stock Option which has been granted under the
Plan, without the Participant's consent, and no amendment shall be made which,
without the approval of the Company's stockholders:
(a) would, with respect to any amendment:
(i) materially increase the benefits accruing to directors and
officers, within the meaning of Rule 16a-1(f) under the Exchange Act
(hereinafter referred to as "Officers"), under the Plan;
(ii) materially increase the number of shares of Stock which may be
issued to directors and Officers under the Plan; or
(iii) materially modify the requirements as to eligibility for
directors and Officers to participate in the Plan;
(b) would, with respect to Incentive Stock Options:
(i) change the class of employees eligible to participate in the
Plan;
(ii) except as permitted under Section 3 above, increase the
maximum number of shares of Stock with respect to which Incentive Stock
Options may be granted under the Plan; or
(iii) extend the duration of the Plan under Section 9 below with
respect to any Incentive Stock Options granted hereunder.
The Committee may amend the terms of any Stock Option theretofore granted
hereunder, prospectively or retroactively, but, subject to Section 3 above, no
such amendment shall materially impair the rights of any holder without the
holder's consent, nor reduce the exercise price of such Stock Option.
Subject to the above provisions, the Board shall have broad authority to
amend the Plan to take into account changes in applicable tax laws and
accounting rules, as well as other developments.
SECTION 8. GENERAL PROVISIONS
(a) The Committee may require each person purchasing shares pursuant
to a Stock Option under the Plan to represent to and agree with the Company
in writing that the optionee or Participant is acquiring the shares without
a view to distribution thereof. The certificates for such shares may
include any legend which the Committee deems appropriate to reflect any
restrictions on transfer.
All certificates for shares of Stock or other securities delivered
under the Plan shall be subject to such stop-transfer orders and other
restrictions as the Committee may deem advisable under the rules,
regulations, and other requirements of the Exchange Act, any stock exchange
upon which the Stock is then listed, and any applicable Federal or state
securities law, and the Committee may cause a legend or legends to be put
on any such certificates to make appropriate reference to such
restrictions.
(b) Nothing contained in the Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements
may be either generally applicable or applicable only in specific cases.
(c) The adoption of the Plan and the receipt of grants hereunder shall
not confer upon any employee of the Company or any Affiliate any right to
continued employment with the Company or any Affiliate, as the case may be,
nor shall it interfere in any way with the right of the Company or any
Affiliate to terminate the employment of any of its employees at any time.
Further, an optionee shall have no rights as a shareholder of the Company
with respect to any shares covered by such person's Options until the
issuance of a stock certificate to him or her representing such shares.
(d) No later than the date as of which an amount first becomes
includible in the gross income of a Participant for Federal income tax
purposes with respect to any Stock Option under the Plan, such Participant
shall pay to the Company, or make arrangements satisfactory to the
Committee regarding the payment of, any Federal, state, or local taxes of
any kind required by law to be withheld with respect to such amount. Unless
otherwise determined by the Committee, the minimum required withholding
obligations may be settled with Stock, including Stock that is part of the
Stock Option that gives rise to the withholding requirement. The
obligations of the Company under the Plan shall be conditioned on
A-6
<PAGE> 28
such payment or arrangements, and the Company shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment
of any kind otherwise due to the Participant.
(e) At the time of grant of any Stock Option, the Committee may
provide that any shares of Stock received as a result of such grant shall
be subject to a right of first refusal, pursuant to which the Participant
shall be required to offer to the Company any shares that the Participant
wishes to sell, with the price being the then Fair Market Value of the
Stock, subject to such other terms and conditions as the Committee may
specify at the time of grant.
(f) Each person who is or shall have been a member of the Committee or
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 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 its own 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.
(g) Nothing in the Plan shall be construed to limit the right of the
Company to establish other plans or to pay compensation to its employees in
cash or property, in a manner which is not expressly authorized under the
Plan.
(h) The granting of awards and the issuance of shares of Stock shall
be subject to all applicable laws, rules, and regulations, and to such
approvals by any governmental agencies or national securities exchanges as
may be required.
(i) Grants made and amounts received under the Plan shall not be
deemed compensation for purposes of calculating an employee's rights under
any employee benefit plan unless otherwise expressly stated in such plan.
(j) 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.
SECTION 9. EFFECTIVE DATE AND DURATION OF PLAN
The Plan shall become effective on May 21, 1997; provided, however, that if
the Plan is not approved by the requisite vote of the Company's stockholders
prior to May 21, 1998, the Plan and any and all Stock Options granted hereunder
shall be null and void. Unless earlier terminated as provided in the Plan, the
Plan shall terminate at 12:00 midnight on May 20, 2007, and no Stock Option
shall be granted under the Plan thereafter. However, termination of the Plan
shall not affect any Stock Options previously granted, which Stock Options shall
remain in effect in accordance with their terms and the terms of the Plan.
A-7
<PAGE> 29
PROXY
GTECH HOLDINGS CORPORATION
ANNUAL MEETING OF SHAREHOLDERS, JULY 14, 1997
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 May 28, 1997,
at the Annual Meeting of Shareholders of GTECH Holdings Corporation to be held
July 14, 1997, and at any adjournment thereof.
The Board of Directors recommends a vote FOR Proposals Nos. 1 and 2.
This Proxy, when properly executed, will be voted as specified on the reverse
side. THIS PROXY WILL BE VOTED FOR PROPOSALS NOS. 1 AND 2 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
<PAGE> 30
(1) Election of Burnett W. Donoho and Lt. Gen. (Ret.) Emmett Paige, Jr. (USA)
as directors of GTECH Holdings Corporation for a three year term of office
expiring in 2000.
VOTE FOR WITHHOLD AUTHORITY VOTE FOR ALL, EXCEPT FOR
ALL NOMINEES FOR ALL NOMINEES THE FOLLOWING NOMINEE
/ / / / / /
(Insert the name of the nominee for whom you do not wish to vote in the
space provided.)
__________________________________________________________________________
(2) Approve the GTECH Holdings Corporation 1997 Stock Option Plan.
FOR AGAINST ABSTAIN
/ / / / / /
(3) In their discretion on such other business as may properly come before the
meeting.
Change of Address and
or Comments Mark Here / /
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:_________________________, 1997
_____________________________________
(Signature of Shareholder)
_____________________________________
(Signature of Additional Shareholder)
VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE INK. / /
SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
