<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
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:
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<PAGE> 2
LOGO
GTECH HOLDINGS CORPORATION
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 13, 1998
------------------------
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 13, 1998, 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 1998 Employee Stock
Purchase 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 June 3, 1998, 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 8, 1998
<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
12, 1998, 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 13, 1998 (the
"Meeting"), and at any adjournments thereof.
At the close of business on June 3, 1998, the record date for determination
of shareholders entitled to notice of, and to vote at, the Meeting, there were
outstanding an aggregate of 41,354,559 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 1998 Employee Stock Purchase 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. At its May
1998 meeting, the Board of Directors by resolution designated that six 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. 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 2001
Annual Meeting, and until their successors are elected and have qualified,
subject to earlier death, resignation, retirement or removal from office:
The Rt. Hon. Lord Moore of Lower Marsh, P.C.
Robert M. Dewey, Jr.
<PAGE> 4
Mr. Dewey and Lord Moore are presently serving as directors of the Company.
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, 1998, 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:
<TABLE>
<CAPTION>
PRESENT
DIRECTOR TERM
NAME, AGE AND OCCUPATION (1) SINCE EXPIRES
---------------------------- -------- -------
<S> <C> <C>
NOMINEES FOR ELECTION AT THE MEETING:
Robert M. Dewey, Jr., 66.................................... 1995 1998
Senior Advisor, Donaldson, Lufkin & Jenrette, Inc.
("DLJ"), investment banking firm, since January 1998.
Previously, Mr. Dewey was the Chairman of Autranet,
Inc., a wholly-owned subsidiary of DLJ, from January
1996 to January 1998, and Managing Director,
Institutional Equities Division, of Donaldson, Lufkin &
Jenrette Securities Corporation, a subsidiary of DLJ,
from 1983 through June 1995. Mr. Dewey is also the
President of the Board of Trustees of the Deerfield
Academy.
The Rt. Hon. Lord Moore of Lower Marsh, P.C., 60............ 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 T.I.G., Inc.;
and the President of Energy Saving Trust Ltd., a
not-for-profit energy conservation organization.
DIRECTORS WHOSE TERMS CONTINUE BEYOND THE MEETING
William Y. O'Connor, 53(2).................................. 1995 1999
Chairman since February 1998, Chief Executive Officer
since July 1997, and President of the Company since
December 1994. Mr. O'Connor also served as Chief
Operating Officer of the Company from December 1994
through February 1998. 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.
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
PRESENT
DIRECTOR TERM
NAME, AGE AND OCCUPATION (1) SINCE EXPIRES
---------------------------- -------- -------
<S> <C> <C>
Burnett W. Donoho, 58....................................... 1992(3) 2000
Self-employed Retail Consultant since January 1998.
Previously, Mr. Donoho was Vice Chairman and Chief
Operating Officer of Montgomery Ward, Inc., a privately
held department store, from February 1997 through
December 1997 and a self-employed Retail Consultant
from December 1994 from 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. Mr. Donoho is also a director of OfficeMax,
Inc. and Innopet Brands, Inc.
Lt. Gen. (Ret.) Emmett Paige, Jr. (USA), 67................. 1997 2000
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. General Paige is also a trustee of
Ascom Timeplex Federal Systems.
Anthony Ruys, 50............................................ 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.
(2) See "Additional Information -- Employment -- Severance Agreements and
Arrangements," below.
(3) Mr. Donoho was a director of the Company from May 1990 to June 1991 and was
again elected a director of the Company in October 1992.
VOTING AGREEMENTS, NOMINATION OF DIRECTORS AND RELATED MATTERS
The Company's Nominating Committee (see below) has recommended to the Board
of Directors that Mr. Dewey and Lord Moore be approved, and Mr. Dewey and Lord
Moore 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, 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
3
<PAGE> 6
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
the By-laws for such requirements.
INFORMATION CONCERNING MEETINGS AND CERTAIN COMMITTEES
The Board of Directors held seven formal meetings during fiscal 1998, 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 a Nominating Committee. The Audit Committee's present
members are Messrs. Dewey and Donoho and Lord Moore. In addition, Carl H.
Freyer, a former director of the Company who retired from the Board effective as
of the date of the 1997 Annual Meeting, was a member of the Audit Committee
during a portion of fiscal 1998. 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 1998. The
Compensation Committee's current members are Messrs. Dewey and Donoho and
General Paige. General Paige was appointed to the Compensation Committee to fill
the vacancy created by the July 1997 retirement of Mr. Freyer, who was a member
of the Compensation Committee during a portion of fiscal 1998. In December 1997,
the Board of Directors acted to increase the size of the Compensation Committee
from two to three directors and appointed Mr. Dewey to fill the vacancy on the
Committee created by this action. The Compensation Committee is responsible for
administering the Company's stock option and certain other compensation plans
and is authorized to review and approve specific executive compensation
arrangements referred to it by the Board and to recommend policies respecting
the compensation of executive officers of the Company generally. The
Compensation Committee will be responsible for administering the Company's 1998
Employee Stock Ownership Plan, assuming such Plan is approved by the
shareholders at the Meeting (see Proposal 2 "Approval of the 1998 Employee Stock
Purchase Plan," below). The Compensation Committee did not hold any formal
meetings during fiscal 1998, but had several informal meetings, conferred
informally and took formal action by unanimous consent on a number of occasions.
The Nominating Committee's current members are Messrs. Donoho and O'Connor and
Lord Moore. Mr. O'Connor was appointed to, and Guy B. Snowden resigned from, the
Nominating Committee in July 1997, upon Mr. O'Connor's appointment as Chief
Executive Officer of the Company. 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 1998, but conferred informally and made
recommendations to the Board of Directors on respecting nominees to fill
vacancies in the Board of Directors.
During fiscal 1998, all directors attended in person or by conference
telephone all formal meetings of the Board of Directors and committees of the
Board on which they served.
COMPENSATION OF DIRECTORS
During fiscal 1998, directors who were not employees of the Company
received annual directors' fees at the rate of $30,000 per year, plus $1,000 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 $1,000 per day (other than a day for which such director received the
aforementioned $1,000 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. Commencing during the second quarter
of fiscal 1999, directors of the Company will have the right to elect to receive
all or a portion of their directors' fees in the form of shares of Common Stock
of the Company. From time to time directors provide special consulting or other
services for the Company for which they receive additional compensation. No
directors received any such additional compensation during fiscal 1998.
4
<PAGE> 7
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 July 17, 1997, each of the
five then outside directors (Messrs. Dewey, Donoho, and Ruys, General Paige and
Lord Moore) was granted such a 10,000 share option with an exercise price of
$32 1/2 per share. Lord Moore also holds 3,000 stock units, granted under the
Company's 1992 Outside Directors' Stock Unit Plan (the "DSU Plan") in 1995. Lord
Moore's stock units will 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 1998 EMPLOYEE STOCK PURCHASE PLAN
BACKGROUND
At the meeting, the shareholders also will be asked to approve the 1998
Employee Stock Purchase Plan (the "1998 Plan") which was unanimously adopted by
the Company's Board of directors in May 1998. A summary of the terms of the 1998
Plan appears below, and a copy of the Plan is attached as an Appendix to this
proxy statement.
The Board approved the 1998 Plan, which authorizes the issuance of up to
750,000 shares of Common Stock ("Shares"), because it firmly believes that it is
in the Company's best interests that its employees own equity in the Company.
The Board believes that ownership of Common Stock by employees serves to more
closely align the interests of employees with those of shareholders in having
the Company prosper and the Common Stock value increase. The Board further
believes that the Plan provides a convenient method for employees to purchase
equity in the Company.
As of the date of this proxy statement, no shares of Common Stock have been
issued under the 1998 Plan. All employees of subsidiaries of the Company
designated by the Board will be eligible to participate in the Plan, except for:
(a) employees whose customary employment is less than 20 hours per week; (b)
employees whose customary employment is for not more than five months in any
calendar year; and (c) employees who are Executive Officers of the Company, as
determined from time to time by the Board. As an initial matter, it is
anticipated (subject to the preceding sentence) that all employees of GTECH
Corporation and the Company's other domestic subsidiaries will be eligible to
participate in the Plan. As of May 31, 1998, there were approximately 3,260
employees of GTECH Corporation and the other domestic subsidiaries of the
Company that would have been eligible to participate in the Plan had the Plan
been approved by the shareholders of the Company as of such date.
All eligible employees will be entitled to participate in the 1998 Plan to
the maximum extent provided for in the Plan, subject to its terms and
conditions. There are no allocations of Shares to specific sub-groups of
eligible employees, although the Plan provides for the pro-rata allocation of
Shares remaining available for issuance under the Plan among participants in the
event the number of shares elected to be purchased by participants exceeds the
number of Shares available for sale under Plan.
THE BOARD OF DIRECTORS BELIEVES THAT THE 1998 EMPLOYEE STOCK
PURCHASE PLAN IS IN THE BEST INTERESTS OF THE COMPANY AND
RECOMMENDS A VOTE FOR APPROVAL OF SUCH PLAN.
SUMMARY OF THE 1998 PLAN
The following description of the 1998 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 1998 Plan authorizes the issuance of up to 750,000 Shares to eligible
employees who elect to participate in the Plan. (See "Background" above.)
5
<PAGE> 8
The 1998 Plan is an "employee stock purchase plan" which is intended to
qualify under Section 423 of the Internal Revenue Code of 1986, as amended (the
"Code"). Eligible employees may purchase up to a maximum of $25,000 of Shares
under the Plan during any calendar year by authorizing payroll deductions of up
to 10% of salary over one or more offering periods, as defined below. The
purchase price for each Share purchased under the Plan will be an amount equal
to the lesser of: 85% of the closing price of a Share at the commencement of the
applicable consecutive six month offering period (each, an "offering period") or
85% of the closing price of a Share at the expiration of the applicable offering
period, in each case as determined under the Plan. As of June 5, 1998, the
closing price of a share of Common Stock on the New York Stock Exchange on such
day was $31 1/2.
The Compensation Committee, or such other person(s) or entity designated
the responsibility by the Board, will be the Administrator of the 1998 Plan. The
Plan vests the Administrator with full authority to make, administer and
interpret such rules and regulations as it deems necessary to administer the
Plan, and any determination, decision or action by the Administrator in such
connection is binding upon all participants and their beneficiaries.
The 1998 Plan will become effective as of August 1, 1998 (or as soon as
administratively practicable thereafter), subject to approval by the
shareholders of the Plan at the Meeting.
The 1998 Plan and all rights to participants will terminate on the earlier
of: (i) July 31, 2003; (ii) the date as of which the total number of Shares
provided for by the Plan have been purchased; or (iii) the date as of which the
Board of Directors acts to terminate the Plan.
The Board of Directors may modify, amend, or terminate the 1998 Plan at any
time, provided that no employee's existing rights with respect to a then-current
offering period may be adversely affected thereby and provided further that the
Board may not amend the Plan without shareholder approval if such amendment
would increase the number of Shares that are reserved for issuance under the
Plan (except in certain limited circumstances dealing with adjustments
appropriate in connection with reorganizations, recapitalizations or similar
changes in the capital structure of the Company), or would cause an option to
purchase Shares of Common Stock under the Plan to fail to meet the requirements
of Section 423 of the Code.
FEDERAL INCOME TAX EFFECTS OF PLAN PARTICIPATION
The Company has been advised that, under federal tax laws and regulations
in effect on June 1, 1998, the Federal income tax consequences to the Company
and its subsidiaries and to participants under the 1998 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.
Participants' contributions to the 1998 Plan through payroll deductions are
not tax deductible but will constitute part of the cost basis of the Shares
purchased under the Plan. No tax liability results from the grant of an option
or purchase of Shares under the 1998 Plan. The employee participant becomes
liable for federal income tax upon the disposition of the Shares. Under Section
423 of the Code, employees must hold the Shares for two years from the date the
option to purchase the Shares is granted (i.e., the first day of the applicable
offering period), in order to be eligible to obtain capital gains treatment upon
disposition of the Shares, as described below.
When Shares are disposed of after the required holding period (or if the
participant dies while holding the Shares), the participant recognizes ordinary
income (compensation) to the extent of the lesser of: (i) the amount by which
the fair market value of the Shares at the time the option was granted exceeded
the purchase price; or (ii) the amount by which the fair market value of the
Shares at the time of disposition of the Shares (or at the participant's earlier
death) exceeded the purchase price paid by the employee for the Shares. Any
further gain is taxed as long-term or mid-term capital gain. The Company is not
entitled to tax deductions for any portion of the income or gain recognized by
an employee meeting the holding period requirements. If the sale price is less
than the option price, there is no ordinary income and the employee has a
long-term or mid-term capital loss in the amount of this difference.
6
<PAGE> 9
If the Shares are disposed of within two years from the applicable grant
date, the participant will recognize ordinary income in the year of disposition
in the amount by which the fair market value of the Shares on the date of
acquisition exceeded the price paid for the Shares. Any additional gain or loss
on the disposition of the Shares is treated as short-term, mid-term, or
long-term capital gain or loss, depending on how long the Shares were held by
the participant. The Company may take a deduction in the year a participant
makes a disqualifying disposition (i.e., disposes of Shares within two years
from the applicable grant date) to the extent the participant recognizes
ordinary income on the disposition, subject to Section 83 of the Code.
Any dividends and other distributions made with respect to Shares held in
an employee participant's account are deemed gross income to the participant.
Any gain or loss from the sale of any rights or other property distributed with
respect to Shares held on behalf of a participant is gain or loss to the
participant.
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.
ADDITIONAL INFORMATION
BENEFICIAL OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth, as of May 28, 1998, 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
executive officers of the Company named in the Summary Compensation Table
appearing later in this proxy statement who remained an employee of the Company
as of May 28, 1998; and (iv) all present 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 PERCENT
BENEFICIALLY OF
NAME OF BENEFICIAL OWNER OWNED(1) CLASS(1)
------------------------ ------------ --------
<S> <C> <C>
Tiger Management L.L.C...................................... 6,062,000 14.7%
101 Park Avenue
New York, New York 10178
Travelers Group Inc......................................... 2,369,305(2) 5.7%
338 Greenwich Street
New York, New York 10013
William Y. O'Connor, director and executive officer......... 314,000(3) *
Robert M. Dewey, Jr., director.............................. 40,635(4) *
Burnett W. Donoho, director................................. 27,500(4) *
The Rt. Hon. Lord Moore of Lower Marsh, P.C., director...... 24,500(4) *
Lt. Gen. (Ret.) Emmett Paige, Jr., director................. 10,000(4) *
Anthony Ruys, director...................................... 20,000(4) *
Michael R. Chambrello, executive officer.................... 39,000(5) *
Thomas J. Sauser, executive officer......................... 50,000(6) *
All present directors and executive officers, as a group (9 558,135 1.3%
persons)..................................................
</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.
7
<PAGE> 10
(2) Represents shares held on behalf of subsidiaries of Travelers Group Inc.
(3) Includes 309,000 shares subject to unexercised stock options granted under
the Company's 1994 Stock Option Plan which either have vested or will vest
within 60 days.
(4) Includes 10,000 shares subject to unexercised stock options automatically
granted under the Company's 1996 Non-Employee Directors' Stock Option Plan
following the Company's 1997 Annual Meeting, which options, subject to the
terms and conditions of such plan, become exercisable on July 12, 1998.
(5) Includes 33,750 shares subject to vested but unexercised stock options
granted under the Company's 1994 Stock Option Plan.
(6) Shares subject to unexercised stock options granted under the Company's 1994
Stock Option Plan which either have vested or will vest within 60 days.
EXECUTIVE COMPENSATION REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS
Policies regarding executive compensation are set primarily by the
Compensation Committee (the "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. The
Committee currently has three members, Messrs. Dewey, Donoho and Paige, all of
whom are outside independent directors.
Compensation Philosophy.
The Committee believes that the Company must pay competitively to attract
and retain qualified executives. To motivate executive personnel to perform at
their full potential, the Committee believes a significant portion of
compensation should be incentive-based. This would typically result in salary
levels below the 50th percentile of competitive ranges, and bonuses, if
performance is achieved, well above the 50th percentile. In addition, the
Committee believes it is important to reward not only individual performance and
achievement, but also to focus on overall corporate results. This latter
objective serves the dual purpose of encouraging teamwork among executives and
also supporting the Company's objective of increasing shareholder value.
The Committee also believes it is essential that it retain the flexibility
to evaluate not only overall individual performance and the performance of the
Company as a whole, but also all other circumstances and challenges facing the
Company. Consequently, it uses subjective as well as objective criteria in
setting and adjusting the base salary and the annual bonus for executive
officers.
Executive Officer Employment Agreements.
Four of the highest paid executive officers of the Company during fiscal
1998 named in the Summary Compensation Table below, Messrs. Snowden, Markowicz,
O'Connor and Gay, were parties to pre-existing employment agreements with the
Company which, to a large extent, governed their compensation during the year.
See "Employment-Severance Agreements and Arrangements" and the Summary
Compensation Table below for further information about the terms of these
agreements.
The other executive officers named in the Summary Compensation Table below
were not parties to employment agreements, and their compensation currently is
determined based upon a review by their superiors and consideration of the
principles set forth above and elsewhere in this report.
Principal Elements of Compensation.
Compensation earned in the 1998 fiscal year, as reflected in the following
tables, consisted primarily of salary and annual bonus. (Executive officers also
received executive benefits and perquisites as well as other benefits offered
under Company sponsored broad-based plans.) No stock options were granted to
executive officers in fiscal 1998. See "Stock Options" below.
8
<PAGE> 11
Base Salary. Executive officers' salaries are reviewed annually. In
assessing whether salary increases are warranted with respect to those executive
officers without employment agreements or in connection with discretionary
increases under, or the amendment, extension or renewal of, an executive
officer's employment agreement, the Company considers a number of factors,
including corporate profitability, performance on the job, responsibility level,
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. The employment agreements of Messrs. Snowden and Markowicz
(which are no longer in effect) provided 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). Certain other
employment contracts provide for annual bonuses based upon discretionary
elements subject to a specified annual bonus range. Executive officers without
employment agreements receive annual bonuses at the discretion of their
superiors consistent with the principles outlined above.
Stock Options. The Company's 1997 Stock Option Plan (the "1997 Plan"), was
approved by the shareholders of the Company at the 1997 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 Plan is administered by the 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 1997 Plan are wholly within the discretion of the
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.
During the 1998 fiscal year, no options were awarded to executive officers,
however, option awards under the 1997 Plan which were made in the first quarter
of fiscal 1999, were based on the fiscal 1998 earnings per share (before special
charges). The aggregate pool of annual options available for granting under the
1997 Plan is tied to specific earnings per share targets and returns on capital
invested as set annually by the Committee and approved by the Board. The
objective of the 1997 Plan is to align employee participants' personal rewards
and motivation with Company performance and shareholder value.
Rationale for Fiscal 1998 Compensation of Messrs. Snowden, Markowicz and
O'Connor.
Mr. Snowden served as Chief Executive Officer of the Company through July
14, 1998, at which time he was succeeded in that office by Mr. O'Connor.
Messrs. Snowden and Markowicz, who were founders of the Company, were
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 1998 base salaries and bonuses of Messrs.
Snowden and Markowicz were determined in accordance with the Employment
Agreements as follows:
Base Salary. Each Employment Agreement provided for an initial 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 1998 reflected such cumulative Consumer Price Index
increases.
Annual Bonus. The Employment Agreements provided 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
9
<PAGE> 12
Messrs. Snowden and Markowicz paid with respect to fiscal 1998 ($4,196,500
to Mr. Snowden and $4,225,000 to Mr. Markowicz) were calculated pursuant to
this formula, subject to a downward adjustment in Mr. Snowden's case. See
"Employment-Severance Agreements and Arrangements" below.
Neither Mr. Snowden nor Mr. Markowicz was eligible to receive grants of
stock options under the Company's stock option plans.
Mr. O'Connor's original 1994 Employment Agreement provided for an initial
annual base salary of $430,000, to be increased annually starting on March 1,
1996 based on the Consumer Price Index, and otherwise at the discretion of the
Board or the Committee. In anticipation of Mr. O'Connor's promotion to Chief
Executive Officer on July 14, 1997 and in recognition of his already increased
responsibilities, his salary was increased by $ to $511,757 on March 1,
1997.
Mr. O'Connor's Employment Agreement, as in effect for fiscal 1998, also
provided for an annual incentive bonus up to a maximum of 4 times his current
base salary. The major portion of such incentive bonus in 1998 was based upon
the extent to which certain specified annual earnings per share levels, growth,
and management objectives were obtained. All goals and objectives were met with
the one exception of superior Company stock price performance. On this basis,
the Committee awarded an incentive bonus of $1,650,000 to Mr. O'Connor.
The Committee intends to continue its practice of basing executive
compensation primarily on stock price and other financial performance criteria,
and secondarily, but importantly, on its qualitative evaluation of individual
performance. The Committee believes that its compensation policies promote the
goals of attracting, motivating, rewarding and retaining talented executives who
will maximize value for the Company's shareholders.
Section 162(m) of the Internal Revenue Code of 1986, as amended, (the
"Code") limits to $1,000,000 the amount of compensation which may be deducted by
the Company in any year with respect to each of its highest paid executive
officers. Certain types of performance-based compensation, if approved by
stockholders and/or otherwise exempted by Section 162(m), are not subject to
this limitation. It is believed that the Company's stock option plans in which
executive officers are eligible to participate have been structured in such a
way as to qualify as performance-based compensation not subject to the Section
162(m) limits on deductibility, and the Committee intends to consider whether it
is practical similarly to qualify in the future all or a portion of Mr.
O'Connor's annual incentive bonus so as to be exempt from such limits. However,
the Committee believes that it is important to retain the flexibility to offer
such compensation arrangements and plans as the Committee determines to be
necessary from time to time to attract, retain and motivate executive officers
without being constrained by considerations of Section 162(m) tax deductibility.
Date: May 26, 1998
The Fiscal 1998 Compensation Committee
of the Board of Directors
Robert M. Dewey, Jr.
Burnett W. Donoho
General Emmett Paige, Jr.**
- ---------------
** Carl H. Freyer, who retired at the time of the Company's 1997 Annual Meeting,
was a member of the Compensation Committee during a portion of fiscal 1998.
General Paige was appointed to the Compensation Committee to fill the vacancy
created by the retirement of Mr. Freyer.
10
<PAGE> 13
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning the annual
and long-term compensation paid for fiscal years 1998, 1997, and 1996 to or for:
(i) each person who served as the Company's Chief Executive Officer during
fiscal year 1998; and (ii) each of the Company's four other most
highly-compensated executive officers whose total annual salary and bonus for
fiscal year 1998 exceeded $100,000 (collectively, the "Named Officers") for
services rendered to the Company and its subsidiaries:
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------- --------------------- ---------------------
OTHER RESTRICTED LONG-TERM ALL OTHER
ANNUAL STOCK COMPEN- COMPEN-
SALARY BONUS COMPENSATION AWARD(S) OPTIONS/ SATION SATION
NAME AND PRINCIPAL POSITION(1) YEAR ($)(2) ($) ($)(3) ($) SARS(4) PAYOUTS ($)(5)
- ------------------------------- ---- ------- --------- ------------ ---------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William Y. O'Connor............ 1998 511,757 1,650,000 180,943 -- -- -- 341,762
Chairman, Chief Executive 1997 440,750 910,600 207,061 -- -- -- 80,325
Officer and President 1996 430,000 860,000 183,765 -- 300,000 -- 12,232
Thomas J. Sauser............... 1998 309,900 264,000 87,451 -- -- -- 25,523
Senior Vice President & Chief 1997 300,000 250,000 190,416 -- -- -- 2,393
Financial Officer 1996(6) 13,846 50,000 56 -- 100,000 -- 0
Michael R. Chambrello.......... 1998 309,900 250,000 81,253 -- -- -- 23,536
Executive Vice President 1997 261,077 300,000 84,937 -- -- -- 28,672
1996 210,000 160,000 77,147 -- 15,000 -- 21,279
Guy B. Snowden................. 1998 461,080 4,196,500 155,777 -- -- -- 9,457,679
Chairman(1) 1997 456,337 3,865,810 249,824 -- -- -- 190,028
1996 445,207 3,078,550 223,413 -- -- -- 156,789
Victor Markowicz............... 1998 471,395 4,225,000 163,071 -- -- -- 9,502,679
Vice Chairman(1) 1997 456,337 3,865,810 242,629 -- -- -- 183,832
1996 445,207 3,078,550 212,155 -- -- -- 151,454
Laurance W. Gay................ 1998 299,061 285,000 106,927 -- -- -- 876,638
Senior Vice President -- 1997 289,529 150,000 126,326 -- -- -- 1,085,604
Sales and Government
Relations(1) 1996 280,547 60,000 97,454 -- -- -- 506,749
</TABLE>
- ---------------
(1) Sets forth the names and principal positions of the Named Officers as of the
end of fiscal 1998, except that Mr. Snowden, who was the Company's Chief
Executive Officer from the start of fiscal 1998 through July 14, 1997,
stepped down as Chairman on February 3, 1998, and Mr. Markowicz stepped down
as Vice Chairman in February 1998 with effect as of March 1, 1998. After the
close of fiscal 1998, Mr. Gay, who was named an executive officer during
fiscal 1998, resigned his position with the Company in March 1998. 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 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. O'Connor, Snowden, Chambrello and Gay of $27,500 in each of fiscal
years 1998, 1997 and 1996; (b) to Mr. Markowicz of $25,868 for fiscal year
1997 and $27,500 for each of fiscal years 1998 and 1996; and (c) to Mr.
Sauser of $27,500 for fiscal years 1998 and 1997. In addition, the Company
provided taxable fringe benefits to the Named officers in the following
amounts: Mr. O'Connor -- $22,577 (1998); $36,876 (1997); and $63,079 (1996)
(including imputed interest on certain loans made by the Company to Mr.
O'Connor pursuant to his employment agreement); Mr. Sauser -- $13,874
(1998); $91,193 (1997) and $33 (1996); Mr. Chambrello -- $9,378 (1998);
$8,453 (1997) and $8,339 (1996); Mr. Snowden -- $8,167 (1998); $13,397
(1997); and $20,833 (1996); Mr. Markowicz -- $12,125 (1998); $9,742 (1997)
and $9,575 (1996); and Mr. Gay -- $7,637 (1998); $10,075 (1997); and $10,075
(1996). The gross-up payments for taxes were: Mr. O'Connor -- $130,866
(1998); $142,686 (1997) and
11
<PAGE> 14
$93,186 (1996); Mr. Sauser -- $45,777 (1998); $71,632 (1997) and $23 (1996);
Mr. Chambrello -- $44,375 (1998); $48,984 (1997); and $41,308 (1996); Mr.
Snowden -- $119,010 (1998); $208,927 (1997); and $175,081 (1996); Mr.
Markowicz -- $123,947 (1998); $207,019 (1997); and $175,081 (1996); and Mr.
Gay -- $71,790 (1998); $88,751 (1997) and $59,879 (1996).
(4) 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.
(5) 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, amounts provided under the Company's SRP, and
amounts payable as severance. During, or with respect to fiscal year 1998,
the Company: (i) made severance payments in the amount of $9,301,000 to Mr.
Snowden and in the amount of $9,352,000 to Mr. Markowicz; (ii) paid
insurance premiums with respect to life insurance maintained on the lives of
the Named Officers in the following amounts: Mr. O'Connor -- $21,547; Mr.
Sauser -- $2,592; Mr. Chambrello -- $918; Mr. Snowden -- $12,492; Mr.
Markowicz -- $5,637; and Mr. Gay -- $918; (iii) made matching contributions
under the Retirement Plan with respect to each of the Named Officers other
than Messrs. Sauser and Gay in the amount of $4,150 and with respect to
Messrs. Sauser and Gay, made matching contributions of $4,043 and $3,564,
respectively; (iv) made profit sharing contributions under the Retirement
Plan with respect to each of the Named Officers in the amount of $4,800; (v)
made contributions under the SRP with respect to each of the Named Officers
in the following amounts: Mr. O'Connor -- $61,265; Mr. Sauser -- $14,088;
Mr. Chambrello -- $13,668; Mr. Snowden -- $135,237; Mr. Markowicz --
$136,092; and Mr. Gay -- $39,238; (vi) forgave $250,000 of principal amount
of a $500,000 principal amount loan made by the Company in fiscal 1995 to
Mr. O'Connor; and (vii) paid $828,118 in sales commissions to Mr. Gay.
(6) 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.
FISCAL YEAR-END OPTIONS VALUE TABLE
During fiscal 1998 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 1998 fiscal year on February 28, 1998:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF VALUE OF UNEXERCISED
COMMON STOCK UNDERLYING IN-THE-MONEY
STOCK OPTIONS(1) STOCK OPTIONS(2)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William Y. O'Connor....................... 309,000 203,000 $3,986,363 $2,270,438
Thomas J. Sauser.......................... 50,000 50,000 $ 328,125 $ 328,125
Michael R. Chambrello..................... 33,750 16,250 $ 558,750 $ 232,813
Guy B. Snowden............................ -- -- -- --
Victor Markowicz.......................... -- -- -- --
Laurance W. Gay........................... 32,500 27,500 $ 292,813 $ 199,688
</TABLE>
- ---------------
(1) All stock options reflected in this table were non-qualified options granted
pursuant to the Company's 1994 Stock Option 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.
12
<PAGE> 15
(2) Calculated based upon the aggregate of the differences between $35.50, the
per-share market value of the Company's Common Stock as of the close of
business on February 27, 1998, the last trading day of the Company's 1998
fiscal year, and the per-share exercise prices for the respective grants of
stock options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1998, 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 (through February 3, 1998) and Chief
Executive Officer (through July 13, 1997), Mr. Markowicz, Vice Chairman, and Mr.
O'Connor, Chairman (since February 3, 1998), Chief Executive Officer (since July
14, 1997), President and Chief Operating Officer, participated in certain
deliberations of the Company's Board of Directors concerning executive officer
compensation.
Messrs. Dewey, Donoho and Freyer, and General Paige were members of the
Compensation Committee during fiscal 1998. Mr. Freyer retired as director during
fiscal 1998 and General Paige was appointed to fill the vacancy on the
Compensation Committee created by Mr. Freyer's resignation. In December 1997,
the Board of Directors acted to increase the size of the Compensation Committee
and appointed Mr. Dewey to fill the vacancy on the Committee created by this
action.
EMPLOYMENT -- SEVERANCE AGREEMENTS AND ARRANGEMENTS
Mr. O'Connor originally entered into an employment agreement with the
Company in October 1994, which agreement was amended and restated in July 1997
in connection with Mr. O'Connor's promotion to Chief Executive Officer. The term
of Mr. O'Connor's employment under his original agreement commenced on December
15, 1994 and was to continue through November 1997, subject to automatic
one-year extensions commencing December 1, 1997 (and December 1 of each
successive year) unless either party gave prior notice of non-renewal. The
original agreement provided for a minimum annual base salary of $430,000
(increased annually starting on March 1, 1996, based on the Consumer Price Index
and otherwise in the discretion of the Board of 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 original agreement provided
that a portion of such incentive bonus was to be based upon the extent to which
certain specified minimum, target and maximum annual earnings per share levels
and management objectives (to be agreed to each year by the Compensation
Committee or the Board of Directors after consultation with Mr. O'Connor) were
obtained.
Pursuant to the original agreement, as amended, the Company granted Mr.
O'Connor 5,000 Restricted Stock Rights in December 1994 which stock rights have
fully vested. In accordance with the original 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. The vesting of such options will accelerate in the event
of a change of control.
Pursuant to his employment agreement, Mr. O'Connor was nominated for
election, and was initially elected, as a director of the Company at the 1995
Annual Meeting.
The term of Mr. O'Connor's amended and restated employment agreement
commenced on July 14, 1997 and continues until Mr. O'Connor's death, disability,
retirement from active employment (with the consent of the Board or in
accordance with Company policy), resignation or discharge. The employment
agreement, as currently in effect, provides for an annual base salary of
$600,000 (increased annually based upon the Consumer Price Index and otherwise
in the discretion of the Board or the Compensation Committee), an annual
performance bonus of up to a maximum of six times his then-current salary, and
life insurance and various other benefits (including, but not limited to,
medical coverage for Mr. O'Connor and his family, certain club memberships,
spousal travel, certain professional services, use of automobile, and certain
fringe and other benefits identified in the notes to the Summary Compensation
Table above). The amended and restated agreement provides that Mr. O'Connor's
performance bonus shall be determined using a matrix of reasonable quantitative
metrics established by and in the reasonable discretion of the Compensation
13
<PAGE> 16
Committee. Based upon the Company's performance, in light of metrics established
for fiscal 1998, Mr. O'Connor received a performance bonus of $1,650,000 for
fiscal 1998.
Under the amended and restated employment agreement, if Mr. O'Connor's
employment with the Company is terminated by reason of his death, retirement
from active employment (with consent of the Board or in accordance with the
retirement policies of the Company), discharge by the Company for Cause or
resignation (other than for Good Reason), Mr. O'Connor (or his estate, as the
case may be) is entitled to his base salary, benefit and bonus amounts, if any,
accrued through the date of termination, and, in the case of retirement from
active employment after age 65, comprehensive medical coverage for Mr. O'Connor
and eligible family members and certain term life insurance coverage. If Mr.
O'Connor's employment is terminated by reason of disability, discharge by the
Company without Cause or by reason of Mr. O'Connor's resignation for Good
Reason, he is entitled to receive, in addition to all salary, bonuses and
benefits accrued through the date of termination, an amount equal to the sum of
three times the average of his base salary, bonuses and certain perquisites for
the prior three fiscal years, plus $1,500,000. In addition, in the event of
termination of his employment for any of the aforesaid reasons, Mr. O'Connor is
entitled to post-employment life insurance for up to three years and
comprehensive medical coverage for a minimum of three years after such
termination. The amended and restated employment agreement further provides in
such circumstances for the immediate vesting of Mr. O'Connor in all unvested
restricted stock held by him and for the payment to him of an amount equal to
the sum of the present value of all benefits accrued by him under any
non-qualified Company plan (including the Supplemental Executive Retirement
Plan) and three times the average benefits of, or Company contributions to, over
the three previous fiscal years, under all Company plans.
The amended and restated employment agreement further provides that
irrespective of the reason for his termination of employment with the Company,
Mr. O'Connor may not compete with the Company for three years after the date of
such termination.
The amended and restated agreement further provides that if Mr. O'Connor's
employment terminates within twenty-four months after a change of control
(including as a result of Mr. O'Connor's voluntary resignation not earlier than
six months, and not later than one year, following the change of control, but
not including his normal retirement), then specific provisions apply in lieu of
the provisions described above. In such event, Mr. O'Connor is entitled to
receive, in addition to his salary, benefits and bonus amounts, if any, accrued
through the date of termination, an amount equal to 2.99 times the sum of Mr.
O'Connor's then-current base salary, most recent performance bonus (or, if
higher, the performance bonus most recently awarded to him prior to the change
of control) and certain perquisites and other amounts. In addition, in the event
of termination of Mr. O'Connor's employment following a change of control, the
Company is obligated to provide Mr. O'Connor with life insurance and
comprehensive medical coverage after termination, and to pay Mr. O'Connor the
present value of all benefits accrued by him under any non-qualified Company
plan and an amount equal to four times the average (over the previous three
fiscal years), accrued benefit under, or Company contributions to, all qualified
plans. The agreement provides for the payment to Mr. O'Connor of an amount equal
to any excise tax due as a result of a payment or benefit constituting a
"parachute payment" within the meaning of section 280G of the Internal Revenue
Code of 1986, as amended, together with amounts necessary to gross-up Mr.
O'Connor for any taxes due thereon.
A "change of control" generally is deemed to have occurred under Mr.
O'Connor's amended and restated employment agreement if any of the following
occurs: (i) individuals comprising the Board of Directors of the Company at the
beginning of any consecutive twenty-four month period cease (other than due to
death or with the approval of a majority of such directors) to constitute a
majority of the Board; (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 30% of the combined
voting power of the Company's then-outstanding common equity securities; or
(iii) the stockholders of the Company approve a definitive agreement (A) for the
merger of the Company into or with another corporation (unless the directors of
the Company immediately prior to the merger constitute a majority of the
directors of the surviving corporation or the stockholders of the Company
immediately prior to the merger own 50% or more of the combined voting power of
the surviving corporation) or (B) for the sale or disposition of all or
substantially all of the assets of the Company.
14
<PAGE> 17
"Good Reason" is defined in Mr. O'Connor's amended and restated employment
agreement to mean: (i) the assignment of duties that are materially inconsistent
with the scope of his stated duties; (ii) the Company's failure to pay him any
amounts vested and due under his employment agreement or any other Company plan
or policy; (iii) a reduction in benefits to him or a material adverse change in
the terms or conditions under which amounts are payable; (iv) a reduction in Mr.
O'Connor's title or duties; (v) a breach of the Company's obligations not to
relocate him without his consent; (vi) in the case of any merger or similar
transaction involving the Company, the failure by the Company to obtain an
agreement reasonably satisfactory to Mr. O'Connor from a successor to the
Company to assume his employment agreement; or (vii) any material breach by the
Company of the agreement. "Cause" is defined to mean: (i) any willful and
continuing failure to substantially perform employment duties with a material
adverse effect upon the Company; (ii) any engagement in serious misconduct which
is injurious to the Company; (iii) any willful and continuing material breach of
the agreement, including with respect to confidentiality, protection of
intellectual property or non-competition; (iv) conviction of a crime involving
fraud, misrepresentation, gambling or a felony with a material adverse effect
upon the Company; or (v) habitual intoxication or abuse of drugs or controlled
substances.
Prior to their stepping down in February 1998, Messrs. Snowden and
Markowicz were parties to employment agreements, each originally entered into in
January 1990. Each employment agreement provided for an initial annual base
salary of $375,000 (increased annually based upon the Consumer Price Index) and
annual bonuses based upon the Company's earnings before depreciation,
amortization, interest and taxes ("EBDAIT"). Under the terms of the employment
agreements, the annual bonus for fiscal 1996 and any extension year thereafter
was to be calculated 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 1998 was
approximately $347.1 million. If the Company had not been operated in the
ordinary course of business with respect to a fiscal year, the employment
agreements provided that appropriate adjustments to EBDAIT would be negotiated.
The employment agreements also provided for life insurance and other benefits.
Each employment agreement automatically was extended on March 1, 1996 for
two years, and the Company elected not to extend them further. Accordingly, each
such employment agreement was scheduled to expire on February 28, 1998. Under
the terms of the employment agreements, the Company was required under such
circumstances to pay the executive 50% of his salary and bonus and to provide
other substantial fringe benefits the executive would otherwise have received,
had he remained an employee, for three years following expiration, subject to
acceleration in certain circumstances. The employment agreements also provided
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.
Mr. Snowden stepped down as a director and Chairman of the Company
effective February 3, 1998, and Mr. Markowicz stepped down as a director and
Vice Chairman of the Company effective March 1, 1998. In connection with these
events, in February 1998, the Company entered into severance agreements with
each of Messrs. Snowden and Markowicz providing for lump sum payments (before
tax withholding) to Messrs. Snowden and Markowicz of $9,301,000 and $9,352,000,
respectively. The lump sum amounts were calculated based upon the present value
of the Company's three-year post-employment compensation and benefit obligations
to Messrs. Snowden and Markowicz under their employment agreements (as
determined with the assistance of an outside consultant) and, in Mr. Snowden's
case, excluding from the calculation any benefit to Mr. Snowden from revenues to
the Company from the U.K. Lottery accruing after February 2, 1998. The
agreements also provided for the mutual release of claims and liabilities,
except for certain continuing indemnification obligations on the part of the
Company. Messrs. Snowden and Markowicz further agreed not to compete with the
Company in certain activities for three years following their retirement from
employment.
Mr. Gay, who was named an executive officer during fiscal 1998, had an
employment agreement with the Company from November 1, 1993 through his early
retirement from the Company in March 1998. The agreement, as amended and
restated in December 1995, provided for a minimum annual base salary of
15
<PAGE> 18
$275,000, eligibility for an annual management bonus, company benefits and
perquisites provided generally to other Company officers, and specified
commissions. Mr. Gay was entitled under his employment agreement to receive
quarterly commissions equal to one-half of one percent (0.5%) of Net Revenue
derived by the Company from the sale of mutually-agreed gaming products and
services in specified states. In addition, he was entitled to receive sales
commissions based upon a variable percentage (ranging from forty one-
thousandths of one percent (0.040%) to one-tenth of one percent 0.10%) of all
Net Revenue derived by the Company from the sale of mutually-agreed gaming
products and services. The percentage of Net Revenue to which Mr. Gay was
entitled with respect to the latter element of his commission arrangement was
based upon the percentage of "wins" enjoyed by the Company for a fiscal year
(i.e. Company contracts entered into with, or extended by, customers during such
fiscal year) as a percentage of the total number of opportunities for such
fiscal year.
The agreement defined "Net Revenue" as the invoice price (for sales) or
gross revenues (for goods or services provided on a percentage basis), less
liquidated damages, refunds, returns, taxes (other than income taxes), discounts
and other price adjustments and certain costs. Mr. Gay's employment agreement
could be terminated by either Mr. Gay or by the Company upon thirty days notice.
In the event that the Company was to terminate the employment agreement (other
than for cause) or Mr. Gay was to terminate the employment agreement as the
result of a reduction of his responsibilities and income potential, the Company
was obligated to pay Mr. Gay a lump sum severance amount equal to his
then-current annual base salary. In the case of termination by the Company of
the employment agreement for cause or termination by Mr. Gay other than as a
result of a reduction in his responsibilities and income potential, the Company
had no obligations to make any payments whatsoever to Mr. Gay upon termination
of his employment except as to such amounts accrued to him through the date of
termination. Under Mr. Gay's employment agreement, "cause" was defined to
include negligent performance of employment duties resulting in harm to the
Company, refusal to perform employment duties, conviction of a felony or other
crime involving fraud or certain dishonesty, unauthorized acts resulting in
personal enrichment, certain acts constituting misconduct or dereliction of
duty, any other material breach of the employment agreement or death.
In March 1998, the Company and Mr. Gay entered into a severance agreement
pursuant to which Mr. Gay resigned as an employee and officer of the Company.
The Company agreed to pay Mr. Gay all accrued and unpaid commissions due him
through the date of his resignation under his employment agreement and, in
addition, a lump-sum payment with respect to post-employment severance of
$3,600,000. In addition, the Company agreed to consider Mr. Gay for a management
bonus for fiscal 1998 (and ultimately paid him a fiscal 1998 management bonus of
$285,000), allowed Mr. Gay to continue to use his Company-owned automobile for
three years following termination, and provided certain other benefits to him.
The agreement also provided for mutual releases of claims and liabilities,
except for certain continuing indemnification obligations on the part of the
Company, and Mr. Gay agreed not to compete with the Company in certain
activities for one year following termination.
The Company does not currently have formal employment agreements with the
other two Named Officers: Messrs. Chambrello and Sauser, although in July 1997,
the Company entered into agreements with these executives (as well as with Mr.
Gay) with respect to employment arrangements in the event of a "change of
control" respecting the Company. These agreements provide for three-year
employment terms for the covered executives commencing upon the date a change in
control occurs (or earlier in certain circumstances where actions are taken in
anticipation of a change of control). During each such employment term, the
covered executive is to be employed in a position at least equal in all material
respects with the highest position held by such executive during the six months
immediately preceding the change of control and will be entitled to a base
annual salary, annual bonus and benefits in values and amounts at least equal to
those provided by the Company to the executive immediately prior to the
commencement of the term of employment. In addition, upon the occurrence of a
change in control, all benefits accrued by the executive under all non-qualified
Company plans (including the Supplemental Retirement Plan) will become fully
vested and shall be contributed to a rabbi trust for the benefit of the covered
executive, and all options held by the executive will become fully vested and
exercisable by the executive.
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<PAGE> 19
If an executive's employment is terminated during the term of employment
(including as a result of resignation by executive without Good Reason), such
agreement provides with respect to the year in which his employment is
terminated, that he will receive his base salary, bonus, and other compensation
and benefits through the date of termination in accordance with Company policy
in effect immediately prior to the commencement of the term of employment. In
the event that a covered executive's employment is terminated (other than for
Cause) or such executive resigns for Good Reason, the Company is obligated to
pay an amount equal to 2.99 times the sum of (i) his then-current annual base
salary; (ii) the total cash bonus received by the executive during the most
recent full fiscal year; plus (iii) the maximum amount allowable under the
Executive Perquisite Program during the most recent calendar year. In addition,
the covered executive (together with his beneficiaries and dependents) will
become fully vested in and continue to participate for up to three years at no
cost to the executive in all Company life insurance and welfare plans on terms
at least as favorable to executive as in effect immediately prior to
termination. In addition, the executive will be entitled to receive the sum of
all benefits accrued under the non-qualified plans plus the product of 2.99
times the average benefit accrued and/or contributions made to such
non-qualified plans over the preceding three years. Such agreements further
provide for the payment to the covered executives of amounts equal to any excise
tax due as any payment or benefit constituting a "parachute payment" within the
meaning of section 280G of the Code, together with amounts necessary to gross-up
such executives for any taxes due with respect thereto. With certain exceptions,
the terms "change in control," "Good Reason" and "Cause" are defined in these
agreements in generally the same manner as the corresponding terms are defined
in Mr. O'Connor's employment agreement.
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.
17
<PAGE> 20
SHAREHOLDER RETURN PERFORMANCE GRAPH
The graph set forth below compares, for the period February 28, 1993,
through February 28, 1998 (the end of the Company's 1998 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 Powerhouse Technologies, Inc. (formerly 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 60 MONTH CUMULATIVE TOTAL RETURN*
AMONG GTECH HOLDINGS CORPORATION, THE S&P 500 INDEX
AND A PEER GROUP
<TABLE>
<CAPTION>
GTECH
MEASUREMENT PERIOD HOLDINGS
(FISCAL YEAR COVERED) CORPORATION PEER GROUP S & P 500
<S> <C> <C> <C>
FEB-93 100 100 100
FEB-94 98 106 108
FEB-95 55 48 116
FEB-96 90 47 157
FEB-97 87 54 198
FEB-98 99 77 267
</TABLE>
18
<PAGE> 21
The above graph assumes an investment of $100 in the Company the S&P 500
companies and in the Peer Group companies on February 28, 1993, and that all
dividends were reinvested. The performances indicated in the above table are not
necessarily indicative of future performance.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 1995, the Company implemented a loan program with respect,
generally, to the Company's 1990 Restricted Stock Unit Plan under which
employees whose Restricted Stock Units or restricted stock rights granted
outside the 1990 Restricted Stock Unit Plan become taxable compensation to them
can obtain loans from the Company to assist them in paying applicable federal
and state income tax withholding. During fiscal 1998, the Company made a loan of
$21,161 to Mr. O'Connor with respect to the December 1997 vesting of restricted
stock rights granted to Mr. O'Connor. The full principal amount of this loan has
remained outstanding since December 1997. During fiscal 1998, the Company also
made a loan of $32,290 to Mr. Gay with respect to the January 1998 vesting of
restricted stock units granted to Mr. Gay. The full principal amount of this
loan remains outstanding, but Mr. Gay repaid all other loans made to him under
this program (approximately $80,774 in principal amount during fiscal 1998) in
March 1998.
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 was repayable in full on or before November 1, 1999. During fiscal 1998,
the Company agreed, pursuant to the terms of the amended and restated employment
agreement with Mr. O'Connor, that it would extend the due date of the
outstanding $500,000 principal amount loan to January 1, 2000 and would forgive
$125,000 of the principal amount of such loan in four installments on August 1,
1997 and on January 1, 1998, 1999 and 2000. As of May 1, 1998, an aggregate
outstanding principal amount of $250,000 remained with respect to the $500,000
principal amount loan.
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 involve both the Company and one or more of its executive
officers. During fiscal 1998, the Company paid an aggregate of approximately
$3.9 million in attorneys' fees and expenses in connection with such matters
directly or indirectly involving executive officers. Included in this amount
were substantial fees and expenses relating to the libel suit in the U.K. by
Richard Branson against Mr. Snowden (the Company's former Chairman), the Company
and its press secretary, and Mr. Snowden's cross libel claim against Mr.
Branson. This litigation resulted in a verdict and judgment on February 2, 1998,
in favor of Mr. Branson and against Mr. Snowden and the Company, essentially
upholding Mr. Branson's assertion that Mr. Snowden had attempted to bribe Mr.
Branson in 1993 not to bid on the U.K. Lottery contract. Mr. Snowden has
appealed the verdict and judgment against him.
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 1998, 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.
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<PAGE> 22
INDEPENDENT AUDITORS
The firm of Ernst & Young LLP served as the Company's independent public
accountants for fiscal 1998. The Company anticipates that Ernst & Young LLP will
serve as its independent public accountants for fiscal 1999, 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.
SHAREHOLDER PROPOSALS
In order to be eligible for inclusion in the Company's proxy material for
the 1999 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 15, 1999.
MISCELLANEOUS
A copy of the Company's 1998 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
1998. 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 8, 1998
20
<PAGE> 23
GTECH HOLDINGS CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE
The GTECH Holdings Corporation (the "Company") 1998 Employee Stock Purchase
Plan (the "Plan") is intended to provide eligible Company and GTECH Corporation
employees who wish to become shareholders (or increase their shareholdings) in
the Company with a convenient method of doing so. It is believed that employee
participation in ownership of the equity of the Company will be to the mutual
benefit of the employees and the Company.
The Company intends to have the Plan qualify as an "employee stock purchase
plan" under Section 423 of the Internal Revenue Code of 1986, as amended (the
"Code").
The Company's Board of Directors (the "Board") may, from time to time,
approve participation in the Plan by employees of any subsidiary corporation of
the Company (as defined in Section 424(f) of the Code).
2. DEFINITIONS.
2.1 "Account" shall mean the funds accumulated with respect to a
Participant as a result of deductions from his paycheck for the purpose of
purchasing stock under the Plan. The funds allocated to a Participant's account
shall remain the property of the Participant at all times but may be commingled
with the general funds of the Company.
2.2 "Administrator" shall mean the Compensation Committee or other
person(s) or entity delegated the responsibility by the Board of administering
the Plan.
2.3 "Base pay" means regular straight time earnings.
2.4 "Closing Price" shall mean, as of a particular Trading Day, the closing
price of Shares (or the closing bid, if no sales were reported) as quoted on the
New York Stock Exchange as reported in The Wall Street Journal or such other
source as the Administrator deems reliable.
2.5 "Designated Subsidiaries" shall mean all Company subsidiaries, as
defined in Section 424(f) of the Code, whose Employees have been designated by
the Board, in its sole discretion, as eligible to participate in the Plan.
2.6 "Eligible Employee" shall mean any employee of a Designated Subsidiary
except (a) employees whose customary employment is less than 20 hours per week,
(b) employees whose customary employment is for not more than five months in any
calendar year, and (c) employees who are Executive Officers of the Company, as
determined from time to time by the Board.
2.7 "Employer" means, individually and collectively, the Company and the
Designated Subsidiaries.
2.8 "Enrollment Period" shall mean the one (1) calendar month period
preceding an Offering Period during which Eligible Employees may elect to
participate in the Plan.
2.9 "Exercise Date" shall mean the last Trading Day of an Offering Period,
or the earliest date thereafter as is administratively feasible.
2.10 "Grant Date" shall mean the first Trading Day of an Offering Period,
or the earliest date thereafter as is administratively feasible.
2.11 "Offering Period" shall mean each consecutive six (6) calendar month
period during which Participants in the Plan authorize payroll deductions to
fund the purchase of Shares on their behalf under the Plan. The initial Offering
Period shall commence 1 November 1998 and subsequent Offering Periods shall
commence each 1 May and 1 November during the term of the Plan.
2.12 "Plan Broker" shall mean the stock brokerage or other financial
services firm designated by the Administrator to account for and/or hold each
Participant's Shares, dividends, and distributions.
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<PAGE> 24
2.13 "Purchase Price" shall mean, for each Share purchased in accordance
with Section 5 hereof, an amount equal to the lesser of:
(i) 85% of the Closing Price of a Share on the first Trading Day of
each Offering Period, or the earliest date thereafter as is
administratively feasible, or
(ii) 85% of the Closing Price of a Share on the last Trading Day of
each Offering Period, or the earliest date thereafter as is
administratively feasible.
2.14 "Shares" means the Company's authorized but unissued or reacquired as
Treasury shares of $.01 par value common stock.
2.15 "Trading Day " shall mean a day on which the New York Stock Exchange
is open for trading.
3. PARTICIPATION
3.1 Subject to rules established by the Administrator from time to time, an
Eligible Employee may elect to participate in the Plan by entering into a
written subscription agreement with an Employer during an Enrollment Period
authorizing payroll deductions, as a whole percentage of the Eligible Employee's
Base Pay up to a maximum of 10% of Base Pay ("Participant").
3.2 All payroll deductions made for a Participant shall be credited to said
Participant's Account and will not be credited with any interest. A participant
may not make any separate cash payment into such account nor may payment for
Shares be made other than by payroll deduction.
3.3 Once a Participant has elected to participate in the Plan, that
Participant's written subscription agreement shall apply to all subsequent
Offering Periods unless and until the Participant ceases to be an Eligible
Employee, withdraws from participation in the Plan or modifies said written
subscription agreement, provided, however, that during an Offering Period a
Participant may not alter the rate of his payroll deductions for that Offering
Period.
3.4 A Participant may authorize an increase or decrease in the amount of
payroll deduction, as a whole percentage of the Participant's Base Pay up to a
maximum of 10% of Base Pay, effective for a subsequent Offering Period, by
submitting a new written payroll deduction authorization and/or subscription
agreement during the Enrollment Period for the relevant Offering Period, in
accordance with rules and procedure established by the Administrator.
4. GRANTING OF OPTION.
On each Grant Date each Participant shall be granted an option to purchase,
at the end of the relevant Offering Period, that number of Shares (including
fractions thereof) equal to the amount in the Participant's Account at the end
of the relevant Offering Period divided by the Purchase Price for the relevant
Offering Period.
5. EXERCISE OF OPTION.
5.1 On each Exercise Date each Participant who continues to be an Eligible
Employee on such Exercise Date and who has not withdrawn from the Plan pursuant
to Section 8 hereof, shall be deemed to have exercised his option on such date
and shall be deemed to have purchased from the Company that number of Shares
(including fractions thereof) equal to the amount in the Participant's Account
at the end of the relevant Offering Period divided by the Purchase Price for the
relevant Offering Period. Any amount remaining in a Participant's Account after
the purchase of Shares as above, shall be carried over to the Participant's
Account for the subsequent Offering Period, unless the Participant has withdrawn
from the Plan pursuant to Section 8 hereof.
5.2 Promptly following each Exercise Date, the Shares purchased by each
Participant shall be deposited into an account established in the Participant's
name at the Plan Broker ("Broker Account").
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<PAGE> 25
6. LIMITATIONS ON RIGHTS.
6.1 An employee who otherwise is an Eligible Employee shall not be entitled
to be granted an option to purchase Shares under the Plan if such grant would
cause such Eligible Employee to own Shares (including any Shares which would be
owned if such Eligible Employee purchased all of the Shares made available for
purchase by such Eligible Employee under all purchase rights then held by such
Eligible employee, whether or not then exercisable) representing five percent
(5%) or more of the total combined voting power or value of each class of stock
of the Company or any subsidiary. For purposes of determining stock ownership
under this paragraph, the rules of Section 424(d) of the Code (relating to
attribution of stock ownership) shall apply, and stock which the employee may
purchase under outstanding options shall be treated as stock owned by the
employee.
6.2 An employee who otherwise is an Eligible Employee shall not be entitled
to purchase Shares under the Plan if such purchase would cause such Eligible
Employee to have rights to purchase more than $25,000 of Shares under the Plan
(and under all employee stock purchase plans of the Company and its subsidiary
corporations which qualify for treatment under Section 423 of the Code) for any
calendar year in which such rights are outstanding (based on the fair market
value of such Shares, determined as of the date such rights are granted). For
purposes of applying the $25,000 limitation, the number of Shares covered by one
option may not be carried over to any other option.
7. NUMBER OF SHARES TO BE OFFERED.
7.1 The aggregate number of Shares which may be issued under the Plan is
750,000 Shares.
7.2 In the event the number of Shares to be purchased by Participants
during any Offering Period exceeds the number of shares available for sale under
the Plan, the number of Shares actually available for sale hereunder shall be
limited to the remaining number of Shares authorized for sale hereunder and the
Administrator shall make a pro rata allocation of the Shares remaining available
in as nearly a uniform manner as shall be practicable and as it shall determine
to be equitable. Any excess amounts remaining in Participants' Accounts then
shall be returned to the Participants as soon as is administratively feasible.
8. WITHDRAWAL.
8.1 A Participant may at any time withdraw from the Plan by giving written
notice to the Administrator.
8.2 Separation from employment for any reason, including death, disability,
termination or retirement, shall be treated as a withdrawal from the Plan.
8.3 A Participant who ceases to be an Eligible Employee shall be deemed to
have withdrawn from the Plan at such time as he ceases to be an Eligible
Employee.
8.4 At the time of withdrawal, any amount in the Participant's Account
which has not previously been used to purchase Shares will be refunded to the
Participant as soon as practicable thereafter.
8.5 To re-enter the Plan, an Eligible Employee who has previously withdrawn
must submit a new written subscription agreement pursuant to Section 3.1 above.
9. RIGHTS NOT TRANSFERABLE.
Neither payroll deductions made by a Participant, nor any rights with
regard to the exercise of an option or to receive stock, nor any rights to a
return of payroll deductions under the Plan may be assigned, transferred,
pledged or otherwise disposed of in any way by the Participant other than
pursuant to the laws of descent and distribution. Any such attempted assignment,
transfer, pledge or other disposition shall be without effect.
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10. CHANGES IN CAPITALIZATION.
In the event of reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation, offerings of rights, or
any other change in the structure of the common stock of the Company, the Board
may make such adjustment, if any, as it may deem appropriate, and in accordance
with Section 424 of the Code, in the number, kind, and the price of shares
available for purchase under the Plan, and in the number of Shares which a
Participant is entitled to purchase.
11. TRANSFERRING SHARES.
11.1 A Participant shall be free to undertake a disposition (as that term
is defined in Section 424(c) of the Code) of the Shares in his Broker Account at
any time, whether by sale, exchange, gift, or other transfer of legal title, but
in the absence of such disposition of the Shares, the Shares must remain in the
Participant's Broker Account until the holding period set forth in Section
423(a) of the Code has been satisfied. With respect to Shares for which the
Section 423(a) holding period has been satisfied, the participant may move those
Shares to another brokerage account of Participant's choosing or request that a
stock certificate be issued to him.
11.2 A Participant who is not subject to payment of U.S. income taxes may
move his Shares to another brokerage account of his choosing or request that a
stock certificate be issued and delivered to him at any time, without regard to
the satisfaction of the Section 423(a) holding period.
11.3 The Plan is intended to provide common stock for investment and not
for resale. The Company does not, however, intend to restrict or influence any
employee in the conduct of his own affairs. An employee, therefore, may sell
stock purchased under the Plan at any time he chooses, subject to compliance
with any applicable Federal or state securities laws. THE EMPLOYEE ASSUMES THE
RISK OF ANY MARKET FLUCTUATIONS IN THE PRICE OF THE STOCK.
12. ADMINISTRATION.
The Administrator is vested with full authority to make, administer, and
interpret such rules and regulations as it deems necessary to administer the
Plan, and any determination, decision, or action of the Administrator in
connection with the construction, interpretation, administration, or application
of the Plan shall be final, conclusive, and binding upon all Participants and
any and all persons claiming under or through any Participant.
13. TERM OF PLAN.
13.1 The Plan will become effective as of 1 August 1998, or as soon as
administratively practicable thereafter, subject, however, to approval by the
holders of at least a majority of the Common Stock present or represented, and
entitled to vote, at a special or annual meeting of the stockholders at which a
quorum is present held within twelve (12) months before or after 19 May 1998
(the date the Plan was approved by the Board). If the Plan is not so approved,
the Plan shall not become effective.
13.2 The Board shall have the right to amend, modify, or terminate the Plan
at any time without notice, provided that no employee's existing rights with
respect to any then current Offering Period may be adversely affected thereby,
and provided further that (i) no such amendment of the Plan shall, except as
provided in Section 10, increase the total number of Shares to be offered under
the Plan unless shareholder approval is obtained therefor, and (ii) no amendment
may cause an option issued under it to fail to meet the requirements of Section
423 of the Code.
13.3 This Plan shall terminate at the earliest of
(i) 31 July 2003;
(ii) the date the Board acts to terminate the Plan in accordance with
Section 13.2;
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(iii) the date when the total number of Shares to be offered under
this Plan, as set forth in Section 7, have been purchased.
14. RIGHTS AS A STOCKHOLDER.
A Participant shall have no interest or voting right in any Shares until
such Shares have been actually purchased in accordance with Section 5.
15. GOVERNMENT REGULATION.
The Company's obligation to sell and deliver Shares under this Plan is
subject to the approval of any governmental authority required in connection
with the authorization, issuance, or sale of such Shares.
16. MISCELLANEOUS.
16.1 The provisions of the Plan shall, in accordance with its terms, be
binding upon, and inure to the benefit of, all successors of each Participant,
including, without limitation, such Participant's estate and the executors,
administrator or trustees thereof, heirs and legatees, and any receiver, trustee
in bankruptcy or representative of creditors of such employee.
16.2 Delaware law shall govern all matters relating to this Plan except to
the extent it is superseded by federal law.
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PROXY
GTECH HOLDINGS CORPORATION
ANNUAL MEETING OF SHAREHOLDERS, JULY 13, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints CYNTHIA A. NEBERGALL, DENISE M. OGILVIE
and BRENDAN J. RADIGAN and each or any of them as Proxies of the undersigned,
with full power of substitution, and hereby authorized 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 June 3,
1998, at the Annual Meeting of Shareholders of GTECH Holdings Corporation to be
held July 13, 1998, 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> 29
(1) Election of Robert M. Dewey, Jr. and The Rt. Hon. Lord Moore of Lower
Marsh, P.C. as directors of GTECH Holdings Corporation for the three year
term of office expiring in 2001.
VOTE FOR WITHHOLD AUTHORITY VOTE FOR ALL, EXCEPT FOR
ALL NOMINEES FOR ALL NOMINEES THE FOLLOWING NOMINEE
[ ] [ ] [ ]
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(2) Approve the GTECH Holdings Corporation 1998 Employee Stock Purchase Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
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(Insert the name of the nominee for whom you do not wish to vote in the space
provided.)
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(3) In their discretion on such other business as may properly come before the
meeting.
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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 named by President or other
authorized officer. If a partnership, please sign name by authorized person
Dated:
-------------------------------------, 1998
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(Signature of Shareholder)
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(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.
