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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10 - K/A
Amendment No. 1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: February 27, 1999
Commission File No: 1-11250
GTECH HOLDINGS CORPORATION
Delaware 05-0450121
(State or other jurisdiction (IRS Employer ID Number)
of incorporation or organization)
55 Technology Way, West Greenwich, Rhode Island 02817
(401) 392-1000
(Address and telephone number of Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class: Common Stock $ .01 par value
Name of Each Exchange on which Registered: New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405
of Regulation S-K is not contained herein and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [X]
As of May 28, 1999, there were outstanding 37,604,345 shares of the registrant's
Common Stock.
Documents Incorporated by Reference: None
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This Form 10-K/A is being filed for the sole purpose of adding Items 10, 11, 12
and 13, since the Company's 1999 Annual Meeting has been postponed and the
Company's definitive proxy statement with regard to such meeting will not be
filed within 120 days after the end of the Company's 1999 fiscal year.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth as of May 28, 1999, certain information
concerning the directors and executive officers of the Company. Reference is
made to "Additional Information" following Part I, Item 4 of the Company's
fiscal 1999 Form 10-K for information concerning the Company's executive
officers.
<TABLE>
<CAPTION>
Name Age Occupation
- ---- --- ----------
<S> <C> <C>
William Y. O'Connor (1) 54 Director of the Company since 1995, Mr. O'Connor's present term of office
expires in 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 that was
Corporate Senior Vice President and President of the Broadband
Communications Group of Scientific Atlanta, Inc. from 1987 to 1992.
Robert M. Dewey, Jr. 67 Director of the Company since 1995, Mr. Dewey's present term of office
expires in 2001. Mr. Dewey has been Senior Advisor, Donaldson, Lufkin &
Jenrette, Inc. ("DLJ"), investment banking firm, since January 1998. From
January 1996 to January 1998, Mr. Dewey was the Chairman of Autranet, Inc.,
a wholly-owned subsidiary of DLJ, 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 Deerfield Academy.
Burnett W. Donoho (2) 59 Director of the Company since 1992. President and Chief Executive Officer
of Club Sports International since March 1999. Previously, Mr. Donoho was a
self-employed retail consultant from January 1998 to March 1999; Vice
Chairman and Chief Operating Officer of Montgomery Ward, Inc. from February
1997 through December 1997; a self-employed retail consultant from December
1994 through February 1997; the Vice Chairman and Chief Operating Officer of
Macy's East, a division of R. H. Macy & Co., Inc. 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. from 1984 to June 1990. Mr. Donoho is also a
director of OfficeMax, Inc.
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
The Rt. Hon. Lord Moore of Lower Marsh, 61 Director of the Company since 1992, Lord Moore's present term of office
P.C. expires in 2001. 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; Deputy Chairman and a director
of Rolls-Royce plc; a director of Blue Circle Industries plc, Marvin &
Palmer Inc., and The Central European Growth Fund plc.; and the
President of Energy Saving Trust Ltd., a not-for-profit energy conservation
organization.
Lt. Gen. (Ret.) Emmett Paige, Jr. (USA) 68 Director of the Company since 1997, General Paige's present term of office
expires in 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 spent a forty-one year career with the United States Army
working his way up through the Army ranks and 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 51 Director of the Company since 1996, Mr. Ruys's present term of office
expires in 1999. Mr. Ruys has served as 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) See "Employment - Severance Agreements and Arrangements" in Item 11
below.
(2) Mr. Donoho was a director of the Company from May 1990 to June 1991 and
was again elected a director of the Company in October 1992.
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.
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Based solely upon its review of the copies of such forms received by it
with respect to fiscal 1999, 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.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning the
annual and long-term compensation paid for fiscal years 1999, 1998 and 1997 to
or for: (i) each person who served as the Company's Chief Executive Officer
during fiscal year 1999; (ii) each of the Company's four other most
highly-compensated executive officers whose total annual salary and bonus for
fiscal year 1999 exceeded $100,000; and (iii) two former executive officers
(Messrs. Chambrello and Gay) (collectively, the "Named Officers") for services
rendered to the Company and its subsidiaries:
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
OTHER RESTRICTED LONG-TERM ALL OTHER
ANNUAL STOCK COMPEN- COMPEN-
SALARY BONUS COMPENSATION AWARD(S) OPTIONS/ SATION SATION
NAME AND PRINCIPAL POSITION (1) YEAR ($) (2) ($) ($) (3) ($) SARS (4) PAYOUTS ($) (5)
- ------------------------------- ---- ------- --- ------- --- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William Y. O'Connor........... 1999 598,077 1,800,000 230,927 -- 150,000 -- 251,357
Chairman, Chief Executive 1998 511,757 1,650,000 180,943 -- -- -- 341,762
Officer and President 1997 440,750 910,600 207,061 -- -- -- 80,325
Steven P. Nowick.............. 1999 377,978 550,000 222,844 -- 60,000 -- 40,417
Senior Vice President 1998 182,500 75,000 109,287 -- 130,000 -- 388
and Chief Operating Officer
Thomas J. Sauser.............. 1999 309,946 336,342 139,101 -- 40,000 -- 34,871
Senior Vice President & Chief 1998 309,900 264,000 87,451 -- -- -- 25,523
Financial Officer 1997 300,000 250,000 190,416 -- -- -- 2,393
Donald L. Stanford............ 1999 326,430 300,000 83,025 -- 30,000 -- 33,053
Senior Vice President 1998 326,430 145,000 74,013 -- -- -- 21,527
and Chief Technology Officer 1997 316,000 170,000 83,368 -- -- -- 27,140
Donald R. Sweitzer............ 1999 188,077 235,538 80,785 -- 30,000 -- 1,296
Senior Vice President,
Government Relations
Michael R. Chambrello......... 1999 272,950 250,000 91,273 -- 25,000 -- 30,935
Former Executive Vice President 1998 309,900 250,000 81,253 -- -- -- 23,536
1997 261,077 300,000 84,937 -- -- -- 28,672
Laurence W. Gay............... 1999 18,404 -- 68,528 -- -- -- 3,928,718
Former Senior Vice President -- 1998 299,061 285,000 106,927 -- -- -- 876,638
Sales and Government 1997 289,529 150,000 126,326 -- -- -- 1,085,604
Relations
</TABLE>
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(1) Sets forth the names and principal positions of the Named Officers as of the
end of fiscal 1999, except that Messrs. Chambrello and Gay resigned their
positions with the Company during fiscal 1999. See "Employment -- Severance
Agreements and Arrangements" below. Messrs. Nowick and Sweitzer commenced
employment with the Company in July 1997 and July 1998, respectively.
(2) Includes salary deferred under the Company's 401(k) retirement plan (the
"Retirement Plan") and the Company's Income Deferral Plan 1998.
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(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, without limitation, personal automobile and
airplane usage and the payment of relocation expenses; and (iii) gross-ups
for taxes with respect to benefits provided by the Company, including,
without limitation, with respect to the Company's Executive Perquisites
Program, restricted stock rights granted by the Company, and the Company's
1992 supplemental retirement plan (the "SRP"). The Company made payments
under the Executive Perquisites Program to each of the Named Officers of
$27,500 in each of the fiscal years for which compensation information is
provided for such officer above, except that Mr. Stanford received $27,422
in 1997, Mr. Nowick received $27,113 in 1998 and Mr. Sweitzer received
$13,750 in 1999. In addition, the Company provided taxable fringe benefits
to the Named Officers in the following amounts: Mr. O'Connor -- $31,466
(1999), $22,577 (1998) and $36,876 (1997) (including imputed interest on
certain loans made by the Company to Mr. O'Connor pursuant to his employment
agreement); Mr. Nowick - $68,778 (1999) and $32,102 (1998); Mr. Sauser --
$36,842 (1999), $13,874 (1998) and $91,193 (1997); Mr. Stanford - $3,769
(1999), $4,986 (1998) and $9,700 (1997); Mr. Sweitzer - $30,982 (1999); Mr.
Chambrello -- $14,848 (1999), $9,378 (1998) and $8,453 (1997); and Mr. Gay
-- $11,543 (1999), $7,637 (1998) and $10,075 (1997). The gross-up payments
for taxes were: Mr. O'Connor -- $171,961 (1999), $130,866 (1998) and
$142,686 (1997); Mr. Nowick - $126,566 (1999) and $50,072 (1998); Mr. Sauser
-- $74,459 (1999); $45,777 (1998) and $71,632 (1997); Mr. Stanford - $51,756
(1999), $41,527 (1998) and $46,246 (1997); Mr. Sweitzer - $36,053 (1999);
Mr. Chambrello -- $48,925 (1999), $44,375 (1998) and $48,984 (1997); and Mr.
Gay -- $29,485 (1999), $71,790 (1998) and $88,751 (1997).
(4) Represents the number of shares of Common Stock underlying stock options
granted pursuant to the Company's 1994 and/or 1997 Stock Option Plans. See
"Option Grants in Last Fiscal Year" 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 1999,
the Company: (i) made severance payments in the amount of $3,600,000 to Mr.
Gay and in the amount of $1,192 to Mr. Chambrello; (ii) paid insurance
premiums with respect to life insurance maintained on the lives of the Named
Officers in the following amounts: Mr. O'Connor - $24,312; Mr. Nowick -
$1,626; Mr. Sauser - $2,592; Mr. Stanford - $1,566; Mr. Sweitzer - $1,296;
Mr. Chambrello - $918; and Mr. Gay - $1,566; (iii) made matching
contributions under the Retirement Plan of $4,150 for each of the Named
Officers, except for Mr. Gay ($1,760) and Mr. Sweitzer (-0-); (iv) made
profit sharing contributions under the Retirement Plan of $6,400 for each of
the Named Officers, except for Messrs. Gay (-0-) and Sweitzer (-0-); (v)
made contributions under the SRP for each of the Named Officers in the
following amounts: Mr. O'Connor - $91,495; Mr. Nowick - $30,991; Mr. Sauser
- $21,729; Mr. Stanford - $20,937; Mr. Sweitzer (-0-); Mr. Chambrello -
$18,275; and Mr. Gay (-0-); (vi) forgave $125,000 of principal amount of a
$500,000 principal amount loan made by the Company in fiscal 1995 to Mr.
O'Connor; and (vii) paid $325,392 in sales commissions to Mr. Gay.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning
individual grants of stock options made during fiscal 1999 to Named Officers.
All grants of stock options reflected in the following table were made pursuant
to the Company's 1994 or 1997 Stock Option Plans (the "Plans") and are subject
to the terms of such Plans.
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<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (1)
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL
NO. OF SHARES % OF RATES OF STOCK
OF COMMON OPTIONS PRICE
STOCK GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OR OPTION TERM (2)
OPTIONS IN FISCAL BASE PRICE EXPIRATION 5% 10%
NAME GRANTED YEAR ($/SH) DATE ($) ($)
---- ------- ---- ------ ---- --- ---
<S> <C> <C> <C> <C> <C> <C>
William Y. O'Connor...... 150,000 15.58 35.281 3/08 8,620,355 13,726,474
Steven P. Nowick......... 60,000 6.23 35.281 3/08 3,448,142 5,490,590
Thomas J. Sauser......... 40,000 4.16 33.750 4/08 2,199,008 3,501,552
Donald L. Stanford....... 30,000 3.12 33.750 4/08 1,649,256 2,626,164
Donald R. Sweitzer....... 30,000 3.12 35.094 7/08 1,714,933 2,730,744
Michael R. Chambrello.... 25,000 2.60 33.750 (3) 1,374,380 2,188,470
Laurence W. Gay.......... -- -- -- -- -- --
</TABLE>
(1) Grants reflected in this table were non-qualified options and the exercise
price was equal to the fair market value of a share on the date of grant.
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, a change in control of the Company or otherwise
as provided in the Plans or other agreements.
(2) Determined by multiplying: (a) the difference between: (i) the product of
the per-share market price at the time of the grant and the sum of 1 plus
the adjusted stock price appreciation rate (the assumed rate of
appreciation compounded annually over the term of the option) and (ii) the
per-share exercise price of the option, by (b) the number of shares
underlying the option at the end of fiscal 1999.
(3) These options terminated on December 31, 1998.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTIONS
VALUES
The following table sets forth information concerning option exercises
by Named Officers during fiscal 1999 and 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 1999 fiscal year on February 27, 1999:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF VALUE OF UNEXERCISED
COMMON STOCK UNDERLYING IN-THE-MONEY
STOCK OPTIONS (1) STOCK OPTIONS (2)
SHARES ACQUIRED VALUE
NAME ON EXERCISE ($) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William Y. O'Connor.......... -- -- 474,500 187,500 $ 702,250 $ --
Steven P. Nowick............. -- -- 80,000 110,000 $ -- $ --
Thomas J. Sauser............. -- -- 85,000 55,000 $ -- $ --
Donald L. Stanford........... -- -- 7,500 22,500 $ -- $ --
Donald R. Sweitzer........... -- -- 7,500 22,500 $ -- $ --
Michael R. Chambrello........ 42,500 639,457 -- -- $ -- $ --
Laurence W. Gay.............. 32,500 441,094 -- -- $ -- $ --
</TABLE>
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(1) All stock options reflected in this table were non-qualified options granted
pursuant to the Company's stock option plans and are subject to the terms of
such Plans. 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, a change in control of the
Company or otherwise as provided in the Plans or other agreements.
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(2) Calculated based upon the aggregate of the differences between: (i) $22 5/8
the per-share closing price of the Company's Common Stock on the New York
Stock Exchange on February 26, 1999, the last trading day of the Company's
1999 fiscal year, and (ii) the per-share exercise prices for the respective
grants of stock options.
COMPENSATION OF DIRECTORS
During fiscal 1999, directors who were not employees of the Company
were entitled to 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. Directors also are reimbursed for
expenses. Commencing during the second quarter of fiscal 1999, directors of the
Company were entitled, under the Company's 1998 Non-Employee Directors' Stock
Election Plan, to elect to receive all or a portion of their directors' fees in
the form of shares of Common Stock of the Company valued at fair market value.
All of the five non-employee directors (Messrs. Dewey, Donoho and Ruys, Lord
Moore and General Paige) elected to receive all of their fiscal 1999 directors'
fees accruing after June 1, 1998 in the form of Company shares.
From time to time directors provide special consulting or other
services for the Company for which they receive additional compensation. During
fiscal 1999, the following amounts in addition to the annual directors' fee and
committee meeting fees were paid to directors in cash for special services as
directors: Messrs. Dewey, Donoho and Ruys - $5,000 each; Lord Moore - $38,000;
and General Paige - $8,000.
The Company's 1996 Non-Employee Directors' Stock Option Plan (the "1996
Plan") provided for automatic grants to each non-employee director, shortly
following each of 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.
Such options become exercisable approximately one year following the date of
grant and extend for a five-year term. Pursuant to the 1996 Plan, on July 16,
1998, each of the five non-employee directors was granted such a 10,000 share
option with an exercise price of $32.09 per share. The 1996 Plan expired by its
terms on December 31, 1998. Lord Moore also held 3,000 stock units, granted
under the Company's 1992 Outside Directors' Stock Unit Plan (the "DSU Plan") in
1995, which stock units vested at the time of the 1998 Annual Meeting. Pursuant
to the terms of the DSU Plan, Lord Moore received $70,463 from the Company in
fiscal 1999 to offset taxes incurred by him in connection with the 1998 vesting
of these stock units. No other directors held stock units under the DSU Plan
during fiscal 1999 and that Plan terminated in 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1999, 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. O'Connor, Chairman, President and Chief Executive Officer,
participated in certain deliberations of the Compensation Committee concerning
executive officer compensation.
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Messrs. Dewey, Donoho, Ruys, and General Paige were members of the
Compensation Committee during various periods of fiscal 1999. Mr. Ruys replaced
Mr. Donoho on the Committee during the year.
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 his promotion to Chief Executive Officer. The term of Mr.
O'Connor's amended and restated employment agreement commenced on July 14, 1997
and continues until his death, disability, retirement from active employment
(with the consent of the Board or in accordance with Company policy),
resignation or discharge. The 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 agreement provides that Mr. O'Connor's
performance bonus is to be determined using a matrix of reasonable quantitative
metrics established by and in the reasonable discretion of the Compensation
Committee.
Under the 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 agreement further provides in such
circumstances 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.
Mr. O'Connor's agreement also provides that irrespective of the reason
for his termination of employment with the Company, he may not compete with the
Company for three years after the date of such termination.
If Mr. O'Connor's employment terminates within twenty-four months after
a change in control of the Company (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 in 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 his then-current base salary, most recent
performance bonus (or, if higher, the performance bonus most recently awarded to
him prior to the
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change in control) and certain perquisites and other amounts. In addition, in
the event of termination of Mr. O'Connor's employment following a change in
control, the Company is obligated to provide him with life insurance and
comprehensive medical coverage after termination and to pay him the present
value of all benefits accrued for 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 further requires 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 in control" generally is deemed to have occurred under Mr.
O'Connor's 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, as
amended, the "Exchange Act", 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.
"Good Reason" is defined in Mr. O'Connor's 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.
Mr. Nowick has an employment agreement with the Company dated as of
January 15, 1999 and effective July 11, 1997. The agreement provides for: an
annual base salary of $360,000 (which is subject to increase each March 1,
commencing in 1999, to reflect any increase in the Consumer Price Index); an
annual management incentive bonus of up to a maximum of two times his base
salary (based upon the attainment of personal and Company performance
objectives); a contribution by the Company of $364,933 to the Income Deferral
Plan for Mr. Nowick's account; and various other benefits, including, but not
limited to, home buyout option, use of automobile, medical coverage for Mr.
Nowick and his family, tax preparation and participation in the Company's stock
option, perquisites and other benefit plans for senior executives. In the
agreement, Mr. Nowick agrees, among other things, not to compete with the
Company in the lottery and gaming business for three years, or in any other
business for one year, following termination of his employment.
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<PAGE> 10
The initial term of Mr. Nowick's agreement ends February 28, 2001. On
March 1, 2001 and on each subsequent March 1, the term of the agreement is to be
automatically extended for one year unless at least 180 days prior to such date
either the Company or Mr. Nowick has notified the other that it or he does not
wish to extend the term. If the term of Mr. Nowick's employment is terminated by
death, retirement, discharge for Cause or resignation other than for Good
Reason, he is generally entitled to receive his then-current base salary and
benefits accrued up to the date of termination or as otherwise provided by the
terms of the specific benefit plans in which he participates. If Mr. Nowick's
employment term is terminated as a result of his disability, discharge without
Cause or resignation for Good Reason, the Company is required to continue: (i)
his then-current base salary for three years following such termination, or
until his earlier death, and (ii) his life insurance and medical coverage for
one year following such termination. With certain exceptions, the terms "Change
in Control," "Good Reason" and "Cause" in Mr. Nowick's employment agreement are
defined in generally the same manner as such terms are defined in Mr. O'Connor's
employment agreement as described above.
Notwithstanding the foregoing, if a Change in Control occurs during the
term of Mr. Nowick's employment, his employment agreement provides that it will
terminate and the terms and conditions of his employment will be governed by the
terms of the Change in Control agreement, which is described in the fifth
paragraph below.
Mr. Chambrello resigned as an executive officer of the Company,
effective July 31, 1998, and as an employee of the Company, effective December
31, 1998. Pursuant to an employment transition agreement with the Company, Mr.
Chambrello received the salary, bonus and benefits for fiscal 1999 reflected in
the Summary Compensation Table above. In addition, the Company sold to him for a
nominal consideration his company automobile, a company-owned fax machine and
two company-owned telephones, and agreed to continue to provide him with medical
coverage, life insurance and tax preparation services, as well as outplacement
services, through calendar year 1999. The agreement also provided for mutual
releases of claims and liabilities, except for certain continuing
indemnification obligations, and Mr. Chambrello agreed to continue to be bound
by certain restrictive covenants.
Mr. Gay had an employment agreement with the Company at the time of his
resignation from the Company in March 1998. The agreement provided for a minimum
annual base salary of $275,000, eligibility for an annual management bonus,
company benefits and perquisites provided generally to other Company officers
and specified commissions. Under his employment agreement, Mr. Gay was entitled
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 terminated the agreement (other than for
cause) or Mr. Gay terminated the 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.
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<PAGE> 11
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 presently have formal employment agreements with
the other current Named Officers: Messrs. Sauser, Stanford and Sweitzer,
although the Company has entered into agreements with these executives (and with
certain other executives, including Mr. Nowick) with respect to employment
arrangements in the event of a "Change in Control" of 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 in 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.
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
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<PAGE> 12
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 as described above.
Under the terms of the Company's option plans and various agreements,
the exercisability of outstanding stock options may accelerate in the event of a
change in control or termination of employment.
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, in 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 which 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 each such employee's compensation (as defined) for such
year. See "Summary Compensation Table," above.
ITEM 12. SECURITY OWNERSHP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of May 17, 1999, (unless otherwise
specified) 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 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 17, 1999; and (iv) all present directors and executive
officers of the Company, as a group. Such information is based upon information
filed by such persons with the SEC or provided to the Company by such persons or
by other sources believed to be reliable.
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY OF
NAME OF BENEFICIAL OWNER OWNED (1) CLASS (1)
------------------------ --------- ---------
<S> <C> <C>
Tiger Management L.L.C. 5,127,700 (2) 13.7%
101 Park Avenue
New York, New York 10178
American Century Investment Management, Inc. 2,192,000 (3) 5.8%
4500 Main Street
Kansas City, MO 64141-9210
Franklin Resources, Inc. 2,123,400 (4) 5.7%
777 Mariners Island Blvd.
San Mateo, CA 94404
Maverick Capital, Ltd. 2,000,000 (4) 5.3%
</TABLE>
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<PAGE> 13
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY OF
NAME OF BENEFICIAL OWNER OWNED (1) CLASS (1)
------------------------ --------- ---------
<S> <C> <C>
300 Crescent Court, Suite 1850
Dallas, TX 75201
William Y. O'Connor, Director and Executive Officer 479,500 (5) 1.3%
Robert M. Dewey, Jr., Director 51,481 (6) *
Burnett W. Donoho, Director 38,254 (6) *
The Rt. Hon. Lord Moore of Lower Marsh, P.C., Director 38,254 (6) *
Lt. Gen. (Ret.) Emmett Paige,Jr.,Director 20,802 (6) *
Anthony Ruys, Director 30,710 (6) *
Steven P. Nowick, Executive Officer 80,000 (7) *
Thomas J. Sauser, Executive Officer 85,000 (7) *
Donald L. Stanford, Executive Officer 7,500 (7) *
Donald R. Sweitzer, Executive Officer 7,500 (7) *
All present Directors and Executive Officers, as a group (11persons) 870,001 (8) 2.3%
</TABLE>
- ----------
* less than 1%
(1) The shareholdings reflected in this table include shares which the person
has the right, upon exercise of options or otherwise, to acquire within
60 days following the date of this table.
(2) Includes shares held by Tiger Performance L.L.C. Both Tiger Management
L.L.C. and Tiger Performance L.L.C. are registered investment advisors
ultimately controlled by Julian H. Robertson, Jr.
(3) Includes shares held by American Century Capital Portfolios, Inc. and a
number of additional registered investment companies, the investments of
which are managed by American Century Investment Management, Inc., a
registered investment advisor.
(4) Franklin Resources, Inc. and Maverick Capital, Ltd. are institutional
investment managers.
(5) Includes 474,500 shares subject to stock options granted under the
Company's stock option plans.
(6) Includes 30,000 shares (20,000 shares in the case of General Paige)
subject to stock options automatically granted under the Company's 1996
Non-Employee Directors' Stock Option Plan, the last 10,000 share
installment of which options becomes exercisable in July 1999.
(7) Shares subject to stock options granted under the Company's stock option
plans.
(8) Includes 825,500 shares subject to stock options granted under the
Company's stock option plans.
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<PAGE> 14
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 1995, the Company implemented a loan program under which
employees whose restricted stock units or rights granted to them by the Company
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 1999, Mr. O'Connor repaid a previous loan of $21,161 made to him pursuant
to this program, and the Company made another loan of $10,496 to Mr. O'Connor
with respect to the vesting of restricted stock rights granted to him in 1994.
This latter loan, bearing interest at 7.1%, remained outstanding as of February
27, 1999.
During fiscal 1995, the Company, pursuant to the terms of its
employment agreement with Mr. O'Connor, made loans to him to enable him to
retire certain third-party indebtedness. The loans to Mr. O'Connor consisted of
$400,000 under a line of credit arrangement which bore no interest and which was
repaid in full during fiscal 1997, and $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 extended the due date of the $500,000 loan to
January 1, 2000 and agreed to forgive the principal amount of such loan in four
installments of $125,000 each on August 1, 1997 and on January 1, 1998, 1999 and
2000. As of February 27, 1999, the outstanding amount of this loan, including
interest, was approximately $126,973.
Current and former officers and directors of the Company are parties to
indemnification agreements with the Company providing for (and the By-Laws of
the Company also provide for) advancement of expenses and 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 have involved both the Company and one or more
of its former executive officers. During fiscal 1999, the Company paid an
aggregate of approximately $348,000 in attorneys' fees and various other
expenses pursuant to these indemnification agreements and obligations in
connection with such matters directly or indirectly involving former executive
officers. Most of this related to the libel suit in the U.K. by Richard Branson
against Guy B. 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. Mr. Snowden resigned as a director and executive
officer of the Company on February 3, 1998, prior to the beginning of fiscal
1999. No amounts were paid during fiscal 1999 with respect to current executive
officers of the Company.
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<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 of the Exchange Act, the
registrant has duly caused this Amendment to Annual Report on Form 10-K to be
signed on its behalf by the undersigned, hereunto duly authorized, on June 28,
1999.
GTECH HOLDINGS CORPORATION
By: /s/ William Y. O'Connor
---------------------------------
/s/ William Y. O'Connor
Chairman, Chief Executive Officer
and President
15
