<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.
</TABLE>
GTECH Holdings Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-12.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
[GTECK LOGO]
GTECH HOLDINGS CORPORATION
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 18, 1999
------------------------
To Our Shareholders:
The Annual Meeting of Shareholders (the "Meeting") of GTECH Holdings
Corporation (the "Company") will be held at 9:00 o'clock a.m. on Wednesday,
August 18, 1999, at the Westin Hotel, One West Exchange Street, Providence,
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 1999 Non-Employee
Directors' Stock Option Plan; and
3. To transact such other business as may properly come before the Meeting
and any adjournments thereof.
The Board of Directors has fixed the close of business on July 12, 1999, 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
July 13, 1999
<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 July
16, 1999, 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 August 18, 1999 (the
"Meeting"), and at any adjournments thereof.
At the close of business on July 12, 1999, the record date for
determination of shareholders entitled to notice of, and to vote at, the
Meeting, there were outstanding an aggregate of 37,606,632 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 1999 Non-Employee Directors' Stock Option Plan
and, to the extent permitted by applicable rules of the Securities and Exchange
Commission (the "SEC"), in accordance with the judgment of the persons voting
the proxies upon such other matters as may come before the Meeting and any
adjournments. See "Other Matters" below.
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. The
Board of Directors by resolution currently has 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 2002
Annual Meeting, and until their successors are elected and have qualified,
subject to earlier death, resignation, retirement or removal from office:
William Y. O'Connor
Anthony Ruys
<PAGE> 4
Messrs. O'Connor and Ruys 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 17, 1999, 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:
William Y. O'Connor, 54(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 that was Corporate Senior Vice
President and President of the Broadband Communications
Group of Scientific Atlanta, Inc. from 1987 to 1992.
Anthony Ruys, 51............................................ 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.
DIRECTORS WHOSE TERMS CONTINUE BEYOND THE MEETING
Robert M. Dewey, Jr., 67.................................... 1995 2001
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 Deerfield
Academy.
Burnett W. Donoho, 59....................................... 1992(3) 2000
President and Chief Executive Officer of Club Sports
International (an operator of upscale health clubs)
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., a privately held department
store, 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., 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.
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
PRESENT
DIRECTOR TERM
NAME, AGE AND OCCUPATION (1) SINCE EXPIRES
---------------------------- -------- -------
<S> <C> <C>
The Rt. Hon. Lord Moore of Lower Marsh, P.C., 61............ 1992 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................. 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.
</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.
NOMINATION OF DIRECTORS AND RELATED MATTERS
The Company's Nominating Committee (see below) has recommended to the Board
of Directors that Messrs. O'Connor and Ruys be approved, and they 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 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 five formal meetings during fiscal 1999 (which
ended February 27, 1999), 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.
3
<PAGE> 6
The Audit Committee's present members are Messrs. Dewey and Donoho and Lord
Moore. 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 1999. The Compensation Committee's current
members are Messrs. Dewey and Ruys and General Paige. Mr. Ruys was appointed to
the Compensation Committee during fiscal 1999, replacing Mr. Donoho. 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 and other matters referred
to it by the Board and to recommend policies respecting the compensation of
executive officers of the Company generally. The Compensation Committee held
eight formal meetings during fiscal 1999, and also 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 Lord Moore,
Mr. O'Connor and General Paige. Mr. Donoho also was a member of the Nominating
Committee for a portion of fiscal 1999. 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 1999, but conferred informally and
made recommendations to the Board of Directors respecting nominees for election
to the Board of Directors.
During fiscal 1999, 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 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 were paid to directors in cash for special
consulting or other services: 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
Directors' 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
Directors' 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 Directors' Plan expired by its terms on December 31, 1998. (A new
Non-Employee Directors' Stock Option Plan is being submitted for approval at the
Meeting. See Proposal 2 below.) 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
4
<PAGE> 7
stock units. No other directors held stock units under the DSU Plan during
fiscal 1999, and that Plan terminated in 1996.
2. APPROVAL OF THE 1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
BACKGROUND
In addition, at the Meeting the shareholders will be asked to approve the
Company's 1999 Non-Employee Directors' Stock Option Plan (the "1999 Directors'
Plan"). The 1999 Directors' Plan was unanimously approved by the Company's Board
of Directors in May and is voluntarily being submitted to the shareholders of
the Company for their approval at the Meeting. If the Plan is not approved by
the shareholders, the Board may consider implementing the Plan or another type
of plan for Non-Employee Directors without shareholder approval.
The purpose of the 1999 Directors' Plan is to enable the Company, through
the grant of stock options to non-employee ("outside") directors of the Company,
to attract and retain highly-qualified outside directors and, by providing them
with such a stock-based incentive, to motivate them to promote the best
interests of the Company and its shareholders. For the purposes of the Plan,
outside directors are directors who, at the time of granting of options under
the Plan, are not and for the prior twelve months have not been employees of the
Company or any of its subsidiaries.
The 1999 Directors' Plan is intended to replace, and its terms are
substantially similar to, the Company's 1996 Directors' Plan. The 1996
Directors' Plan originally was approved by shareholders at the 1996 Annual
Meeting, was subsequently amended, and expired by its terms on December 31,
1998. Under the 1996 Plan, options to purchase an aggregate of 150,000 shares
(of the originally authorized 180,000 shares) were granted to the Company's
outside directors. Those options had exercise prices ranging from $27.625 to
$35.094, and all but 10,000 remained outstanding as of June 25, 1999.
SUMMARY OF 1999 DIRECTORS' PLAN
The text of the 1999 Directors' Plan is attached as an Appendix to this
proxy statement. The following description of the Plan is intended merely as a
summary of the principal features of the Plan and is qualified in its entirety
by reference to the provisions of the Plan itself.
The 1999 Directors' Plan is to be administered by the Board of Directors
and authorizes up to an aggregate of 240,000 shares of Common Stock ("Shares")
for the granting of nonqualified stock options ("Options"). Generally, Shares
subject to Options that remain unexercised upon expiration or earlier
termination of such Options will once again become available for the granting of
additional Options under the 1999 Directors' Plan. Only treasury Shares may be
issued under the 1999 Directors' Plan, and the Company may purchase Shares to
issue under the Plan.
The 1999 Directors' Plan provides for the automatic granting to each
outside director, shortly following each of the 1999 through 2001 Annual
Meetings, of an option for 10,000 Shares, with an exercise price equal to 100%
of the fair market value of a Share at the date of grant. Each 10,000 Share
Option will become exercisable approximately one year after date of grant and
will expire five years after date of grant, subject to earlier exercise and
termination in certain circumstances. If an outside director ceases to be a
director due to death, any of his outstanding Options which have not yet become
exercisable will accelerate, and all of his outstanding Options will remain
exercisable for various specified periods of time up to a maximum of
approximately 18 months. If an outside director ceases to be a director for any
other reason, including a disability, all of his or her outstanding Options
immediately will terminate, except that, in the case of an outside director who
has served as a director for at least 18 months, any of his outstanding
unexercisable Options which have been outstanding for at least four months will
accelerate, and all of his outstanding Options will remain exercisable for
various specified periods of time up to a maximum of approximately one year.
5
<PAGE> 8
The number of Shares authorized for issuance under the 1999 Directors'
Plan, the number of Shares with respect to which Options automatically will be
granted, and the number of Shares issuable under (and the exercise price of)
outstanding Options are subject to adjustment in the event of a stock split,
stock dividend or similar change in the capitalization of the Company. The 1999
Directors' Plan further provides that, in the event of a merger, consolidation
or other specified corporate transactions, the Board of Directors, in its
discretion, may terminate the outstanding Options, in which case the exercise
date of Options to be so terminated will be accelerated automatically.
The Board of Directors, at any time, may suspend or discontinue the 1999
Directors' Plan and, subject to certain limitations (as set forth in Section 9
of the Plan), may amend the Plan and any outstanding Options in any respect
(including, without limitation, to increase the number of Shares authorized for
issuance under the Plan and to extend the duration of the Plan) without
shareholder approval, unless such shareholder approval is required by applicable
law, rule or regulation. The 1999 Directors' Plan will become effective upon its
approval by the Company's shareholders and is scheduled to expire on December
31, 2001, unless earlier terminated or extended by the Board of Directors.
No Options have yet been granted under the 1999 Directors' Plan. Assuming
the 1999 Directors' Plan is approved by the shareholders at the Meeting and the
Board of Directors' nominees for election as directors are elected, on the third
business day following the Meeting, Options for an aggregate of 50,000 shares,
or 10,000 shares each, automatically will be granted to the five non-employee
directors (Messrs. Dewey, Donoho, and Ruys, Lord Moore and General Paige). The
other director Mr. O'Connor, is an employee of the Company and, as such, is
ineligible to receive Options under the 1999 Directors' Plan. Following
subsequent Annual Meetings during the term of the 1999 Directors' Plan, the
number of automatic 10,000 share Option grants under the Plan will depend upon
the number of outside directors who are elected at such meetings or whose terms
as directors are continuing. The exercise price of the Options granted this year
and of future Option grants under the 1999 Directors' Plan will be equal to 100%
of the fair market value of the Common Stock on the date of grant. On July 12,
1999, the closing price of a Share on the New York Stock Exchange was $23 11/16.
None of the five above-named outside directors who would be granted Options
under the 1999 Directors' Plan currently holds or is eligible to receive options
under any other option plan of the Company other than the 1996 Directors' Plan.
(See Item 1. "Election of Directors -- Compensation of Directors" above and
"Additional Information -- Beneficial Ownership of Principal Shareholders and
Management" below for further information concerning compensation paid to and
shareholdings of outside directors of the Company.)
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Company has been advised that, under present federal tax laws and
regulations, the Federal income tax consequences to the Company and to the
outside directors receiving Options pursuant to the 1999 Directors' Plan are as
follows. Upon the grant of an Option, no income will be realized by the director
for federal income tax purposes. Upon the exercise of such an Option, the amount
by which the fair market value of the Shares at the time of exercise exceeds the
exercise price with be taxed as ordinary income to the director, and the Company
will be entitled to a corresponding deduction. The foregoing 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.
THE BOARD OF DIRECTORS BELIEVES THE 1999 NON-EMPLOYEE DIRECTORS' STOCK
OPTION PLAN IS IN THE BEST INTERESTS OF THE COMPANY AND
RECOMMENDS A VOTE FOR APPROVAL OF SUCH PLAN.
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 SEC,
in accordance with the judgment of the
6
<PAGE> 9
persons voting such proxies. In the latter regard, the Company intends to avail
itself, until further notice, of the provisions of Rule 14a-4(c)(i) under the
Securities Exchange Act of 1934, as amended, which grants the persons voting the
proxies discretionary authority to vote on any shareholder proposals presented
at an Annual Meeting of which the Company has not received notice at least 45
days before the anniversary of the date on which the Company first mailed its
proxy materials for the previous year's Annual Meeting or, if the date of the
meeting has changed more than 30 days from the prior year, the Company has not
received such notice a reasonable time before it mails its proxy materials for
the current year. The Company has received no notice of any shareholder
proposal.
ADDITIONAL INFORMATION
BENEFICIAL OWNERSHIP OF PRINCIPAL SHAREHOLDERS 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 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 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.
7
<PAGE> 10
<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, NY 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%
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 (11
persons).................................................. 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 Directors'
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.
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
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<PAGE> 11
Committee currently has three members, Messrs. Dewey and Ruys and General Paige,
all of whom are outside 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 around the median of competitive ranges, and bonuses, if performance is
achieved, well above the median. 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 executive officers of the Company during fiscal 1999 named in
the Summary Compensation Table below (Messrs. O'Connor, Nowick, Chambrello and
Gay) are or were parties to employment and/or severance 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 fiscal 1999, as reflected in the Summary
Compensation Table, consisted primarily of salary, annual bonus and stock
options, except for Mr. Gay whose compensation consisted primarily of severance
payments and commissions. (Executive officers also received executive benefits
and perquisites, as well as other benefits offered under Company-sponsored
broad-based plans.)
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. Messrs.
O'Connor's and Nowick's employment agreements 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 of stock options to officers and other key employees
of the Company and its subsidiaries. The principal purpose of the Plan is to
assist the Company in attracting and retaining officers and other key employees,
and to motivate them to increase shareholder value by enabling them to
participate in the value which has been created.
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<PAGE> 12
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.
In fiscal 1999, option awards under the 1997 Plan were made to executive
officers and others during the first quarter of fiscal 1999, 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 of Directors. See "Option Grants in Last
Fiscal Year" below.
Rationale for Fiscal 1999 Compensation of Mr. O'Connor.
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 of Directors 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 to $511,757 on March 1,
1997. It was subsequently increased to $600,000, effective March 1, 1998.
Mr. O'Connor's employment agreement, as in effect for fiscal 1999, also
provided for an annual incentive bonus up to a maximum of six times his current
base salary. The major portion of such incentive bonus in fiscal 1999 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 $1,800,000 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, 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 and, where
applicable, other executive officers' annual incentive bonuses 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 28, 1999
The Fiscal 1999 Compensation Committee
of the Board of Directors
Robert M. Dewey, Jr.
Burnett W. Donoho**
General Emmett Paige, Jr.
Anthony Ruys**
- ---------------
** Mr. Ruys was appointed to the Committee during fiscal 1999, replacing Mr.
Donoho.
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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 1999; (ii) each of the Company's four other most highly-compensated
executive officers whose total annual salary and bonus for fiscal 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 --
Sales and 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 Relations 1997 289,529 150,000 126,326 -- -- -- 1,085,604
</TABLE>
- ---------------
(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.
(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),
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$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 $325,392 in sales commissions to
Mr. Gay.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning individual
grants of stock options made during fiscal 1999 to Named Officers. All grants of
stock options reflected in the following table were made pursuant to the
Company's 1994 or 1997 Stock Option Plans (the "Plans") and are subject to the
terms of such Plans.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS (1) VALUE AT ASSUMED
------------------------------------------------------------ ANNUAL RATES
NO. OF SHARES % OF OF STOCK PRICE
OF COMMON OPTIONS APPRECIATION FOR
STOCK GRANTED TO OPTION TERM(2)
UNDERLYING EMPLOYEES EXERCISE OR ----------------------
OPTIONS IN FISCAL BASE PRICE EXPIRATION 5% 10%
NAME GRANTED YEAR ($/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
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<PAGE> 15
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
SHARES STOCK OPTIONS(1) STOCK OPTIONS(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME 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>
- ---------------
(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.
(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 COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1999, decisions regarding executive compensation were made
primarily by the Committee, subject to the terms of applicable employment
agreements and ratification by the full Board of Directors in certain
circumstances. Mr. O'Connor, Chairman, President and Chief Executive Officer,
participated in certain deliberations of the Committee concerning executive
officer compensation.
Messrs. Dewey, Donoho and Ruys, and General Paige were members of the
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 of Directors or in accordance with Company
policy), resignation or discharge. The agreement, as
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<PAGE> 16
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 of Directors or the 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 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 of Directors 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 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) 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
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<PAGE> 17
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, 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.
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
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<PAGE> 18
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. 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 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. 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
16
<PAGE> 19
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 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 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, 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, 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 key employee's 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, 1994,
through February 27, 1999 (the end of the Company's 1999 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 FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG GTECH HOLDINGS CORPORATION, THE S&P 500 INDEX
AND A PEER GROUP
PERFORMANCE GRAPH
<TABLE>
<CAPTION>
GTECH HOLDINGS
CORPORATION PEER GROUP S & P 500
-------------- ---------- ---------
<S> <C> <C> <C>
2/94 100.00 100.00 100.00
2/95 56.00 45.00 107.00
2/96 92.00 45.00 145.00
2/97 89.00 51.00 182.00
2/98 101.00 74.00 246.00
2/99 64.00 59.00 295.00
</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, 1994, and that all
dividends were reinvested. The performances indicated in the above graph and
table are not necessarily indicative of future performance.
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 a $400,000
under a line of credit arrangement which bore no interest and which was repaid
in full during fiscal 1997, and a $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, advances of their 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.
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 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.
19
<PAGE> 22
INDEPENDENT AUDITORS
The firm of Ernst & Young LLP served as the Company's independent public
accountants for fiscal 1999. The Company anticipates that Ernst & Young LLP will
serve as its independent public accountants for fiscal 2000, 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 2000 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 12, 2000.
MISCELLANEOUS
A copy of the Company's 1999 Annual Report to Shareholders either has
previously been mailed to you or 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
1999. 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
July 13, 1999
20
<PAGE> 23
APPENDIX
GTECH HOLDINGS CORPORATION
1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
1. PURPOSE
This GTECH HOLDINGS CORPORATION 1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION
PLAN (the "Plan") is intended to provide a means whereby GTECH Holdings
Corporation (the "Company") may, through the grant of non-qualified stock
options ("Options") to purchase common stock of the Company ("Common Stock") to
Non-Employee Directors (as defined in Section 3 hereof), attract and retain
capable outside directors and motivate such outside directors to promote the
best interests of the Company, its related corporations and shareholders.
For purposes of the Plan, a Related Corporation of the Company shall mean a
corporate subsidiary of the Company, as defined in section 424(f) of the
Internal Revenue Code of 1986, as amended ("Code"). Further, as used in the
Plan, the term "non-qualified stock option" shall mean an option which, at the
time such option is granted, does not qualify as an incentive stock option
within the meaning of section 422 of the Code.
2. ADMINISTRATION
The Plan shall be administered by the Company's Board of Directors (the
"Board"). The Board shall have all the powers vested in it by the terms of the
Plan, such powers to include authority (within any limitations described herein)
to prescribe the form of the agreement embodying awards of Options. The Board
shall, subject to the provisions of the Plan, implement the grant of Options
under the Plan and shall have the power to construe the Plan, to determine all
questions arising thereunder and to adopt and amend such rules and regulations
for the administration of the Plan as it may deem desirable. Any decisions of
the Board in the administration of the Plan, as described herein, shall be final
and conclusive. The Board may authorize any one or more of its number or the
Secretary or any other officer of the Company to execute and deliver documents
on behalf of the Board. No member of the Board shall be liable for anything done
or omitted to be done by him or by any other member of the Board in connection
with the Plan, except for his own willful misconduct or as expressly provided by
statute.
3. ELIGIBILITY
The persons who shall be eligible to receive Options under the Plan
("Non-Employee Directors") shall be those directors of the Company who:
(a) Are not employees of the Company or of any Related Corporation;
and
(b) Have not been employees of the Company or of any Related
Corporation during the immediately preceding twelve (12) month period.
4. AUTHORIZED SHARES
Options may be granted under the Plan to purchase up to a maximum of two
hundred forty thousand (240,000) shares of Common Stock, par value $.01 per
share, subject to adjustment as hereinafter provided. Shares issuable under the
Plan shall be treasury shares, and the Company may purchase shares of Common
Stock against which Options may be granted hereunder, from time to time, if it
deems such purchases to be advisable.
If any Option granted under the Plan expires or otherwise terminates, in
whole or in part, for any reason whatever (including, without limitation, a
Non-Employee Director's surrender thereof) without having been exercised, the
shares subject to the unexercised portion of such Option shall continue to be
available for the granting of Options under the Plan as fully as if such shares
had never been subject to an Option.
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<PAGE> 24
5. GRANTING OF OPTIONS
Each year, commencing in 1999, on the third business day following the date
of the Company's Annual Meeting of Stockholders, each person elected, reelected
or continuing as a Non-Employee Director automatically shall be granted an
Option to purchase ten thousand (10,000) shares of Common Stock, subject to the
terms of the Plan, including, without limitation, Sections 7 and 12(d) hereof.
6. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Plan shall include expressly or by
reference the following terms and conditions:
(a) Number of Shares. A statement of the number of shares to which
the Option pertains.
(b) Price. A statement of the Option exercise price (the "Option
Price"). The Option Price shall be the greater of one hundred percent
(100%) of the Fair Market Value of the Common Stock, or the par value
thereof, on the date the Option is granted. For the purposes of the Plan,
the Fair Market Value of the Common Stock shall be:
(i) The average of the high and low sale prices of a share of
Common Stock as reported on the New York Stock Exchange Composite
Transactions Tape or, if the New York Stock Exchange is closed on that
date, on the last preceding date on which the New York Stock Exchange
was open for trading; or
(ii) If paragraph (b) (i) above is inapplicable, such other method
of determining Fair Market Value as shall be authorized by the Code, or
the rules or regulations thereunder, and adopted by the Board.
(c) Term. Subject to earlier termination as provided in Sections
6(e), (f) and (g) and in Section 8 hereof, the term of each Option shall be
five (5) years from the date of grant.
(d) Exercise. Options shall be exercisable commencing one (1) year
after the date of grant, except that, if the date of the next succeeding
annual meeting of shareholders is less than one (1) year from the date of
grant of the Options, then such Options shall be exercisable, commencing on
the day preceding the date of the annual meeting of shareholders next
succeeding the date of grant of such Options. Except as otherwise provided
in Sections 6(e), (f) and (g) hereof, Options shall only be exercisable
while a Non-Employee Director remains a director of the Company. Any Option
shares, the right to the purchase of which has accrued, may be purchased at
any time up to the expiration or termination of the Option. Exercisable
Options may be exercised, in whole or in part, from time to time by giving
written notice of exercise to the Company at its principal office,
specifying the number of shares to be purchased and accompanied by payment
in full of the aggregate price for such shares. Only full shares shall be
issued under the Plan, and any fractional share which might otherwise be
issuable upon exercise of an Option granted hereunder shall be forfeited.
The Option Price shall be payable:
(i) In United States dollars by cash or check, or
(ii) In lieu thereof, by tendering to the Company Common Stock
owned by the person exercising the Option and having a Fair Market Value
on the date of exercise equal to the Option Price applicable to such
Option; or
(iii) By a combination of United States dollars and Common Stock as
aforesaid.
(e) Termination of Service as a Director. If a Non-Employee
Director's service as a director of the Company terminates prior to the
expiration date of his or her Options for any reason (such as, without
limitation, failure to be re-elected by the shareholders or resignation)
other than those set forth in Sections 6(f) and (g) below, all such
Non-Employee Director's outstanding options immediately shall terminate,
except that if such Non-Employee Director has been a director of the
Company for at least
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<PAGE> 25
eighteen (18) months immediately prior to his or her termination of service
as a director, any of his or her unexercisable Options which have been
outstanding for at least four (4) months immediately shall become fully
exercisable, and all his or her outstanding Options may be exercised by the
Non-Employee Director, at any time prior to the earlier of:
(i) The expiration date specified in such Options; or
(ii) Nine (9) months after the date of such termination of service
as a director.
(f) Disability of Non-Employee Director. If a Non-Employee Director
shall become disabled (within the meaning of section 22 (e) (3) of the
Code) during the period in which he or she is a director of the Company
and, prior to the expiration date fixed for his or her Options, his or her
service as a director with the Company is terminated as a consequence of
such disability, all such Non-Employee Director's outstanding options
immediately shall terminate, except that if such Non-Employee Director has
been a director of the Company for at least eighteen (18) months
immediately prior to his or her termination of service as a director, any
of his or her unexercisable Options which have been outstanding for at
least four (4) months immediately shall become fully exercisable, and all
his or her outstanding Options may be exercised, at any time prior to the
earlier of:
(i) The expiration date specified in such Options; or
(ii) One (1) year after the date of the Non-Employee Director's
ceasing to be a director by reason of disability.
In the event of a Non-Employee Director's legal disability, such
Options may be so exercised by the Non-Employee Director's legal
representative.
(g) Death of Non-Employee Director. If a Non-Employee Director ceases
to be a director of the Company by reason of his or her death prior to the
expiration date fixed for his or her Options, all of such Non-Employee
Director's outstanding Options immediately shall become fully exercisable,
and such Options may be exercised at any time prior to the earlier of:
(i) The expiration date specified in such Options; or
(ii) Eighteen (18) months after the date of the Non-Employee
Director's death.
If a Non-Employee Director who ceases to be a director for reasons
described in Sections 6(e) and (f) hereof shall die following his or her
ceasing to be a director but prior to the earlier of the expiration date
fixed for his or her Options, or the expiration of the period determined
under Sections 6 (e) and (f) hereof, as the case may be, such Options may
be exercised, to the extent of the number of shares with respect to which
the Non-Employee Director could have exercised it on the date of his or her
death, at any time prior to the earlier of:
(i) The expiration date specified in such Option; or
(ii) One (1) year after the date of the Non-Employee Director's
death.
In the event of a Non-Employee Director's death, such Options may be
so exercised by the Non-Employee Director's estate, personal representative
or beneficiary who acquired the right to exercise such Option by bequest or
inheritance or by reason of the death of the Non-Employee Director.
(h) Non-Transferability. Except as otherwise provided in any Option
Agreement (as defined in Section 7 hereof), no Option shall be assignable
or transferable by the Non-Employee Director otherwise than by will or by
the laws of descent and distribution, and during the lifetime of the
Non-Employee Director, the Option shall be exercisable only by him or by
his or her guardian or legal representative. If the Non-Employee Director
is married at the time of exercise and if the Non-Employee Director so
requests at the time of exercise, the share certificate or certificates
shall be registered in the name of the Non-Employee Director and the
Non-Employee Director's spouse, jointly, with right of survivor-ship.
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<PAGE> 26
(i) Rights as a Shareholder. An optionee under the Plan shall have no
rights as a shareholder with respect to any shares covered by his or her
Option until the issuance of a stock certificate to him or her for such
shares.
(j) Listing and Registration of Shares. Each Option shall be subject
to the requirement that, if at any time the Board shall determine, in its
discretion, that the listing, registration or qualification of the shares
covered thereby upon any securities exchange or under any state or federal
law, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in connection with, the
granting of such Option or the purchase of shares thereunder, or that
action by the Company or by a Non-Employee Director should be taken in
order to obtain an exemption from any such requirement, no such Option may
be granted or be exercised, in whole or in part, unless and until such
listing, registration, qualification, consent, approval, or action shall
have been effected, obtained, or taken under conditions acceptable to the
Board. Without limiting the generality of the foregoing, each Non-Employee
Director or his or her legal representative or beneficiary may also be
required to give satisfactory assurance that shares purchased upon exercise
of an Option are being purchased for investment and not with a view to
distribution, and certificates representing such shares may be legended
accordingly.
7. OPTION AGREEMENTS -- OTHER PROVISIONS
Options granted under the Plan shall be evidenced by written documents
("Option Agreements") in such form as the Board shall from time to time,
approve, which Option Agreements shall contain such provisions, not inconsistent
with the provisions of the Plan as the Board shall deem advisable. Each
Non-Employee Director shall enter into, and be bound by, such Option Agreements.
8. CAPITAL ADJUSTMENTS
The number of shares of Common Stock which may be issued under the Plan, as
stated in Section 4 hereof, the number of shares covered by future Option
grants, as stated in Section 5 hereof, and the number of shares issuable upon
exercise of outstanding Options under the Plan (as well as the Option price per
share under such outstanding Options) shall be adjusted proportionately to
reflect any stock dividend, stock split, share combination, or similar change in
the capitalization of the Company.
In the event of a corporate transaction (as that term is described in
section 424(a) of the Code and the Treasury Regulations issued thereunder as,
for example, a merger, consolidation, acquisition of property or stock,
separation, reorganization, or liquidation) and provision is not made for the
continuance and assumption of Options under the Plan, or the substitution for
such Options of new Options to acquire securities or other property to be
delivered in connection with the transaction, the Board shall, by written notice
to the holders of Options, provide that all unexercised Options will terminate
immediately prior to the consummation of such merger, consolidation,
acquisition, reorganization, liquidation, sale or transfer unless exercised by
the holder within a specified number of days (which shall not be less than
fourteen (14) days) following the date of such notice. On the date of such
notice, all such unexercised Options automatically shall become fully
exercisable.
9. AMENDMENT, SUSPENSION AND DISCONTINUANCE OF THE PLAN
The Board, from time to time, may suspend or discontinue the Plan or amend
the Plan or any Option outstanding under it in any respect whatsoever,
including, without limitation, increasing the number of shares authorized for
issuance under the Plan and extending the duration of the Plan, provided,
however, that:
(a) without shareholder approval, except pursuant to Section 8 hereof:
(i) the number of shares granted to each Non-Employee Director pursuant to
Section 5 hereof shall not be increased, and (ii) the Option Price of an
Option shall not be reduced, whether through amendment, cancellation,
replacement grants or other similar means;
(b) no amendment to the Plan shall become effective without
shareholder approval if such shareholder approval is required by applicable
law, rule or regulation; and
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<PAGE> 27
(c) no amendment shall materially impair the rights of any holder of
an outstanding Option without the consent of such holder.
10. EFFECTIVE DATE
The Plan shall become effective when the Plan is approved and adopted by
the Company's shareholders.
11. TERMINATION OF PLAN
Unless earlier terminated or extended as provided in the Plan, the Plan and
all authority granted hereunder shall terminate absolutely at 12:00 midnight on
December 31, 2001, and no Options hereunder shall be granted thereafter. Nothing
contained in this Section 11, however, shall terminate or affect the continued
existence in accordance with their terms of Options outstanding on the date of
termination of the Plan.
12. GENERAL PROVISIONS
(a) Nothing contained in the Plan shall prevent the Board from adopting
other or additional compensation arrangements for directors (subject to
shareholder approval if such approval is required); and such arrangements may be
either generally applicable or applicable only in specific cases.
(b) The adoption of the Plan and the receipt of grants hereunder shall not
confer upon any person any right to continued services as a director of the
Company.
(c) In the event of exercise of an Option, the optionee shall pay to the
Company, upon its demand, such amount as may be requested by the Company for the
purpose of satisfying any liability to withhold Federal, state, local, or
foreign income or other taxes (which payment may be made in any manner
prescribed in Section 6(d) hereof). The obligations of the Company under the
Plan shall be conditioned on such payment, and the Company shall have the right
to withhold the issuance of shares to the optionee and, to the extent permitted
by law, shall have the right to deduct any such taxes from any payment of any
kind otherwise due to the Non-Employee Director.
(d) At the time of grant of any Option, the Board may provide that any
shares of Common Stock received as a result of exercise of such Option shall be
subject to a right of first refusal, pursuant to which the Non-Employee Director
shall be required to offer to the Company any such shares that he or she wishes
to sell, with the price being the then Fair Market Value of the shares, subject
to such other terms and conditions as the Board may specify at the time of
grant.
(e) Each person who is or shall have been a member of the Board shall be
indemnified and held harmless by the Company, to the fullest extent permissible
by Delaware Law, against and from any loss, cost, liability, or expense that may
be imposed upon or reasonably incurred by such person in connection with or
resulting from any claim, action, suit, or proceeding to which such person may
be made a party or in which such person may be involved by reason of any action
taken or failure to act under or with respect to the Plan and against and from
any and all amounts paid by such person in settlement thereof, with the
Company's approval, or paid by such person in satisfaction of any judgement in
any such action, suit, or proceeding against such person, provided such person
shall give the Company an opportunity, at the Company's expense, to handle and
defend the same before such person undertakes to handle and defend it on such
person's own behalf. The foregoing right of indemnification shall not be
exclusive and shall be independent of any other rights of indemnification to
which such persons may be entitled under the Company's Certificate of
Incorporation or By-laws, by contract, as a matter of law, or otherwise.
(f) The Plan and all awards made and actions taken thereunder shall be
governed by and construed in accordance with laws of the State of Delaware.
A-5
<PAGE> 28
/ /
(1) Election of William Y. O'Connor and Anthony Ruys as directors of GTECH
Holdings Corporation for a three year term of office expiring in 2002.
VOTE FOR WITHHOLD AUTHORITY VOTE FOR ALL, EXCEPT FOR
ALL NOMINEES FOR ALL NOMINEES THE FOLLOWING NOMINEE
/ / / / / /
(Insert the name of the nominee for whom
you do not wish to vote in the space provided.)
---------------------------------------------------------
(2) Approve the 1999 Non-Employee Directors' Stock Option Plan.
FOR AGAINST ABSTAIN
/ / / / / /
(3) In their discretion on such other business as may properly come before
the meeting.
Change of Address and
or Comments Mark Here / /
Please sign your name exactly as it appears
hereon. When signing as attorney, executor,
administrator, trustee or guardian, please
give full title as such. If a corporation,
please sign in full corporate name by
President or other authorized officer. If a
partnership, please sign name by authorized
person.
Dated: , 1999
-----------------------------
------------------------------------------
(Signature of Shareholder)
------------------------------------------
(Signature of Additional Shareholder)
Voters must be indicated
(x) in Black or Blue Ink. / /
Sign, Date and Return the Proxy Card Promptly Using the Enclosed Envelope.
================================================================================
PROXY
GTECH HOLDINGS CORPORATION
ANNUAL MEETING OF SHAREHOLDERS, AUGUST 18, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints CYNTHIA A. NEBERGALL, BRENDAN J. RADIGAN
and MICHAEL J. FINCH and each or any of them as Proxies of the undersigned,
with full power of substitution, and hereby authorizes them to represent and to
vote, as designated on the reverse side, all of the shares of Common Stock of
GTECH HOLDINGS CORPORATION, held of record by the undersigned on July 12, 1999,
at the Annual Meeting of Shareholders of GTECH Holdings Corporation to be held
August 18, 1999, 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
