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>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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:
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(4) Date Filed:
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[GTECH LOGO]
GTECH HOLDINGS CORPORATION
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 5, 2002
------------------------
To Our Shareholders:
The Annual Meeting of Shareholders (the "Meeting") of GTECH Holdings
Corporation (the "Company") will be held at 4:00 o'clock p.m. on Monday, August
5, 2002, at the Company's corporate headquarters, 55 Technology Way, West
Greenwich, Rhode Island, for the following purposes:
1. To elect two directors to serve for a three-year term and one director
to serve for a one-year term;
2. To vote on a proposal to approve the Company's 2002 Omnibus Stock Option
and Long-Term Incentive Plan; and
3. To transact such other business as may properly come before the Meeting
and any adjournments thereof.
The Board of Directors has fixed the close of business on June 7, 2002, 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,
MARC A. CRISAFULLI, Secretary
June 20, 2002
GTECH HOLDINGS CORPORATION
55 TECHNOLOGY WAY
WEST GREENWICH, RI 02817
------------------------
PROXY STATEMENT
This proxy statement, which is being sent to shareholders on or about June
21, 2002, 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 5, 2002 (the
"Meeting"), and at any adjournments thereof.
At the close of business on June 7, 2002, the record date for determination
of shareholders entitled to notice of, and to vote at, the Meeting, there were
outstanding an aggregate of 57,269,453 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. The aggregate number of outstanding shares of
Common Stock set forth above reflects the 2-for-1 stock split of the Common
Stock effected in the form of a stock dividend distributed on May 23, 2002 to
shareholders of record as of May 16, 2002.
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 three 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 that 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
non-votes 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 three nominees for director, as provided in Proposal 1 below; FOR approval
of the Company's 2002 Omnibus Stock Option and Long-Term Incentive Plan as
provided in Proposal 2 below; 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 thereof. 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 eight directors
shall constitute the whole Board. The classes of directors which comes up for
election at the Meeting consist of two directors to be elected for a three-year
term and one director to be elected for a one-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 2005 Annual Meeting, and until their successors are elected
and have qualified, subject to earlier death, resignation, retirement or removal
from office:
The Rt. Hon. Sir Jeremy Hanley KCMG
Anthony Ruys
In addition, the Board of Directors has nominated for election the
following person to serve as a director until the 2003 Annual Meeting and until
his successor is elected and has qualified, subject to earlier death,
resignation, retirement or removal from office:
Lt. Gen. (Ret.) Emmett Paige, Jr.
Sir Jeremy Hanley, Mr. Ruys and General Paige are presently serving as
directors of the Company.
Although the Board of Directors has no reason to believe that any of the
nominees will be unable to serve, if such should occur, proxies will be voted
(unless marked to the contrary) for such person or persons, if any, as shall be
recommended by the Board of Directors. However, proxies will not be voted for
the election of more than three directors.
The following table sets forth, as of June 1, 2002, 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
- --------------------------- -------- -------
NOMINEES FOR ELECTION AT THE MEETING:
The Rt. Hon. Sir Jeremy Hanley KCMG, 56..................... 2001(2) 2002
Member, European Advisory Board, of Credit Lyonnais,
the French financial institution, since January 2000;
Non-Executive Director of the Arab-British Chamber of
Commerce, a trade organization, since January 1999;
Chairman of AdVal Group plc, a human resources
consultancy and provider of technology based learning
and development products and services, since May 1998;
and Non-Executive Director of the ITE Group plc, an
exhibition and conference organizer, since February
1998. Previously, Sir Jeremy Hanley was a Member of the
United Kingdom Parliament from April 1983 through May
1997, during which time he held various ministerial
posts in the Government of the United Kingdom,
including Cabinet Minister without Portfolio, Minister
of State for Foreign and Commonwealth Affairs, Minister
of State for the Armed Forces and Under-Secretary of
State for Northern Ireland. Sir Jeremy Hanley has also
served as the Chairman of the Conservative Party in the
United Kingdom, where he is qualified as a chartered
accountant.
Lt. Gen. (Ret.) Emmett Paige, Jr. (USA), 71................. 1997 2002
Vice President of Lockheed Martin Information
Technology Company responsible for the DOD and
Intelligence lines of business. Previously, he was the
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 from May 1997 through November
2001. Prior to this, 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.
</Table>
2
<Table>
<Caption>
PRESENT
DIRECTOR TERM
NAME, AGE AND OCCUPATION(1) SINCE EXPIRES
- --------------------------- -------- -------
Anthony Ruys, 54............................................ 1996 2002
Chairman of the Executive Board of Heineken N.V., a
Netherlands-based international brewery group, since
April 2002 and a Board Member since 1993. Prior to
this, Mr. Ruys served as Vice Chairman of the Executive
Board of Heineken from 1996 through April 2002, and,
from 1974 to 1993, in increasingly senior positions
within the Unilever Group, a Netherlands and U.K.-based
consumer goods conglomerate. In addition, Mr. Ruys has
served as a Member of the Dutch Tourist Board and as a
Member of the Board of the Rembrandt Foundation, each
since 1995, and in 2001 was elected to serve as a
Member of the Board of the Robeco Group, a European
investment fund company.
DIRECTORS WHOSE TERMS CONTINUE BEYOND THE MEETING:
Howard S. Cohen, 55......................................... 2001(2) 2004
President and Chief Executive Officer since March 2001.
Previously, Mr. Cohen was President and Chief Executive
Officer of the "new" Bell & Howell, a leading
information solutions and services provider, from
January 2000 to January 2001; President, Chief
Executive Officer and Chairman of Sidus Systems, Inc.,
a Toronto Canada based systems integrator, contract
manufacturer and distributor, from 1998 to 2000; and
President, Chief Executive Officer, and Chief Operating
Officer of Peak Technologies Group, a systems
integrator of data capture, printing, service solutions
and software products, from 1996 to 1998. Prior to
this, Mr. Cohen was president of OCE Systems, Inc., a
U.S. subsidiary of the Netherlands-based OCE
Corporation, which specializes in printing systems and
reprographic equipment, from 1992 to 1996.
Robert M. Dewey, Jr., 70.................................... 1995 2004
Retired. Mr. Dewey served as Senior Advisor, Donaldson,
Lufkin & Jenrette, Inc. ("DLJ"), an investment banking
firm, from January 1998 through December 1999.
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.
Burnett W. Donoho, 62....................................... 1992(3) 2003
Consultant. Mr. Donoho served as President and Chief
Executive Officer of Wellbridge Company, formerly Club
Sports International (an operator of upscale health
clubs) from November 1998 through September 2000. Prior
to this, Mr. Donoho was a self-employed retail
consultant from January 1998 to October 1998; 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>
3
<Table>
<Caption>
PRESENT
DIRECTOR TERM
NAME, AGE AND OCCUPATION(1) SINCE EXPIRES
- --------------------------- -------- -------
Philip R. Lochner, Jr., 59.................................. 2001(2) 2004
Director and Consultant. Mr. Lochner is a director of
Apria Healthcare Group Inc., CLARCOR Inc. and the
Company, and is a Member of the Board of Governors of
the American Stock Exchange. Mr. Lochner served as
Senior Vice President and Chief Administrative Officer
of Time Warner, Inc., the media and entertainment
company, from July 1991 through June 1998. Previously,
Mr. Lochner served as a Commissioner on the United
States Securities and Exchange Commission from March
1990 to July 1991.
W. Bruce Turner, 42(4)...................................... 1999 2003
Mr. Turner was elected the non-executive Chairman of
the Company by the Board in July 2000, and subsequently
served as the Company's acting Chief Executive Officer
prior to the appointment of Mr. Cohen as Chief
Executive Officer. Previously, Mr. Turner was an
independent consultant and private investor from
February 1999 to July 2000. Mr. Turner was a Managing
Director, Equity Research, for Salomon Smith Barney
(formerly Salomon Brothers) from January 1994 until
February 1999; director, Leisure Equity Research for
Raymond James & Associates from October 1989 until
January 1994; and Supervisor, Customer Relations for
Tampa Electric Company from June 1986 until October
1989. Prior to entering the private sector, Mr. Turner
served as a Field Artillery Officer in the United
States Army from May 1981 until May 1986. Mr. Turner is
also a director of Ameristar Casinos, Inc.
</Table>
- ---------------
(1) Except as otherwise noted, the named individuals have had the occupations
indicated (other than directorships) for at least five years.
(2) Messrs. Cohen and Lochner and Sir Jeremy Hanley were elected by the Board of
Directors to serve as directors of the Company in March 2001, January 2001
and April 2001, respectively.
(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.
(4) See "Summary Compensation Table" and "Additional Information -- Employment
Agreements and Arrangements" below.
4
NOMINATION OF DIRECTORS AND RELATED MATTERS
The Company's Nominating Committee (see below) has recommended to the Board
of Directors that Sir Jeremy Hanley, Mr. Ruys and General Paige 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 II, Section 10) also permit shareholders
entitled to vote in the election of directors to nominate candidates for
election as directors, but, as recently amended, generally 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 90 nor more than 120 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 30 days earlier or more
than 70 days later than such anniversary date, such notice may be received by
the Company not later than 10 days after the date the Company first publicly
announces the date of the Annual Meeting; and (ii) with respect to an election
to be held at a special meeting of shareholders, not earlier than 120 days prior
to such special meeting and not later than 90 days prior to such special meeting
or 10 days after the Company first publicly announces the date of the Annual
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 2002 (which
ended February 23, 2002), and also conferred informally and took formal action
by unanimous written consent on a number of additional occasions. The Board has
the following standing committees: an Audit Committee, a Compensation Committee,
a Nominating Committee, and a Corporate Governance and Compliance Committee. The
Audit Committee's members during fiscal 2002 were and currently are Messrs.
Dewey and Donoho and Sir Jeremy Hanley. The primary role of the Audit Committee
is to assist the Board in fulfilling the Board's responsibility to oversee
management's conduct of the Company's financial reporting process. The
responsibilities and processes of the Audit Committee are more fully described
in the Audit Committee Charter under which the Committee operates. The Audit
Committee Charter, which was adopted by the Board, is attached as an appendix to
this proxy statement. During fiscal 2002 the Audit Committee held three formal
meetings and, in addition, the Chairman of the Audit Committee met with the
Company's senior management and independent accountants three times to review
the Company's quarterly financial results. See "Additional Information -- Report
of the Audit Committee" below. The Compensation Committee's members at the
commencement of fiscal 2002 were Lord Moore, General Paige and Mr. Ruys. In July
2001, Mr. Donoho was appointed to the Compensation Committee replacing Lord
Moore, who had retired from the Board, and in October 2001 Mr. Lochner was
appointed to the Compensation Committee. 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. During fiscal 2002, the Compensation Committee met, conferred
and took formal action on a number of occasions. See "Additional
Information -- Executive Compensation Report of the Compensation Committee"
below. The Nominating Committee's members at the commencement of fiscal 2002
were Messrs. Dewey, Ruys and Turner and General Paige. In July 2001, the
Nominating Committee was reorganized to consist of Messrs. Turner, Cohen and
Dewey. The Nominating Committee makes recommendations to the Board concerning
qualified candidates for election as directors. The Nominating Committee did not
meet formally during fiscal 2002 but conferred informally on a number of
occasions. The Corporate Governance and Compliance Committee's members at the
commencement of fiscal 2002 were Messrs. Dewey, Donoho, Lochner, Ruys and
Turner, General Paige and Lord Moore. In April 2001, Sir Jeremy Hanley was
appointed to, and in July 2001 Lord Moore and Mr. Turner retired from, the
Corporate Governance and Compliance Committee. The function of the Committee,
which met five times during fiscal 2002, is to oversee matters of corporate
governance and ethical compliance.
5
During fiscal 2002, all directors attended in person or by conference
telephone at least 75% of all formal meetings of the Board of Directors and
committees of the Board on which they served.
COMPENSATION OF DIRECTORS
During fiscal 2002, directors who were not employees of the Company, were
entitled to annual directors' fees ("Annual Fees") at the rate of $30,000 per
year, plus additional fees ("Other Fees") in the amount of $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. The Company pays directors fees in arrears and on a semi-annual basis.
Messrs. Turner and Cohen are parties to employment agreements with the Company,
and, accordingly were not eligible to receive, and did not receive, directors
fees with respect to fiscal 2002. See "Additional Information -- Summary
Compensation Table" and "-- Employment Agreements and Arrangements," below.
Non-employee directors of the Company are 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.
From time to time non-employee directors provide special services for the
Company for which they receive additional compensation. During fiscal 2002, the
following amounts in addition to the annual directors' fee and usual committee
meeting fees were paid to directors in cash for special services as directors:
Mr. Dewey -- $13,000; Mr. Donoho -- $7,000; Sir Jeremy Hanley -- $8,000; Mr.
Lochner -- $12,000; General Paige -- $4,000; and Mr. Ruys -- $6,000.
The Company's 1999 Non-Employee Directors' Stock Option Plan (the "1999
Plan"), provided for automatic grants to each non-employee director, shortly
following each Annual Meeting of Stockholders, of a nonqualified stock option
for (as adjusted to reflect the 2-for-1 stock split of the Company's Common
Stock effected with respect to shareholders of record as of May 16, 2002) 20,000
shares of Common Stock with a per share exercise price equal to the average of
the high and low sale price of a share of Common Stock as reported on the New
York Stock Exchange Composite Transactions Tape on the date of grant. Such
options became exercisable approximately one year following the date of grant
and extended for a ten-year term. (In December 2000, the Board of Directors
amended the 1999 and 1996 Plans to extend the terms of options granted from five
years to ten years from the date of grant.) Pursuant to the 1999 Plan, on July
12, 2001, each of the six non-employee directors then in office was granted (on
a post-split basis) a 20,000 share option with an exercise price of $17.57 per
share. The 1999 Plan replaced the similar 1996 Non-Employee Directors' Stock
Option Plan, which expired by its terms on December 31, 1998. The 1999 Plan
expired by its terms on December 31, 2001.
Assuming that the shareholders approve the 2002 Omnibus Stock Option and
Long-Term Incentive Plan, as described in Proposal 2 below, the Company
anticipates that future grants will be made to the non-employee directors under
the 2002 Plan at such times and in such amounts as the Compensation Committee
may in its discretion determine.
See Proposal 2 -- "Approval of the 2002 Omnibus Stock Option and Long-Term
Incentive Plan", and "Additional Information -- Employment Agreements and
Arrangements" below.
2. APPROVAL OF THE 2002 OMNIBUS STOCK OPTION AND
LONG-TERM INCENTIVE PLAN
At the meeting, the shareholders also will be asked to approve the 2002
Omnibus Stock Option and Long-Term Incentive Plan (the "2002 Plan") which was
adopted by the Company's Board of Directors in June 2002. A summary of the 2002
Plan appears below, and a copy of the 2002 Plan is attached as an Appendix to
this proxy statement.
6
The Board approved the 2002 Plan, which authorizes grants ("Grants") of
stock options, restricted stock, stock appreciation rights and performance
awards respecting, in the aggregate, 4,000,000 shares of Common Stock
("Shares"), because it firmly believes that having such Shares available for
Grants is an essential element of compensation if the Company is to be able, in
this highly competitive environment, to attract and retain the officers,
employees and non-employee directors upon which the Company's continued success
will, in large part, depend. The Board further believes that with respect to the
type of options and stock appreciation rights to be granted under the 2002 Plan,
such Grants are a particularly beneficial form of compensation because, since
their exercise price is not less than the fair market value on the date of
Grant, such Grants only become of real value if the price of the Shares rises.
Whether or not Grants take the form of options to purchase Shares, the Board
believes that the 2002 Plan, which fosters the ownership of Shares by officers,
employees and non-employee directors, serves to more closely align the interests
of the Company's officers, employees and directors with other shareholders in
having the Company prosper and Share value increase.
The Company currently has two other option plans for officers and key
employees, the 1997 Stock Option Plan (the "1997 Plan") and the 2000 Omnibus
Stock Option and Long-Term Incentive Plan (the "2000 Plan"), but, as of June 1,
2002 fewer than 725,000 Shares remained available for future grants of options
under the 1997 Plan and the 2000 Plan. The Company currently has no option plan
available for grants to its non-employee directors. The number of Shares
available for grant under the 1997 Plan and the 2000 plan is clearly
insufficient to meet the Company's needs. This consideration, together with the
lack of a vehicle to make grants to the Company's non-executive directors, has
led the Board to request shareholder approval of the 2002 Plan.
As of the date of this proxy statement, no Grants have been made under the
new 2002 Plan, and the Compensation Committee (which is responsible for Grants
under the 2002 Plan) has not made any final determination as to specific Grants
to be made under the 2002 Plan.
THE BOARD OF DIRECTORS BELIEVES THAT THE 2002 OMNIBUS STOCK OPTION AND
LONG-TERM INCENTIVE PLAN IS IN THE BEST INTERESTS OF THE COMPANY AND RECOMMENDS
A VOTE FOR APPROVAL OF SUCH PLAN.
SUMMARY OF THE 2002 PLAN
The following description of the 2002 Plan is intended merely as a summary
of the principal features of the Plan and is qualified in its entirety by
reference to the provisions of the Plan itself, which is attached as an Appendix
to this proxy statement.
The 2002 Plan authorizes up to an aggregate of 4,000,000 Shares for
issuance. Generally, Shares subject to Grants under the 2002 Plan which remain
unvested or unexercised upon expiration or earlier termination of such Grants,
any Shares that are subject to a Grant that are forfeited, and Shares withheld
to pay taxes will once again become available for Grants under the 2002 Plan. If
Shares are used to pay the exercise price, only the number of Shares issued net
of the Shares so used will be counted against the number of Shares available
under the 2002 Plan. The 2002 Plan does not permit the repricing of Grants,
except in connection with capital adjustments and certain corporate transactions
(including a change in control) as contemplated in Sections 10 and 12 of the
2002 Plan. Authorized but unissued Shares or treasury Shares may be issued under
the 2002 Plan.
Under the 2002 Plan, the Committee may award stock options, stock
appreciation rights, restricted stock awards and performance awards. The 2002
Plan limits the number of Shares that may be granted subject to restricted stock
awards, performance awards and stock appreciation rights to not more than
1,000,000 in the aggregate.
The 2002 Plan is to be administered by a Committee of the Board (currently
the Compensation Committee, the "Committee") which Committee is given broad
discretion under the 2002 Plan. The 2002 Plan authorizes the Committee to make
Grants to officers and other employees and to non-employee directors of the
Company and its subsidiaries.
7
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The Committee may award incentive stock options (within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"))
("ISOs"), and nonqualified stock options ("NQSOs"). ISOs, which the 2002 Plan
provides may only be granted to employees of the Company, offer grantees certain
tax advantages (discussed below) which are not available with NQSOs. The
Committee determines the terms of option awards, including the amount, exercise
price, vesting schedule and term. If the Committee does not establish an
alternative vesting schedule, Grants of options vest in equal installments over
four years. Options under the 2002 Plan become exercisable at such time or times
as the Committee may specify, but not later than ten years from the date of
Grant. The per Share exercise price with respect to Grants of options may not be
less than the fair market value of a Share on the date the option is granted.
Under certain circumstances, the 2002 Plan permits the exercise price of options
to be paid in whole or in part in the form of unrestricted Shares owned by the
grantee. Grants under the 2002 Plan are not transferable by participants other
than by will, or pursuant to the laws of descent and distribution, except to the
extent otherwise permitted by the Committee and, with respect to ISOs, by the
Code.
In the event of termination of an optionee's service by reason of death,
disability, retirement or without Cause (as defined in the 2002 Plan), the
Committee has broad discretion in determining if and to what extent options held
by such optionee will be terminated, will vest (including acceleration of
vesting) and remain exercisable. Unless otherwise determined by the Committee,
if an optionee's service is terminated other than for Cause no further
installment of options shall vest and options, to the extent exercisable by the
optionee shall terminate no later than six months (three months in the case of
ISOs) following the optionee's termination of service, or the specified
expiration date of the option. Notwithstanding the above, in the event that a
member of the Company's senior staff, or a non-employee director, retires from
the Company (as determined by the Committee), the 2002 Plan provides that all
unvested options previously granted to such individual shall vest and he/she
shall have two years to exercise his or her vested options. If an optionee's
service is terminated for Cause, all such optionee's unexercised options will
terminate unless otherwise determined by the Committee.
The Committee may also grant stock appreciation rights ("SARs"), either in
tandem with stock options ("Tandem SARs") or independent of stock options
("Freestanding SARs"). A stock appreciation right entitles a grantee to receive
a per Share payment (in cash, Shares or restricted stock, as determined by the
Committee) equal to the excess of the fair market value of a Share on the date
of exercise over the fair market value of a Share on the date of Grant. A Tandem
SAR is exercisable only to the extent the related option is exercisable and,
when exercised, cancels the related option to the extent of the number of Shares
covered by the exercise. Conversely, a Tandem SAR is cancelled to the extent of
the number of Shares covered by the exercise of a related option. The Committee
will determine the terms and conditions of a Freestanding SAR.
The Committee may not in any calendar year grant to any individual
participant options and stock appreciation rights representing, in the
aggregate, more than 500,000 Shares.
RESTRICTED STOCK
The Committee may make restricted stock awards to eligible grantees. The
Committee has the discretion to determine whether the Shares covered by a
restricted stock award will be subject to a restriction period, the length of
any such restriction period, and any vesting (or forfeiture) conditions and
terms that apply during any such restriction period. The 2002 Plan provides that
unless otherwise determined by the Committee, restricted stock awards shall vest
in equal installments over four years. The Committee also has the discretion to
determine if a grantee will be required to make a payment with respect to a
restricted stock award and the amount of any such payment. If Shares are issued
to evidence a restricted stock award, during the restriction period respecting
such award, if any, the Company will hold the Shares and the grantee cannot
transfer the Shares, except to the extent determined by the Committee in the
case of death or disability. The grantee is, however, generally entitled to vote
the Shares and receive any dividends with respect to the Shares, during any such
restriction period.
8
PERFORMANCE AWARDS
The Committee may make performance awards to eligible grantees. A
performance award is an award that may be payable either in Shares or in cash.
The amount of Shares and/or cash ultimately payable is based on the achievement
of certain performance goals during the performance period, as determined by the
Committee.
ADJUSTMENTS AND CHANGES IN CONTROL
The number of Shares authorized for issuance under the 2002 Plan, the
maximum number of Shares with respect to which Grants may be made to any
individual grantee, the number of Shares issuable under (and the option price
of) outstanding options and other relevant provisions of the 2002 Plan are
subject to adjustment in the event of a reorganization, merger, consolidation,
reclassification, recapitalization, combination or exchange of shares, stock
split, stock dividend or similar change in the capitalization of the Company.
Subject to certain limitations, the Committee also has the authority under the
2002 Plan to change the terms of any outstanding Grant to reflect any such
corporate transaction. In the event of a Change-In-Control (as defined in the
2002 Plan) of the Company, the Committee is authorized to take such action as it
deems equitable and appropriate including causing all unexercised vested and
nonvested outstanding Grants to automatically vest and become fully exercisable.
AMENDMENT AND TERMINATION
The Board of Directors may alter, amend or terminate the 2002 Plan as it
deems necessary, but no amendment may become effective without approval of the
Company's shareholders with respect to any proposed re-pricing of Options or if
shareholder approval is required by applicable statutory or regulatory
requirements. Further, no discontinuance or amendment which alters the terms or
provisions of an Award (unless expressly permitted by the 2002 Plan) may be made
without consent of the grantee. Unless earlier terminated by the Board of
Directors, the 2002 Plan will automatically terminate in June 2012, although
Grants made prior to such termination will remain in effect in accordance with
their terms and the terms of the 2002 Plan.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Company has been advised that the following is a summary of the
material United States federal income tax consequences to the Company and the
grantees receiving stock options, stock grants and stock appreciation rights
pursuant to the 2002 Plan. The following is not intended to be all inclusive or
to constitute tax advice. This summary is based on the Code, Treasury
Regulations promulgated thereunder and administrative and judicial rulings, as
of the date hereof, all of which are subject to change, possibly with
retroactive effect. This summary does not cover possible state, local or foreign
tax consequences or federal tax consequences other than income tax consequences.
Incentive Stock Options. An optionee that receives an ISO does not
recognize income either on the date the option is granted or on the date the ISO
is exercised (although, upon exercise, the difference between the fair market
value of the Shares and the exercise price will be treated as an item of
adjustment for purposes of computing the optionee's alternative minimum taxable
income). If the optionee continues to hold the Shares received for the greater
of (i) one year from the date of exercise of the option and (ii) two years from
the date the option was granted, any gain or loss recognized on the sale of the
Shares will be capital gain or loss. If the optionee disposes of the option or
disposes of the Shares prior to the expiration of the periods set forth in the
preceding sentence (a "Disqualifying Disposition"), the optionee will have
compensation income (i.e., taxed at ordinary income rates) equal to the lesser
of (i) the total amount of gain recognized upon disposition of the Shares and
(ii) the excess of the fair market value of the Shares on the date of exercise
over the exercise price for the Shares. Any additional gain will be capital
gain, and will be long-term capital gain if the optionee held the Shares for
more than one year from the date the option was exercised. The Company will not
be entitled to any deduction upon the grant or exercise of an ISO, but will
generally be entitled to a compensation deduction equal to the amount of
compensation income recognized by the optionee upon a Disqualifying Disposition.
9
Nonqualified Stock Options. An optionee that receives a NQSO also
generally recognizes no income on the date the option is granted. The optionee
will, however, recognize compensation income on the date the NQSO is exercised
in an amount equal to the excess of the fair market value of the Shares on the
date of exercise over the exercise price. Any gain or loss recognized on a later
disposition of the Shares will be capital gain or loss. The Company is generally
entitled to a deduction at the time the NQSO is exercised equal to the amount of
income recognized by the optionee.
Unrestricted Stock. A grantee that receives unrestricted Shares (i.e.,
Shares which are not subject to any vesting restrictions) recognizes
compensation income at the time the Shares are granted equal to the difference
between the fair market value of the Shares received and the amount, if any,
paid by the grantee for such Shares. The grantee's basis in the Shares are equal
to the amount paid for the Shares plus any income recognized by the grantee upon
the receipt of the Shares. Upon a later disposition of the Shares, the grantee
recognizes capital gain or loss equal to the difference between the amount
received for such Shares and the grantee's basis in those Shares. The Company is
generally entitled to a compensation deduction equal to the amount of income
recognized by the grantee upon receipt of the Shares.
Restricted Stock. A grantee that receives restricted (or unvested) Shares
generally does not recognize any income upon receipt of the Shares. Instead,
such grantee will recognize compensation income at the time vesting restrictions
on the Shares lapse equal to the difference between the fair market value of the
Shares at the time such vesting restrictions have lapsed and the amount, if any,
paid by the grantee for the Shares. Any gain or loss recognized by the grantee
upon a later disposition of the Shares will be capital in nature. The Company
will generally be entitled to a compensation deduction (in an amount equal to
the amount of compensation income recognized by the grantee) at the same time as
such income is recognized.
A grantee that receives restricted stock may make an election within 30
days of the Grant to include the value of the stock received in income at the
time such stock is granted as if such stock were vested shares. If a grantee
makes such election, the grantee will recognize ordinary income on the stock
when received (in the same manner as vested stock), and no further income will
be recognized until the stock is later sold or disposed of. Upon such later sale
or other disposition, any gain or loss recognized will be capital in nature. The
Company shall generally receive a compensation deduction for Shares with respect
to which the grantee has made such election at the same time (and in the same
amount) as the grantee recognizes compensation income.
Stock Appreciation Rights. A grantee who receives SARs does not recognize
any income upon the receipt of such SARs. Instead, the grantee is subject to tax
(at ordinary income rates) on any amounts received in settlement of his or her
SARs at the time such amounts are paid. The Company generally is entitled to a
deduction equal to the amount included by the grantee in income.
Various additional tax consequences may apply to the granting, acceleration
and exercise or vesting of Grants and to the disposition of Shares thereunder,
but such consequences are beyond the scope of this summary.
3. OTHER MATTERS
The Board of Directors knows of no matters to be presented for action at
the Meeting other than those set forth in the attached Notice and customary
procedural matters. However, if any other matters should properly come before
the meeting or any adjournments thereof, the proxies solicited hereby will be
voted on such matters, to the extent permitted by applicable rules of the SEC,
in accordance with the judgment of the persons voting such proxies. In the
latter regard, the Company intends to avail itself, with respect to the Meeting,
of the provisions of Rule 14a-4(c)(i) under the Securities Exchange Act of 1934,
as amended, which grant the persons voting the proxies discretionary authority
to vote on any shareholder proposals presented at an Annual Meeting if 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, when the date of the meeting has changed more than 30
days from the prior year, if the Company has not received such notice a
reasonable time before it mails its proxy materials for the current year. The
Company
10
has received no notice of any shareholder proposal. The Company's By-Laws
provide for advance notice requirements respecting shareholder proposals to be
presented at shareholders' meetings which are identical to the notice
requirements with respect to shareholder nominations of candidates for election
as directors. See "Nomination of Directors and Related Matters" above.
ADDITIONAL INFORMATION
BENEFICIAL OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth, as of May 21, 2002 (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 or former
executive officers of the Company named in the Summary Compensation Table
appearing later in this proxy statement; 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. The figures set forth
below reflect the 2-for-1 stock split of the Common Stock effected in the form
of a stock dividend distributed on May 23, 2002 to shareholders of record as of
May 16, 2002.
<Table>
<Caption>
SHARES
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER OWNED(1) CLASS(1)
- ------------------------ ------------ ----------
Barclays Global Investors, N.A. ............................ 4,871,000(2) 8.5%
45 Fremont Street
San Francisco, CA 94105
Morgan Stanley.............................................. 3,786,000(2) 6.6%
Morgan Stanley Investments L.P.
One Tower Bridge -- 100 Front Street
West Conshocken, PA 19428-2899
Morgan Stanley Investment Management Inc.
1221 Avenue of the Americas
New York, NY 10020
Howard S. Cohen, director and executive officer............. 108,092 *
Robert M. Dewey, Jr., director.............................. 151,398 *
Burnett W. Donoho, director................................. 59,638 *
The Rt. Hon. Sir Jeremy Hanley KCMG, director............... 20,000 *
Philip R. Lochner, Jr., director............................ 20,908 *
Lt. Gen. (Ret.) Emmett Paige, Jr., director................. 72,098 *
Anthony Ruys, director...................................... 70,348 *
W. Bruce Turner, director, non-executive Chairman of the
Board and former executive officer........................ 15,128 *
David J. Calabro, executive officer......................... 37,252 *
Jaymin B. Patel, executive officer.......................... 70,540 *
</Table>
11
<Table>
<Caption>
SHARES
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER OWNED(1) CLASS(1)
- ------------------------ ------------ ----------
Larry R. Smith, executive officer........................... 76,142 *
Donald R. Sweitzer, executive officer....................... 57,118 *
All present directors and executive officers, as a group (15
persons).................................................. 842,645 1.5%
</Table>
- ---------------
* less than 1%
(1) The shareholdings reflected in this table include the following numbers of
shares which the person has the right, upon exercise of options or
otherwise, to acquire within 60 days following the date of this table: Mr.
Dewey (120,000), Mr. Donoho (40,000), Sir Jeremy Hanley (20,000), Mr.
Lochner (20,000), Mr. Paige (60,000), Mr. Ruys (60,000), Mr. Patel (12,500),
Mr. Smith (25,000), Mr. Sweitzer (35,500) and present directors and
executive officers as a group (403,000). In addition, the shareholdings
reflected in the table include unvested restricted stock in the following
amounts, over which the holder has sole voting but not sole dispositive
power: Mr. Cohen (96,744), Mr. Calabro (34,548), Mr. Patel (48,294), Mr.
Smith (48,672), Mr. Sweitzer (3,512) and present directors and executive
officers as a group (281,296).
(2) Barclays Global Investors, N.A., Morgan Stanley Investments L.P. and Morgan
Stanley Investment Management Inc. are institutional investment managers.
EXECUTIVE COMPENSATION REPORT OF THE COMPENSATION COMMITTEE
Policies regarding executive compensation are set primarily by the
Compensation Committee (the "Committee") of the Board of Directors, subject to
the terms of applicable employment contracts, as discussed below, and possible
consultation with and ratification by the Board in certain circumstances. The
Committee currently (i.e., as of June 18, 2002) has four members, General Emmett
Paige, Burnett W. Donoho, Anthony Ruys and Philip R. Lochner, Jr., all of whom
are outside independent directors.
Compensation Philosophy.
The Committee believes that the Company must pay competitively to attract
and retain qualified executives. To motivate executive personnel to perform at
their full potential, the Committee believes that a significant portion of
compensation should be incentive-based. This typically results in salary levels
for Company executives around the median of competitive ranges, and bonuses, if
performance is achieved, well above the median. While acknowledging the need to
recognize individual performance in setting compensation, the Committee believes
that it is of primary importance to reward executives based on corporate and
business unit performance. This serves the dual purpose of encouraging teamwork
among executives and also of supporting the Company's objective of increasing
shareholder value.
The Committee further believes that the Company's objective of increasing
shareholder value is fostered by a compensation policy that encourages the
Company's executives to own shares ("Shares") of stock in the Company, so as to
more completely align the executives' own interests with the interests,
generally, of the Company's stockholders.
Finally, the Committee believes that it is important that it retain the
flexibility to evaluate not only corporate, business unit and individual
performance, but also all other circumstances and challenges facing the Company.
Consequently, while rewarding the achievement of performance objectives is the
primary focus of the Committee's compensation philosophy, the Committee may also
use subjective criteria in setting and adjusting the base salary and the annual
bonus for executive officers.
Executive Officer Employment Agreements.
Two individuals named in the Summary Compensation Table below were parties
to employment agreements with the Company with respect to fiscal 2002. Howard S.
Cohen, the Company's President and
12
Chief Executive Officer, is party to an employment agreement with the Company,
and, in addition, Mr. Turner, a director of the Company and the Company's
non-executive Chairman and, for the period between July 2000 and March 2001, its
acting Chief Executive Officer, entered into an employment agreement with the
Company in August 2000. See "Employment Agreements and Arrangements" and the
Summary Compensation Table below for further information about the terms of
these agreements and their background.
The other executive officers named in the Summary Compensation Table below
are not parties to employment agreements, and their compensation currently is
determined based upon a review by the President and Chief Executive Officer and
consideration of the principles set forth above and elsewhere in this report.
Principal Elements of Compensation.
Compensation earned in the 2002 fiscal year, as reflected in the Summary
Compensation Table, consisted primarily of salary, annual bonus, and awards of
stock options and restricted stock. (Executive officers also received executive
benefits and perquisites, as well as other benefits offered under Company
sponsored broad-based plans.)
Determination of Compensation. Target total compensation levels are
determined after considering several factors including Company performance,
responsibility level, internal pay equity and external pay practices.
Competitive market data is provided by an independent compensation consulting
firm. Competitive data received by the Committee includes base salary, total
cash consideration and long term incentive grants. In addition the Committee
periodically seeks recommendations of the above-referenced consultant.
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 1 or Peer Group 2 companies referred
to in the Shareholder Return Performance Graph below), the relationship of
salary to the median of competitive ranges 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 primarily upon the aims of providing incentives for the
achievement of corporate and business unit performance goals and secondarily
upon the achievement of individual objectives. Mr. Cohen's employment agreement
provides for annual bonuses based upon discretionary elements subject to a
specified annual bonus range. Mr. Turner's employment agreement provides that
Mr. Turner is not eligible to earn any incentive bonus. Executive officers named
in the Summary Compensation Table without employment agreements receive annual
bonuses at the discretion of the President and Chief Executive Officer and the
Committee consistent with the principles outlined above. In keeping with the
philosophy described above of encouraging the Company's executive officers to
own stock in the Company, under the Company's Management Stock Bonus Program, a
percentage of the annual bonus of executive officers (which percentage was set
at 20% for fiscal 2002) must be (and additional amounts may be) paid in the form
of restricted stock awards (see discussion below).
Stock-Based Incentive Awards. The Company's 2000 Omnibus Stock Option and
Long-Term Incentive Plan (the "2000 Plan"), which permits the award of stock
options, stock appreciation rights, restricted stock awards ("RSA's") and
performance awards, was approved by the shareholders of the Company at the 2000
Annual Meeting. The Company plans to ask the shareholders to approve the 2002
Omnibus Stock Option and Long-Term Incentive Plan at the 2002 Annual Meeting in
order to provide the appropriate number of Shares available for the grant of
future options to provide incentive for eligible participants. In addition, in
August 2000, the Board of Directors of the Company approved the Company's 2000
Restricted Stock Plan (and collectively with the Company's 1997 Stock Option
Plan (the "1997 Plan") and the 2000 Plan, "the Plans") which provides for the
grant of up to an aggregate of 800,000 Shares (post-split) to be issued pursuant
13
to RSA's solely from issued Shares that have been reacquired by the Company. The
Plans provide for the granting of awards to officers and other key employees of
the Company and its subsidiaries. The principal purpose of the Plans 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.
Subject to such limitations as are provided for in the Plans, the aggregate
number of annual grants to be made under the Plans, as well as the individuals
to whom such grants shall be made and the amount of such individual grants, are
all within the discretion of the Committee. The aggregate number of Shares
subject to grant under the Plans generally has been tied to specific financial
targets which are set annually by the Committee and approved by the Board of
Directors. In making individual awards, the Committee generally takes into
account numerous factors, including the prospective recipient's level of
responsibility, contribution, performance, experience, expertise and years of
service, as well as internal compensation equity considerations. In fiscal 2002,
no grants of stock appreciation rights or performance awards were made under the
2000 Plan and the aggregate number of Shares subject to stock options and RSA's
granted to executive officers were determined upon the bases described above.
Rationale for Fiscal 2002 Compensation of Messrs. Cohen and Turner.
Mr. Cohen's employment agreement, as in effect for fiscal 2002, provides
for an annual base salary of $525,000 and for an annual target performance bonus
of 100%, and a maximum performance bonus of 200%, of his current base salary.
The Committee determined Mr. Cohen's fiscal 2002 performance bonus within the
parameters of Mr. Cohen's employment agreement. The annual target performance
bonus is payable if the Company achieves targeted performance as measured by
operating income and earnings per share, and when certain specific annual
objectives are met. The Company's performance for fiscal 2002 exceeded
performance targets and Mr. Cohen met all of the specific objectives. As a
result, Mr. Cohen received a bonus payment of $538,388, slightly in excess of
target. See "Employment Agreements and Arrangements" below for further
information about the terms of Mr. Cohen's agreement with the Company.
Mr. Turner's employment agreement, which has a term of two years, provides
for an annual base salary of $300,000, an initial grant of 200,000 stock options
(post-split) under the 1997 Plan, subsequent quarterly grants of 100,000 stock
options (post-split) and a final grant to be made in August 2002 of 50,000 stock
options (such grants to be made under the 1997 Plan or the 2000 Plan, as the
case may be), and a grant of 200,000 RSA's (post-split). Mr. Turner is not
eligible to earn an incentive bonus. Mr. Turner's compensation for fiscal 2002
was determined in accordance with his employment agreement. See "Employment
Agreements and Arrangements" below for further information about the terms of
Mr. Turner's agreement with the Company.
The Committee intends to continue its practice of basing executive
compensation primarily on corporate and business unit performance, and
secondarily, 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 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
14
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: June 18, 2002
The Fiscal 2002 Compensation Committee
of the Board of Directors*
General Emmett Paige, Chairman
Burnett W. Donoho
Anthony Ruys
Philip R. Lochner, Jr.
- ---------------
* In July 2001, Lord Moore resigned as a member of the Compensation Committee
upon his retirement as a member of the Board, at which time Mr. Donoho joined
the Compensation Committee. Mr. Lochner joined the Compensation Committee in
October, 2001.
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning the annual
and long-term compensation paid for fiscal years 2002, 2001 and 2000, to or for:
(i) each person who served as the Company's Chief Executive Officer at any time
during fiscal year 2002; and (ii) each of the Company's four other most highly-
compensated executive officers whose total annual salary and bonus for fiscal
year 2002 exceeded $100,000 (collectively, the "Named Officers") for services
rendered to the Company and its subsidiaries. Figures set forth in the following
table, and in footnotes to this table, reflect the 2-for-1 stock split of Common
Stock reflected in the form of a stock dividend distributed on May 23, 2002 to
shareholders of record as of May 16, 2002.
<Table>
<Caption>
LONG TERM COMPENSATION
-----------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------------------- --------------------- -----------------------
OTHER RESTRICTED LONG TERM ALL OTHER
ANNUAL STOCK COMPEN- COMPEN-
NAME AND SALARY BONUS* COMPENSATION AWARD(S)* OPTIONS/ SATION SATION
PRINCIPAL POSITION(1) YEAR ($)(2) ($)(3) ($)(4) ($)(5) SARS(6) PAYOUTS ($)(7)
- --------------------- ---- -------- -------- ------------ ---------- -------- ----------- ---------
Howard S. Cohen................... 2002 504,808 538,388 560,929 1,531,151 400,000 -- 38,986
President and
Chief Executive Officer
David J. Calabro.................. 2002 355,808 335,183 334,163 470,556 120,000 -- 29,881
Executive Vice President, 2001 288,538 325,000 76,113 539,063 60,000 -- 20,932
Global Operations 2000 250,000 126,563 236,859 -- 40,000 -- 1,709
Jaymin B. Patel................... 2002 293,461 302,523 423,780 639,664 110,000 -- 26,692
Senior Vice President, 2001 257,692 300,000 106,335 334,688 60,000 -- 22,940
Chief Financial Officer 2000 177,192 120,000 94,001 -- 30,000 -- 13,044
Donald R. Sweitzer................ 2002 312,500 280,432 186,821 373,762 42,000 -- 27,686
Senior Vice President, 2001 306,000 286,194 92,357 333,307 40,000 -- 25,066
Public Affairs 2000 300,000 188,730 86,803 -- 50,000 -- 21,686
Larry Smith....................... 2002 259,615 340,031 151,111 621,691 100,000 -- 25,919
Senior Vice President,
Chief Technology Officer
W. Bruce Turner................... 2002 300,000 -- 53,432 -- 600,000 17,740
Non-Executive Chairman and 2001 165,000 -- 1,498,345 2,031,250 400,000 -- 4,250
acting Chief Executive Officer
</Table>
- ---------------
* For each Named Officer (except for Mr. Turner) all or a portion of the bonus
reflected in the "Bonus" column for fiscal years 2001 and 2002 was paid in
the form of Restricted Stock and thus is also reflected in the "Restricted
Stock Awards Column". Please see footnotes (3) and (5) for a more detailed
description.
15
(1) Except as to Mr. Turner (who served as acting Chief Executive Officer prior
to the appointment of Mr. Cohen), sets forth the names and principal
positions of the Named Officers as of the end of fiscal 2002. Messrs. Cohen,
Calabro and Smith commenced employment with the Company in March 2001,
February 1999 and June 2001, respectively. Mr. Turner, who served as the
Company's acting Chief Executive Officer from July 2000 until the
appointment of Mr. Cohen as the Company's President and Chief Executive
Officer in March 2001, also received compensation as a non-employee director
of the Company through July 2000, which compensation is not reflected on
this chart. See "Compensation of Directors" above and "Employment Agreements
and Arrangements" below.
(2) Includes salary deferred under the Company's 401(k) retirement plan (the
"Retirement Plan") and its Income Deferral Plan 1998.
(3) Includes the fair market value of Restricted Shares awarded under the
Company's Management Stock Bonus Program to Messrs. Cohen, Calabro, Patel,
Sweitzer and Smith with respect to fiscal 2002 and to Messrs. Calabro, Patel
and Sweitzer with respect to fiscal 2001, in lieu of a portion of their
respective cash bonuses. See the final paragraph of "Employment Agreements
and Arrangements," below, for a description of the Company's Management
Stock Bonus Program. The value of awards of Restricted Shares under the
Company's Management Stock Bonus Program with respect to fiscal 2001 and
fiscal 2002 are also reflected in the "Restricted Stock Awards" column, and
are more fully described in footnote 5, of this table.
(4) 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 a pre-established dollar amount for the purchase of
benefits); (ii) taxable fringe benefits provided by the Company, including,
without limitation, personal automobile and commercial airplane usage and/or
allowances and the payment of relocation expenses and living allowances; 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 fiscal 2002 and in each of the other fiscal years for
which compensation is provided for such officer above, except that Mr.
Calabro received $24,330 in fiscal 2000, Mr. Patel received no such payments
in fiscal 2000 and Mr. Turner received $11,500 in fiscal 2001. In addition,
the Company provided taxable fringe benefits to the Named Officers in the
following amounts: Mr. Cohen -- $256,080 (2002) (including $239,830 paid
with respect to relocation expenses); Mr. Calabro -- $18,917 (2002), $12,200
(2001), and $109,409 (2000) (including $98,784 paid with respect to
relocation expenses); Mr. Patel -- $19,218 (2002), $24,489 (2001), and
$44,107 (2000); Mr. Sweitzer -- $13,750 (2002), $20,845 (2001), and $14,815
(2000); Mr. Smith -- $50,315 (2002) (including $38,938 paid with respect to
relocation expenses); and Mr. Turner -- $3,242 (2002), and $29,030 (2001).
The gross-up payments for taxes were: Mr. Cohen -- $277,349 (2002); Mr.
Calabro -- $45,396 (2002), $36,413 (2001) and $103,120 (2000); Mr.
Patel -- $43,012 (2002), $54,346 (2001) and $49,894 (2000); Mr.
Sweitzer -- $42,999 (2002), $44,012 (2001) and $44,488 (2000); and Mr.
Smith -- $73,295 (2002); and Mr. Turner -- $22,690 (2002), and $36,819
(2001). This column includes with respect to fiscal year 2002 gains realized
by Messrs. Calabro, Patel and Sweitzer upon the exercise of options to
purchase shares of the Common Stock granted under the Company's stock plans
in the following amounts: Mr. Calabro -- $242,350; Mr. Patel -- $334,049,
and Mr. Sweitzer -- $102,572. This column also includes with respect to
fiscal year 2001 gross-up payments in the amount of $1,420,996 made by the
Company to Mr. Turner pursuant to the terms of Mr. Turner's employment
agreement with the Company with respect to the 100,000 shares of Restricted
Stock which were issued to Mr. Turner under the Company's Restricted Stock
Plan in accordance with his employment agreement. See "Employment Agreements
and Arrangements" below.
(5) Represents the value of awards of Restricted Stock to the Named Officers
under the Company's 2000 Restricted Stock Plan (the "Restricted Stock
Plan"), and the Company's 2000 Omnibus Stock Option and Long-Term Incentive
Plan (the "2000 Plan") calculated as of the date of award. Includes
Restricted Shares granted under the 2000 Plan (valued as of the last day of
fiscal 2002) pursuant to the Company's
16
Management Stock Bonus Program with respect to all or a portion of such
individual's annual bonus for fiscal 2002 otherwise payable to each of the
Named Officers (other than Mr. Turner) in cash in the following amounts: Mr.
Cohen -- 21,296 Restricted Shares, Mr. Calabro -- 5,302 Restricted Shares,
Mr. Patel -- 5,982 Restricted Shares, Mr. Sweitzer -- 11,092 Restricted
Shares and Mr. Smith -- 2,690 Restricted Shares. The value of the awards of
such Restricted Shares, which pursuant to the Management Stock Bonus Program
vest immediately but are subject to transfer restrictions for two years from
the date of grant, for each of these Named Officials, is also fully
reflected in the "Bonus" column of this table. Participants in the
Management Stock Bonus Program also receive additional awards of Restricted
Shares ("Supplemental Award Shares") that vest in two (or, in certain cases,
three) years from the date of award. (See the final paragraph of "Employment
Agreements and Arrangements," below for a description of the Company's
Management Stock Bonus Program.) The Named Officers (other than Mr. Turner)
received the following awards of Supplemental Award Shares with respect to
fiscal 2002: Mr. Cohen -- 6,744 Restricted Shares (5,324 of which vest in
two years, and 1,420 of which vest in three years), Mr. Calabro -- 1,548
Restricted Shares (1,326 of which vest in two years and 222 of which vest in
three years), Mr. Patel -- 1,794 Restricted Shares (1,494 of which vest in
two years and 300 of which vest in three years), Mr. Smith -- 672 Restricted
Shares (all of which vest in two years), and Mr. Sweitzer -- 3,512
Restricted Shares (2,772 of which vest in two years, and 740 of which vest
in three years). This column also reflects the following additional grants
of Restricted Shares: Mr. Cohen -- 60,000 Restricted Shares (which vest in
equal installments on the first, second and third anniversary dates of the
date of grant), Mr. Calabro -- 20,388 Restricted Shares (388 of which vested
on February 22, 2002 and the remainder of which vest in equal installments
on the first, second, third and fourth anniversary dates of the date of
grant), Mr. Patel -- 30,358 Restricted Shares (358 of which vested on
February 22, 2002 and the remainder of which vest in equal installments on
the first, second, third and fourth anniversary dates of the date of grant),
Mr. Smith -- 30,000 Restricted Shares (which vest in equal installments on
the first, second and third anniversary dates of the date of grant), and Mr.
Sweitzer -- 342 Restricted Shares (which vested on February 22, 2002). As at
February 23, 2002, the last day of fiscal 2002, the aggregate number and
value of Restricted Shares (post-split) held by each of the respective Named
Officers were as follows: Mr. Cohen -- 60,000 Restricted Shares, valued at
$1,516,800; Mr. Calabro -- 56,046 Restricted Shares, valued at $1,416,843;
Mr. Patel -- 53,242 Restricted Shares, valued at $1,345,958; Mr.
Smith -- 30,000 Restricted Shares, valued at $758,400; Mr.
Sweitzer -- 23,226 Restricted Shares, valued at $587,153; and Mr.
Turner -- 10,000 Restricted Shares, valued at $252,800. None of the Named
Officers receiving grants of Restricted Shares under the Restricted Stock
Plan or the 2000 Plan was required to make any payment with respect to any
such grant and, as provided under the terms of the Restricted Stock Plan and
the 2000 Plan, each Named Officer will have all rights of a stockholder with
respect to Restricted Shares held by him (whether or not vested), including
the right to receive such dividends, if any, as are paid with respect to
such Restricted Shares. (See "Employment Agreements and Arrangements" for
information concerning the Restricted Stock Plan.)
(6) Represents the number of shares of Common Stock underlying stock options
granted pursuant to the Company's 1997 Stock Option Plan (the "1997 Plan")
and/or 2000 Plan. See "Stock Option Grants in Last Fiscal Year" below.
(7) Includes the dollar value of insurance premiums paid by the Company during
the covered fiscal year with respect to life insurance maintained on the
lives of each of the Named Officers, matching contributions and profit
sharing contributions paid by the Company with respect to the Named Officers
under the Retirement Plan, and amounts provided under the Company's
Supplemental Retirement Plan ("SRP"). During or with respect to fiscal 2002,
the Company: (i) paid insurance premiums with respect to life insurance
maintained on the lives of the Named Officers in the following amounts: Mr.
Cohen -- $2,233; Mr. Calabro -- $1,242; Mr. Patel -- $442; Mr.
Smith -- $1,608; Mr. Sweitzer -- $1,450; and Mr. Turner -- $540; and (ii)
made matching contributions under the Retirement Plan of $6,800 for each of
the Named Officers; (iii) made profit-sharing contributions under the
Retirement Plan of $5,100 for each of the Named Officers; and (iv) made
contributions under the SRP for each of the Named Officers in the following
amounts: Mr. Cohen -- $24,853; Mr. Calabro -- $16,739; Mr. Patel -- $14,350;
Mr. Smith -- $12,412; and Mr. Sweitzer -- $14,336, and Mr. Turner -- $5,299.
17
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning individual
grants of stock options made during fiscal 2002 to Named Officers. All grants of
stock options reflected in the following table were made pursuant to the
Company's 1997 Plan or under the Company's 2000 Omnibus Stock Option and
Long-Term Incentive Plan and are subject to the terms of such Plans.
<Table>
<Caption>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS(1) ANNUAL RATES
---------------------------------------------------------- OF STOCK PRICE
% OF OPTIONS APPRECIATION FOR
NO. OF SHARES OF GRANTED TO OPTION TERM(2)
COMMON STOCK EMPLOYEES EXERCISE OR ---------------------
UNDERLYING IN FISCAL BASE PRICE EXPIRATION 5% 10%
NAME OPTIONS GRANTED YEAR ($/SH) DATE ($) ($)
- ---- ---------------- ------------ ----------- ---------- --------- ---------
Howard S. Cohen............. 400,000 15.5% 13.70 3/11/11 3,447,536 8,737,421
David J. Calabro............ 120,000 4.6% 13.39 4/3/11 1,010,858 2,561,914
Jaymin B. Patel............. 110,000 4.3% 13.39 4/3/11 926,620 2,348,421
Larry R. Smith.............. 100,000 3.9% 17.86 6/17/11 1,123,595 2,847,634
Donald R. Sweitzer.......... 42,000 1.6% 13.39 4/3/11 353,800 896,670
W. Bruce Turner............. 200,000 7.7% 13.70 3/11/11 1,723,768 4,368,710
W. Bruce Turner............. 100,000 3.9% 13.80 5/14/11 868,175 2,200,299
W. Bruce Turner............. 100,000 3.9% 17.74 8/14/11 1,116,045 2,828,501
W. Bruce Turner............. 100,000 3.9% 15.45 11/14/11 971,979 2,463,379
W. Bruce Turner............. 100,000 3.9% 22.63 2/14/12 1,423,681 3,608,172
</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.
The numbers of shares of Common Stock underlying stock option grants, and
exercise prices, set forth on this chart have been adjusted to reflect the
2-for-1 stock split of the Company's Common Stock with respect to
stockholders of record as of May 16, 2002. With the exception of the options
granted to Mr. Turner, these stock options become exercisable in annual
ratable installments on the four successive anniversary dates of the
respective dates of grant. The options granted to Mr. Turner will become
exercisable on August 9, 2002. All of the options reflected in the table are
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. See "Employment Agreements and
Arrangements," below.
(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 2002.
AGGREGATE OPTIONS EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTIONS
VALUES
The following table sets forth information concerning option exercises by
Named Officers during fiscal 2002, and the value of all unexercised stock
options held by Named Officers, as well as the number of shares
18
of Common Stock of the Company underlying unexercised stock options held by
Named Officers, as of February 23, 2002, the last day of fiscal 2002:
<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
- ---- ----------- ----------- ----------- ------------- ----------- -------------
Howard S. Cohen.............. -- -- 0 400,000 $ 0 $ 4,630,000
David J. Calabro............. 35,000 242,425 0 185,000 $ 0 $ 2,381,400
Jaymin B. Patel.............. 60,000 334,011 0 175,000 $ 0 $ 2,242,323
Larry R. Smith............... -- -- 0 100,000 $ 0 $ 742,500
Donald R. Sweitzer........... 10,000 102,550 70,000 112,000 $668,610 $ 1,401,210
W. Bruce Turner.............. -- -- 0 1,000,000 $ 0 $10,176,230
</Table>
- ---------------
(1) All stock options reflected in this table were non-qualified options granted
pursuant to the Company's 1994 and/or 1997 stock option plans or the
Company's 2000 Omnibus Stock Option and Long-Term Stock Option Plan and are
subject to the terms of such plans. With the exception of the options
granted to Mr. Turner, these stock options become exercisable in annual
ratable installments on the four successive anniversary dates of the
respective dates of grant. The options granted to Mr. Turner will become
exercisable on August 9, 2002. All of the options reflected in the table are
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. See "Summary Compensation
Table" above and "Employment Agreements and Arrangements," below. Figures
appearing in the chart have been adjusted as appropriate to reflect the
2-for-1 stock split of the Company effected in the form of a stock dividend
distributed on May 23, 2002 to shareholders of record as of May 16, 2002.
(2) Calculated based upon the aggregate of the difference between: (i) $25.28,
which was the per-share closing price of the Common Stock on the New York
Stock Exchange on February 22, 2002, the last trading day of the Company's
2002 fiscal year, and (ii) the per-share exercise prices for those stock
options which were in-the-money on that date.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS(1)
The following table sets forth as of February 23, 2002, the last day of the
Company's fiscal 2002, information with respect to the Company's compensation
plans (including individual compensation arrangements) under which shares of the
Common Stock of the Company ("Shares") are authorized for issuance, aggregated
as follows:
<Table>
<Caption>
NUMBER OF SHARES
REMAINING
AVAILABLE FOR
NUMBER OF SHARES TO FUTURE ISSUANCE
BE ISSUED UPON WEIGHTED-AVERAGE UNDER EQUITY
EXERCISE OF EXERCISE PRICE OF COMPENSATION
OUTSTANDING OUTSTANDING PLANS (EXCLUDING
OPTIONS, WARRANTS OPTIONS, WARRANTS SHARES REFLECTED IN
PLAN CATEGORY AND RIGHTS(A) AND RIGHTS(B) COLUMN (A))(C)
- ------------- ------------------- -------------------- -------------------
Equity compensation plans approved by the
Company's shareholders................... 5,210,376 $13.56 2,184,100
Equity compensation plans not approved by
the Company's shareholders............... 0 N/A 0
Total...................................... 5,210,376 $13.56 2,184,100
</Table>
- ---------------
(1) All figures appearing in the chart have been adjusted to reflect the 2-for-1
stock split of the Company effected in the form of a stock dividend
distributed on May 23, 2002 to shareholders of record as of May 16, 2002.
19
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 2002, decisions regarding executive compensation were made
primarily by the Compensation Committee and the President and Chief Executive
Officer, subject to the terms of applicable employment agreements and
ratification by the full Board in certain circumstances. Messrs. Dewey, Lochner,
Ruys, Turner, Lord Moore and General Paige were members of the Compensation
Committee during various periods of fiscal 2002. See "Executive Compensation
Report of the Compensation Committee of the Board of Directors" above.
EMPLOYMENT AGREEMENTS AND ARRANGEMENTS
During fiscal 2002, the Company was party to employment agreements with
Messrs. Cohen and Turner.
In March 2001, the Company entered into an employment agreement with Howard
S. Cohen. Mr. Cohen's employment agreement, as amended, provides for Mr. Cohen
to serve as the Company's Chief Executive Officer and President (and, to serve
as a director and/or officer of any subsidiary or affiliate of the Company) for
a term of employment which commenced on March 12, 2001 and which continues for
three years thereafter, subject to earlier termination in the event of Mr.
Cohen's resignation, death or disability (as defined in the agreement) or upon
discharge of Mr. Cohen by the Company either with or without cause (as defined
in the agreement). Mr. Cohen's agreement provides for an annual base salary of
$525,000, an annual performance bonus of up to a maximum of two times his base
salary, and life insurance and various other benefits (including, but not
limited to, reimbursement of certain relocation costs incurred by him, an
automobile allowance, medical coverage, participation in the Company's Executive
Perquisites Plan and other company deferred compensation plans and programs in a
manner similar to other senior executives of the Company, certain professional
services and indemnification with respect to incremental Rhode Island State
income tax liability incurred as a direct result of Mr. Cohen's relocation with
regard to certain deferred income received by Mr. Cohen). The agreement provides
that Mr. Cohen's performance bonus shall be determined with respect to each
fiscal year during the term of the agreement (commencing with fiscal 2002, which
ended on February 23, 2002), in accordance with the performance metrics included
within the Company's Management Incentive Plan, as approved annually by the
Compensation Committee of the Board, for all senior executives of the Company.
Mr. Cohen's agreement states that Mr. Cohen's annual target performance bonus
will be 100% of his base salary, and that it shall be paid by the Company as a
mix of cash and discounted restricted stock (which shall not without Mr. Cohen's
consent exceed 30% of his performance bonus, generally, and 20% of his
performance bonus with respect to fiscal 2002), at the discretion of the
Compensation Committee.
The agreement further provides for Mr. Cohen to be appointed to the Board.
Mr. Cohen was reelected to the Board at the Company's 2001 Meeting.
Pursuant to his agreement Mr. Cohen was granted on March 12, 2001 at a
(post-split) per share option exercise price of $13.70, options to purchase
400,000 shares of Common Stock under the Company's 2000 Plan. In March 2001, Mr.
Cohen was also granted, pursuant to the terms of his employment agreement,
60,000 shares of restricted stock (post-split) under the Company's 2000 Plan,
20,000 of which shares shall vest on each of the first, second and third
anniversaries of the restricted stock grant date.
In April 2002, Mr. Cohen was granted at a (post-split) per share option
exercise price of $23.30, options to purchase 450,000 shares of Common Stock
under the Company's 2000 Plan and was also granted 50,000 shares of restricted
stock (post-split) under the Company's 2000 Plan which shares shall vest in
equal installments on the last trading day of fiscal 2003, 2004, 2005 and 2006.
In the event Mr. Cohen's employment is terminated (other than for Cause) or
if he resigns for Good Reason after a change in control, the agreement provides
that the Company will pay him, as liquidated damages, a lump sum cash payment in
lieu of severance payments (but in addition to any amounts accrued through the
date of termination, including any prorated performance bonus for the current
fiscal year calculated by reference to Mr. Cohen's target performance bonus) in
an amount equal to 2.99 times the sum of his current annual base salary, most
recent performance bonus for the most recent full fiscal year of the Company and
certain perquisites and other amounts. In addition, in the event of termination
of Mr. Cohen's
20
employment following a change in control, he (together with his dependents and
beneficiaries) will become fully vested in and continuing for three years
following his termination to participate fully in, at no additional cost to him,
all life insurance and comprehensive medical plans maintained or sponsored by
the Company immediately prior to the termination at the same level and terms as
are in effect at the time of termination. The agreement further requires the
payment to Mr. Cohen of an amount equal to any excise tax due under Section 4999
of the Internal Revenue Code of 1986, as amended, together with any interest,
penalties or amounts necessary to gross-up Mr. Cohen for any taxes due thereon.
Mr. Turner entered into an employment agreement with the Company in August,
2000, to serve as non-executive Chairman of the Board and acting Chief Executive
Officer. The term of Mr. Turner's agreement commenced on August 9, 2000, and
continues for a period of two years. The agreement provides for an annual base
salary of $300,000, as well as various other benefits including, but not limited
to, relocation expenses; housing costs (unless and until Mr. Turner purchases a
residence in Rhode Island, in which case the Company shall be obligated to
reimburse Mr. Turner for all transaction costs, including closing costs and
moving expenses, but Mr. Turner shall remain responsible for the purchase price
of the residence and all finance charges associated with the purchase); use of
an automobile; life insurance; medical coverage for Mr. Turner and his family;
legal fees incurred by Mr. Turner associated with the negotiation and
preparation of the agreement; perquisites (on a pro rata basis for fiscal year
2001) and other benefit plans for senior executives. To the extent that Mr.
Turner incurs any Rhode Island income tax liability for any deferred income
payments he receives from previous employers, the Company is obligated to pay to
him an amount in cash equal to the sum of such Rhode Island state income taxes
plus a grossed-up amount necessary to offset any and all applicable federal,
state and local excise, income or other taxes incurred by Mr. Turner by reason
of the Company's payment of the amount of such Rhode Island income taxes
incurred by reason of the grossed-up payments. Mr. Turner is not eligible to
earn any incentive bonus.
During fiscal 2001, Mr. Turner was granted options to purchase an aggregate
of 400,000 shares of Common Stock (post-split) under the 1997 Plan and during
fiscal 2002, Mr. Turner was granted options to purchase an aggregate of 600,000
shares of Common Stock (post-split). See "Option Grants in Last Fiscal Year"
above. In addition, Mr. Turner was granted options to purchase 100,000 shares
(post-split) of Common Stock under the 1997 Plan on May 15, 2002 (with an
exercise price of $29.81). So long as Mr. Turner is still retained under this
agreement and has not been terminated, the Company will grant him additional
options to purchase 50,000 shares of Common Stock under the 1997 Plan (or any
successor plan) on August 9, 2002. All of the grants of options are subject to
and conditioned upon the Company obtaining any necessary shareholder approvals.
Effective August 9, 2000, Mr. Turner was granted 200,000 shares
(post-split) of Restricted Stock ("Restricted Shares") under the Company's 2000
Restricted Stock Plan (the "Restricted Stock Plan"). (See the "Summary
Compensation Table" above and the last paragraph of "Employment Agreements and
Arrangements" for information concerning this plan and the grant to Mr. Turner
of Restricted Shares.) The Restricted Shares required no payment by Mr. Turner,
vested immediately and may be transferred in accordance with the terms and
conditions of the 2000 Restricted Stock Plan. The Company will pay to Mr. Turner
an amount in cash equal to the sum of such federal and state income taxes and
any federal medicare taxes payable by Mr. Turner as a result of the granting of
such Restrictive Shares plus a grossed-up amount necessary to offset any and all
applicable federal, state and local excise, income or other taxes incurred by
Mr. Turner by reason of the Company's payment of the amount of such Rhode Island
income taxes incurred by reason of the grossed-up payments. Mr. Turner will not
receive any payment from the Company respecting any tax liability associated
with any transfer of the Restricted Shares by him.
The Company has agreed to indemnify and hold harmless Mr. Turner for any
claims, demands or causes of action arising out of the non-competition agreement
between Mr. Turner and Citicorp, including, but not limited to, reimbursing Mr.
Turner for all costs of defense, including reasonable attorneys' fees, and any
losses of deferred compensation from Citicorp sustained by Mr. Turner as a
result of this agreement.
Under the agreement, if Mr. Turner's employment with the Company is
terminated by reason of his death, discharge for Cause or resignation for other
than Good Reason, as such terms are defined in the
21
agreement, Mr. Turner (or his estate, as the case may be) is entitled to his
base salary through the effective date of such termination and any other amounts
to which Mr. Turner is entitled to under the agreement up to the effective date
of such termination. If Mr. Turner's employment is terminated by reason of
disability, discharge without Cause or by reason of Mr. Turner's resignation for
Good Reason, he is entitled to receive the remaining amount of the base salary
for the balance of the term of the agreement (as if the term had not been
terminated). Mr. Turner also would be entitled to receive any additional
benefits he may be entitled to under the express terms of the applicable
benefits plans (other than bonus and severance plans), as well as to whatever
medical coverage, if any, as is required to be provided by applicable law.
Mr. Turner's agreement also provides that irrespective of the reason for
his termination of employment with the Company, he may not compete with the
Company during the term of the agreement or for two years after the date of such
termination.
In the event of a change in control, as defined in the agreement, during
the term of the agreement, Mr. Turner is entitled to receive the amount of
$1,000,000, and the agreement and his employment will terminate on the effective
date of the change in control. Mr. Turner is not eligible to receive any other
compensation in the event of a change in control.
The Company does not presently have formal employment agreements with the
other current Named Officers, although the Company has entered into agreements
with these executives (and with certain other executives) with respect to
employment arrangements in the event of a "Change in Control" of the Company, as
defined in the agreement. 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 in control and will be entitled to a base
annual salary, annual bonus and benefits in values and amounts at least equal to
those provided by the Company to the executive immediately prior to the
commencement of the term of employment. In addition, upon the occurrence of a
change in control, all benefits accrued by the executive under all non-qualified
Company plans (including the Supplemental Retirement Plan) will become fully
vested and shall be contributed to a rabbi trust for the benefit of the covered
executive, and all options held by the executive will become fully vested and
exercisable by the executive.
If, following a change in control of the Company, an executive's employment
is terminated during the term of employment (including as a result of
resignation by executive without Good Reason, as defined in the agreement), 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, as defined in the agreement) or such executive resigns for Good Reason,
the Company is obligated to pay an amount equal to 2.99 times the sum of: (i)
his then-current annual base salary; (ii) the total cash bonus received by the
executive during the most recent full fiscal year; plus (iii) the maximum amount
allowable under the Executive Perquisite Program during the most recent calendar
year. In addition, the covered executive (together with his beneficiaries and
dependents) will become fully vested in and continue to participate for up to
three years at no cost to the executive in all Company life insurance and
welfare plans on terms at least as favorable to executive as in effect
immediately prior to termination. In addition, the executive will be entitled to
receive the sum of all benefits accrued under the non-qualified plans plus the
product of 2.99 times the average benefit accrued and/or contributions made to
such non-qualified plans over the preceding three years. Such agreements further
provide for the payment to the covered executives of amounts equal to any excise
tax due as any payment or benefit constituting a "parachute payment" within the
meaning of Section 280G of the Code, together with amounts necessary to gross-up
such executives for any taxes due with respect thereto. 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.
22
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, and employees in the Commonwealth of
Puerto Rico. Under these Plans, an eligible employee may elect to defer receipt
of a portion of base pay for each year. The Company contributes this amount on
the employee's behalf to the Plans and also makes a matching contribution. For
periods prior to January 1, 2001, the employer matching contribution was equal
to 50% of the amount that the employee had elected to defer up to 5%, for a
maximum matching contribution of 2.5% of the employee's base pay. Effective
January 1, 2001, the Company increased the matching contribution for the United
States Plan to 100% of the first 3% and 50% of the next 2% that the employee has
elected to defer, up to a maximum matching contribution of 4% of the employee's
base pay. The Company, at its discretion, may contribute additional amounts to
the Plans on behalf of employees based upon its profits for a given fiscal year.
Participants are 100% vested at all times in their entire account balance in the
Plans. Benefits under the Plans generally will be paid to participants upon
retirement or in certain other limited circumstances. The Company also has a
Supplemental Retirement Plan, that is a defined contribution plan that provides
to certain key employees, including the Named Officers, additional retirement
benefits. The Company, at its discretion, may contribute additional amounts to
the plan on behalf of such key employees equal to the percentage of profit
sharing contributions contributed for the calendar year, multiplied by the key
employees' compensation (as defined) for such year. See "Summary Compensation
Table," above.
In August 2000, the Board of Directors approved the Company's 2000
Restricted Stock Plan which provides for the grant of restricted stock awards to
key employees of the Company and it subsidiaries. The Restricted Stock Plan
authorizes an aggregate of 800,000 Shares to be issued pursuant to restricted
stock awards ("RSAs"). The Shares to be delivered under the plan will be made
available solely from issued Shares that have been reacquired by the Company.
The Restricted Stock Plan is to be administered by the Compensation Committee of
the Board, or another committee appointed by the Board, which committee has
broad discretion to administer the plan. The Restricted Stock Plan provides that
restricted stock awards will be subject to such restrictions (including as to
transfer) and such forfeiture conditions as the Committee may determine. During
fiscal 2001 grants of RSAs were made to a number of officers and other key
employees. (See "Summary Compensation Table" above for information respecting
grants to certain of the Named Officers). Each such grant was made pursuant to a
restricted stock agreement entered into with the grantee providing that all RSAs
shall become vested and non-forfeitable (to the extent they are unvested) if the
grantee dies or becomes disabled or is terminated from employment by the Company
without cause (as defined in the Restricted Stock Plan) and that, if the
restricted stockholder ceases to be employed by the Company for other reasons
(including by reason of termination for cause or voluntary termination), all of
his or her unvested RSAs are forfeited.
Commencing with respect to fiscal 2001, each executive officer of the
Company has been required to receive a portion of his or her incentive bonus in
the form of Restricted Shares. Under the Company's Management Stock Bonus
Program, as in effect with respect to fiscal 2002, each executive officer was
required to receive twenty percent (20%) of his bonus in Restricted Shares
(each, a "Mandatory Award") and could elect to receive all or a portion of the
remainder of his bonus, in ten percent (10%) increments, in additional awards of
Restricted Shares (each, an "Optional Award"). The number of Restricted Shares
so awarded was determined by using a per share price of $25.28 (post-split), the
New York Stock Exchange closing price of the Common Stock on February 22, 2002,
the last trading day of fiscal 2002 (the "Award Price"). Restricted Shares
awarded as provided above vested immediately upon award, but are subject to
transfer restrictions for two years from the effective date of the award. In
addition, each executive officer received under the Management Stock Bonus
Program with respect to fiscal 2002 supplemental awards of Restricted Shares
equal to (i) the number of Restricted Shares that such executive officer would
have been awarded assuming that his Mandatory Award and Optional Award, if any,
had been calculated using a price per share of Common Stock equal to eighty
percent (80%) of the Award Price, minus the number of Restricted Shares
constituting the Mandatory Award and the Optional Award, if any, to such
executive (the "20% Supplemental Award Shares"); and (ii) with regards to any
executive officer electing to receive an Optional Award, such incremental number
of Restricted Shares that such executive officer would have been awarded had his
Optional Award been calculated using a price per share of Common Stock equal to
seventy-five percent
23
(75%) of the Award Price, minus the number of Restricted Shares constituting the
Optional Award and such 20% Supplemental Award Shares as relate to such
executive's Optional Award (the "25% Supplemental Award Shares"; collectively
with the 20% Supplemental Award Shares, the "Supplemental Award Shares"). Under
the terms of the Management Stock Bonus Program, all 20% Supplemental Award
Shares vest two years, and all 25% Supplemental Award Shares vest three years,
after the effective date of the award, provided that the executive officer
remains continuously employed by the Company during such period. Supplemental
Award Shares are subject to transfer restrictions until vesting and are subject
to forfeiture if the executive is terminated for cause or resigns before the
applicable vesting period has expired. Under the Management Stock Bonus Program,
as in effect with respect to fiscal 2001, each of Messrs. Calabro, Patel and
Sweitzer received ten percent (10%) of their bonus in the form of Restricted
Shares. Awards made under the Management Stock Bonus Program have been made from
treasury shares of the Company under the Company's 2000 Omnibus Stock Option and
Long-Term Incentive Plan. See "Summary Compensation Table," above.
SHAREHOLDER RETURN PERFORMANCE GRAPH
The graph set forth below compares, for the period February 22, 1997,
through February 23, 2002 (the end of the Company's 2002 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"), a peer group index ("Peer Group 1") of three companies, and a second peer
group index ("Peer Group 2") of five companies, selected by the Company. Peer
Group 1 consists of International Lottery & Totalizator Systems, Inc. (on-line
lottery and totalizator), International Game Technology (gaming equipment
manufacturer and supplier of on-line lottery goods and services) and Scientific
Games Holdings Corporation (supplier of paper lottery tickets and on-line
lottery goods and services). Peer Group 2 consists of Electronic Data Systems
(global information technology services), First Data Corporation (electronic
commerce and payment services), FiServ Inc. (full-service provider of integrated
data management services and information management systems), NEC Corporation
(internet products and services), and Global Payments Inc. (electronic
transaction processing services). The Company elected to use Peer Group Indices
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. The Company has elected to use as its Peer Group
Indices two Peer Groups, the first comprising companies in the lottery and
gaming industries, and the second, consisting of a broad range of commercial
transaction processing companies, because of the Company's belief that the
businesses of both Peer Groups are comparable to the business of the Company and
together provide a better basis for comparing the Company's shareholder return
performance than would either Peer Group taken individually. For the purposes of
the Peer Group Indices, both Peer Group 1 and Peer Group 2 companies have been
weighted based upon their relative market capitalizations.
24
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
AMONG GTECH HOLDINGS CORPORATION, THE S&P 500 INDEX,
AND TWO PEER GROUPS
[PERFORMANCE GRAPH]
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------------
Base
Period
Company/Index Name Feb 97 Feb 98 Feb 99 Feb 00 Feb 01 Feb 02
- ---------------------------------------------------------------------------------------------------------------------
GTECH HOLDINGS CORP $100.00 $113.15 $72.11 $63.75 $86.02 $170.01
S&P 500 $100.00 $135.00 $161.65 $180.61 $165.80 $150.03
PEER GROUP 1 $100.00 $140.02 $109.37 $107.82 $296.88 $389.89
PEER GROUP 2 $100.00 $98.71 $94.37 $180.74 $148.49 $ 98.42
</Table>
The above graph assumes an investment of $100 in the Company, the S&P 500
companies and in the Peer Group companies on February 22, 1997, and that all
dividends were reinvested. The performances indicated in the above graph and
table are not necessarily indicative of future performance.
The reported closing price of the Company's Common Stock on the New York
Stock Exchange on February 22, 2002 (the last trading day in the Company's 2002
fiscal year) was $25.28 (post-split). On June 3, 2002, such closing price was
$27.15.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors of GTECH Holdings Corporation
(the "Audit Committee") is composed of three non-employee directors of the
Company who have been determined by the Board to be independent and,
collectively, to possess the financial literacy and experience required by New
York Stock Exchange rules. The Audit Committee operates under a written Audit
Committee Charter adopted by the Board, a copy of which is attached as an
appendix to this proxy statement.
Management has the primary responsibility for the Company's financial
statements and reporting process, including the systems of internal controls,
and the Company's independent accountants are responsible for auditing the
Company's financial statements. The Audit Committee's responsibility is to
oversee these processes on behalf of the Board. However, the Audit Committee is
not providing any expert or special
25
assurances as to the Company's financial statements or any professional
certification as to the independent accountant's work.
In fulfilling its oversight responsibilities, the Audit Committee, among
other things:
- Reviewed and discussed with the Company's management, internal auditors,
and its independent accountants the Company's fiscal 2002 audited
consolidated financial statements, including the overall quality of the
Company's accounting policies.
- Discussed with the Company's independent accountants matters required to
be discussed under generally accepted auditing standards, including
matters related to the conduct of the audit of the Company's consolidated
financial statements and the matters required to be discussed by
generally accepted auditing standards.
- Discussed with the Company's independent accountants their independence
from the Company, received from them the written disclosures required by
the Independence Standards Board and considered whether the independent
accountants' provision of services to the Company beyond those rendered
in connection with their audit and review of the Company's consolidated
financial statements is compatible with maintaining their independence.
The Audit Committee also reviewed, among other things, the amount of fees
paid to the independent accountants for audit and non-audit services.
Based on these reviews, meetings, discussions, and reports, and subject to
the limitations on the Audit Committee's role and responsibilities referred to
above and as outlined in the Audit Committee Charter, the Audit Committee
recommended to the Board that the Company's audited consolidated financial
statements for fiscal 2002 be included in the Company's Annual Report on Form
10-K filed with the Securities and Exchange Commission. The Audit Committee also
recommended the selection of Ernst & Young LLP as the Company's independent
accountants for fiscal 2003.
Audit Committee:
Burnett W. Donoho, Chairman
Robert M. Dewey, Jr.
Sir Jeremy Hanley
June 18, 2002
INDEPENDENT AUDITORS AND FEES
The firm of Ernst & Young LLP served as the Company's independent public
accountants for fiscal 2002 and the Company anticipates that Ernst & Young LLP
will serve as its independent public accountants for fiscal 2003, the Audit
Committee having recommended the retention of Ernst & Young LLP as the Company's
independent public accountants for fiscal 2003. 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.
For the fiscal year ended February 23, 2002, fees paid by the Company for
services provided by Ernst & Young LLP were as follows:
<Table>
A. Audit Fees.................................................. $550,000
B. Audit Related Fees.......................................... $768,000
(including international statutory audits and consultations
on accounting standards and transactions)
Financial Information Systems Design and Implementation
C. Fees........................................................ $0
D. Other Fees.................................................. $1,003,000
(including income tax and other consulting services)
</Table>
26
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain current and former officers and directors of the Company are
parties to indemnification agreements with the Company providing 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. In addition, the Company's By-Laws provide for similar
advancement of expenses to and indemnification of directors and officers of the
Company. During fiscal 2002, no amounts were paid by the Company pursuant to
such indemnification agreements or such By-Law provisions with respect to
persons serving as directors or executive officers.
During fiscal 2002, in connection with Mr. Cohen's relocation from Illinois
to Rhode Island, the Company agreed to purchase his Illinois residence at the
home's then fair market value and, accordingly the Company purchased his
residence for $805,000. Approximately six months later, the Company sold Mr.
Cohen's former residence for $655,000.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors and persons who own more than 10% of a
registered class of the Company's equity securities ("reporting persons") to
file certain reports of ownership and changes in their ownership of the
Company's equity securities with the SEC and the New York Stock Exchange.
As a result of an administrative oversight by the Company, Donald R.
Sweitzer filed a late Form 4 which reported one transaction in October 2001. In
addition, Antonio Carlos Rocha filed a late Form 4 which reported one
transaction in November 2001. Based solely on the Company's review of Forms 3, 4
and 5 received by it from reporting persons with respect to fiscal year 2002,
the Company believes that all other Forms 3, 4 and 5 required of reporting
persons by Section 16(a) were filed on a timely basis.
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 2003 Annual Meeting of Shareholders, shareholders' proposals to take action
at such meeting must comply with applicable SEC 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 21, 2003.
MISCELLANEOUS
A copy of the Company's 2002 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
2002. COPIES OF EXHIBITS TO THE FORM 10-K ALSO WILL BE FURNISHED UPON REQUEST
AND THE
27
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,
Marc A. Crisafulli, Secretary
June 20, 2002
28
APPENDIX A
GTECH HOLDINGS CORPORATION
AUDIT COMMITTEE CHARTER
PURPOSE
The primary purpose of the Audit Committee (the "Committee") is to assist
the Board of Directors (the "Board") of GTECH Holdings Corporation (the
"Company") in fulfilling its responsibility to oversee management's conduct of
the Company's financial reporting process, including the Company's systems of
internal account and financial controls, the internal audit function and the
annual independent audit of the Company's financial statements, and of the
Company's legal compliance with ethics programs and policies as established by
management and the Board. The Committee also shall assist the Board in such
other matters as may be appropriately delegated to the Committee by the Board
from time to time.
In discharging its oversight role, the Committee is empowered to
investigate any matter brought to its attention and shall have full access to
all books, records, facilities and personnel of the Company and the power to
retain outside counsel, auditors or other experts to assist the Committee in
fulfilling its role. The Board and the Committee are in place to represent the
Company's shareholders; accordingly, the independent auditors are ultimately
accountable to the Board and the Committee.
The Committee shall review the adequacy of its charter on an annual basis.
COMPOSITION
The Committee shall consist of not less than three members of the Board,
and the Committee's composition shall comply with the applicable rules and
requirements of the Securities and Exchange Commission (the "SEC") and the New
York Stock Exchange (the "NYSE") relating to audit committees.
Accordingly, within the time frames mandated by the applicable rules and
requirements of the SEC and NYSE, all of the members of the Committee shall be
directors:
1. who have no relationship that may interfere with the exercise of
their independence from management and the Company; and
2. who are financially literate or who become financially literate
within a reasonable period of time after appointment to the Committee. In
addition, at least one member of the Committee shall have accounting or
related financial management expertise.
RESPONSIBILITIES AND PROCESSES
The Committee's role is one of oversight. The Committee and the Board
recognize that the Company's management is responsible for preparing the
Company's financial statements and that the independent auditors are responsible
for auditing those financial statements. Additionally, the Committee and the
Board recognize that the Company's financial management, including the Company's
internal audit staff, as well as the independent auditors, have more time and
knowledge and more detailed information concerning the Company than do Committee
members. Consequently, in carrying out its oversight responsibilities, the
Committee is not providing any expert or special assurance as to the Company's
financial statements or any professional certificate as to the independent
auditors' work.
The following shall be the common recurring activities of the Committee in
carrying out its oversight function. These activities are set forth as a guide,
with the understanding that the Committee may diverge from this guide as it
considers appropriate given the circumstances.
- The Committee generally shall endeavor to help set the overall "tone" for
quality financial reporting, sound business risk practices and ethical
behavior by the Company.
- The Committee shall review with management and the independent auditors
prior to release to the public the audited financial statements to be
included in the Company's annual report on Form 10-K
(or in the annual report to shareholders if distributed prior to the
filing of Form 10-K), and shall review and consider with the independent
auditors the results of their audit and the matters required to be
discussed by Statement of Auditing Standards ("SAS") No. 61.
- As a whole, or through the Committee chair, the Committee shall review
with management and the independent auditors prior to release to the
public the Company's interim financial results to be included in the
Company's quarterly reports on Form 10-Q, and shall review and consider
with the independent auditors the matters required to be discussed by SAS
No. 71.
- The Committee shall review with management, the internal auditors and the
independent auditors the quality and adequacy of the Company's internal
controls and the quality, adequacy and degree of aggressiveness or
conservatism of the accounting principles and estimates used or proposed
to be used by the Company.
- The Committee shall: request from the independent auditors annually a
formal written statement delineating all relationships between such
auditors and the Company consistent with Independence Standards Board
Standard No. 1; discuss with the independent auditors any such disclosed
relationships and their impact on the independent auditors' independence;
and recommend that the Board take appropriate action in response to the
independent auditors' report to satisfy itself of the independent
auditors' independence.
- The Committee shall review with the independent auditors the scope of
their annual audit and their fees for audit and non-audit services.
- The Committee (and the Board) shall have the ultimate authority and
responsibility to select (or nominate for shareholder approval), evaluate
and, where appropriate, replace the independent auditors.
- The Committee shall review with management, the internal auditors and the
independent auditors the effectiveness of the Company's internal audit
function, including the adequacy of the Internal Audit Department's
staffing, the degree of its independence and its access to and
cooperation from the highest levels of management in the performance of
its duties.
- The Committee shall prepare or cause to be prepared for inclusion in the
Company's proxy statements the Audit Committee report when and as
required by applicable SEC rules.
- The Committee shall report to the Board periodically concerning the
material activities of the Committee.
A-2
APPENDIX B
GTECH HOLDINGS CORPORATION
2002 OMNIBUS STOCK OPTION AND LONG-TERM INCENTIVE PLAN
1. PURPOSE. The purpose of the GTECH Holdings Corporation 2002 Omnibus Stock
Option and Long-Term Incentive Plan (the "Plan") is to further the interests
of GTECH Holdings Corporation, a Delaware corporation (the "Company") and
its shareholders by enabling the Company and its Affiliates to attract and
retain highly talented employees and Non-employee Directors who are in a
position to contribute materially to the success and profitability of the
Company through Awards of incentive stock options, nonqualified stock
options, restricted stock, stock appreciation rights and performance awards.
The Awards will recognize and reward outstanding individual performances and
contributions and will give such persons a proprietary interest in the
Company, thus enhancing their personal interest in the Company's continued
success and progress.
2. DEFINITIONS. The following definitions shall apply to this Plan:
(a) "AFFILIATE" means any corporation which is a subsidiary of the Company
within the definition of "subsidiary corporation" under Section 424(f)
of the Code.
(b) "AUTHORIZED SHARES" means the total number of shares which the
Certificate of incorporation permits the Company to sell.
(c) "AWARD" means, individually or collectively, a grant under the Plan of
a Nonqualified Stock Option, an Incentive Stock Option, Stock
Appreciation Right, Restricted Stock or Performance Award.
(d) "BOARD" means the board of directors of the Company.
(e) "CODE" means the Internal Revenue Code of 1986, as amended.
(f) "COMMITTEE" means the Compensation Committee of the Board designated
from time to time by resolution of the Board. If at any time no
Committee shall be in office, the functions of the "Committee" under
the Plan shall be exercised by the Board.
(g) "COMPANY" means GTECH Holdings Corporation or any successor thereof.
(h) "DATE OF GRANT" means the date or time when the Company completes the
corporate action constituting the granting of an Award under the Plan.
(i) "EFFECTIVE DATE" means the date as determined in Section 18 herein.
(j) "ELIGIBLE PERSON" means any officer and other Employee of the Company
or any Affiliate and any Non-employee Director who is responsible for
or contribute to the management, growth and/or profitability of the
business of the Company and its Affiliates.
(k) "EMPLOYEE" means any person employed on an hourly or salaried basis by
the Company or any Affiliate of the Company that now exists or
hereafter is organized or acquired by or acquires the Company. The term
"Employee" shall not include any individual who is not treated as an
employee on the payroll records of the Company or applicable Affiliate,
even if such individual is determined to be a common law employee by a
court or a governmental agency.
(l) "EXECUTIVE" means any Employee who is a then-current member of the
GTECH Senior Staff and is a Chief Executive Officer and President,
Executive Vice President, or Senior Vice President.
(m) "FAIR MARKET VALUE" means, as of any given date, the mean of the
highest and lowest quoted selling prices of the Stock on the New York
Stock Exchange (consolidated trading) or such other method of
determining Fair Market Value as shall be authorized under the Code and
adopted by the Committee. If trading in the Stock does not occur on the
date as of which Fair Market Value is being determined, the next
preceding date on which the Stock was traded will determine the Fair
Market Value, utilizing the closing price on the immediately preceding
trading day. If the Stock is not publicly traded on the date as of
which Fair Market Value is being determined, the Board shall
determine the Fair Market Value of the Stock, using such factors as the
Board considers relevant, such as the price at which recent sales have
been made, the book value of the Stock, and the Company's current and
projected earnings.
(n) "INCENTIVE STOCK OPTION" means a stock option granted pursuant to
either this Plan or any other plan of the Company that satisfies the
requirements of Section 422 of the Code and that entitles the Recipient
to purchase stock of the Company or in an Affiliate.
(o) "NON-EMPLOYEE DIRECTOR" means a director of the Company who is not an
Employee of the Company or an Affiliate and has not been an Employee of
the Company or an Affiliate during the twelve months preceding the Date
of Grant.
(p) "NONQUALIFIED STOCK OPTION" means a stock option granted pursuant to
the Plan that is not an Incentive Stock Option and that entitles the
Recipient to purchase stock of the Company or in an Affiliate.
(q) "OPTION" means an Incentive Stock Option or a Nonqualified Stock Option
granted pursuant to the Plan.
(r) "OPTION AGREEMENT" means an agreement entered into between the Company
and a Recipient which sets out the terms and restrictions of an Option
Award granted to the Recipient.
(s) "PERFORMANCE AWARD" means any right granted under Section 9 of the
Plan.
(t) "PERIOD OF RESTRICTION" means the period beginning on the Date of Grant
of a Restricted Stock Award and ending on the date on which the
Restricted Stock Shares subject to such Award are released from all
restrictions imposed upon such Shares.
(u) "PLAN" means the GTECH Holdings Corporation 2002 Omnibus Stock Option
and Long-Term Incentive Plan as amended from time to time.
(v) "RECIPIENT" means an Eligible Person who receives an Award.
(w) "RESTRICTED STOCK" means an Award granted to a Recipient pursuant to
Section 8 hereof.
(x) "RESTRICTED STOCK AGREEMENT" means a written agreement entered into
between the Company and a Recipient which sets out the terms and
restrictions of a Restricted Stock Award granted to the Recipient.
(y) "SHARE" means a share of the Stock.
(z) "STOCK" means the common stock of the Company, par value $0.01 per
share of the Company.
(aa) "STOCK APPRECIATION RIGHT" means any right granted under Section 7 of
the Plan.
3. ADMINISTRATION. This Plan will be administered by the Committee. The
Committee has the exclusive power to select the Recipients of Awards
pursuant to this Plan, to grant Awards, to establish the terms of the Awards
granted to each Recipient, and to make all other determinations necessary or
advisable under the Plan. The Committee has the sole and absolute discretion
to determine whether the performance of an Eligible Person warrants an Award
under this Plan, and to determine the timing, size and type of the Award.
The Committee has full and exclusive power to construe and interpret this
Plan, to prescribe, amend, and rescind rules and regulations relating to
this Plan, and to take all actions necessary or advisable for the Plan's
administration. The Committee, in the exercise of its powers, may correct
any defect or supply any omission, or reconcile any inconsistency in the
Plan, or in any Agreement, in the manner and to the extent it shall deem
necessary or expedient to make the Plan fully effective. In exercising this
power, the Committee may retain counsel at the expense of the Company. The
Committee shall also have the power to determine the duration and purposes
of leaves of absence which may be granted to a Recipient without
constituting a termination of the Recipient's employment for purposes of the
Plan. Any changes made to this Plan or the standard provisions contained
herein by the Committee will be disclosed in a timely manner in the
Company's next proxy statement. Any determinations made by
B-2
the Committee will be final and binding on all persons. A member of the
Committee will not be liable for performing any act or making any
determination in good faith.
Notwithstanding the foregoing, (i) Awards granted to officers,
Non-employee Directors, or other persons subject to Section 16 of the
Securities Exchange Act of 1934, as amended ("Exchange Act") which are
intended to comply with the exemption provided by Exchange Act Rule
16b-3(d)(1) shall be approved by the Board or a committee of the Board that
meets the requirements described Exchange Act Rules 16b-3(d)(1) and
16-3(b)(3); and (ii) Awards granted to the officers considered "covered
employees" under Code Section 162(m)(3) which are intended to comply with
the exemption provided by Code 162(m)(4)(C) shall be approved by the Board
or a committee of the Board that meets the requirements contained in
Treasury Regulation Section 1.162-27(e)(3).
4. SHARES SUBJECT TO PLAN. Subject to the provisions of Section 12 of the
Plan, the maximum aggregate number of Shares that may be subject to Awards
under the Plan shall be four million (4,000,000). No more than twenty-five
percent (25%) of the maximum number of Shares authorized by this Plan shall
be granted in the form of Stock Appreciation Rights, Restricted Stock Awards
and Performance Awards; and, further, in any one calendar year, Stock
Options and Stock Appreciation Rights granted to an eligible employee may
not exceed in the aggregate 500,000 Shares authorized under the Plan. Any
Shares subject to an Award that expires or otherwise terminates without
having been exercised, any Shares that are subject to an Award that are
forfeited, and any Shares withheld for the payment of taxes with respect to
an Award shall continue to be available for Awards under the Plan; provided,
however, that except as provided in Section 10 below, no Option shall be
amended to reduce the exercise price or exchanged for another Option with a
lower exercise price. If the exercise price of any Option is satisfied by
tendering Shares to the Company, only the number of Shares issued net of the
Shares tendered shall be deemed delivered for purposes of determining the
maximum number of Shares available for delivery under the Plan.
5. ELIGIBILITY. Any Eligible Person that the Committee in its sole discretion
designates is eligible to receive an Award under this Plan; provided,
however, that Incentive Stock Options shall be granted only to Employees.
The Committee's grant of an Award to a Recipient in any year does not
require the Committee to grant an Award to such Recipient in any other year.
Furthermore, the Committee may grant different Awards to different
Recipients and has full discretion to choose whether to grant Awards to any
Eligible Person. The Committee may consider such factors as it deems
pertinent in selecting Recipients and in determining the types and sizes of
their Awards, including, without limitation, (i) the financial condition of
the Company; (ii) the expected profits for the current or future years;
(iii) the contributions of a prospective Recipient to the profitability and
success of the Company or its Affiliates; and (iv) the adequacy of the
prospective Recipient's other compensation. Recipients may include persons
to whom stock, stock options, or other benefits previously were granted
under this or another plan of the Company or any Affiliate, whether or not
the previously granted benefits have been fully exercised or vested. A
Recipient's right, if any, to continue to serve the Company and its
Affiliates as an officer, Employee, Non-employee Director, or otherwise will
not be enlarged or otherwise affected by his designation as a Recipient
under this Plan, and such designation will not in any way restrict the right
of the Company or any Affiliate, as the case may be, to terminate at any
time the employment of any Recipient.
6. OPTIONS. Each Option granted to a Recipient under the Plan shall contain
such provisions as the Committee at the Date of Grant shall deem
appropriate. Each Option granted to a Recipient will satisfy the following
requirements:
(a) AGREEMENT. Each Option granted to a Recipient will be evidenced by a
written or electronic Option Agreement. The terms of the Option
Agreement need not be identical for different Recipients. The Option
Agreement shall include a description of the substance of each of the
requirements in this Section 6 with respect to that particular Option.
(b) NUMBER OF SHARES. Each Option Agreement shall specify the number of
Shares that may be purchased by exercise of the Option.
B-3
(c) EXERCISE PRICE. Except as provided in Section 6(h), the exercise price
of each Share subject to an Option shall equal the exercise price
designated by the Committee on the Date of Grant, but shall not be less
than the Fair Market Value of the Share on the Option's Date of Grant.
(d) DURATION OF OPTION. Except as provided in Section 6(h), an Incentive
Stock Option granted to an Employee shall expire on the tenth
anniversary of its Date of Grant or at such earlier date as is set by
the Committee in establishing the terms of the Incentive Stock Option
at grant. Except as provided in Section 6(l), a Nonqualified Stock
Option granted to an Employee shall expire on the tenth anniversary of
its Date of Grant or at such earlier or later date as is set by the
Committee in establishing the terms of the Nonqualified Stock Option at
grant.
(e) VESTING OF OPTION. Each Option Agreement shall specify the vesting
schedule applicable to the Option, provided that the Committee may
determine that an option is immediately vested in full. The Committee,
in its sole and absolute discretion, may accelerate the vesting of any
Option at any time. In addition, an Option may be subject to
accelerated vesting under Section 10 below. In addition, unless the
Committee determines otherwise in its sole and absolute discretion,
Options shall vest in equal installments over four years.
(f) TERMINATION OF SERVICE OR AFFILIATION. Subject to Sections 10, 12 and
this Section 6(f) below, at or after the Date of Grant, the Committee
shall determine, in its sole discretion, the period, if any, during
which vested Options may be exercised following termination of the
Recipient's employment with the Company and its Affiliates by reason of
death, disability, retirement or termination without Cause, and whether
and to what extent unvested Options shall be exercisable on an
accelerated basis; provided, however, that no Option shall be
exercisable after its expiration date. Unless otherwise determined by
the Committee at or after grant of the Option, if a Recipient's
employment with the Company and its Affiliates is terminated for any
reason other than Cause, no further installments of the Option shall
become exercisable after such termination of employment and the Option,
to the extent exercisable, shall terminate on the earlier of (i) six
(6) months (three (3) months if the Option is an Incentive Stock
Option) following the Recipient's termination of employment or (ii) the
specified expiration date of the Option. An approved leave of absence
of up to ninety (90) days (or longer if the Employee's right to return
to employment is guaranteed by contract, statute or the policy of the
Company) shall not constitute a termination of employment. Unless
otherwise determined by the Committee in its discretion, if a
Recipient's employment is terminated for Cause, all unexercised vested
and unvested Options held by such Recipient shall lapse and be
forfeited on the date of termination of employment. For purposes of the
Plan, "Cause" shall mean activities which constitute a serious breach
of conduct as determined by the Board in its sole discretion,
including, but not limited to: (i) the willful failure by the Recipient
to perform substantially his duties as an employee of the Company or
its Affiliates (other than due to physical or mental illness) after
reasonable notice to the Recipient of such failure; (ii) the
Recipient's engaging in serious misconduct that is injurious to the
Company and/or its Affiliates; (iii) the Recipient's having been
convicted of, or entered a plea of nolo contendere to a crime that
constitutes a felony; (iv) the breach by the Recipient of any written
covenant or agreement with the Company and/or its Affiliates not to
disclose or misuse any information pertaining to the Company or not to
compete or interfere with the Company and/or its Affiliates; or (v)
abuse of illegal drugs or other controlled substances, or habitual
intoxication. In the event an Executive or Non-employee Director
retires from the Company (such retirement to be determined at the sole
discretion of the Committee), all unvested Options previously granted
to such Executive or Non-Employee Director shall vest, and he/she shall
have two (2) years to exercise all vested Options.
(g) CONDITIONS REQUIRED FOR EXERCISE. Subject to the terms and conditions
established by the Committee, Options may be exercised, in whole or in
part to the extent exercisable, at any time and from time to time
during the Option exercise period; provided, however, unless otherwise
determined by the Committee at or after the Date of Grant, no Option
shall be exercisable during the six month period commencing on the Date
of Grant. Furthermore, Options granted to Employees under the Plan
shall be exercisable only if the issuance of Shares pursuant to the
exercise would be in
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compliance with applicable securities laws, as contemplated by Section
11 of the Plan. Each Agreement shall specify any additional conditions
required for the exercise of the Option.
(h) TEN PERCENT SHAREHOLDERS. An Incentive Stock Option granted to an
individual who, on the Date of Grant, owns stock possessing more than
10 percent of the total combined voting power of all classes of stock
of either the Company or any parent or Subsidiary, shall be granted at
an exercise price of 110 percent of Fair Market Value on the Date of
Grant and shall be exercisable only during the five-year period
immediately following the Date of Grant. In calculating stock ownership
of any person, the attribution rules of Code Section 424(d) will apply.
Furthermore, in calculating stock ownership, any stock that the
individual may purchase under outstanding options will not be
considered.
(i) MAXIMUM OPTION AWARDS. The aggregate Fair Market Value, determined on
the Date of Grant, of stock in the Company with respect to which any
Incentive Stock Options under the Plan and all other plans of the
Company or its Subsidiaries (within the meaning of Section 424 of the
Code) may become exercisable by any individual for the first time in
any calendar year shall not exceed $100,000.
(j) CONVERSION OF INCENTIVE STOCK OPTIONS INTO NONQUALIFIED OPTIONS. The
Committee, at the written request or with the written consent of any
holder of an Incentive Stock Option, may take such actions, in its
discretion, as may be necessary to convert such holder's Incentive
Stock Options (or any installments or portions of installments thereof)
that have not been exercised on the date of conversion into
Nonqualified Stock Options at any time prior to the expiration of such
Incentive Stock Option, regardless of whether the holder is an employee
of the Company or its Affiliates at the time of such conversion. Such
actions may include, but shall not be limited to, extending the
exercise period. At the time of such conversion, the Committee, (with
the consent of the Recipient) may impose such conditions on the
exercise of the resulting Nonqualified Stock Option as the Committee in
its discretion may determine, provided that such conditions shall not
be inconsistent with this Plan. Nothing in this Plan shall be deemed to
give any Recipient the right to have such Recipient's Incentive Stock
Options converted into Nonqualified Stock Options, and no such
conversion shall occur, until and unless the Committee shall take
appropriate action.
(k) METHOD OF EXERCISE. An Option granted under this Plan shall be deemed
exercised when the person entitled to exercise the Option (i) delivers
written notice to the Company of the decision to exercise, specifying
the number of Shares to be purchased, (ii) concurrently tenders to the
Company full payment for the Shares to be purchased pursuant to the
exercise, and (iii) complies with such other reasonable requirements as
the Committee may establish. Payment for Shares with respect to which
an Option is exercised may be made in cash, or by certified or bank
check. As determined by the Committee in its sole discretion, payment
in full or in part may be made in the form of unrestricted Stock
already owned for at least six (6) months by the Option holder and
having a Fair Market Value equal to the exercise price; provided,
however, in the case of an Incentive Stock Option, the right to make
payment in the form of currently owned Shares may be authorized only at
the time such Option is granted. The Committee, in its discretion, may
permit a cashless exercise which shall be effected by the Option
holder's delivery of instructions to a broker to sell a sufficient
number of Shares to cover the costs and expenses associated therewith.
No person will have the rights of a shareholder with respect to Shares
subject to an Option granted under this Plan until a certificate or
certificates for the Shares have been delivered to him. A partial
exercise of an Option will not affect the holder's right to exercise
the Option from time to time in accordance with this Plan as to the
remaining Shares subject to the Option.
(l) DESIGNATION OF BENEFICIARY. Each Recipient shall designate, on a form
provided by the Committee, a beneficiary to receive Options awarded
hereunder in the event of his death prior to full exercise of such
Options; provided, that if no such beneficiary is designated or if the
beneficiary so designated does not survive the Recipient, the estate of
such Recipient shall be deemed to be his beneficiary.
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Such Recipients may, by written notice to the Committee, change the
beneficiary designated in any outstanding Option Agreements.
(m) NONTRANSFERABILITY OF OPTION. Except to the extent permitted by the
Committee in its discretion, (i) an Option granted under this Section to
a Recipient who is an individual is not transferable except by will or
the laws of descent and distribution and (ii) during the lifetime of
such Recipient, all rights of the Option are exercisable only by him or
her. A transferred Option shall continue to be subject to the same terms
and conditions as were applicable to such Option immediately prior to
transfer.
7. STOCK APPRECIATION RIGHTS.
(a) GRANT OF SARs. Awards may be made in the form of Stock Appreciation
Rights (SARs). A SAR may be granted in tandem with all or a portion of
a related Option under the Plan ("Tandem SARs"), or may be granted
separately ("Freestanding SARs"). A Tandem SAR may be granted either at
the time of the grant of the related Option or at any time thereafter
during the term of the Option. The grant of a SAR shall be evidenced by
a SAR Agreement executed by the Company and the Participant, and shall
contain such terms and conditions and be in such form as the Committee
may from time to time approve, subject to the requirements of this
Section 7 and to the limitations set forth in Section 4. In no event
shall any SARs granted extend for a period in excess of ten years from
the Date of Grant.
(b) TERMS AND CONDITIONS OF TANDEM SARs. A Tandem SAR shall be exercisable
to the extent, and only to the extent, that the related Option is
exercisable, and the "exercise price" of such an SAR shall be the
exercise price under the related Option. However, at no time shall a
Tandem SAR be issued if the exercise price of its related Option is
less than one-hundred percent (100%) of the Fair Market Value of the
Stock on the Date of Grant of the Tandem SAR. If a related Option is
exercised as to some or all of the shares covered by the grant, the
related Tandem SAR, if any, shall be cancelled automatically to the
extent of the number of shares covered by the Option exercise. Upon
exercise of a Tandem SAR as to some or all of the shares covered by the
grant, the related Option shall be cancelled automatically to the
extent of the number of Shares covered by such exercise, and such
Shares shall again be eligible for a grant in accordance with Section 4
hereof, except to the extent any shares of Stock are issued to settle
the SAR.
(c) TERMS AND CONDITIONS OF FREESTANDING SARS. Freestanding SARs shall be
exercisable in whole or in such installments and at such times as may
be determined by the Committee. The exercise price per share of a
Freestanding SAR shall be set by the Committee at the date of Grant and
in no event shall be less than 100% of the Fair Market Value of the
Stock on the Date of the Grant.
(d) DEEMED EXERCISE. The Committee may provide that a SAR shall be deemed
to be exercised at the close of business on the scheduled expiration
date of such SAR, if at such time, the SAR by its terms remains
exercisable and, if exercised, would result in a payment to the holder
of such SAR.
(e) ADDITIONAL TERMS AND CONDITIONS. The Committee may determine such
other terms, conditions, restrictions and/or limitations, if any, of
any SAR, provided they are not inconsistent with the Plan and are
included in the SAR Agreement.
(f) EXERCISE OF SARs. A holder shall exercise his or her SARs by giving
written notice of such exercise in the form and manner determined by
the Committee, and the date upon which such written notice is received
by the Company shall be the exercise date for the SARs. A SAR shall
entitle the holder to receive a payment equal to the excess of the Fair
Market Value of a Share of Stock on the date of exercise over the
exercise price of the SAR, multiplied by the number of shares with
respect to which the SAR relates.
(g) PAYMENT OF SARs. Payment by the Company of a SAR may be in cash, in
shares of Stock or Restricted Stock or any combination, as the
Committee shall determine. To the extent paid in shares
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of Stock or Restricted Stock, the value of the Stock or Restricted
Stock so paid shall be the Fair Market Value of a Share of Stock upon
exercise of the SAR.
8. RESTRICTED STOCK. Subject to the provisions of the Plan, the Committee, at
any time and from time to time, may grant Shares of Restricted Stock to
Recipients in such amounts as the Committee shall determine in its sole and
absolute discretion. Each Restricted Stock Award granted to a Recipient
under the Plan shall contain such provisions as the Committee at the Date of
Grant shall deem appropriate. Each Restricted Stock Award granted to a
Recipient will satisfy the following requirements:
(a) AGREEMENT. Each Restricted Stock Award granted to a Recipient will be
evidenced by a written or electronic Restricted Stock Agreement. The
terms of the Restricted Stock Agreement need not be identical for
different Recipients. The Restricted Stock Agreement shall specify the
Period of Restriction during which a Recipient's right to all or a
portion of such restricted Stock shall vest over time, subject to the
other terms and conditions set forth in the Agreement. The Committee
may impose vesting conditions in addition to continuous employment. The
Committee also may, in its sole discretion, shorten or terminate the
Period of Restriction or waive any conditions or restrictions
applicable to a Recipient's Restricted Stock. In addition, the
Restricted Stock Agreement shall include a description of the substance
of each of the requirements in this Section with respect to that
particular Restricted Stock Award.
(b) NUMBER OF SHARES. Each Agreement shall specify the number of
Restricted Stock Shares awarded to the Recipient.
(c) TRANSFERABILITY. Except as provided in this subsection (c), the
Restricted Stock Shares granted under this Plan to Recipients who are
individuals may not be sold, transferred, pledged, assigned or
otherwise alienated or hypothecated until the end of the applicable
Period of Restriction established by the Committee at grant and
specified in the Restricted Stock Agreement, or upon earlier
satisfaction of any other conditions, as specified by the Committee at
grant and specified in the Restricted Stock Agreement.
(d) OTHER RESTRICTIONS. The Committee may impose such other restrictions
on any Restricted Stock Shares granted pursuant to this Plan as it may
deem advisable including, without limitation, vesting restrictions,
restrictions based upon the achievement of specific Company and/or
individual performance goals, and/or restrictions under applicable
federal or state securities laws, and may legend the certificate
representing Restricted Stock to give appropriate notice of such
restrictions. The Committee may also require that Recipients make cash
payments at the time of grant or upon lapsing of restrictions. Such
cash payments, if imposed, will be in an amount not less than the par
value of the Restricted Stock Shares. Vesting provisions are fully
consistent with those applicable to the Options. Unless the Committee
determines otherwise in its sole and absolute discretion, Restricted
Stock shall vest in equal installments over four years.
(e) RESTRICTED STOCK CERTIFICATES. Each Restricted Stock Award may be
evidenced in such a manner as the Committee deems appropriate,
including, without limitation, book entry registration or issuance of a
stock certificate or certificates and by an Restricted Stock Agreement
setting forth the terms of such Restricted Stock Award. To the extent a
stock certificate is issued, the Secretary of GTECH shall hold such
certificates for the Recipient's benefit until such time as the
restrictions lapse or the Restricted Stock is forfeited to the Company.
(f) REMOVAL OF RESTRICTIONS. Except as otherwise provided in this Section
8, Restricted Stock Shares shall become freely transferable by the
Recipient after the last day of the Period of Restriction. Once the
Restricted Stock Shares are released from the restrictions, the
Recipient or the Recipient's beneficiary or estate shall be entitled to
delivery of a stock certificate, free of all such restrictions.
(g) VOTING RIGHTS. During the Period of Restriction, Recipients holding
Restricted Stock Shares may exercise full voting rights with respect to
such Shares.
B-7
(h) DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Restriction,
Recipients holding Restricted Stock Shares shall be entitled to receive
all dividends and other distributions paid with respect to such Shares
while they are so held. The Committee may provide that any dividends
paid on Restricted Stock must be reinvested in Stock, which may be
subject to the same vesting conditions and restrictions applicable to
such Restricted Stock. If any such dividends or distributions are paid
in Shares, such Shares shall be subject to the same restrictions on
transferability and forfeitability as the Restricted Stock Shares with
respect to which they were paid.
(i) DEATH. In the case of the death of a Recipient, the restrictions on
the Recipient's Restricted Stock Shares shall expire on the date of
such Recipient's death.
(j) DISABILITY. In the case of the total and permanent disability (as
defined in Code Section 22(e)(3)) of a Recipient and a resulting
termination of employment with the Company and its Affiliates, the
restrictions on the Recipient's Restricted Stock Shares shall expire on
such Recipient's last day of employment.
(k) RETIREMENT. If a Recipient's employment terminates by reason of normal
retirement under the Company's normal retirement policies, the
restrictions on the Recipient's Restricted Stock Shares shall expire on
such Recipient's last day of employment.
(l) TERMINATION OF SERVICE OR AFFILIATION, AND VESTING. If a Recipient
ceases employment with the Company and its Affiliates for any reason
other than death, disability, or retirement (as described above), all
nonvested Restricted Stock Shares held by the Recipient shall be
forfeited immediately and returned to the Company; provided, however,
that the Committee, in its sole and absolute discretion, shall have the
right to provide for vesting of the Restricted Stock (which includes
immediate vesting in full) or for expiration of the restrictions on
Restricted Stock Shares following termination of employment, upon such
terms and provisions as it deems proper.
(m) DESIGNATION OF BENEFICIARY. Each Recipient who is an individual shall
designate, in the Restricted Stock Agreement he executes, a beneficiary
to receive Restricted Stock Shares awarded hereunder in the event of his
death prior to removal of all restrictions on such Shares; provided,
that if no such beneficiary is designated or if the beneficiary so
designated does not survive such Recipient, the estate of such Recipient
shall be deemed to be his beneficiary. Such Recipients may, by written
notice to the Committee, change the beneficiary designated in any
outstanding Restricted Stock Agreements.
9. PERFORMANCE AWARDS. Subject to the provisions of the Plan, the Committee,
at any time and from time to time, may grant Performance Awards to
Recipients in such amounts as the Committee shall determined in its sole and
absolute discretion. A Performance Award shall consist of a right to receive
Shares that is (i) valued, as determined by the Committee, in accordance
with the achievement of such performance goals as the Committee shall
establish and (ii) payable at such time and in such form as the Committee
shall determine. Each Performance Award granted to a Recipient will satisfy
the following requirements:
(a) AGREEMENT. Each Performance Award granted to a Recipient will be
evidenced by a written or electronic Stock Agreement. The terms of the
Stock Agreement need not be identical for different Recipients. The
Stock Agreement shall include a description of the substance of each of
the requirements in this Section with respect to that particular
Performance Award. The Stock Agreement shall specify: the number of
Shares subject to the Performance Award; the performance goals to be
achieved during any performance period; the length of the performance
period (which must be at least one year); the consequences of death,
disability, retirement and other termination of employment; and all
other applicable terms and conditions. Performance Awards will be paid
in Shares following the close of a performance period, unless the
Committee determines, in its sole discretion, to make such payment in
cash based on the then Fair Market Value of the Stock.
10. CHANGE-IN-CONTROL PROVISIONS.
B-8
(a) EFFECT OF CHANGE-IN-CONTROL. In the event of any Change-In-Control,
the Committee shall take such action as it deems appropriate and
equitable to effectuate the purposes of this Plan and to protect the
Recipients, which actions may include, but without limitation, the
following: (i) provide that Awards shall be assumed or equivalent
Awards shall be substituted, by the acquiring or succeeding corporation
(or an affiliate thereof), with appropriate adjustments as to the
number and kinds of shares or units and exercise prices; (ii) upon
written notice to the Recipients, provide that the Plan and all
unexercised Awards (or portions thereof) will terminate immediately
prior to the consummation of the Change-In-Control unless exercised by
the Recipient within a specified period of time; (iii) provide that
such Awards shall be immediately vested, fully earned, exercisable,
and/or, in the case of Options, converted into SARs, as appropriate,
upon a Change-In-Control; (iv) provide that the Company shall make full
payment to each such Recipient with respect to any Performance Award,
deliver certificates to such Participant with respect to each
Restricted Stock Award, and permit the exercise of Options and/or SARs,
respectively, granted hereunder to such Participant; (v) terminate all
Awards in exchange for a right to participate in any stock option or
other employee benefit plan of any successor corporation (giving proper
credit to any holder of an Award for that portion of the Award which
has otherwise vested and become exercisable prior to any such
Change-In-Control); and (vi) in the event that such Change-In-Control
is a merger or other transaction under the terms of which holders of
Stock of the Company will receive upon the consummation thereof a cash
payment for each share surrendered in the merger or other transaction
(the "Transaction Price"), make or provide for a cash payment to the
Recipient equal to the difference between (A) the Transaction Price
times the number of shares of Stock subject to such outstanding Awards
(to the extent then exercisable at prices not in excess of the
Transaction Price) and (B) the aggregate exercise price of all such
outstanding Awards that shall become exercisable in full immediately
prior to such event.
(b) DEFINITION OF "CHANGE-IN-CONTROL". For purposes of this Section, a
"Change-In-Control" means the happening of any of the following:
(i) the members of the Board at the beginning of any consecutive
twenty-four calendar month period (the "Incumbent Directors") cease for
any reason to constitute at least a majority of the members of the
Board, provided that any director whose election, or nomination for
election by the Company's stockholders, was approved by vote of at
least a majority of the members of the Board then still in office who
were members of the Board at the beginning of such twenty-four calendar
month period shall be deemed an Incumbent Director;
(ii) any "person" including a "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act, but excluding the
Company, any of its Affiliates or any employee benefit plan of the
Company or any of its Affiliates) is or becomes the "beneficial owner"
(as defined in Rule 13(d)(3) under the Exchange Act), directly or
indirectly, of securities of the Company representing the greater of
30% or more of the combined voting power of the Company's then
outstanding securities;
(iii) the stockholders of the Company shall approve a definite
agreement (1) for the merger or other business combination of the
Company with or into another corporation if (A) a majority of the
directors of the surviving corporation were not directors of the
Company immediately prior to the merger or (B) the stockholders of the
Company immediately prior to the effective date of such merger own less
than 50% of the combined voting power in the then outstanding
securities in such surviving corporation or (2) for the sale or other
disposition of all or substantially all of the assets of the Company;
or
(iv) the purchase of Stock pursuant to any tender or exchange offer
made by any "person", including a "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), other than the Company,
any of its Affiliates or any employee benefit plan of the Company or
any of its Affiliates, for 30% or more of the Stock of the Company.
(c) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution
or liquidation of the Company, each Grant shall terminate immediately
prior to the consummation of such proposed
B-9
action or at such other time and subject to such other conditions as
shall be determined by the Committee.
11. TAXES; COMPLIANCE WITH LAW; APPROVAL OF REGULATORY BODIES; LEGENDS. The
Company shall have the right to withhold from payments otherwise due and
owing to the Recipient (or his beneficiary) or to require the Recipient (or
his beneficiary) to remit to the Company in cash upon demand an amount
sufficient to satisfy any federal (including FICA and FUTA amounts), state,
and/or local withholding tax requirements at the time the Recipient (or his
beneficiary) recognizes income for federal, state, and/or local tax purposes
with respect to any Award under this Plan.
Awards can be granted, and Shares can be delivered under this Plan, only in
compliance with all applicable federal and state laws, regulations and the
rules of all stock exchanges on which the Company's stock is listed at any
time, and the Company's counsel's approval of all other legal matters
related thereto. An Option is exercisable, and a Restricted Stock Award or
Performance Award is payable, only if either (a) a registration statement
pertaining to the Shares to be issued has been filed with and declared
effective by the Securities and Exchange Commission and remains effective on
the date of exercise of the Option or issuance of the Restricted Stock Award
or Performance Award, or (b) an exemption from the registration requirements
of applicable securities laws is available. This Plan does not require the
Company, however, to file such a registration statement or to assure the
availability of such exemptions. Any certificate issued to evidence Shares
issued under the Plan may bear such legends and statements, and shall be
subject to such transfer restrictions, as the Committee deems advisable to
assure compliance with federal and state laws and regulations and with the
requirements of this Section. No Option may be exercised, and Shares may not
be issued under this Plan, until the Company has obtained the consent or
approval of every regulatory body, federal or state, having jurisdiction
over such matters as the Committee deems advisable.
Each person who acquires the right to exercise an Option or to ownership of
Shares by bequest or inheritance may be required by the Committee to furnish
reasonable evidence of ownership of the Option as a condition to his
exercise of the Option. In addition, the Committee may require such consents
and releases of taxing authorities as the Committee deems advisable.
With respect to persons subject to Section 16 of the Exchange Act,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 under the Exchange Act, as such Rule may be amended
from time to time, or its successor under the Exchange Act. To the extent
any provision of the Plan or action by the Plan administrators fails to so
comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Plan administrators.
12. ADJUSTMENT UPON CHANGE OF SHARES. If a reorganization, merger,
consolidation, reclassification, recapitalization, combination or exchange
of shares, stock split, stock dividend, rights offering, or other expansion
or contraction of the Stock of the Company occurs, the number and class of
Shares for which Awards are authorized to be granted under this Plan, the
number and class of Shares then subject to Awards previously granted to
Employees under this Plan, and the price per Share payable upon exercise of
each Award outstanding under this Plan shall be equitably adjusted by the
Committee to reflect such changes. To the extent deemed equitable and
appropriate by the Board, subject to any required action by shareholders, in
any merger, consolidation, reorganization, liquidation or dissolution, any
Award granted under the Plan shall pertain to the securities and other
property to which a holder of the number of Shares of stock covered by the
Award would have been entitled to receive in connection with such event.
13. LIABILITY OF THE COMPANY. The Company, its parent and any Affiliate that is
in existence or hereafter comes into existence shall not be liable to any
person for any tax consequences incurred by a Recipient or other person with
respect to an Award.
14. AMENDMENT AND TERMINATION OF PLAN. The Board may alter, amend, or terminate
this Plan, and the Committee may amend any Award, at any time and from time
to time, without approval of the shareholders of the Company. The Board may,
however, condition any amendment on the approval of the shareholders of the
Company if such approval is necessary or advisable with respect to tax,
securities or
B-10
other applicable laws or stock exchange rules to which the Company, the
Plan, Recipients or Eligible Persons are subject. Any amendment, whether
with or without the approval of shareholders of the Company, that alters the
terms or provisions of an Award granted before the amendment (unless the
alteration is expressly permitted under this Plan) will be effective only
with the consent of the Recipient to whom the Award was granted or the
holder currently entitled to exercise it. Nothing under this Plan shall
limit the right of the Company to create another plan providing Nonqualified
Stock Options, Incentive Stock Options, SARs, Restricted Stock, or
Performance Awards. Notwithstanding the foregoing provisions contained in
this Section 14, nothing herein shall permit the Board or the Committee to
re-price Options without the approval of the shareholders of the Company.
15. INDEMNIFICATION. Each person who is or shall have been a member of the
Committee or of the Board shall be indemnified and held harmless by the
Company, to the fullest extent permissible by Delaware Law, against and from
any loss, cost, liability, or expense that may be imposed upon or reasonably
incurred by such person in connection with or resulting from any claim,
action, suit, or proceeding to which such person may be made as party or in
which such person may be involved by reason of any action taken or failure
to act under the Plan and against and from any and all amounts paid by such
person in settlement thereof, with the Company's approval, or paid by such
person in satisfaction of any judgment in any such action, suit, or
proceeding against such person, provided such person shall give the Company
an opportunity, at its own expense, to handle and defend the same before
such person undertakes to handle and defend it on such person's own behalf.
The foregoing right of indemnification shall not be exclusive and shall be
independent of any other rights of indemnification to which such persons may
be entitled under the Company's Certificate of Incorporation or By-laws, by
contract, as a matter of law, or otherwise.
16. DURATION OF PLAN. Unless earlier terminated, the Plan shall terminate on
the tenth anniversary of the Effective Date, and no Awards shall be granted
under the Plan thereafter.
17. APPLICABLE LAW. The validity, interpretation, and enforcement of this Plan
are governed in all respects by the laws of Delaware and the United States
of America.
18. EFFECTIVE DATE. The Effective Date of this Plan shall be the earlier of (i)
the date on which the Board adopts the Plan or (ii) the date on which the
Shareholders approve the Plan. However, if the Shareholders fail to approve
the Plan within one year after adoption of the Plan by the Board, any Awards
granted under the Plan shall be null and void and of no effect.
B-11
PROXY
GTECH HOLDINGS CORPORATION
ANNUAL MEETING OF SHAREHOLDERS, AUGUST 5, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints MARC A. CRISAFULLI, MICHAEL K. PRESCOTT and
DENISE M. OGILVIE 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 June 7, 2002, at the
Annual Meeting of Shareholders of GTECH Holdings Corporation to be held August
5, 2002, and at any adjournment thereof.
The Board of Directors recommends a vote FOR Proposal No. 1, and FOR
Proposal No. 2. This Proxy, when properly executed, will be voted as specified
on the reverse side. THIS PROXY WILL BE VOTED FOR PROPOSAL NO. 1 AND FOR
PROPOSAL NO. 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
<Table>
Detach Proxy Card Here
+ +
____________________________________________________________________________________________________________________________________
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_____
___________________________________________________________________________________________________________________________
(1) Election of The Rt. Hon. Sir Jeremy Hanley KCMG and
Anthony Ruys as directors of GTECH Holdings Corporation
for a three-year term of office expiring in 2005,
and Lt. Gen. (Ret.) Emmett Paige Jr. as director of
GTECH Holdings Corporation for a one-year term of
office expiring in 2003. (Insert the name(s) of the nominee(s) for whom you do not wish
VOTE FOR ALL, to vote in the space provided.)
WITHHOLD EXCEPT FOR
VOTE FOR AUTHORITY THE FOLLOWING
ALL NOMINEES FOR ALL NOMINEES NOMINEE(S) _____________________________________________________________
___ ___ ___
___ ___ ___
(2) Approval of the 2002 Omnibus Stock Option and Long-Term
Incentive Plan.
FOR AGAINST ABSTAIN
___ ___ ___
___ ___ ___
_______________________________________________________________________________________________________________________________
(3) In their discretion, on such other business as may
properly come before the Meeting.
_________________________________________________________
To change your address, please mark this box. ___
___
To include any comments, please mark this box. ___
___
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
Date _________________________________________________
______________________________________________________
(Share Owner sign here)
______________________________________________________
(Co-Owner sign here)
Votes must be indicated ___
Please Sign, Date and Return the Proxy Card Promptly Using (x) in Black or Blue ink. X
the Enclosed Envelope. ___
____________________________________________________________________________________________________________________________________
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