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):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
[GTECH LOGO]
GTECH HOLDINGS CORPORATION
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 1, 2005
------------------------
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
1, 2005, at the Company's corporate headquarters, 55 Technology Way, West
Greenwich, Rhode Island, for the following purposes:
1. To elect three directors to serve for a three-year term;
2. To ratify the appointment of Ernst & Young LLP, Independent Registered
Public Accounting Firm, as auditors of the Company for the fiscal year ending
February 25, 2006; 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 10, 2005 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,
WALTER G. DESOCIO,
Secretary
June 21, 2005
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
24, 2005, 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 1, 2005 (the
"Meeting"), and at any adjournments thereof.
At the close of business on June 10, 2005, the record date for
determination of shareholders entitled to notice of, and to vote at, the
Meeting, there were outstanding an aggregate of 114,545,219 shares of the
Company's Common Stock, $.01 par value (the "Common Stock"), the Company's only
class of securities entitled to vote at the Meeting.
VOTING AND REVOCABILITY OF PROXIES
Each share of Common Stock is entitled to one vote on all matters to come
before the Meeting. In the election of directors, assuming a quorum is present,
the 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 such Proposal
represents a majority of the outstanding shares of Common Stock entitled to vote
at the Meeting. If a proxy is marked as "withhold authority" or "abstain" on any
matter, or if specific instructions are given that no vote be cast on any
specific matter (a "Specified Non-Vote"), the shares represented by such proxy
will not be voted on such matter. Abstentions on Proposal 2 will be included
within the number of shares present at the Meeting and entitled to vote for
purposes of determining whether such matter has been authorized, but broker
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
ratification of the appointment of Ernst & Young LLP as the Company's auditors
for fiscal 2006 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.
Please allow sufficient time for your proxy to be received before the date
of the Meeting.
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 nine directors
shall constitute the whole Board. The class of directors which comes up for
election at the Meeting consists of three directors each to be elected for a
three-year term. The Board of Directors has nominated, and recommends the
election by the shareholders of, the following three persons to serve as
directors of the Company until the 2008 Annual Meeting, and until their
successors are elected and have qualified, subject to earlier death,
resignation, retirement or removal from office:
Paget L. Alves
The Rt. Hon. Sir Jeremy Hanley KCMG
Anthony Ruys
Messrs. Alves and Ruys and Sir Jeremy Hanley 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 May 6, 2005, 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:
Paget L. Alves, 50.......................................... 2005(2) 2005
President of the Strategic Markets business unit within
the Sprint Business Solutions division of Sprint
Corporation, a leading telecommunications company,
since November 2003. Prior to this, Mr. Alves served as
Chief Operating Officer of Centennial Communications, a
leading provider of regional wireless and integrated
communications services, from February 2002 until March
2003; and President and Chief Executive Officer of
PointOne Telecommunications, Inc., a leading operator
of a Voice Over Internet Protocol-based network, from
June 2000 until December 2001. Previously, Mr. Alves
served as President of the Sales and Support business
unit of Sprint Corporation from August 1996 until June
2000. PointOne Telecommunications, Inc. filed a
petition seeking protection under Chapter 11 of the
Federal bankruptcy laws in September 2001. In 2001,
Unipoint Holdings purchased most of the assets of
PointOne Telecommunications, Inc.
The Rt. Hon. Sir Jeremy Hanley KCMG, 59..................... 2001(3) 2005
Director, Advisory Board, Talal Abu-Ghazaleh
International, a leading group of Arab professional
service firms, from October 2004; Non-Executive
Director of the ITE Group plc, an exhibition and
conference organizer, since February 1998; and Fellow
of the Institute of Chartered Accountants in England
and Wales, since 1969. 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.
</Table>
2
<Table>
<Caption>
PRESENT
DIRECTOR TERM
NAME, AGE AND OCCUPATION(1) SINCE EXPIRES
- --------------------------- -------- -------
Anthony Ruys, 57............................................ 1996 2005
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. Mr. Ruys is also a Member of the
Supervisory Board of Sara Lee/DE International and the
Supervisory Board of ABN AMRO Bank.
DIRECTORS WHOSE TERMS CONTINUE BEYOND THE MEETING:
Christine M. Cournoyer, 53.................................. 2003(3) 2007
Managing Director, Database Solutions, of Harte-Hanks,
Inc., a worldwide provider of direct and targeted
marketing services, since February 2005. Previously,
Ms. Cournoyer was a self-employed private business
consultant from July 2003 to February 2005, and served
as President and Chief Operating Officer of
Lightbridge, Inc., a global provider of mobile and
online business solutions and services, from April 2002
through July 2003. From 1995 to 2002, Ms. Cournoyer
served as a Vice President at IBM, where she was
responsible for worldwide administration, fulfillment,
and IT for IBM's Software Group. Prior to IBM, Ms.
Cournoyer was Senior Vice President of IT and Customer
Operations at Lotus Development Corporation. Earlier in
her career, Ms. Cournoyer held roles of increasing
responsibility at Bolt, Bernanek & Newman, and Wang
Laboratories. Ms. Cournoyer is also a director of the
Stride Rite Corporation.
Robert M. Dewey, Jr., 73.................................... 1995 2007
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. Mr. Dewey is the Company's
non-executive Chairman of the Board of Directors.
Burnett W. Donoho, 65....................................... 1992(4) 2006
Consultant. Mr. Donoho is a director of Smarthome, Inc.
Previously, he served as President and Chief Executive
Officer of Wellbridge Company, formerly Club Sports
International (an operator of upscale health clubs)
from November 1998 to August 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.
</Table>
3
<Table>
<Caption>
PRESENT
DIRECTOR TERM
NAME, AGE AND OCCUPATION(1) SINCE EXPIRES
- --------------------------- -------- -------
Philip R. Lochner, Jr., 62.................................. 2001(3) 2007
Director. Mr. Lochner is a director of Adelphia
Communications Corporation, Apria Healthcare Group
Inc., CLARCOR Inc., Solutia Inc., CMS Energy
Corporation and the Company. 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.
James F. McCann, 53......................................... 2003(3) 2006
Chairman and Chief Executive Officer of
1-800-Flowers.com, Inc., a leading company in the
retail floral and gift industry, since 1986. Mr. McCann
is a Member of the Board of Directors of The Boyds
Collection, Ltd., Hofstra University, Willis Holdings
Group, and Winthrop University Hospital.
W. Bruce Turner, 45(5)...................................... 1999 2006
President and Chief Executive Officer of the Company
since August 2002. Previously, Mr. Turner served as
Chairman of the Company from July 2000 until August
2002, and as the Company's acting Chief Executive
Officer from August 2000 through March 2001. Prior to
this, 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; and Director, Leisure
Equity Research for Raymond James & Associates from
October 1989 until January 1994.
</Table>
- ---------------
(1) Except as otherwise noted, the named individuals have had the occupations
indicated (other than directorships) for at least five years.
(2) Mr. Alves was appointed to serve on the Company's Board of Directors in
January 2005.
(3) Ms. Cournoyer, Messrs. McCann and Lochner and Sir Jeremy Hanley were
appointed by the Board of Directors in July 2003, February 2003, January
2001 and April 2001, respectively, to serve as directors of the Company.
(4) 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.
(5) See "Summary Compensation Table" and "Additional Information -- Employment
Agreements and Arrangements" below.
NOMINATION OF DIRECTORS AND RELATED MATTERS
The Company's Nominating Committee (see below) has recommended to the Board
of Directors that Messrs. Alves and Ruys and Sir Jeremy Hanley be approved, and
they have been approved, as the Board's nominees for election as directors at
the Meeting.
The Nominating Committee assists the Board by identifying individuals
qualified to become Board members; and recommending to the Board the selection
of such qualified individuals as director nominees for election at Annual
Meetings of the shareholders of the Company, and otherwise as candidates to fill
such vacancies in the Board that may occur from time-to-time.
While the Board has delegated the selection and initial evaluation of
potential directors to its Nominating Committee, the Board retains final
approval of all nominations. It is the Board's desire and intention to select
people who are independent and diverse in a very broad sense -- people with a
variety of backgrounds,
4
experiences, cultures and skills who will bring individual talents or contribute
to the needs of the Board and the Company. It is also the Board's objective to
select for nomination candidates who are able to work in a collaborative and
collegial fashion with other directors and senior management, in a manner
consistent with the current operating practices of the Board.
In the event of a vacancy on the Board of Directors, the Nominating
Committee typically engages a third-party search firm to identify potential
candidates for director. Mr. Alves was appointed to fill a vacancy on the Board
in January 2005 having been recommended by a third-party search firm. The
Nominating Committee will consider candidates recommended by other parties,
including shareholders, and will evaluate those proposed candidates in a manner
consistent with the evaluation of all potential nominees based on the
considerations set forth above. Third parties wishing to recommend candidates
for consideration by the Nominating Committee may do so in writing by providing
the recommended candidate's name, biographical data, qualifications and a
statement describing the basis for the recommendation, together with the
recommended candidate's consent to serve if nominated, to the Chairman of the
Nominating Committee at the Company.
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, 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
earlier than 120 days prior to such Annual Meeting and not later than the later
of 90 days prior to such Annual Meeting or 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, if later. 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 seven meetings during fiscal 2005 (which ended
February 26, 2005), and also conferred informally and took action by unanimous
written consent on a number of occasions. The Board has the following standing
committees: an Audit Committee, a Human Resources and Compensation Committee, a
Nominating Committee, and a Corporate Governance and Compliance Committee.
Audit Committee. The Audit Committee's members at the commencement of
fiscal 2005 were Ms. Cournoyer, Messrs. Dewey and Donoho and Sir Jeremy Hanley.
Sir Jeremy Hanley served as Chairman of the Audit Committee during all of fiscal
2005. In August 2004, Mr. Dewey was appointed as a non-voting ex officio member
of each standing committee of the Board of Directors, including the Audit
Committee. 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 Appendix A to this proxy statement. During fiscal 2005
the Audit Committee held eight meetings. See "Additional Information -- Report
of the Audit Committee" below.
Corporate Governance and Compliance Committee. The Corporate Governance
and Compliance Committee's members at the commencement of fiscal 2005 were Mr.
Lochner, Ms. Cournoyer and Sir Jeremy Hanley. Mr. Lochner served as Chairman of
the Corporate Governance and Compliance Committee during all of fiscal 2005. As
noted above, in August 2004, Mr. Dewey was appointed to serve as a non-voting,
ex officio member of each standing committee of the Board of Directors,
including the Corporate Governance and Compliance Committee. The primary
function of the Committee, which held five meetings during fiscal 2005, is to
oversee matters of corporate governance and ethical compliance.
5
Human Resources and Compensation Committee. The Human Resources and
Compensation Committee's members at the commencement of fiscal 2005 were Messrs.
Donoho, Lochner and McCann. Mr. Donoho served as Chairman of the Human Resources
and Compensation Committee during all of fiscal 2005. In August 2004, Mr. Ruys
was appointed to serve on the Human Resources and Compensation Committee, and,
as noted above, Mr. Dewey was appointed to serve as a non-voting ex officio
member of each standing committee of the Board of Directors, including its Human
Resources and Compensation Committee. The Human Resources and Compensation
Committee assists the Board in overseeing the compensation of the Chief
Executive Officer and the compensation practices of the Company, and such other
matters as may be appropriately delegated by the Board from time-to-time. The
Human Resources and Compensation Committee has, among its specific
responsibilities, responsibility for reviewing and recommending to the Board
appropriate base salary, and incentive opportunity and benefits levels for the
Chief Executive Officer; reviewing and recommending (in light of the Chief
Executive Officer's recommendations) base salary, and incentive opportunity and
benefits levels for the Company's other executive officers; directing the
administration of (and, when appropriate, recommending changes to) the Company's
incentive compensation plans; and consulting with management, at its request,
respecting compensation matters. During fiscal 2005, the Human Resources and
Compensation Committee held six meetings, and also conferred informally and took
action by unanimous consent on occasion. See "Additional
Information -- Executive Compensation Report of the Human Resources and
Compensation Committee" below.
Nominating Committee. The Nominating Committee's members at the
commencement of fiscal 2005 were Messrs. Dewey, Donoho, Lochner and McCann. As
noted above, in August 2004, Mr. Dewey was appointed to serve as a non-voting,
ex officio member of each standing committee of the Board of Directors,
including the Nominating Committee. Mr. Dewey served as Chairman of the
Nominating Committee until August 2004, and Mr. McCann has served as its
Chairman since August 2004. The Nominating Committee makes recommendations to
the Board concerning qualified candidates for election as directors. See
"Nomination of Directors and Related Matters" above. The Nominating Committee
held five meetings during fiscal 2005 and conferred informally on a number of
occasions.
Committee Charters. The charter of each of these committees is available
through the corporate governance link on the Investor Relations section of the
Company's web site at www.gtech.com, or by sending a request in writing to the
Investor Relations Department, GTECH Holdings Corporation, 55 Technology Way,
West Greenwich, Rhode Island 02817.
Independence. Under the Company's corporate governance guidelines and the
applicable standards of the New York Stock Exchange, the Company's Board of
Directors has determined that each of its directors, with the exception of Mr.
Turner, is independent.
Attendance at Meetings. During fiscal 2005, all directors attended in
person or by conference telephone at least 75% of all meetings of the Board of
Directors and committees of the Board on which they served, except that Mr. Ruys
attended fewer than 75% of the aggregate of the total number of meetings of the
Board of Directors and committees of the Board on which he served.
Directors are expected to attend the Annual Meeting of Shareholders.
However, the Board recognizes that circumstances may occasionally preclude
attendance by all directors. Each of the Company's directors attended the
Company's 2004 Annual Meeting.
Communications with Directors. Security holders wishing to communicate
with the non-management Directors of the Company should send their
correspondence to: Chairman of the Board, GTECH Holdings Corporation, 55
Technology Way, West Greenwich, Rhode Island 02817. Security holders can also
communicate to the Board by telephone at (401) 392-2200 or by sending an e-mail
to boardofdirectors@gtech.com.
COMPENSATION OF DIRECTORS
Each non-employee director currently receives an annual retainer of $50,000
(or, in the case of a director who serves less than all of a fiscal year, such
as Mr. Alves in fiscal 2005, a pro rata portion of such amount for such year),
and an additional annual fee of $10,000 for each Board committee chaired by such
director. During fiscal 2005, the Board of Directors voted to approve the
payment of an additional fee of $50,000 per year (commencing, with respect to
fiscal 2005, from August 2004) to the Chairman of the Board. In addition,
6
under compensation arrangements for directors that were implemented in fiscal
2004, each sitting director receives annual grants of 3,000 restricted shares
and non-qualified options to acquire 10,000 shares of the Company's Common Stock
and each new director receives, in the year of his joining, non-qualified
options to acquire 15,000 shares of the Company's Common Stock and an initial
grant of 5,000 restricted shares.
On August 6, 2004, in accordance with these compensation arrangements, each
of the seven non-employee directors then in office was granted, under the
Company's 2002 Omnibus Stock Option and Long-Term Incentive Plan (the "2002
Plan"), non-qualified options to acquire shares of the Company's Common Stock at
a per share exercise price of $19.95. Such options become exercisable in four
equal installments on the anniversaries of the date of grant and remain
exercisable for a ten-year term. In those grants, each non-employee director
received options to acquire 10,000 shares. In addition, on August 6, 2004, each
of the seven non-employee directors then in office was granted 3,000 restricted
shares of the Company's Common Stock under the 2002 Plan. Such restricted shares
vest and become non-forfeitable in four equal installments on the anniversaries
of the date of grant.
In accordance with director compensation arrangements applicable to new
directors, on January 25, 2005, Mr. Alves received, upon his election as
director, an initial grant of non-qualified options to acquire 15,000 shares at
a per share exercise price of $23.17, and an initial grant of 5,000 restricted
shares.
Under the Company's corporate governance guidelines, each director is
required to have a substantial personal investment in the Company's Common
Stock. This stock ownership requirement, which is phased in over five years,
ultimately will require each director to own shares of the Company's Common
Stock valued at three times the amount of the then annual fees paid to
directors.
2. RATIFICATION OF THE APPOINTMENT OF AUDITORS
At the Meeting, shareholders will be asked to ratify the selection of Ernst
& Young LLP, Independent Registered Public Accounting Firm, as auditors of the
Company for its current fiscal year (which ends on February 25, 2006).
Ernst & Young LLP have audited the financial statements of the Company for
the period ended February 26, 2005 and the Board of Directors has selected Ernst
& Young LLP as auditors of the Company for its fiscal year ending February 25,
2006, subject to ratification of this selection by the shareholders. Services
provided by Ernst & Young LLP have included work related to the audit of the
financial statements and other related services. (See "Independent Auditors and
Fees," below, for additional information respecting work performed for the
Company by, and fees paid by the Company to, Ernst & Young LLP.)
A representative of Ernst & Young LLP is expected to attend 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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM,
AS AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING FEBRUARY 25, 2006.
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 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 substan-
7
tially 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 2, 2005, certain information
concerning the beneficial ownership of Common Stock by: (i) each person who was
known by the Company to be the beneficial owner of more than 5% of such shares;
(ii) each director and nominee for director of the Company; (iii) each of the
executive officers of the Company named in the Summary Compensation Table
appearing later in this proxy statement; and (iv) all present directors and
executive officers of the Company, as a group. Unless otherwise specified, such
information is based upon information filed by such persons with the SEC or
provided to the Company by such persons or by other sources believed to be
reliable.
<Table>
<Caption>
SHARES
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER OWNED(1) CLASS(1)
- ------------------------ ------------ ----------
Iridian Asset Management LLC................................ 7,582,217 6.6%
276 Post Road West
Westport, CT 06880
W. Bruce Turner, director and executive officer............. 3,078,521 2.7%
Paget A. Alves, director and nominee........................ 5,194 *
Christine M. Cournoyer, director............................ 23,983 *
Robert M. Dewey, Jr., director.............................. 256,331 *
Burnett W. Donoho, director................................. 140,255 *
The Rt. Hon. Sir Jeremy Hanley KCMG, director and nominee... 83,295 *
Philip R. Lochner, Jr., director............................ 85,111 *
James M. McCann, director................................... 48,170 *
Anthony Ruys, director and nominee.......................... 69,435 *
Marc A. Crisafulli, executive officer....................... 209,352 *
Timothy B. Nyman, executive officer......................... 129,164 *
Jaymin B. Patel, executive officer.......................... 459,151 *
David J. Calabro, former executive officer.................. 440,081 *
All present directors and executive officers, as a group (15
persons).................................................. 4,767,773 4.1%
</Table>
- ---------------
* less than 1%
(1) The shareholdings 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 May 2, 2005: Mr. Turner (2,615,000), Mr.
Alves (0), Ms. Cournoyer (7,500), Mr. Dewey (190,000), Mr. Donoho (80,000),
Sir Jeremy Hanley (70,000), Mr. Lochner (70,000), Mr. McCann (20,000), Mr.
Ruys (30,000), Mr. Calabro (210,000), Mr. Crisafulli (77,500), Mr. Nyman
(55,000) and Mr. Patel (205,000). 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.
Turner (262,674), Mr. Alves (5,017), Ms. Cournoyer (10,718), Mr. Dewey
(9,703), Mr. Donoho (9,703), Sir Jeremy Hanley (9,703), Mr. Lochner (9,703),
Mr. McCann (12,790), Mr. Ruys (9,703), Mr. Calabro (124,489), Mr. Crisafulli
(94,706), Mr. Nyman (48,656) and Mr. Patel (138,909).
8
EXECUTIVE COMPENSATION REPORT OF THE HUMAN RESOURCES AND COMPENSATION COMMITTEE
Policies regarding executive compensation are set by the Human Resources
and Compensation Committee (the "Committee") of the Board of Directors, and in
some cases by the full Board, 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 had three members at the
commencement of fiscal 2005: Burnett W. Donoho, Philip R. Lochner, Jr. and James
F. McCann. In August 2004, Mr. Ruys was appointed to serve on the Committee, and
Robert M. Dewey, Jr., the non-executive Chairman of the Board of Directors, was
appointed to serve as a non-voting, ex officio member of the Committee at the
same time. All members of the Committee 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 requires the
Company's Chief Executive Office and Senior Staff executives to own 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. In
furtherance of this policy, the Committee adopted, with effect for fiscal 2004
and subsequent years (including fiscal 2005), the Senior Staff Officer Stock
Ownership Plan, which plan requires the Chief Executive Officer and members of
the Company's senior staff to own Common Stock with a market value equal to or
greater than specified percentages of their respective base salaries. See
"Employment Agreements and Arrangements -- Company Plans" for a more detailed
description of this plan.
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 (as
described below) the annual bonus for executive officers.
Executive Officer Employment Agreements.
One individual named in the Summary Compensation Table below was party to
an employment agreement with the Company that was in force during fiscal 2005.
Mr. Turner, the Company's President and Chief Executive Officer, entered into an
employment agreement with the Company in August 2002 (the "August 2002
Agreement"). Mr. Turner, a director of the Company and the Company's
non-executive Chairman at the time he entered into the August 2002 Agreement,
had served for the period between July 2000 and March 2001 as the Company's
Chairman and acting Chief Executive Officer under an employment agreement
entered into with the Company in August 2000 (the "August 2000 Agreement"),
which agreement was superceded in its entirety by the August 2002 Agreement.
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 and recommendation by the President and Chief
Executive Officer, subject to the approval of the Committee, and consideration
of the principles set forth above and elsewhere in this report.
Principal Elements of Compensation.
Compensation earned in fiscal 2005, as reflected in the Summary
Compensation Table, consisted primarily of salary, and awards of stock options
and restricted stock. (Executive officers also received
9
executive benefits, as well as other benefits offered under Company sponsored
broad-based plans.) No annual bonuses were awarded for fiscal 2005, as described
below. In fiscal 2004 the Committee carefully reviewed executive perquisites and
eliminated them effective in fiscal 2005. As a partial offset to these changes,
the Committee provided the executives with an annual contribution to a
non-qualified income deferral plan.
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 retained by the Committee. Competitive data received by the Committee
includes base salary, total cash compensation 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 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. In fiscal 2005, the Company
implemented a selective salary freeze to attain cost efficiencies in order to
preserve the Company's current position of commercial and financial strength and
to better align with its business objectives. As a result no executive officer
received a base pay increase for performance in fiscal 2005 (which increase
would otherwise have been effective from April 2005.)
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. Turner's August 2002
Agreement provides for Mr. Turner's performance bonus for fiscal 2005 to be
determined within a specified range in accordance with performance metrics
approved by the Committee. Executive officers named in the Summary Compensation
Table without employment agreements are eligible to receive annual bonuses under
the Corporate Financials Management Incentive Plan, which establishes bonuses in
relation to operating income and revenue performance targets for the Company,
and under the Management by Objective Plan, which measures executive performance
against individual goals. Annual performance metrics are established by the
Board of Directors prior to the beginning of each fiscal year. 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 2005) must be (and additional amounts may be) paid in the form
of restricted stock awards. See "Employment Agreements and
Arrangements -- Company Plans" below for more information on the two incentive
bonus programs and the Management Stock Bonus Program. The Company substantially
failed to achieve the performance goals that had been set for fiscal 2005. Due
to this fact, at the recommendation of the Chief Executive Officer, senior
management (including the executive officers named in the Summary Compensation
Table) voluntarily surrendered 100% of bonus compensation earned under the
Corporate Financials Management Incentive Plan and the Management by Objectives
Plan, with respect to fiscal 2005.
Stock-Based Incentive Awards. The Company's 2002 Omnibus Stock Option and
Long-Term Incentive Plan (the "2002 Plan"), which permits the award of stock
options, stock appreciation rights, restricted stock awards and performance
awards, was approved by the shareholders of the Company at the 2002 Annual
Meeting. The 2002 Plan provides for the granting of awards to officers and other
key employees of the Company and its subsidiaries. The principal purpose of the
2002 Plan is to assist the Company in attracting and retaining officers and
other key employees, and to motivate them to increase shareholder value by
enabling them to participate in the value which has been created.
Subject to such limitations as are provided for in the 2002 Plan, the
aggregate number of annual grants to be made under the 2002 Plan, 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 2002 Plan, and predecessor plans of the
Company, generally has been tied to specific
10
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 external compensation practices and internal compensation
equity considerations.
Rationale for Fiscal 2005 Compensation of Mr. Turner.
Effective April 1, 2004, Mr. Turner's annual base salary was $750,000,
subject to annual adjustment, and he is eligible for an annual performance bonus
of up to a maximum of two times his base salary, grants of stock options and
restricted stock awards, and various benefits. Mr. Turner's pay is determined on
a total compensation basis, including base pay, bonus and stock-based awards.
His total compensation is benchmarked against that of individuals in a similar
position at competitors and other companies of a similar size and in similar
industries. This benchmarking is performed by an independent firm for the
Committee. The targets under the Company's bonus plan are set in relation to
operating income and revenue growth and, as applied to Mr. Turner, are identical
to the performance goals applicable generally to other members of senior
management. The specific goals are set at the beginning of each fiscal year and
all management participants in the plan, including Mr. Turner, are accountable
for their achievement. The Company substantially failed to achieve the
performance goals that had been set for fiscal 2005. Due to this fact, Mr.
Turner voluntarily surrendered 100% of his bonus compensation earned for fiscal
2005.
The Committee currently 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).
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, based on the approval of the
shareholders of the Corporate Financials Management Incentive Plan at the
Company's 2003 Annual Meeting, to qualify 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 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.
THE FISCAL 2005 HUMAN RESOURCES AND
COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS
Burnett W. Donoho, Chairman
Philip R. Lochner, Jr.
James McCann
Anthony Ruys
Robert M. Dewey, Jr. (non-voting ex
officio member)
Date: June 20, 2005
11
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning the annual
and long-term compensation paid for fiscal years 2005, 2004 and 2003, to or for:
(i) the Company's Chief Executive Officer; and (ii) each of the Company's four
other most highly-compensated executive officers whose total annual salary and
bonus for fiscal year 2005 exceeded $100,000 (collectively, the "Named
Officers") for services rendered to the Company and its subsidiaries. Figures
set forth in the following table, and in footnotes to this table, reflect the
2-for-1 stock split of Common Stock reflected in the form of a stock dividend
distributed on May 23, 2002 to shareholders of record as of May 16, 2002 and the
2-for-1 stock split of Common Stock reflected in the form of a stock dividend
distributed on July 30, 2004 to shareholders of record as of July 1, 2004.
<Table>
<Caption>
LONG TERM COMPENSATION
---------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------------- --------------------- ---------------------
OTHER RESTRICTED LONG TERM ALL OTHER
ANNUAL STOCK COMPEN- COMPEN-
NAME AND SALARY BONUS* COMPENSATION AWARD(S)* OPTIONS/ SATION SATION
PRINCIPAL POSITION(1) YEAR ($)(2) ($)(3) ($)(4) ($)(5) SARS(6) PAYOUTS ($)(7)
- --------------------- ---- ------- ------- ------------ ---------- -------- --------- ---------
W. Bruce Turner............ 2005 746,154 -- 77,742 2,321,976 280,000 -- 6,352
President and 2004 696,154 -- 107,755 3,412,913 300,000 -- 89,431
Chief Executive Officer 2003 493,846 4 448,467 1,794,421 930,000 -- 70,474
David J. Calabro........... 2005 488,077 -- 70,000 1,307,020 200,000 -- 7,961
Chief Operating Officer 2004 463,846 527,031 89,623 2,118,752 300,000 -- 63,309
2003 422,116 666,009 133,702 926,764 300,000 -- 76,683
Jaymin B. Patel............ 2005 380,000 -- 72,597 902,280 104,000 -- 6,180
Senior Vice President, 2004 353,846 330,575 66,240 2,179,644 180,000 -- 49,178
Chief Financial Officer 2003 322,692 313,126 104,810 966,220 240,000 -- 59,285
Timothy B. Nyman........... 2005 343,462 -- 70,000 462,740 39,000 -- 7,061
Senior Vice President, 2004 323,077 395,644 68,695 709,445 100,000 -- 43,666
Global Services 2003 287,692 364,715 53,576 159,545 80,000 -- 48,547
Marc A. Crisafulli......... 2005 340,000 -- 66,258 611,265 65,000 -- 6,226
Senior Vice President, 2004 306,154 -- 81,071 1,788,325 90,000 -- 38,371
Gaming Solutions 2003 278,462 154,342 97,550 581,773 140,000 -- 44,200
</Table>
- ---------------
* No Named Officer received a bonus for fiscal 2005. For each Named Officer,
all or a portion of the bonus paid for fiscal 2004 and 2003 was paid in the
form of Restricted Stock and is not reflected in the "Bonus" column. The
bonus paid in the form of Restricted Stock is reflected in the "Restricted
Stock Awards" Column. As described in more detail below, the Named Officers
are required to take a portion of their bonuses in the form of restricted
stock, and may also elect to take all or any portion of the remainder in
restricted stock.
(1) Sets forth the names and principal positions of the Named Officers as of the
end of fiscal 2005. In April 2005, after the close of fiscal 2005, Mr.
Calabro elected to retire from the Company with effect from May 15, 2005.
(2) Includes salary deferred under the Company's 401(k) retirement plan (the
"Retirement Plan") and its Income Deferral Plan 1998.
(3) Excludes the fair market value of Restricted Shares of the Company's Common
Stock (Restricted Shares) awarded under the Company's Management Stock Bonus
Program to all of the Named Officers, in lieu of a portion of their
respective cash bonuses. See "Employment Agreements and Arrangements --
Company Plans" 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 2004 and fiscal 2003
are 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 provided 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
12
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, and the Company's 1992 supplemental retirement plan
(the "SRP"). Starting with respect to fiscal 2005, the Company eliminated
the Executive Perquisites Program, the auto allowance and contributions
under the SRP for the Named Officers and, as a partial offset, the Company
now provides the Named Officers with an annual contribution to a
non-qualified income deferral plan. With respect to fiscal 2005, the Named
Officers were permitted to receive payments under the Executive Perquisites
Program in lieu of receiving a portion of the contribution to the
non-qualified income deferral plan that they otherwise would have received.
The Company made payments under the Executive Perquisites Program, prior to
tax gross-up, of $27,500 to Mr. Crisafulli in fiscal 2005 and to each of the
Named Officers in fiscal 2004 and fiscal 2003, except that Mr. Nyman
received $6,346 in fiscal 2003. The Company made a contribution to a non
qualified income deferral plan for each of the Named Officers in fiscal 2005
in the amount of $70,000, except that Mr. Crisafulli's contribution was
$15,000. In addition, the Company provided taxable fringe benefits to the
Named Officers in the following amounts: Mr. Turner -- $3,326 (2005) (all
paid with respect to relocation expenses), $48,052 (2004) (including $34,302
paid with respect to relocation expenses) and $180,276 (2003) (including
$71,526 paid with respect to relocation expenses and a one-time payment of
$100,000 to Mr. Turner under the terms of his August 2002 employment
agreement); Mr. Calabro -- $34,678 (2004) and $35,987 (2003); Mr. Patel --
$2,597 (2005), $11,295 (2004) and $8,863 (2003); Mr. Crisafulli -- $26,126
(2004) and $16,888 (2003); and Mr. Nyman -- $13,750 (2004) and $11,650
(2003). The gross-up payments for taxes were: Mr. Turner -- $4,416 (2005),
$32,203 (2004) and $240,691 (2003); Mr. Calabro -- $27,445 (2004) and
$70,215 (2003); Mr. Patel -- $27,445 (2004) and $68,447 (2003); Mr.
Crisafulli -- $23,758 (2005), $27,445 (2004) and $53,162 (2003); and Mr.
Nyman -- $27,445 (2004) and $35,580 (2003).
(5) Represents the value of awards of Restricted Shares to the Named Officers
under the Company's 2002 Omnibus Stock Option and Long-Term Incentive Plan
and the 2000 Omnibus Stock Option and Long-Term Incentive Plan
(collectively, the "Plans"), calculated (except as provided below with
respect to the Company's Management Stock Bonus Program) as of the date of
award. Except as provided below with respect to application of the
Management Stock Bonus Program for fiscal 2004 and 2003, none of the Named
Officers receiving grants under the Plans was required to make any payment
with respect to such grant, and each Named Officer will have the 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.
April 2005 Restricted Share Awards (Fiscal 2005). This column includes the
value, as of the date of grant, of awards of Restricted Shares under the
Plans in fiscal 2006 (April 2005) which vested upon grant. The numbers, and
values, of such Restricted Shares (which are subject to restrictions on
transfer for two years from the date of grant) are as follows: Mr.
Turner -- 22,800 Restricted Shares, valued at $539,676; Mr. Patel -- 8,000
Restricted Shares, valued at $189,360; Mr. Nyman -- 7,000 Restricted Shares,
valued at $165,690; and Mr. Crisafulli -- 7,000 Restricted Shares, valued at
$165,690.
The Company's Management Stock Bonus Program (Fiscal 2004 and 2003). This
column includes the value of awards of Restricted Shares granted under the
Plans pursuant to the Company's Management Stock Bonus Program, valued as of
the last day of the fiscal year with respect to which the award was made. No
Named Officer received an incentive bonus for fiscal 2005, and, accordingly,
the Company's Management Stock Bonus Program did not apply to fiscal 2005
with respect to the Named Officers. Under this program, as in effect for
fiscal 2004 and 2003, each executive officer of the Company, including each
Named Officer, was required to receive a portion of his or her incentive
bonus in the form of Restricted Shares (the "Mandatory Stock Bonus Shares"),
and could elect to receive an additional portion of his or her incentive
bonus in Restricted Shares (the "Optional Stock Bonus Shares") which vest
immediately upon grant, but are subject to transfer restrictions for either
two or three years from the date of award. In addition, under the Company's
Management Stock Bonus Program, each Named Officer received additional
grants of Restricted Shares ("Supplementary Award Shares"), which vest in
two or three years, as the case may be, assuming that the executive is
continuously employed by the
13
Company during the vesting period. All such grants of Restricted Shares are
subject to the terms and conditions of the Management Stock Bonus Program
which are described more fully in "Employment Agreements and
Arrangements -- Company Plans," below. Additional information respecting
awards of Restricted Shares under the Management Stock Bonus Program to the
Named Officers with respect to fiscal 2003 and 2004 (including the vesting
schedule of all such awards which vest in under three years) is as follows:
<Table>
<Caption>
FISCAL 2003 FISCAL 2004
---------------------------------------------- ----------------------------------------------
TOTAL NO. OF NUMBER OF NUMBER OF TOTAL NO. OF TOTAL NO. OF NUMBER OF
RESTRICTED RESTRICTED RESTRICTED RESTRICTED RESTRICTED RESTRICTED
SHARES SHARES VESTING SHARES VESTING SHARES SHARES VESTING SHARES VESTING
NAMED OFFICER AWARDED UPON GRANT(A) IN TWO YEARS AWARDED UPON GRANT(A) IN TWO YEARS
------------- ------------ -------------- -------------- ------------ -------------- --------------
W. Bruce Turner...... 73,470 55,800 13,950 59,284 45,028 11,254
David J. Calabro..... 15,280 12,224 3,056 15,452 11,964 2,988
Jaymin B. Patel...... 29,884 22,990 5,746 14,630 11,256 2,812
Timothy B. Nyman..... 11,714 9,168 2,292 6,010 4,704 1,176
Marc A. Crisafulli... 22,187 16,994 4,248 19,726 14,984 3,744
</Table>
(a) Shares vesting upon grant represent restricted stock awarded to the
individual in lieu of performance based cash bonuses during the fiscal
year, consisting of the Mandatory Stock Bonus Shares and the Optional
Stock Bonus Shares described above. For purposes of the above table,
the difference between (i) total restricted shares awarded and (ii) the
sum of the shares vesting upon grant and the shares vesting in two
years, represents the number of restricted shares vesting in three
years. In addition, Messrs. Turner, Patel, Nyman and Crisafulli elected
to extend the vesting period of certain of the shares listed above from
two years to three years in order to receive the optional 25% discount
award (rather than the optional 20% discount award applicable to shares
vesting over two years), all as more specifically described under
"Employment Agreements and Arrangements -- Company Plans."
Restricted Shares Held as of End of Fiscal 2005. As of February 26, 2005,
the last day of fiscal 2005, the aggregate number and value of Restricted
Shares held by each of the respective Named Officers were as follows: Mr.
Turner -- 377,092 Restricted Shares, valued at $8,944,617; Mr.
Calabro -- 243,749 Restricted Shares, valued at $5,781,725; Mr.
Patel -- 228,082 Restricted Shares, valued at $5,410,094; Mr.
Nyman -- 54,082 Restricted Shares, valued at $1,282,828; and Mr.
Crisafulli -- 111,810 Restricted Shares, valued at $2,652,140.
(6) Represents the number of shares of Common Stock underlying stock options
granted pursuant to the Company's 1997 Stock Option Plan, 2000 Omnibus Stock
Option and Long Term Incentive Plan and 2002 Omnibus Stock Option and Long
Terms Incentive Plan. See "Option Grants in Last Fiscal Year" below. Prior
to fiscal 2004, stock option grants vested in equal 25% increments on each
of the first four anniversaries of the date of grant. Beginning in fiscal
2004, grants of stock options for senior staff members vest in 25%
increments on the second through the fifth anniversaries of the date of
grant instead.
(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 401(k) Plan, and amounts provided under the Company's Supplemental
Retirement Plan ("SRP"), which was discontinued starting in fiscal 2005. The
Company has discontinued the payment of profit sharing under the 401(k) Plan
and the annual contribution under the SRP. During or with respect to fiscal
2005, the Company: (i) paid insurance premiums with respect to life
insurance maintained on the lives of the Named Officers in the following
amounts: Mr. Turner -- $779; Mr. Calabro -- $2,232; Mr. Patel -- $468; Mr.
Crisafulli -- $468; and Mr. Nyman -- $1,194; and (ii) made matching
contributions under the 401(k) Plan for each of the named officers in the
following amounts: Mr. Turner -- $5,573; Mr. Calabro -- $5;729; Mr.
Patel -- $5,712; Mr. Crisafulli -- $5,758; and Mr. Nyman -- $5,867.
14
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning individual
grants of stock options made during fiscal 2005 to Named Officers. All grants of
stock options reflected in the following table were made pursuant to the
Company's 1997 Stock Option Plan, 2000 Omnibus Stock Option and Long-Term
Incentive Plan or 2002 Omnibus Stock Option and Long-Term Incentive Plan, and
are subject to the terms of such Plans.
<Table>
<Caption>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE VALUE
------------------------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF SHARES % OF OPTIONS OF STOCK PRICE APPRECIATION
OF COMMON STOCK GRANTED TO EXERCISE OR FOR OPTION TERM(2)
UNDERLYING EMPLOYEES IN BASE PRICE EXPIRATION ----------------------------
NAME OPTIONS GRANTED FISCAL YEAR ($/SH) DATE 5% 10%
- ---- ---------------- --------------- ----------- ---------- ------------ -------------
W. Bruce Turner...... 280,000 22.55% 29.53 4/4/2014 $5,199,952 $13,177,700
David J. Calabro..... 200,000 16.11% 29.53 4/4/2014 $3,714,252 $ 9,412,643
Jaymin B. Patel...... 104,000 8.38% 29.53 4/4/2014 $1,931,411 $ 4,894,574
Timothy B. Nyman..... 39,000 3.14% 29.53 4/4/2014 $ 724,279 $ 1,835,465
Marc A. Crisafulli... 65,000 5.24% 29.53 4/4/2014 $1,207,132 $ 3,059,109
</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.
(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 2005.
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 2005, and the value of all unexercised stock
options held by Named Officers, as well as the number of shares of Common Stock
of the Company underlying unexercised stock options held by Named Officers, as
of February 26, 2005, the last day of fiscal 2005:
<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
- ---- ------------ ----------- ----------- ------------- ----------- -------------
W. Bruce Turner............ 0 0 2,540,000 770,000 37,284,100 5,300,100
David J. Calabro........... 240,000 2,967,219 75,000 575,000 930,300 3,737,100
Jaymin B. Patel............ 155,000 2,370,867 105,000 354,000 1,040,100 2,608,000
Timothy B. Nyman........... 68,000 852,178 20,000 144,000 241,400 938,100
Marc A. Crisafulli......... 77,500 963,725 35,000 187,500 422,450 1,236,700
</Table>
- ---------------
(1) All stock options reflected in this table were non-qualified options granted
pursuant to the Company's 1994 Stock Option Plan, 1997 Stock Option Plan,
2000 Omnibus Stock Option and Long-Term Stock Option Plan or 2002 Omnibus
and Long-Term Incentive Plan, and are subject to the terms of such plans.
(2) Calculated based upon the aggregate of the difference between: (i) $23.72,
which was the per-share closing price of the Common Stock on the New York
Stock Exchange on February 25, 2005, the last trading day of the Company's
2005 fiscal year, and (ii) the per-share exercise prices for those stock
options which were in-the-money on that date.
15
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets forth as of February 26, 2005, the last day of the
Company's fiscal 2005, 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
NUMBER OF SHARES TO FOR FUTURE ISSUANCE
BE ISSUED UPON WEIGHTED-AVERAGE UNDER EQUITY
EXERCISE OF EXERCISE PRICE OF COMPENSATION PLANS
OUTSTANDING OUTSTANDING (EXCLUDING SHARES
OPTIONS, WARRANTS OPTIONS, WARRANTS REFLECTED IN FIRST
PLAN CATEGORY AND RIGHTS AND RIGHTS COLUMN)
- ------------- ------------------- ----------------- -------------------
Equity compensation plans approved by the
Company's shareholders.................. 8,142,416 $13.50 6,644,644
Equity compensation plans not approved by
the Company's shareholders.............. 0 N/A 0
Total..................................... 8,142,416 $13.50 6,644,644
</Table>
HUMAN RESOURCES AND COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 2005, decisions regarding executive compensation were made by
the Human Resources and Compensation Committee, and in some cases by the full
Board, subject to the terms of applicable employment agreements and ratification
by the full Board in certain circumstances. The Human Resources and Compensation
Committee's members at the commencement of fiscal 2005 were Messrs. Donoho,
Lochner and McCann. In August 2004, Mr. Ruys was appointed to serve on the
Committee, and Mr. Dewey was appointed to serve as a non-voting ex officio
member of each standing committee of the Board of Directors, including the Human
Resources and Compensation Committee. See "Information Concerning Meetings and
Certain Committees" and "Executive Compensation Report of the Human Resources
and Compensation Committee" above. During fiscal 2005, no relationship existed
that requires reporting under this section between an executive officer of the
Company and any other entity which had an executive officer or director who
served on the Human Resources and Compensation Committee or the Board of the
Company.
EMPLOYMENT AGREEMENTS AND ARRANGEMENTS
During fiscal 2005, the Company was party to an employment agreement with
W. Bruce Turner, who serves as the Company's President and Chief Executive
Officer under an employment agreement entered into in August 2002.
Mr. Turner
In August 2002, following the departure of the Company's previous President
and Chief Executive Officer, the Company and Mr. Turner entered into an
employment agreement that superceded in its entirety his earlier employment
agreement, which had been scheduled to terminate in accordance with its terms on
August 9, 2002. The August 2002 agreement provides for Mr. Turner to serve as
President and Chief Executive Officer of the Company for a term of three years,
subject to earlier termination as provided in the agreement. Mr. Turner's August
2002 employment agreement also provides for Mr. Turner to receive a one-time
after tax payment of $100,000, an annual base salary (as adjusted for fiscal
2005) of $750,000 subject to annual review, as well as an annual performance
bonus of up to a maximum of two times his base salary, and various benefits,
including, without limitation, relocation expense reimbursement, an automobile
allowance (which has since been discontinued for Mr. Turner and other senior
executives), life insurance, medical coverage, participation in the Company's
Executive Perquisites Plan (which plan has since been eliminated), and other
deferred compensation plans and programs in a manner similar to other senior
executives at the Company, as well as certain professional services. The August
2002 employment agreement provides for
16
Mr. Turner's performance bonus to be determined with respect to each fiscal year
during the term of the agreement (commencing with fiscal 2003) in accordance
with the performance metrics (and, with respect to fiscal years after fiscal
2003, also in accordance with the management business objectives included in the
Company's management incentive plan) approved annually by the Human Resources
and Compensation Committee or the Board for all senior executives of the
Company. Mr. Turner's August 2002 employment agreement states that his target
annual performance bonus will be 100% of base salary, and that his performance
bonus shall be paid in a mix of cash and discounted restricted stock (which
shall not mandatorily exceed 20% of the performance bonus with respect to 2003,
and 30% of the performance bonus with respect to all other fiscal years) in such
proportions and, generally on such terms, as the Human Resources and
Compensation Committee, in its discretion, may decide.
Pursuant to the terms of the August 2002 employment agreement, on September
6, 2002, Mr. Turner was granted under the Company's 2002 Omnibus Stock Option
and Long-Term Incentive Plan (the "2002 Plan") options to purchase (on a
pre-split adjusted basis) 265,000 shares of Common Stock, at a (pre-split
adjusted) per-share option exercise price of $19.36, the fair market value of a
share of Common Stock on the date of grant, and (on a pre-split adjusted basis)
41,000 shares of restricted stock. As specified in the August 2002 employment
agreement, the options and restricted shares granted are scheduled to vest in
equal installments on each of the first second, third and fourth anniversaries
of the date of grant. Mr. Turner is eligible for consideration by the Human
Resources and Compensation Committee for subsequent annual incentive
compensation grants under the 2002 Plan, or any successor plan, in the
discretion of the Human Resources and Compensation Committee.
Under the August 2002 agreement, if Mr. Turner's employment with the
Company is terminated by reason of his death, discharge for cause (as defined in
the agreement) or resignation for other than good reason (as defined in the
agreement), Mr. Turner (or his estate, as the case may be) is entitled to his
base salary through the effective date of such termination, any accrued but
unpaid performance bonus for the prior fiscal year, and any other amounts to
which Mr. Turner would be 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 under the terms of the August 2002 agreement to receive: (i) his base
salary through the effective date of termination, (ii) an amount equal to one
year of average cash compensation (defined as meaning, except as specified
below, the average base salary and performance bonus paid or payable to Mr.
Turner for the most recent complete fiscal year or fiscal years (up to three)),
(iii) any accrued but unpaid performance bonus in respect of the prior fiscal
year, (iv) a prorated performance bonus payable in respect of the fiscal year of
termination, if applicable, and (v) any other amounts to which Mr. Turner would
be entitled under the employment agreement up to the effective date of
termination.
Mr. Turner's August 2002 employment agreement provides that if his
employment is terminated by the Company for any reason other than cause, or in
the event that he resigns for good reason, within eighteen months after a change
in control (as defined in the employment agreement), the Company will pay Mr.
Turner a lump sum cash payment in lieu of the severance payments summarized
above in an amount equal to 2.99 times the sum of (i) Mr. Turner's then current
annual base salary in effect at the date of termination, plus (ii) the total
performance bonus paid or payable to Mr. Turner from the Company for the most
recent full fiscal year of the Company, plus (iii) the maximum amount allowable
under the Executive Perquisite Program during the most recent calendar year of
the Company. In addition, the Company shall pay Mr. Turner within 10 days after
such termination (i) his base salary accrued through the date of such
termination at the rate in effect immediately prior to such date; (ii) any
accrued but unpaid performance bonus for the prior fiscal year; (iii) any
prorated performance bonus up to the date of such termination calculated by
reference to Mr. Turner's target performance bonus, as determined by the Human
Resources and Compensation Committee for the current fiscal year; and (iv) any
other amounts to which he is entitled under the terms of the employment
agreement up to the date of such termination.
In addition, in the event of the termination of his employment by reason of
a change of control, Mr. Turner (together with, as applicable, his beneficiaries
and dependents) will become fully vested in, and would continue for three years
to participate fully in (at no additional cost to Mr. Turner) all life insurance
17
plans, retirement plans, accident and health plans and other welfare plans
maintained or sponsored by the Company prior to termination. The Company is also
required to pay Mr. Turner an amount equal to the sum of all benefits accrued
under the Company's non-qualified plans, and 2.99 times the average benefit
accrued and/or Company contributions made to the retirement plans and
non-qualified plans over the last three years. Mr. Turner's August 2002
agreement further provides for the payment to Mr. Turner of amounts equal to any
excise tax due as any payment or benefit constituting a "parachute payment"
within the meaning of Section 280G of the Internal Revenue Code of 1986 (the
"Code"), together with amounts necessary to gross-up Mr. Turner for any taxes
due with respect thereto.
Mr. Turner agrees under the terms of the August 2002 agreement: (i) during
the term of the agreement and for three years thereafter, to provide reasonable
assistance to the Company in connection with any litigation and/or governmental
investigation or review involving the Company (subject to receiving reasonable
compensation and reimbursement of expenses), (ii) to not knowingly use for his
own benefit or disclose to any person any confidential information relating to
the Company (subject to standard exceptions), (iii) that all intellectual
property rights relating to the business of the Company developed during the
period of his employment with the Company are owned by the Company; and (iv)
during the term of the agreement and for two years thereafter, not to engage in
any lottery business (as defined in the agreement) anywhere in the world, or
disturb or interfere with any business relationship between the Company and its
customers, suppliers or business associates (including its employees).
Other Named Officers
The Company does not presently have formal employment agreements with the
other current Named Officers, although the Company and these executives (and
certain other executives) have entered into: (i) change in control agreements,
with respect to employment arrangements in the event of a change in control of
the Company and (ii) severance agreements, with respect to the termination of
such executives' employment by the Company in circumstances other than a change
in control of the Company.
The change in control agreements referenced above provide for three-year
employment terms for the covered executives commencing upon the date a change in
control occurs (as defined in the agreements), or earlier in certain
circumstances where actions are taken in anticipation of a change in control.
During 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, and 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 with 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
18
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.
The severance agreements referenced above provide that in the event that
the Company terminates the executive's employment (other than for cause (as
defined in the severance agreement) or by reason of the executive's death,
disability, or resignation), the Company shall, for a period of 12 months after
termination, continue paying executive's base salary and providing executive
with specified insurance benefits.
Company Plans
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. Effective March 1, 2003, the Company has decreased its matching
contribution for the United States Plan, in order to align with competitive
practice, such that the Company will match up to 100% of the first 3% of the
employee's base pay that the employer elects to defer. 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 own contributions to the Plans and in one year from
the date of hire for company contributions. Benefits under the Plans generally
will be paid to participants upon retirement or in certain other limited
circumstances. Subject to receiving a determination from the Puerto Rico
Internal Revenue Service, the Company anticipates terminating its Plan for its
Puerto Rico employees by December 31, 2005. The Company also had 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. The Supplemental Retirement Plan was intended to provide
additional retirement benefits to those executive officers whose Company profit
sharing contribution to the 401(k) plan is limited as a result of limitations on
compensation set forth in the Internal Revenue Code. Beginning in fiscal 2005,
with the elimination of profit sharing as approved by the Board of Directors,
the Supplemental Retirement Plan is also being eliminated for executive
officers, including the Named Officers. For fiscal 2004, the Supplemental
Retirement Plan funds were automatically transferred to the executive's Income
Deferral Plan account.
Incentive bonuses for senior staff, including the Named Officers, are
calculated under two distinct plans: Under the Corporate Financials Management
Incentive Plan, which was approved by the Company's shareholders at the 2003
Annual Meeting, specific annual performance targets for the Company are
established. Ninety percent of the bonus payable to a participant under the
Corporate Financials Management Incentive Plan is determined by reference to
achievement against an operating income performance target, and the remaining
ten percent of bonus payable to a participant under the plan is determined by
reference to achievement against a revenue growth performance target. Target
bonuses are set for each individual, and in no event will the target bonus
exceed 90% of the individual's base salary, or will the maximum bonus payable
exceed two times the amount of the target bonus, or a maximum amount of the
lesser of 180% of the individual's base salary or $1,900,000. The second
component of the Company's incentive bonus policy, the Management by Objective
Plan (or MBO Plan), is based upon achievement against individual goals. As
19
presently structured, bonuses under the MBO Plan may not exceed 10% of the
participant's base salary with regard to a fiscal year.
Under the Company's Management Stock Bonus Program, each executive officer
is required to receive a specified percentage of his or her bonus for a given
fiscal year in the form of restricted shares of the Company's Common Stock. In
addition, each executive officer is generally provided with the opportunity to
elect to receive any portion of the remainder of his or her bonus for such
fiscal year in the form of restricted shares of the Company's Common Stock. Both
the mandatory stock bonus and the optional stock bonus generally vest
immediately upon grant, and are restricted from sale or transfer for a two (2)
year period from the effective date of the award.
The following paragraph describes the terms of certain additional awards of
restricted shares under the Company's Management Stock Bonus Program.
Under the terms of the Company's Management Stock Bonus Program, each
executive officer is generally eligible to receive a supplemental award of
restricted shares, determined using a 20% discount from the original stock price
as applied to the mandatory stock bonus (the "mandatory 20% discount award").
The mandatory 20% discount award generally vests two years after the effective
date of the award, if the executive officer is continuously employed by the
Company for such two year period. If the executive officer elects with respect
to a given fiscal year to receive an optional stock bonus, he or she is
generally awarded a supplemental stock bonus calculated using a 20% discount
from the original stock price (the "optional 20% discount award"). The optional
20% discount award will also vest two years from the effective date of the
award, provided that the executive officer is continuously employed by the
Company for such two year period and has retained ownership, without any
transfer or assignment, of all such restricted shares granted under the
Management Stock Bonus Program. Further, if the executive officer elects to
retain the mandatory and optional stock bonus awards for an additional third
year, he or she is generally eligible to receive a supplemental stock bonus
calculated using a 25% discount from the original stock price (the "optional 25%
discount award"). The optional 25% discount award will generally vest if the
executive officer remains continuously employed by the Company for a three year
period from the effective date of the award and has retained ownership, without
transfer or assignment, of all such restricted shares granted under the
Management Stock Bonus Program during that period.
Under the terms of the Company's Management Stock Bonus Program if the
executive officer is terminated for cause or resigns before the applicable
restriction (i.e., two or three years) lapses, the mandatory 20% discount award,
optional 20% discount award and optional 25% discount award are generally
forfeited. If the employment relationship terminates for any other reason, stock
awarded under the optional 20% discount award and optional 25% discount award
will vest, and the restrictions on sale or transfer of the stock continue for
the two or three year period. The shares issued to the executive officers
pursuant to the Company's Management Stock Bonus Program are funded out of
shares of the Company's Common Stock held in treasury. All grants of shares are
subject to the terms and conditions of applicable agreements with each executive
officer and the provisions of the Company's 2002 Plan. See "Summary Compensation
Table" above.
No executive officer of the Company received an incentive bonus for fiscal
2005 and, accordingly, no awards were made for fiscal 2005 under the Company's
Corporate Financials Management Incentive Plan or Management Stock Bonus Program
to executive officers of the Company.
After the close of fiscal 2003, the Human Resources and Compensation
Committee adopted the Senior Staff Officer Stock Ownership Plan (the "Stock
Ownership Plan") with effect from and after fiscal 2004. Under the terms of the
Stock Ownership Plan, the Company's Chief Executive Officer and its senior staff
(which include the Company's Senior Vice President, Global Business Development
and Public Affairs; Senior Vice President and Chief Financial Officer; Senior
Vice President, Gaming Solutions; Senior Vice President, General Counsel and
Secretary; Senior Vice President, Global Services; Senior Vice President, Chief
Technology Officer; and such other executives as may be from time-to-time
designated as members of senior staff) are required to own Common Stock with a
market value equal to, or greater than, a specified percentage of their
respective base salaries. By the end of fiscal 2005, the Chief Executive Officer
was required to own Common Stock with a market value of not less than 80% of his
base salary, while other Stock
20
Ownership Plan participants are required to own Common Stock with a market value
of not less than 40% of their respective base salaries (unless such other
participants were not members of senior staff at the start of fiscal 2004). The
stock ownership requirements of the Stock Ownership Plan (expressed as a
percentage of each participant's base salary) increase in ratable annual
increments, until, with respect to fiscal 2008 and subsequent years, the Chief
Executive Officer is required to own Common Stock with a market value of not
less than 200% of his base salary, while other Stock Ownership Plan participants
are required to own Common Stock with a market value of not less than 100% of
their respective base salaries.
Compliance with these stock ownership requirements shall be tested as of
the close of each fiscal year based upon then-existing Common Stock values and
base salaries, and shall be monitored through a process by which the Company's
Legal Department must pre-approve sales of Common Stock by Stock Ownership Plan
participants. At the end of fiscal 2005, all Stock Ownership Plan participants
met or exceeded the holding requirements applicable to them for such year.
The terms of the Stock Ownership Plan permit the Human Resources and
Compensation Committee to grant exceptions to the requirements of the Stock
Ownership Plan in cases of hardship or other exceptional circumstances.
SHAREHOLDER RETURN PERFORMANCE GRAPH
The graph set forth below compares, for the period February 27, 2000
through February 26, 2005 (the end of the Company's 2005 fiscal year), the
cumulative total return to holders of Common Stock of the Company with the
cumulative total return of the Standard & Poor's Composite 500 Index (the "S&P
500"), and a peer group index ("New Peer Group") of four companies selected by
the Company consisting of Alliance Gaming Corporation (diversified worldwide
gaming company), International Game Technology (gaming equipment manufacturer
and supplier of on-line lottery goods and services), Scientific Games Holdings
Corporation (supplier of paper lottery tickets and on-line lottery goods and
services), and WMS Industries Inc. (gaming equipment manufacturer). The graph
also sets forth for the period February 27, 2000 through February 26, 2005, the
cumulative total return of the two peer group indices selected by the Company
for use in the Shareholder Return Performance Graph included in the Company's
proxy statement for its 2004 Annual Meeting of Shareholders. The first of these
peer group indices ("Old Peer Group 1") consists of International Lottery &
Totalizator Systems, Inc. (supplier of online lottery and totalizator goods and
services), International Game Technology, and Scientific Games Holdings
Corporation. The second such peer group index ("Old Peer Group 2") consists of
Electronic Data Systems (provider of global information technology services),
First Data Corporation (provider of electronic commerce and payment services),
FiServ Inc. (full-service provider of integrated data management services and
information management systems) and Global Payments Inc. (electronic transaction
processing services). The Company elected to use a peer group index rather than
a published industry or line of business index because the Company is not aware
of any such published index of companies which is comparable to the Company in
terms of its businesses. The Company selected the New Peer Group for this year's
Shareholder Return Performance Graph because it believes that the companies
included in this peer group index are more directly comparable to the Company's
businesses than are the companies, taken together, in either Old Peer Group 1 or
Old Peer Group 2. For the purposes of the peer group indices, all companies have
been weighted based upon their relative market capitalizations.
21
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG GTECH HOLDINGS CORPORATION, THE S&P 500 INDEX,
AND THREE PEER GROUPS
(PERFORMANCE GRAPH)
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------------
Cumulative Total Return
--------------------------------------------------------------
2/00 2/01 2/02 2/03 2/04 2/05
- ---------------------------------------------------------------------------------------------------------------------
GTECH HOLDINGS CORPORATION 100.00 134.95 266.70 291.00 593.95 478.50
S&P 500 100.00 91.80 83.07 64.23 88.97 95.18
OLD PEER GROUP 1 100.00 275.39 361.74 407.37 842.23 705.28
OLD PEER GROUP 2 100.00 118.66 134.26 80.70 97.87 100.84
NEW PEER GROUP 100.00 258.07 353.88 381.12 777.11 639.89
</Table>
Copyright (sec.) 2002, Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. All rights reserved.
www.researchdatagroup.com/S&P.htm
* The above graph assumes an investment of $100 in the Company, the S&P 500
companies and in the New Peer Group companies and in the companies in Old Peer
Group 1 and Old Peer Group 2 on February 27, 2000, 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 25, 2005 (the last trading day in the Company's 2005
fiscal year) was $23.72. On June 20, 2005, such closing price was $29.00.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors of GTECH Holdings Corporation
(the "Audit Committee") is composed of four non-employee directors of the
Company who have been determined by the Board to be independent, as independence
for audit committee members is defined in the New York Stock Exchange Listed
Company Manual and by applicable Securities and Exchange Commission rules. The
Board has further determined that each member of the Audit Committee possesses
the financial literacy and experience required by New York Stock Exchange and
Securities and Exchange Commission and that, in
22
addition, each of Mr. Donoho and Sir Jeremy Hanley is an "audit committee
financial expert," as defined by Securities and Exchange Commission rules. The
Audit Committee operates under a written Audit Committee Charter adopted by the
Board. A copy of the Audit Committee Charter in effect during fiscal 2005 was
attached as an appendix to the Company's proxy statement sent to its
shareholders in respect to its 2004 Annual Meeting. A copy of the Audit
Committee Charter in effect with respect to fiscal 2006 is attached as an
appendix to this proxy statement. The Audit Committee held eight meetings during
the fiscal year.
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 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 2005 audited
consolidated financial statements, including the overall quality, not
just the acceptability, of the Company's accounting policies, the
reasonableness of significant judgments; and the clarity of the
disclosures in the financial statements.
- 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.
- Discussed with the Company's internal and independent auditors the
overall scope and plans for their respective audits. The Committee meets
with the internal and independent auditors, with and without management
present, to discuss the results of their examinations, their evaluations
of the Company's internal control, and the overall quality of the
Company's financial reporting.
- 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 2005 be included in the Company's Annual Report on Form
10-K filed with the Securities and Exchange Commission.
Audit Committee:
The Rt. Hon. Sir Jeremy Hanley, KCMG,
Chairman
Paget Alves
Burnett W. Donoho
Robert M. Dewey, Jr. (non-voting ex
officio member)
June 21, 2005
INDEPENDENT AUDITORS AND FEES
The firm of Ernst & Young LLP, Independent Registered Public Accounting
Firm, served as the Company's auditors for fiscal 2005 and the Audit Committee
has selected Ernst & Young LLP as auditors of the Company for its fiscal year
ending February 25, 2006, subject to ratification of this selection by the
shareholders at the Meeting. See "Proposal 2 -- Ratification of the Appointment
of Auditors," above.
23
For the fiscal years 2005 and 2004, fees paid by the Company for services
provided by Ernst & Young LLP, all of which services were pre-approved by the
Audit Committee in accordance with the pre-approval policies and procedures
described below, were as follows:
<Table>
<Caption>
FISCAL YEAR
-----------------------
2005 2004
---------- ----------
Audit Fees.................................................. $2,362,000 $2,098,000
Audit Related Fees.......................................... 304,000 491,000
Tax Fees.................................................... 271,000 512,000
All Other Fees.............................................. -- --
---------- ----------
$2,937,000 $3,101,000
========== ==========
</Table>
Audit Fees
These are fees related to professional services rendered in connection with
the audit of the Company's annual financial statements, the audit of the
Company's assessment of the effectiveness of internal control over financial
reporting and the audit of the Company's internal control over financial
reporting, the reviews of the financial statements included in each of the
Company's Quarterly Reports on Form 10-Q, international statutory audits, and
accounting consultations that relate to the audited financial statements and are
necessary to comply with generally accepted auditing standards. Audit fees for
fiscal 2005 increased from fiscal 2004 fees primarily due to increases in fees
for services relating to the audit of internal controls over financial reporting
required by Section 404 of the Sarbanes-Oxley Act and increases in fees for
services relating to capital raising efforts, which increases were partially
offset by decreases in fees for business acquisition audit services.
Audit-Related Fees
These are fees for assurance and related services and consisted primarily
of due diligence pertaining to mergers and acquisitions, specific internal
control process reviews (including work reasonably related to the requirements
of Section 404 of the Sarbanes-Oxley Act) and consultations regarding accounting
and financial reporting matters that will impact future periods.
Tax Fees
These are fees billed for professional services related to international
tax returns, tax planning and advice and assistance with international tax
audits. Tax fees include $190,000 and $216,000 relating to tax compliance and
preparation fees for fiscal 2005 and 2004, respectively.
All Other Fees
There were no other fees billed during fiscal 2005 or 2004.
AUDIT COMMITTEE PRE-APPROVAL POLICY AND PROCEDURES
The Company's Audit Committee has a policy and procedures that require the
pre-approval by the Audit Committee of all: (i) services performed by the
Company's independent auditors, and (ii) audit services performed for the
Company by any other independent accountants. In April of each year, the Audit
Committee approves the services proposed to be performed during the year by the
Company's independent auditor, including the nature, type and scope of services
contemplated and related fee levels. In addition, Audit Committee pre-approval
is required for those engagements that may arise during the course of the year
that are outside the scope of the initial services and fee levels pre-approved
by the Audit Committee in April. As permitted by applicable Securities and
Exchange Commission rules, the Audit Committee has delegated its pre-approval
authority with respect to engagements arising during the course of the year to
the Chairman of the Audit Committee.
24
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.
CODE OF ETHICS
The Company has adopted a code of ethics that applies to all of its
employees, including its President and Chief Executive Officer, Chief Financial
Officer and Controller. The Company's code of ethics, referred to as its Code of
Conduct, is available through the corporate governance link on the Investor
Relations section of the Company's website at www.gtech.com, or by sending a
written request in writing to the Investor Relations Department, GTECH Holdings
Corporation, 55 Technology Way, West Greenwich, Rhode Island 02817.
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.
Based solely on the Company's review of Forms 3, 4 and 5 received by it
from reporting persons with respect to fiscal year 2005, the Company believes
that all 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.
FUTURE SHAREHOLDER PROPOSALS
Under applicable SEC rules and regulations, in order to be eligible for
inclusion in the Company's proxy material for the 2006 Annual Meeting of
Shareholders, shareholders' proposals to take action at such meeting must be
received by the Company not later than February 23, 2006.
Under the Company's By-Laws, in order to be eligible for inclusion in the
Company's proxy materials for its 2006 Annual Meeting of Shareholders,
shareholders' proposals to take action at such meeting must be received by the
Company not later than May 3, 2006 and not earlier than April 3, 2006, except
that if the date of the 2006 Annual Meeting of Shareholders is earlier than July
2, 2006, or later than October 10, 2006, shareholders' proposals are eligible
for inclusion in the Company's proxy materials if received not earlier than 120
days prior to the 2006 Annual Meeting of Shareholders, and not later than the
later of 90 days prior to such Annual Meeting or 10 days after the Company first
publicly announces the date of such Annual Meeting. The requirements set forth
in this paragraph apply to any shareholder proposal other than those submitted
pursuant to the procedures set forth in Rule 14a-8 under the Securities Exchange
Act of 1934, as amended.
The Company's By-Laws set forth other specific requirements respecting
shareholder proposals, and reference is made to the By-Laws for such
requirements. All shareholder proposals must be directed to the Secretary of the
Company at its offices set forth on page 1 of this proxy statement.
25
MISCELLANEOUS
A copy of the Company's 2005 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
2005. COPIES OF EXHIBITS TO THE FORM 10-K ALSO WILL BE FURNISHED UPON REQUEST
AND THE PAYMENT OF A REASONABLE CHARGE. ALL REQUESTS SHOULD BE DIRECTED TO THE
INVESTOR RELATIONS DEPARTMENT OF THE COMPANY AT THE OFFICES OF THE COMPANY SET
FORTH ON PAGE 1 OF THIS PROXY STATEMENT.
By order of the Board of Directors,
Walter G. DeSocio, Senior Vice
President, General Counsel and
Secretary
June 21, 2005
26
APPENDIX A
GTECH HOLDINGS CORPORATION
AUDIT COMMITTEE CHARTER
PURPOSE
The purpose of the Audit Committee (also referred to below as the
"Committee") is to:
(i) assist the Board of Directors (the "Board") of GTECH Holdings
Corporation (the "Company") in discharging its oversight responsibility
relating to: (A) the accounting, reporting, and financial practices of the
Company, its subsidiaries, and the affiliates of the Company that are
included in the Company's financial statements, including the integrity of
the Company's financial statements; (B) the administration of the Company's
financial controls and the Company's compliance with legal and regulatory
requirements; (C) the outside auditor's qualifications and independence;
and (D) the performance of the Company's Internal Audit Department, and the
Company's outside auditor;
(ii) prepare the report required by the rules of the Securities and
Exchange Commission ("SEC") to be included in the Company's annual proxy
statement; and
(iii) assist the Board respecting such other matters as may be
delegated to the Committee from time to time.
COMPOSITION
The Board shall appoint an Audit Committee of at least three members,
consisting entirely of independent directors of the Board, and shall designate
one member as chairperson. For purposes hereof, the term "independent director"
shall mean a director who meets the SEC and New York Stock Exchange ("NYSE")
definitions of "independence," as determined by the Board. Each member of the
Committee must be financially literate and at least one member must be an "audit
committee financial expert," as defined by SEC rules and as determined by the
Board. Once appointed, members of the Committee shall serve (unless the Board
otherwise determines) until the Board meeting immediately following the next
annual meeting of the Company's shareholders, or until their respective
successors are appointed.
Members may not serve on the audit committees of more than three public
companies at one time, without the prior approval of the Board.
RESPONSIBILITIES AND PROCESSES
The Audit Committee shall generally endeavor to help set the overall "tone"
for quality financial reporting, sound business practices and ethical behavior
by the Company. Among its specific duties and responsibilities, the Committee
shall, in accordance with all applicable SEC, NYSE and other requirements:
(i) be directly responsible, in its capacity as a committee of the
Board, for the appointment, compensation, retention and oversight of the
work of the outside auditor. In this regard, the Audit Committee shall
appoint and retain, subject to ratification by the Company's shareholders,
or terminate, when appropriate, the outside auditor, which shall report
directly to the Committee;
(ii) obtain and review, at least annually, a report by the outside
auditor describing: the internal quality-control procedures respecting the
outside auditor's business and operations; and any material issues raised
by the most recent internal quality-control review, or peer review, of the
outside auditor, or by any inquiry or investigation by governmental or
professional authorities, within the preceding five years, respecting one
or more independent audits carried out by the firm, and any steps taken to
deal with any such issues;
(iii) approve in advance all audit engagement services and the terms
of all audit and permissible non-audit services to be provided by the
outside auditor;
(iv) establish policies and procedures for the engagement of the
outside auditor to provide permissible non-audit services, which shall
include pre-approval of all permissible non-audit services to be provided
by the outside auditor;
(v) at least annually, obtain and review a report by the outside
auditor describing any relationships between the outside auditor and the
Company or any other relationships that may adversely affect the
independence of the auditor; and discuss with the outside auditor any such
disclosed relationships and their impact on the auditor's independence;
(vi) having taken into account the opinions of the Company's
management and Internal Audit Department, consider, at least annually and
in light of the reports by the outside auditor described in Sections 3(ii)
and 3(v), the qualifications, performance and independence of the outside
auditor, including, in such connection, a review and evaluation of the lead
partner of the outside auditor and an analysis as to whether the outside
auditor's performance of permissible non-audit services, if any, is
compatible with the auditor's independence; and thereafter, the Audit
Committee shall present its conclusions with respect to the outside auditor
to the full Board;
(vii) review and discuss with the outside auditor: (A) the scope of
the audit, the results of the annual audit examination by the auditor, any
difficulties the auditor encountered in the course of its audit work,
including any restrictions on the scope of the outside auditor's activities
or on access to requested information, any significant disagreements with
management, and any other matters described in Statement of Auditing
Standards ("SAS") No. 61 (which requires the outside auditor to discuss a
number of matters with the Audit Committee); (B) any reports of the outside
auditor with respect to interim periods, and (C) the responsibilities,
budget and staffing of the Company's Internal Audit Department;
(viii) at least annually, prior to the filing of the Company's Annual
Report on Form 10-K (or the distribution of the annual report to
shareholders, if distributed prior to the filing of the Form 10-K), obtain
and review a report by the outside auditor describing:
(A) all critical accounting policies and practices;
(B) all alternative treatments of financial information within
generally accepted accounting principles ("GAAP") that have been
discussed with Company management, ramifications of the use of such
alternative disclosures and treatments, and the treatment preferred by
the outside auditor; and
(C) other material written communications between the outside
auditor and Company management, such as any management letter or
schedule of unadjusted differences;
(ix) review and discuss with management and the outside auditor, prior
to filing with the SEC the Company's Annual Report on Form 10-K, the annual
audited financial statements of the Company including with respect to: (A)
the Company's disclosures under "Management's Discussion and Analysis of
Financial Condition and Results of Operations,"; (B) the steps that the
Company is taking to review and assess its internal control over financial
reporting in anticipation of filing the "internal control of management"
report; (C) major issues regarding the Company's accounting principles and
financial statement presentations, including any significant changes in the
Company's selection or application of accounting principles and major
issues as to the adequacy of the Company's internal controls and any
special audit steps adopted in light of material control deficiencies; (D)
analyses prepared by management and/or the outside auditor setting forth
significant financial reporting issues and judgments made in connection
with the preparation of the financial statements, including analyses of the
effect of alternative GAAP methods on the financial statements; (E) the
effect of regulatory and accounting initiatives, as well as off-balance
sheet structures, on the financial statements of the Company; and (F) the
transparency of the disclosures in the financial statements. In addition,
the Audit Committee shall review the results of the annual audit and
consider with the outside auditors any other matters required to be
discussed under professional standards;
A-2
(x) review and discuss with management and the outside auditor, prior
to filing with the SEC the Company's Quarterly Report on Form 10-Q, the
quarterly financial statements of the Company, including with respect to:
(A) "Management's Discussion and Analysis of Financial Condition and
Results of Operations"; (B) the results of the quarterly review; (C) the
transparency of the disclosures in the financial statements; and (D) any
other matters required to be communicated to the Audit Committee under
generally accepted auditing standards;
(xi) review with management, the Company's Internal Audit Department
and the outside auditors the quality, adequacy and degree of aggressiveness
or conservatism of the accounting principles and estimates used or proposed
to be used by the Company;
(xii) recommend to the Board, based on the review and discussion
described in paragraphs (v)-(xi) above, whether the audited financial
statements should be included in the Company's Annual Report on Form 10-K
(or in the annual report to the Company's shareholders, if distributed
prior to the filing of such Form 10-K);
(xiii) review with management, the Internal Audit Department and the
outside auditors, and discuss the adequacy and effectiveness of the
Company's internal controls (with particular emphasis on the scope and
performance of the Internal Audit Department, including the adequacy of the
Internal Audit Department's staffing, its degree of independence and its
access to and cooperation from the highest levels of management in the
performance of its duties), including any significant deficiencies or
material weaknesses in internal controls and significant changes in such
controls reported to the Audit Committee by the outside auditor or
management;
(xiv) review and discuss the adequacy and effectiveness of the
Company's disclosure controls and procedures, internal control over
financial reporting, and management reports thereon;
(xv) review and discuss with the head of the Internal Audit
Department, the scope and results of the internal audit plan;
(xvi) work to resolve any disagreements between management and the
outside auditors regarding financial reporting;
(xvii) prepare the audit committee report required by the rules of the
SEC to be included in the Company's annual proxy statement;
(xviii) review and discuss corporate policies with respect to earnings
press releases (paying particular attention to any use of "pro forma" or
"adjusted" non-GAAP information), as well as financial information and
earnings guidance provided to analysts and ratings agencies;
(xix) review and discuss with the Company's management all areas of
material financial risk exposure, including the risk of fraud, and the
steps taken to monitor and manage these risks, including: (A) at least
annually, in respect of all guidelines and policies which govern the
Company's risk assessment and risk management processes, and (B) as soon as
practicable after the start of each fiscal year, in respect of the
Company's Internal Audit Department's annual risk assessment process and
annual audit plan for such fiscal year (with regular status updates
thereafter);
(xx) establish procedures for handling complaints regarding
accounting, internal accounting controls and auditing matters, including
procedures for confidential, anonymous submission of concerns by employees
regarding accounting and auditing matters;
(xxi) establish policies for the hiring of employees and former
employees of the outside auditor;
(xxii) determine that the outside auditor has a process in place to
address the rotation of the lead audit partner and the other audit partners
serving the account, as required by relevant SEC rules; and
(xxiii) evaluate, at least annually, the performance of the Committee,
and assess the adequacy of the Committee Charter.
A-3
INVESTIGATIONS; ACCESS; CONSULTANTS AND ADVISORS
The Audit 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. The Audit Committee shall have the sole authority to
retain (including the sole authority to approve fees and other retention terms)
and terminate such consultants, advisors and others as it determines to be
appropriate to assist the Committee in the performance of its functions. The
Committee shall receive appropriate funding from the Company, as determined by
the Committee, for the payment of fees to any such consultants, advisors and
others.
OPERATIONAL MATTERS
The Audit Committee shall meet at such times, either in person or
telephonically, and at such places as the Committee shall determine. The Audit
Committee shall meet separately in executive session, periodically, with each of
management, the head of the Internal Audit Department of the Company and the
outside auditor. The Audit Committee shall report periodically to the Board
concerning the material activities of the Committee. The majority of the members
of the Committee shall constitute a quorum. The Audit Committee may delegate its
pre-approval responsibilities (described above in Section (iii) under
"Responsibilities and Processes") to a subcommittee consisting of one or more
members of the Committee, in which case such subcommittee shall report to the
full Committee with regard to any pre-approval granted, or other action taken,
not later than the next Committee meeting thereafter.
Approved June 21, 2005
A-4
-- DETACH PROXY CARD HERE --
- --------------------------------------------------------------------------------
[ ] PLEASE SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
[X]
VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE INK.
(1) Election of Paget L. Alves, 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 2008.
VOTE FOR WITHHOLD AUTHORITY VOTE FOR ALL, EXCEPT FOR
ALL NOMINEES FOR ALL NOMINEES THE FOLLOWING NOMINEE(S)
[ ] [ ] [ ]
(Insert the name(s) of the nominee(s) for whom you do not wish to vote in the
space provided.)
FOR AGAINST ABSTAIN
(2) Ratification of Ernst & Young LLP, [ ] [ ] [ ]
Independent Registered Public Accounting
Firm, as auditors for the fiscal year
ending February 25, 2006.
(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. [ ]
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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
- ----------------- ----------------------- ---------------------------
PROXY
GTECH HOLDINGS CORPORATION
ANNUAL MEETING OF SHAREHOLDERS, AUGUST 1, 2005
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints WALTER G. DESOCIO, 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 specified on the reverse side, all of the shares of Common Stock of
GTECH HOLDINGS CORPORATION, held of record by the undersigned on June 10, 2005,
at the Annual Meeting of Shareholders of GTECH Holdings Corporation to be held
August 1, 2005, 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