SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission
[X] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
----------
GARTNER, INC.
(Name of Registrant as Specified in its Charter)
----------
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
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statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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[LOGO]
Gartner
January 17, 2003
Dear Stockholder:
On behalf of the Board of Directors and Management of Gartner, Inc., I invite
you to attend our Annual Meeting of Stockholders. The meeting will be held on
Thursday, February 13, 2003, at 10 a.m. local time, at our corporate
headquarters at 56 Top Gallant Road, Stamford, Connecticut 06902.
At the Annual Meeting, holders of our Class B Common Stock will be asked to
re-elect certain directors and holders of our Class A Common Stock and Class B
Common Stock will be asked to approve our 2003 Long-Term Incentive Plan. Each of
these items is fully described in the attached Proxy Statement. There also will
be an opportunity for you to ask questions about our business.
It is important that your stock is represented, regardless of the number of
shares you hold. After reading the enclosed Proxy Statement, please vote your
proxy in accordance with the instructions provided. Your Board of Directors
recommends that you vote "FOR" both of the proposals.
If you have any questions about the meeting, please contact our Investor
Relations Department at (203) 316-6537.
Sincerely,
/s/ Michael D. Fleisher
MICHAEL D. FLEISHER
Chairman of the Board,
Chief Executive Officer and President
[LOGO]
Gartner
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Date: Thursday, February 13, 2003
Time: 10:00 a.m. local time
Location: 56 Top Gallant Road
Stamford, Connecticut 06902
Matters To Be Voted On: Election of 3 directors (Holders of our Class B
Common Stock only)
Approval of the 2003 Long-Term Incentive Plan
Any other business properly brought before the
meeting
These items are more particularly described in
the Proxy Statement
Record Date: January 3, 2003 - You are eligible to vote if you
were a stockholder of record on this date
Voting Methods: By Internet
By Telephone
By Proxy Card
In Person
Importance Of Vote: Submit a proxy as soon as possible to insure that
your shares are represented
Voting promptly will ensure that we have a quorum
at the meeting and will save us proxy
solicitation expenses
If you own shares of both our Class A and Class B
Common Stock, you will need to vote separately
for each class of stock
By Order of the Board of Directors,
/s/ Lewis G. Schwartz
Lewis G. Schwartz
Corporate Secretary
Stamford, Connecticut
January 17, 2003
Table of Contents
Summary................................................................................................1
General Information....................................................................................4
The Annual Meeting............................................................................4
Purpose Of Meeting............................................................................4
Information Concerning Voting And Solicitation Of Proxies.....................................4
Who Can Vote?............................................................................4
How You Can Vote.........................................................................4
How To Revoke Your Proxy Or Change Your Vote.............................................4
How Many Votes You Have..................................................................5
Quorum...................................................................................5
Votes Required...........................................................................5
Proposal One: Election Of Directors....................................................................6
General Information About Our Board Of Directors..............................................6
Nominees......................................................................................6
Recommendation Of Our Board...................................................................6
Information About Nominees For Election As Class I Directors..................................7
Information About The Members Of Our Board Whose Terms Of Office Do Not Expire At
The Annual Meeting.......................................................................7
Compensation Of Directors.....................................................................9
Board Meetings Held During Fiscal 2002........................................................9
Committees....................................................................................9
Proposal Two: Approval Of The 2003 Long-Term Incentive Plan...........................................10
Purpose Of The Plan..........................................................................10
Administration And Operation.................................................................11
Eligibility..................................................................................11
Shares Available For Issuance................................................................11
Types And Terms Of Awards....................................................................11
Awards To Outside Directors..................................................................12
Other Provisions.............................................................................12
Federal Income Tax Consequences..............................................................13
New Plan Benefits............................................................................13
Recommendation Of Our Board..................................................................14
Executive Officers....................................................................................14
Compensation Committee Report On Executive Compensation...............................................15
Executive Compensation................................................................................17
Summary Compensation Table...................................................................17
Options Granted in Fiscal 2002 To The Named Executive Officers...............................18
Options Exercised in Fiscal 2002 By The Named Executive Officers and Fiscal 2002
Year-End Option Values..................................................................18
Securities Authorized For Issuance Under Equity Compensation Plans...........................19
Compensation Committee Interlocks and Insider Participation..................................19
Employment Agreements With Current And Named Executive Officers..............................19
Audit Committee Report................................................................................23
Comparison Of Total Cumulative Stockholder Return.....................................................24
Other Information.....................................................................................25
Security Ownership Of Certain Beneficial Owners And Management...............................25
Section 16(a) Beneficial Ownership Reporting Compliance......................................27
Certain Relationships And Transactions................................................................27
Relationship With Silver Lake Partners, L.P..................................................27
Relationships With Other Third Parties.......................................................27
Loans To Executive Officers..................................................................27
Miscellaneous.........................................................................................28
Solicitation Of Proxies......................................................................28
Deadline For Receipt Of Stockholder Proposals For Our 2004 Annual Meeting....................28
Annual Report................................................................................28
Appendix A: Gartner, Inc. 2003 Long-Term Incentive Plan..............................................A-1
Appendix B: Audit Committee Charter..................................................................B-1
GARTNER, INC.
56 Top Gallant Road
Stamford, CT 06902
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PROXY STATEMENT
--------------------------------------
For the Annual Meeting of Stockholders
to be held February 13, 2003
SUMMARY
The summary information provided below in "question and answer" format is
for your convenience. This summary may not contain all the information that may
be important to you. To better understand the items being voted on, you should
read carefully this entire document, including the appendices.
WHEN AND WHERE IS THE ANNUAL MEETING?
The Annual Meeting will take place on Thursday, February 13, 2003, at
10:00 a.m. local time, at our corporate headquarters, 56 Top Gallant Road,
Stamford, Connecticut 06902. This Proxy Statement and the accompanying Notice of
Annual Meeting and form of proxy are being mailed to our stockholders on or
about January 17, 2003.
WHAT MATTERS WILL BE VOTED ON AT THE ANNUAL MEETING?
o The holders of our Class B Common Stock will vote on the re-election
of Glenn H. Hutchins, Stephen G. Pagliuca and David J. Roux as
directors to hold office for a term of three years.
o The holders of our Class A and Class B Common Stock will vote on a
proposal to approve the 2003 Long-Term Incentive Plan.
o The holders of our Class A and Class B Common Stock will transact
any other business that is brought properly before the Annual
Meeting.
WHO IS ENTITLED TO VOTE?
Stockholders of record at the close of business on January 3, 2003, which
is the "Record Date," are entitled to notice of, and to vote at, the Annual
Meeting.
WHY ARE THE COMMON A STOCKHOLDERS NOT VOTING FOR DIRECTORS THIS YEAR?
Our directors serve staggered terms and no Class A directors are up for
election this year. Our Common A Stockholders elect 20%, or 2, of our directors
and our Common B Stockholders elect 80%, or 8, of our directors. Our Common A
Stockholders will elect one Class A director at each of our 2004 and 2005 Annual
Meetings. See "General Information About Our Board Of Directors" on page 6.
WHAT STOCKHOLDER VOTE IS REQUIRED TO APPROVE THE 2003 LONG-TERM INCENTIVE PLAN?
The 2003 Long-Term Incentive Plan is subject to the approval of a majority
of the shares of our Class A and Class B Common Stock represented in person or
by proxy at the Annual Meeting, voting together as a single class.
1
IF YOUR BROKER HOLDS YOUR SHARES IN "STREET NAME," HOW WILL YOUR BROKER VOTE?
o Your broker may vote your shares without instructions from you on
the proposal to elect directors.
o Your broker will not vote your shares on the proposal to approve the
2003 Long-Term Incentive Plan unless you provide written
instructions on how to vote.
You should follow the directions provided by your broker to instruct your
broker how to vote your shares. See "How You Can Vote" on Page 4.
CAN YOU REVOKE OR CHANGE YOUR VOTE AFTER YOU SUBMIT A PROXY?
Yes. To revoke or change your vote you can:
o give written notice of revocation to: Corporate Secretary, Gartner,
Inc., 56 Top Gallant Road, P.O. Box 10212, Stamford, Connecticut
06904-2212 prior to the Annual Meeting; or
o submit another timely proxy by the Internet, telephone or mail; or
o attend the Annual Meeting and vote in person. If your shares are not
held in your name, to vote at the meeting you must obtain a proxy
executed in your favor from the holder of record.
WHAT IS THE 2003 LONG-TERM INCENTIVE PLAN?
The Gartner, Inc. 2003 Long-Term Incentive Plan (the "Plan") will allow us
to grant stock options, stock appreciation rights, restricted stock and
long-term performance awards to our employees and consultants. The Plan also
provides for the grant of options and common stock equivalents to our outside
directors. The Plan will replace all of our existing broad-based equity
incentive plans other than our stock purchase plan. Since our stockholders have
not approved one of our existing plans, adoption of the Plan will ensure that
our equity incentive program is fully stockholder approved. See "Proposal Two:
Approval Of The 2003 Long-Term Incentive Plan" on page 10.
HOW MANY SHARES WILL BE AVAILABLE FOR ISSUANCE UNDER THE PLAN?
Approval of the Plan is not expected to have a significant impact on the
number of shares available for issuance under our equity incentive program.
Although 10,000,000 shares of our Class A Common Stock are authorized for
issuance under the Plan, less any shares that are the subject of new awards
under our existing equity incentive plans from January 1, 2003 through the date
the Plan is approved by our stockholders, any shares that are not subject to an
award under the existing plans will no longer be issuable upon approval of the
Plan. As of December 31, 2002, there were approximately 3,200,000 shares of
Class A Common Stock available for the grant of new awards under the existing
plans. Therefore, approval of the Plan will have the immediate effect of
increasing the number of shares available for issuance under our equity
incentive program by only approximately 6,800,000 shares.
In addition, shares subject to any awards outstanding under the existing
plans will not be available for regrant if the awards are forfeited or cancelled
after the Plan is approved. A considerable portion of the options outstanding
under the existing plans are out of the money and, over the past three years, a
significant number of options have been forfeited or cancelled. We believe that
the additional 6,800,000 shares available under the Plan should be sufficient to
offset the loss of our ability to regrant shares subject to forfeited awards
under the existing plans and we do not anticipate that they will produce a net
increase in the number of awards that we will be able to grant.
We intend to continue to consider the dilutive effect that the issuance of
awards under our equity compensation program will have on our stockholders in
making awards to eligible participants.
HOW WILL AWARDS BE MADE UNDER THE PLAN?
Most awards under the Plan will be made to such eligible participants, on
such terms and subject to such conditions, as the Compensation Committee of our
Board determines. However, the Plan introduces a number of new requirements and
restrictions to our broad-based equity incentive program:
o No awards in the form of restricted stock, long-term performance
awards measured by the value of our
2
Class A Common Stock or stock appreciation rights granted without
related options will be issued covering in the aggregate more than
2,000,000 shares of our Class A Common Stock. Shares of restricted
stock that are forfeited, and any stock appreciation rights and
long-term performance awards that are forfeited or otherwise lapse
without being exercised, will be restored to the number of shares
available under this limitation.
o All stock options and stock appreciation rights granted under the
Plan must be granted at an exercise or base price that is at least
the fair market value of our Class A Common Stock on the date of
grant.
o No participant may receive grants during any fiscal year for more
than 1,000,000 shares of Class A Common Stock (or $2,500,000 with
respect to certain awards that are not measured in shares).
o No options granted under the Plan may be repriced without the
consent of our stockholders.
The Plan provides for certain automatic grants of stock options and for
the grant of common stock equivalents to our outside directors. These are the
only awards that may be made to our outside directors under the Plan. See
"Proposal Two: Approval Of The 2003 Long-Term Incentive Plan" on page 10.
WHAT IS OUR BOARD OF DIRECTORS' RECOMMENDATION REGARDING THE PLAN?
Our Board adopted the Plan unanimously and recommends that you vote to
approve it. See "Proposal Two: Approval Of The 2003 Long-Term Incentive Plan -
Recommendation Of Our Board" on page 14.
WHO CAN ANSWER YOUR QUESTIONS?
If you have questions about either proposal or the Annual Meeting, please
call our Investor Relations Department at (203) 316-6537.
YOU SHOULD READ CAREFULLY THIS PROXY STATEMENT (INCLUDING THE
APPENDICES) IN ITS ENTIRETY.
3
GENERAL INFORMATION
THE ANNUAL MEETING
Our Board of Directors is soliciting proxies to be used at our Annual
Meeting of Stockholders to be held on February 13, 2003. This Proxy Statement
and the accompanying Notice of Annual Meeting and form of proxy are being mailed
to our stockholders on or about January 17, 2003.
PURPOSE OF MEETING
The proposals to be acted upon at the Annual Meeting are summarized in the
accompanying Notice of Annual Meeting. Each proposal is described in more detail
in this Proxy Statement, under the headings "PROPOSAL ONE" and "PROPOSAL TWO" on
pages 6 and 10.
INFORMATION CONCERNING VOTING AND SOLICITATION OF PROXIES
WHO CAN VOTE?
Only stockholders of record at the close of business on January 3, 2003
may vote at the Annual Meeting. As of January 3, 2003, there were 50,946,743
shares of our Class A Common Stock and 29,782,528 shares of our Class B Common
Stock outstanding.
HOW YOU CAN VOTE
You may vote using one of the following methods:
o Internet. You may vote by the Internet by going to the website for
Internet voting on your proxy card. If you vote by the Internet, you
should not return your proxy card.
o Telephone. You may vote by telephone by calling the toll-free
telephone number on your proxy card. If you vote by telephone, you
should not return your proxy card.
o Mail. You may vote by mail by marking your proxy card, dating and
signing it, and returning it in the postage-paid envelope provided.
If you own both Class A and Class B Common Stock, you will need to vote
separately for each class of stock.
If a broker holds your shares in "street name," the broker is required to
vote those shares in accordance with your instructions. If you do not give
instructions to the broker, the broker may vote your shares with respect to the
election of directors, but not on the other matters.
All shares that have been voted properly by an unrevoked proxy will be
voted at the Annual Meeting in accordance with your instructions. If you sign
your proxy card, but do not give voting instructions, the shares represented by
that proxy will be voted as our Board recommends.
If any other matters are brought properly before the Annual Meeting, the
persons named as proxies in the enclosed proxy card will have the discretion to
vote on those matters for you. As of the date of this Proxy Statement, we did
not know of any other matter to be raised at the Annual Meeting.
HOW TO REVOKE YOUR PROXY OR CHANGE YOUR VOTE
You can revoke your proxy or change your vote before your proxy is voted at
the Annual Meeting by:
o giving written notice of revocation to: Corporate Secretary,
Gartner, Inc., 56 Top Gallant Road, P.O. Box 10212, Stamford,
Connecticut 06904-2212; or
o submitting another timely proxy by the Internet, telephone or mail;
or
o attending the Annual Meeting and voting in person. If your shares
are held in the name of a bank, broker or other holder of record, to
vote at the Annual Meeting you must obtain a proxy executed in your
favor from the holder of record. Attendance at the Annual Meeting
will not, by itself, revoke your prior proxy.
4
HOW MANY VOTES YOU HAVE
Each Common A stockholder has one vote for each share of Class A Common
Stock that he or she owned on the Record Date for all matters being voted on,
except the election of directors.
Each Common B stockholder has one vote for each share of Class B Common
Stock that he or she owned on the Record Date for all matters being voted on.
Any holder of our Class B Common Stock who owns more than 15% of the outstanding
Class B Common Stock cannot vote all of his or her Class B Common Stock in the
election of Common B Directors unless such holder owns an equivalent percentage
of our Class A Common Stock. For example, if a holder of our Class B Common
Stock owns shares representing 17% of our Class B Common Stock and shares
representing 5% of our Class A Common Stock, the stockholder may vote shares
representing only 5% of our Class B Common Stock.
QUORUM
Election of Common B Directors by Class B Common Stockholders. A quorum to
elect the Common B Directors is constituted by the presence, in person or by
proxy, of holders of our Class B Common Stock representing a majority of the
aggregate number of shares of Class B Common Stock entitled to vote. Abstentions
and broker non-votes will be considered present to determine the presence of a
quorum. (Note: None of the directors seeking re-election are Common A Directors.
See "General Information About Our Board Of Directors" on page 6).
Approval of the 2003 Long-Term Incentive Plan and All Other Matters. A
quorum for all other purposes is constituted by the presence, in person or by
proxy, of holders of our Class A and Class B Common Stock representing a
majority of the aggregate number of shares of Class A and Class B Common Stock
entitled to vote. Abstentions and broker non-votes will be considered present to
determine the presence of a quorum.
VOTES REQUIRED
Election of Common B Directors by Class B Common Stockholders. The three
nominees for Common B Director receiving the highest vote totals will be
elected. Abstentions and broker non-votes will have no effect on the election of
the Common B Directors. (Note: None of the directors seeking re-election are
Common A Directors. See "General Information About Our Board Of Directors" on
page 6).
Approval of the 2003 Long-Term Incentive Plan and All Other Matters.
Approval of the 2003 Long-Term Incentive Plan and all other matters will require
the affirmative vote of a majority of the shares of our Class A and Class B
Common Stock present in person or represented by proxy at the Annual Meeting.
Abstentions will have the effect of a vote against these matters. Broker
non-votes will have no effect on the votes on these matters.
5
PROPOSAL ONE:
ELECTION OF DIRECTORS
GENERAL INFORMATION ABOUT OUR BOARD OF DIRECTORS
Each of our directors is elected for a three-year staggered term. Our
Board's ten directors are divided into three classes: Class I, Class II and
Class III. Each director is further designated as a Common A Director or a
Common B Director. Holders of our Class A Common Stock elect two directors and
holders of our Class B Common Stock elect eight directors. One class of
directors is elected at each Annual Meeting.
The following table shows when each class of directors is elected, how
many of those directors are Common A or Common B directors and how each director
is classified:
Number of Names of Number of Names of
Common A Common A Common B Common B
Directors Directors Directors Directors
Class I: Term Expires 2003 0 None 3 Hutchins, Pagliuca, Roux
and every 3 years thereafter
Class II: Term Expires 2004 1 Webb 2 Fuchs, Sisco
and every 3 years thereafter
Class III: Term Expires 2005 1 Grabe 3 Fleisher, Hopper, Smith
and every 3 years thereafter
On October 17, 2002, Kenneth Roman, a Class III director whose term would
have expired at the 2005 Annual Meeting, retired from our Board. Our Board
elected James Smith to fill the vacancy. Mr. Smith's term expires at the 2005
Annual Meeting.
NOMINEES
The three nominees listed below are currently directors and have agreed to
serve another term. However, if any nominee is unable or declines unexpectedly
to stand for re-election as a director at the Annual Meeting, proxies will be
voted for a nominee designated by the present Board to fill the vacancy. Each
person elected as a director will continue to be a director until the 2006
Annual Meeting or until a successor has been elected.
RECOMMENDATION OF OUR BOARD
Our Board recommends that our Class B Common Stockholders vote "FOR" the
nominees listed below:
o Glenn H. Hutchins
o Stephen G. Pagliuca
o David J. Roux
None of our directors or executive officers is related to another director
or executive officer by blood, marriage or adoption. Mr. Fleisher's employment
agreement provides that we will include him on the slate of nominees to be
elected to our Board during the term of his agreement. See "Executive
Compensation - Employment Agreements with Current and Named Executive Officers"
on page 19. Mr. Hutchins and Mr. Roux serve as directors pursuant to an
agreement we entered into in connection with the issuance of our convertible
notes in April 2000. See "Certain Relationships and Transactions - Relationship
with Silver Lake Partners, L.P." on page 27. There are no other arrangements
between any director or nominee and any other person pursuant to which the
director or nominee was selected.
6
INFORMATION ABOUT NOMINEES FOR ELECTION AS CLASS I DIRECTORS
Class I Common A Directors
There are currently no Common A Directors in Class I.
Class I Common B Directors
Glenn H. Hutchins, age 47, has been a director since April 2000. Mr.
Hutchins is a managing member of Silver Lake Technology Management, L.L.C.,
which he co-founded in January 1999. Silver Lake Technology Management is a
manager of technology private equity firms, including Silver Lake Partners,
L.P., and is the general partner of Silver Lake Partners, L.P. From 1994 to
1999, Mr. Hutchins was a Senior Managing Director of The Blackstone Group, where
he focused on private equity investing. Mr. Hutchins is a director of Ameritrade
Holding Corp., CARE, Inc., Instinet Group Incorporated and Seagate Technology.
He is also a trustee of Lawrenceville School. Mr. Hutchins holds a bachelor's
degree from Harvard College, an M.B.A. degree from Harvard Business School and a
J.D. degree from Harvard Law School.
Stephen G. Pagliuca, age 47, has been a director since July 1990. Mr.
Pagliuca is a founding partner of Information Partners Capital Fund, L.P., a
venture capital fund, and has served as its Managing Partner since 1989. He is
also a Managing Director of Bain Capital, Inc., an investment firm with which
Information Partners is associated. Prior to 1989, Mr. Pagliuca was a partner at
Bain & Company, where he managed client relationships in the information
services, software, credit services and health care industries. Mr. Pagliuca is
a director of Ameritrade Holding Corp., Instinet Group Incorporated and FTD. Mr.
Pagliuca, a certified public accountant, holds a bachelor's degree from Duke
University and an M.B.A. degree from Harvard Business School.
David J. Roux, age 46, has been a director since July 2001. Mr. Roux is a
managing member of Silver Lake Technology Management, L.L.C., which he
co-founded in January 1999. Silver Lake Technology Management is a manager of
technology private equity firms, including Silver Lake Partners, L.P., and is
the general partner of Silver Lake Partners, L.P. From February 1998 to November
1998, he served as the Chief Executive Officer and President of Liberate
Technologies, a software platform provider. From September 1994 to December
1998, Mr. Roux held various management positions with Oracle Corporation, a
systems and applications software provider, most recently as Executive Vice
President of Corporate Development. Mr. Roux is a director of Seagate
Technology, VERITAS Software Corporation and a number of private companies. Mr.
Roux holds a bachelor's degree from Harvard College, an M.B.A. degree from
Harvard Business School and a M. Phil. degree from Kings College, Cambridge
University in the United Kingdom.
INFORMATION ABOUT THE MEMBERS OF OUR BOARD WHOSE TERMS OF OFFICE DO NOT EXPIRE
AT THE ANNUAL MEETING
Class II Common A Director (term expires at the 2004 Annual Meeting)
Maynard G. Webb, Jr., age 47, has been a director since October 2001.
Since June 2002, Mr. Webb has been chief operating officer of eBay, Inc., an
online marketplace. Prior to that he was president of eBay Technologies, a
division of eBay, Inc. from August 1999 through June 2002. From July 1998 to
August 1999, Mr. Webb was Senior Vice President and Chief Information Officer at
Gateway, Inc. From February 1995 to July 1998, Mr. Webb was Vice President and
Chief Information Officer at Bay Networks, Inc. Mr. Webb holds a bachelor's
degree from Florida Atlantic University.
Class II Common B Directors (term expires at the 2004 Annual Meeting)
Anne Sutherland Fuchs, age 55, has been a director since July 1999. On
January 1, 2003, Ms. Fuchs became a consultant to private equity firms. Prior to
this, Ms. Fuchs was employed by LVMH Moet Hennessy Louis Vuitton, a global
luxury products conglomerate, where she served as Executive Vice President of
LVMH from March to December 2002 and as the global chief executive at Phillips
de Pury & Luxembourg, LVMH's auction house subsidiary, from July 2001 to
February 2002. From 1994 to 2001, Ms. Fuchs worked for Hearst Magazines, where
she was most recently the Senior Vice President and Group Publishing Director.
Prior to joining Hearst, Ms. Fuchs held executive and publisher positions with a
number of companies. Ms. Fuchs is Chair of the Commission on Women's Issues for
New York City. Ms. Fuchs holds a bachelor's degree from New York University and
two honorary doctorate degrees.
7
Dennis G. Sisco, age 56, has been a director since October 1990. Since
January 1998, Mr. Sisco has been a partner in Behrman Capital, a private equity
firm. From January 1997 through December 1997, Mr. Sisco served as the President
of Storm Ridge Capital, a venture capital firm. From December 1988 to February
1997, Dun & Bradstreet Corporation and Cognizant Corporation employed him in
various capacities, most recently as Executive Vice President of Cognizant
Corporation with responsibility for several operating units and business
development. Mr. Sisco is a director of Mercator Software, Inc. and is on the
Board of Trustees of McDaniel College. Mr. Sisco holds a bachelor's degree from
McDaniel College.
Class III Common A Director (term expires at the 2005 Annual Meeting)
William O. Grabe, age 64, has been a director since April 1993. Since
January 1994, Mr. Grabe has been a general partner of General Atlantic Partners,
an investment firm, where he has worked since April 1992. Prior to his
affiliation with General Atlantic, Mr. Grabe retired from IBM Corporation as an
IBM Vice President and Corporate Officer. Mr. Grabe is a director of Bottomline
Technologies, Compuware Corporation, Digital China Holdings Limited, Exact
Holding N.V., and FirePond, Inc. Mr. Grabe is a trustee of the Cancer Research
Institute and Outward Bound USA. Mr. Grabe is on the Board of Visitors of the
UCLA Graduate School of Business. Mr. Grabe holds a bachelor's degree from New
York University and an M.B.A. degree from the University of California at Los
Angeles.
Class III Common B Directors (term expires at the 2005 Annual Meeting)
Michael D. Fleisher, age 38, has been Chairman of our Board since October
2001, a director and our Chief Executive Officer since October 1999, and our
President since May 2001. From February 1999 to October 1999, he served as our
Chief Financial Officer and Executive Vice President, Finance and
Administration. Mr. Fleisher joined Gartner in April 1993 and has held several
other management positions, including Executive Vice President and President,
Emerging Business; Vice President, Business Development; and Director, Strategic
Planning. Prior to joining Gartner, Mr. Fleisher worked at Bain Capital, Inc.
where he was involved in the buyout of Gartner by management and Bain Capital
from Saatchi & Saatchi in October 1990. Mr. Fleisher is a director of Ameritrade
Holding Corp. and is on the board of NYC 2012, Inc. Mr. Fleisher holds a
bachelor's degree from the Wharton School of the University of Pennsylvania.
Max D. Hopper, age 68, has been a director since January 1994. In 1995, he
founded Max D. Hopper Associates, Inc., a consulting firm specializing in
creating benefits from the strategic use of advanced information systems. He is
the retired chairman of the SABRE Technology Group and served as Senior Vice
President for American Airlines, both units of AMR Corporation. Mr. Hopper is a
director of ACCRUE Software, Inc., Digex, Inc., Perficient, Inc. and United
Stationers, Inc. Mr. Hopper holds a bachelor's degree from the University of
Houston.
James C. Smith, age 62, has been a director since October 2002. Mr. Smith
is Chairman of the Board of First Health Group Corp., a national health benefits
company. Prior to that, Mr. Smith was the Chief Executive Officer of First
Health from January 1984 through January 2002 and President of First Health from
January 1984 to January 2001. Mr. Smith holds a bachelor's degree from
Northeastern University.
8
COMPENSATION OF DIRECTORS
Directors who are also employees, and directors who we appoint at the
request of another entity because of the relationship between that entity and
us, receive no fees for their services as directors. All other directors receive
the following compensation for their services:
Annual Fee: $40,000 per director, payable in four equal quarterly
installments, on the first day of each quarter. Up to
50% of the fee may be paid in cash and the balance is
paid in our Class A Common Stock equivalents. All
payments in stock equivalents are credited to an
account based on the fair market value of the stock
on the last day of the preceding quarter. Payment of
the stock equivalents, which may be in cash or shares
of Class A Common Stock, is deferred until the
director ceases to be a director.
Annual Committee Chair $1,500 per chair of each committee of our Board;
Fee: payable in the same manner as the Annual Fee.
Attendance Fee for Board None; however, we reimburse directors for their
Meetings: expenses to attend meetings.
Attendance Fee for Commencing on November 1, 2002, $1,000 per committee
Committee Meetings: meeting attended.
Initial Option Grant: 15,000 shares of our Class A Common Stock upon
becoming a director.
Annual Option Grant: 7,000 shares of our Class A Common Stock on March 1
of each year if the director has served for at least
six months.
Option Vesting and Term: Option grants vest in 3 equal installments on the
first three anniversaries of grant and remain
exercisable until 5 years from the date of grant (10
years under the proposed 2003 Long-Term Incentive
Plan). If the director ceases to be a director, the
option expires in 90 days, unless the director is
permanently disabled or dies while serving as a
director, in which cases the option may be exercised
for 6 months or one year, respectively, but in no
event beyond its regular term.
BOARD MEETINGS HELD DURING FISCAL 2002
Our Board held five meetings during fiscal 2002. During fiscal 2002, each
director except for Mr. Sisco, attended at least 75 percent of the Board and
committee meetings held while such director served as a director and committee
member. Mr. Sisco attended 69 percent of such meetings.
COMMITTEES
Our Board has three committees: our Audit Committee, our Compensation
Committee and our Governance Committee.
Our Audit Committee currently consists of Messrs. Hopper, Hutchins,
Pagliuca and Sisco. During fiscal 2002, the Audit Committee held eight meetings
and consisted of Messrs. Hutchins, Pagliuca and Sisco. See "Audit Committee
Report" on page 23 for more information.
Our Compensation Committee currently consists of Messrs. Roux, Smith and
Webb. During fiscal 2002, the Compensation Committee held five meetings and
consisted of Ms. Fuchs and Messrs. Grabe, Roux and Webb. See "Compensation
Committee Report On Executive Compensation" on page 15 for more information.
Our Governance Committee currently consists of Ms. Fuchs and Messrs. Grabe
and Hutchins. During fiscal 2002, the Governance Committee held four meetings
and consisted of Messrs. Hopper, Hutchins and Roman. Our Governance Committee
reviews issues regarding our governance, reviews and implements policies for our
Board, reviews the size of our Board and criteria for membership, nominates
potential members for election to the Board, recommends the assignment of
directors to our Board's committees and reviews the performance of our Chief
Executive Officer and our Board members.
9
PROPOSAL TWO:
APPROVAL OF THE 2003 LONG-TERM INCENTIVE PLAN
Our Board has adopted unanimously and recommends that the stockholders
approve the adoption of the Gartner, Inc. 2003 Long-Term Incentive Plan. The
Plan will become effective upon approval of our stockholders.
Upon stockholder approval, the Plan will replace our 1993 Director Stock
Option Plan, 1994 Long Term Option Plan, 1996 Long Term Stock Option Plan, 1998
Long Term Stock Option Plan and our 1999 Stock Option Plan (the "Existing
Plans"). As of December 31, 2002 there were approximately 3,200,000 shares of
Class A Common Stock available for the grant of new awards under the Existing
Plans.
Under the Plan, a total of 10,000,000 shares of our Class A Common Stock
are authorized for issuance, less any shares that are the subject of any new
awards under the Existing Plans from January 1, 2003 through the date the Plan
is approved by our stockholders.
Approval of the Plan is not expected to have a significant impact on the
number of shares available for issuance under our equity incentive program. Upon
approval of the Plan, any awards outstanding under the Existing Plans will
continue to be subject to the terms of the Existing Plans, but no further awards
will be granted under the Existing Plans. As of December 31, 2002, there were
approximately 3,200,000 shares of Class A Common Stock available for the grant
of new awards under the Existing Plans. Therefore, approval of the Plan will
have the immediate effect of increasing the number of shares of Class A Common
Stock available for award by only approximately 6,800,000 shares.
In addition, shares subject to awards outstanding under the Existing Plans
will not be available for regrant if the awards are forfeited or cancelled after
the Plan is approved. As of December 31, 2002, there were approximately
36,464,000 shares of our Class A Common Stock subject to outstanding options
under the Existing Plans, of which approximately 21,746,000 were out of the
money, including approximately 6,955,000 which had exercise prices in excess of
$18.50 per share. From October 1, 1999 through December 31, 2002, approximately
15,060,000 shares subject to awards were made available for regrant under the
Existing Plans as a result of such forfeitures and cancellations. We believe
that the additional 6,800,000 shares available under the Plan should be
sufficient to offset the loss of our ability to regrant shares subject to
forfeited awards under the Existing Plans and we do not anticipate that they
will produce a net increase in the number of awards that we will be able to
grant.
We intend to continue to consider the dilutive effect that the issuance of
awards under our equity compensation program will have on our stockholders in
making awards to eligible participants.
Seven outside directors and approximately 3100 employees participate in
the Existing Plans. We anticipate that a similar number of employees,
consultants and outside directors will participate in the Plan. On January 3,
2003, the closing price of our Class A Common Stock was $9.35 per share.
PURPOSE OF THE PLAN
The purpose of the Plan is to enable us to provide incentive to eligible
employees, consultants and directors whose present and potential contributions
are important to our continued success, to afford these individuals the
opportunity to acquire a proprietary interest in us and to enable us to enlist
and retain qualified personnel.
Approval of the Plan will simplify our equity incentive program by
eliminating multiple plans and will give us flexibility to meet the needs of our
business. Since our stockholders have not approved one of the Existing Plans,
adoption of the Plan will ensure that our entire equity incentive program is
stockholder approved. Approval of the Plan will also introduce certain new
requirements and restrictions into our equity incentive program, including a
requirement that all options and stock appreciation rights granted under the
Plan be granted at an exercise or base price that is at least equal to the fair
market value of the Class A Common Stock on the date of grant, a restriction on
grants during any fiscal year to any individual participant of 1,000,000 shares
(or $2,500,000 with respect to certain awards that are not measured in shares),
and a prohibition on option repricing without stockholder approval.
The following is a brief summary of the material features of the Plan. The
full text of the Plan document is attached as Appendix A. You should read
Appendix A in its entirety.
10
ADMINISTRATION AND OPERATION
A committee of independent directors designated by our Board (the
"Committee") will administer the Plan. The Compensation Committee of our Board
will serve as the initial Committee for the Plan.
Subject to certain restrictions, the Committee will have the authority to
interpret the Plan and will oversee all decisions regarding its administration,
including the selection of award recipients, the determination of the types of
awards they receive, the establishment of the terms, conditions and other
provisions of such awards and any modification or amendment of such awards.
ELIGIBILITY
All of our (and certain of our affiliates') employees and our outside
directors are eligible to receive awards under the Plan. The Committee may also
grant awards to consultants who perform services for us (or for such
affiliates).
SHARES AVAILABLE FOR ISSUANCE
10,000,000 shares of our Class A Common Stock will be available for
issuance under the Plan less any shares of Class A Common Stock that are made
subject to new awards under the Existing Plans from January 1, 2003 through the
date the Plan is approved by our stockholders. If any shares of stock that are
subject to an award under the Plan are not issued or cease to be issuable for
any reason, (including, for example, because the award is settled in cash,
terminated, forfeited or cancelled, or the shares subject to the award or other
shares owned by the participant are used to satisfy the exercise price or tax
withholding obligations related to the award), those shares will become
available for additional awards. Shares of stock subject to awards under the
Existing Plans that cease to be issuable will not increase the number of shares
available for awards under the Plan.
The number of shares available for issuance under the Plan is subject to
adjustment in the event of a stock split, stock dividend, recapitalization,
spin-off or similar action.
TYPES AND TERMS OF AWARDS
Awards under the Plan may take the form of incentive or nonstatutory stock
options, stock appreciation rights, restricted stock, long-term performance
awards or director common stock equivalents. Subject to certain restrictions set
forth in the Plan, the Committee will set the terms, conditions and other
provisions of each award, including the size of the award, the exercise or base
price, the vesting and exercisability schedule and termination, cancellation and
forfeiture provisions.
All awards are subject to the following specific restrictions:
o No awards in the form of restricted stock, long-term performance
awards measured by the value of our Class A Common Stock or stock
appreciation rights granted without related options will be issued
covering in the aggregate more than 2,000,000 shares of our Class A
Common Stock. Shares of restricted stock that are forfeited, and any
stock appreciation rights and long-term performance awards that are
forfeited or otherwise lapse without being exercised, will be
restored to the number of shares available under this limitation.
o No participant may receive options, stock appreciation rights
granted without related options, restricted stock awards or, to the
extent payable in or measured by the value of our Class A Common
Stock, long-term performance awards during any fiscal year covering
in the aggregate more than 1,000,000 shares of our Class A Common
Stock.
o No participant may receive long-term performance awards payable in
cash and not measured by the value of shares of our Class A Common
Stock during any fiscal year covering an amount in excess of
$2,500,000.
o The exercise price for a stock option must be at least the fair
market value of the stock on the date of the grant and the base
price for a stock appreciation right must be at least the fair
market value of the stock on the date of the grant.
Except for adjustments made to address stock splits and similar
transactions, the exercise price for outstanding options granted under the Plan
may not be declared or reduced after the date of grant and any outstanding
option
11
granted under the Plan may not be surrendered to us as consideration for the
grant of a new option with a lower exercise price without approval of our
stockholders.
The Committee may designate any award as "performance-based compensation"
for purposes of Section 162(m) of the Internal Revenue Code. Such awards must be
conditioned on the achievement of one or more of the following "Performance
Objectives": specified levels of, or increases in, our (or certain affiliates')
return on equity, earnings per share, total earnings, earnings growth, return on
capital, return on assets, economic value added, earnings before interest and
taxes, sales growth, gross margin return on investment, increase in the fair
market value of our Common Stock, share price (including, but not limited to,
growth measures and total stockholder return), net operating profit, cash flow
(including, but not limited to, operating cash flow and free cash flow), cash
flow return on investment (which equals net cash flow divided by total capital),
internal rate of return, increase in net present value or expense targets.
AWARDS TO OUTSIDE DIRECTORS
Common Stock Equivalents. On a quarterly basis, each of our outside
directors will receive common stock equivalent awards for at least 50%, and at
the outside director's election up to 100%, of his or her compensation. The
common stock equivalents will be equal in value to that portion of the outside
director's quarterly compensation that he or she has elected to receive in
common stock equivalents divided by the fair market value of our Class A Common
Stock. The common stock equivalents will be credited to a book-entry account.
Additional common stock equivalents will be credited to such account to the
extent we distribute a cash dividend on our outstanding Class A Common Stock.
Our obligation with respect to common stock equivalents will not be funded or
secured.
When an outside director ceases to be a member of our Board for any
reason, he or she will receive that number of shares of Class A Common Stock
equal to the number of common stock equivalents then credited to the outside
director's account. An outside director will not be entitled to any voting or
other stockholder rights for the common stock equivalents until he or she
receives actual shares of Class A Common Stock.
Stock Options. Each outside director who joins our Board on or after
February 1, 2003, will be granted automatically a nonstatutory stock option to
purchase 15,000 shares of our Class A Common Stock. On each March 1st during the
term of the Plan, each outside director who shall have been an outside director
for at least six months as of that date will receive automatically an option to
purchase 7,000 shares of our Class A Common Stock.
The terms of each option granted to an outside director will be as
follows:
o the term of the option will be ten years;
o the option will be exercisable only while the outside director
remains a director, except as described below;
o the exercise price per share will be the fair market value of our
Class A Common Stock on the date of grant of the option; and
o each initial grant and annual grant will become exercisable in
installments cumulatively as to one-third of the shares subject to
the option on each anniversary of the date of grant, so that 100% of
the shares granted will be exercisable in full three years after the
date of grant, assuming in each case continuous status as a
director.
If an outside director dies, the outside director's estate, or a person
who acquired the right to exercise an option as a result of the outside
director's death, may exercise the option for one year following the date of
death. If an outside director's directorship terminates as a result of total and
permanent disability, the outside director may exercise an option for six months
from the date of such termination. If an outside director's directorship
terminates (other than upon the outside director's death or total and permanent
disability), the outside director may exercise an option for 90 days from the
date of such termination.
OTHER PROVISIONS
Change in Control. Unless the Committee determines otherwise, if we are
subject to a change in control (as defined in the Plan), all outstanding awards
that are subject to a vesting schedule, substantial risk of forfeiture or
performance conditions will vest immediately, the risk of forfeiture will lapse
immediately, the performance conditions will be deemed to be satisfied and any
award requiring exercise by the participant will remain exercisable for at least
90 days following the date of the change in control. In addition, all common
stock equivalents will be
12
settled immediately in shares of Class A Common Stock.
Amendments and Termination. Our Board may amend, suspend or terminate the
Plan, provided that action does not impair materially any award then
outstanding. Our Board may not amend the Plan to increase the number of shares
available for issuance or modify any of the limitations on the number of awards
that may be made to individual participants to materially reduce the limitation
without the approval of our stockholders. No award may be granted under the Plan
after January 31, 2013.
Foreign Jurisdictions. To facilitate awards to foreign nationals or to
employees employed by us (or certain affiliates) outside the United States, the
Committee may approve supplements to, or amendments, restatements or alternative
versions of, the Plan without affecting the terms of the Plan for any other
purpose; provided that no such supplements, amendments, restatements or
alternative versions include any provisions that are inconsistent with the terms
of the Plan, as then in effect, unless the Plan could have been amended to
eliminate such inconsistency without further approval by our stockholders.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief description of the material U.S. federal income
tax consequences associated with awards under the Plan. It is based on existing
U.S. laws and regulations, and there can be no assurance that those laws and
regulations will not change in the future. Tax consequences in other countries
may vary.
Stock Options. There will be no federal income tax consequences to the
participant or us upon the grant of a stock option. If the option is a
nonstatutory stock option, the participant will realize ordinary income at
exercise equal to the excess of the fair market value of the stock acquired over
the exercise price and we will receive a corresponding deduction. Any gain or
loss realized upon a subsequent disposition of the stock will generally
constitute capital gain.
If the option is an incentive stock option, the participant will not
realize taxable income on exercise, but the excess of the fair market value of
the stock acquired over the exercise price may give rise to "alternative minimum
tax." When the stock is sold, the participant will recognize income equal to the
difference between the sales price and the exercise price of the option. If the
sale occurs more than two years after the date of the grant and one year after
the date of exercise, the income will constitute long-term capital gain. If the
sale occurs prior to that time, the participant will recognize ordinary income
on the lesser of the gain realized on the sale or the difference between the
fair market value of the acquired stock at the time of exercise and the exercise
price; any additional gain will constitute capital gain. We will be entitled to
a deduction in an amount equal to the ordinary income that the participant
recognizes.
Restricted Stock. Generally, restricted stock is not taxable to a
participant at the time of grant, but is included in ordinary income (at its
then fair market value) when the restrictions lapse. A participant may elect to
recognize income at the time of grant, in which case the fair market value of
the stock at the time of grant is included in ordinary income and there is no
further income recognition when the restrictions lapse. We are entitled to a tax
deduction in an amount equal to the ordinary income recognized by the
participant.
Other Awards. For other awards, the participant will generally recognize
ordinary income in an amount equal to any cash received and the fair market
value of any shares received on the date of payment or the date of delivery of
the shares and we will generally be entitled to a corresponding tax deduction.
Section 162(m) Limitation. Under Section 162(m) of the Internal Revenue
Code, we may not take a tax deduction for compensation to certain executive
officers in excess of one million dollars per year, unless the compensation is
"performance-based compensation" or qualifies under certain other exceptions.
The Plan contains a number of "Performance Objectives" that will be approved by
the stockholders upon approval of the Plan. (See "Types and Terms of Awards" on
page 11.) To the extent an award incorporates at least one of these Performance
Objectives, such award should qualify as "performance-based compensation" for
purposes of Section 162(m).
NEW PLAN BENEFITS
Except for the awards granted automatically to our outside directors, the
awards granted under the Plan are subject to the discretion of the Committee and
are not determinable at this time. The dollar value of the nonstatutory stock
options and common stock equivalents, and the number of common stock
equivalents, to be granted to our
13
outside directors are not determinable at this time because such awards depend
on, among other things, the fair market value of our Class A Common Stock on the
date of the grant, the amount of compensation being paid to the outside
directors at the time of grant and the extent to which the outside directors
elect to be compensated in common stock equivalents.
The following table shows the number of shares of Class A Common Stock
underlying the options that will be granted automatically in each full fiscal
year that the Plan is in effect to all of our outside directors as a group. The
table assumes that seven outside directors, the current number of outside
directors, will be granted options under the Plan in each fiscal year. No
inference is intended that the current outside directors will be nominated for
election, or if nominated, will be elected by our stockholders to our Board, or
that seven outside directors will be eligible to participate in the Plan in each
fiscal year.
NEW PLAN BENEFITS
Number of Shares of Class A
Common Stock Underlying
Automatic Options
All Current Outside
Directors as a Group 49,000
======
RECOMMENDATION OF OUR BOARD
Our Board recommends that you vote "FOR" approval of the 2003 Long-Term
Incentive Plan.
EXECUTIVE OFFICERS
Listed below are the names, ages and titles of our executive officers:
Name Age Title
- ---- --- -----
Michael D. Fleisher 38 Chairman of the Board, Chief Executive Officer and
President
Maureen E. O'Connell 41 Executive Vice President, Chief Financial and
Administrative Officer
Robert E. Knapp 44 Executive Vice President, Research and Advisory
Services
Zachary Morowitz 46 Executive Vice President, Corporate Development
Steven Tait 43 Executive Vice President, Sales and Client Operations
Mr. Fleisher has been Chairman of our Board since October 2001, a director
and Chief Executive Officer since October 1999 and our President since May 2001.
For more information on Mr. Fleisher's business experience, see the description
provided under "Information About The Members Of Our Board Whose Terms Of Office
Do Not Expire At The Annual Meeting" on page 8.
Ms. O'Connell has been Executive Vice President, Chief Financial and
Administrative Officer since October 2002. Prior to joining us, Ms. O'Connell
served as Chief Financial Officer at Barnes & Noble from March 2000 through
September 2002. Prior to that, Ms. O'Connell was Chief Financial Officer at
Publishers Clearing House, BMG Direct, Primedia, and at two Primedia divisions.
Ms. O'Connell holds a bachelor's degree from the Stern School of Business at New
York University and is a certified public accountant.
Mr. Knapp has been Executive Vice President, Research and Advisory
Services since June 2001. Mr. Knapp joined us in August 2000 as Executive Vice
President and Chief Marketing Officer. From 1993 to July 2000, Mr. Knapp was a
chief client officer at Siegelgale, a branding and e-services firm, where he
directed all strategy and consulting services for the firm worldwide. Prior to
Siegelgale, Mr. Knapp held various positions at Lotas Minard Patton McIver, BBDO
and Lintas Worldwide. Mr. Knapp holds a bachelor's degree from the University of
Miami.
14
Mr. Morowitz has been Executive Vice President, Corporate Development
since October 2002. From October 1999 to October 2002, Mr. Morowitz served as
Senior Vice President, Corporate Development. Mr. Morowitz joined us in 1993 and
has held several other management positions, including Senior Vice President,
Worldwide Events; Senior Vice President, Product & Service Development; and Vice
President, Business Development. Prior to joining us, Mr. Morowitz was Chief
Operating Officer at New Science Associates, a company we acquired in 1993. Mr.
Morowitz holds a bachelor's and a master's degree from the University of
California at Berkeley.
Mr. Tait has been Executive Vice President, Sales and Client Operations
since June 2001. Mr. Tait joined us in July 2000 as Senior Vice President, Sales
and Client Operations. Prior to joining us, Mr. Tait was employed by Xerox
Corporation for 18 years. During that time, Mr. Tait held a number of positions
including Vice President, Xerox Offsite Document Management Services; Vice
President, Xerox Global Services Business Unit; CEO and President, Xerox
Connect; and Vice President, Xerox Professional Services. Mr. Tait holds a
bachelor's degree from Coventry University in England. Mr. Tait has resigned his
position as of March 31, 2003.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Our role is to set overall compensation principles and review Gartner's
entire compensation program annually. We also review and establish the
individual compensation levels for our executive officers and consider the
advice of independent, outside consultants in determining whether the amounts
and types of compensation we pay our executive officers are appropriate. We also
administer our employee stock purchase plan and stock option plans. In
discharging these responsibilities, we consult with outside compensation
consultants, attorneys and other specialists.
The goal of our compensation program is to attract, motivate and retain
highly talented individuals. Our guiding philosophy is that compensation should
be linked to performance. We believe that the better an individual performs, the
higher the individual's compensation should be. Our compensation program is
designed to balance short and long term financial objectives, build stockholder
value and reward individual, group and corporate performance. We believe that
individual compensation should be tied to our financial performance so that when
our performance is better than established objectives, individuals should be
paid more and when our financial performance does not meet our established
objectives, incentive award payments should be reduced. The proportion of an
individual's total compensation that varies with individual and corporate
performance objectives should increase as the individual's business
responsibilities increase. In addition, we believe that the total compensation
package must be competitive with other companies in our industry to ensure that
we continue to attract, motivate and retain the people who are critical to our
long-term success.
We believe that our employees should own our stock. We provide employees
at all levels with several ways to become stockholders. We have stock option
plans under which we have made discretionary stock option grants to broad
segments of the employee population worldwide. We also have an employee stock
purchase plan that enables employees to purchase our Class A Common Stock at a
discount through payroll deductions and a 401(k) savings plan that allows U.S.
employees to invest in our Class A Common Stock. Our goal is to have market
competitive stock programs that encourage each employee to act like an owner of
the business.
Compensation for our executive officers consists of three principal
components: base salary, short-term incentives and long-term incentives.
Base Salary. We set base salaries by evaluating the responsibilities of
the position and the experience of the individual. We reference the competitive
marketplace for executive talent and conduct surveys periodically for comparable
positions at companies with whom we compare for compensation purposes.
Short-Term Incentives (Cash Bonuses). We designed the annual bonus
component of incentive compensation to align pay with our short-term (annual)
performance. The full bonus is tied to achievement of financial performance
objectives established by our Board on an annual basis.
Long-Term Incentives (Stock Plans). The principal equity component of
executive compensation is options granted under our stock option plans. Stock
option awards are granted at the commencement of employment, with additional
options granted from time to time for promotions and performance. We believe
that ownership of our stock is a key element of our compensation program and
that stock options provide a retention incentive for our executive officers and
align their personal objectives with long-term stock price appreciation.
15
CEO Compensation. We believe that since assuming responsibilities as
Chairman of our Board at the beginning of fiscal 2002, Mr. Fleisher has
demonstrated highly effective leadership in a difficult economic environment. He
has been responsible for implementing a number of initiatives that have
strengthened our company and we believe position it well for the challenges of
the future. Mr. Fleisher's compensation package for fiscal 2002 consisted
primarily of base salary and short-term incentives. In fiscal 2002, Mr. Fleisher
received base salary of $450,000 and earned a bonus of $450,000. Mr. Fleisher's
minimum base salary and target bonus are set in his employment agreement; we
review annually these aspects of his compensation in light of his tenure of
service and his current job responsibilities as well as the relative
compensation of his peers. Although Mr. Fleisher's bonus is tied to our
performance, his base salary and his target bonus are not related directly to
specific measures of corporate performance. The base salary for all executive
officers remained unchanged for fiscal 2002. Mr. Fleisher also received a grant
of 500,000 stock options in fiscal 2002. The number of stock options awarded to
Mr. Fleisher was not directly tied to specific measures of corporate
performance. However, the value of these stock options to Mr. Fleisher is
dependent upon the growth in our stock price between the date of grant and the
date of exercise.
Other Compensation. Other elements of executive compensation include life
insurance and long-term disability insurance programs and participation in our
company-wide profit sharing plan under which a specified percentage of operating
profit is distributed equally among all employees. Executive officers are
eligible for company-wide medical benefits, a supplemental life insurance
program, a 401(k) plan under which we provide matching contributions to all
participants and a payroll deduction employee stock purchase plan under which
participants may purchase our Class A Common Stock at 85% of the lower of the
fair market value of our Class A Common Stock at the beginning or end of each
six-month offering period (up to a maximum stock value of the lesser of $25,000
per calendar year or 10 percent of salary).
COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS
(as of September 30, 2002)
William O. Grabe (Chairman)
Anne Sutherland Fuchs
David J. Roux
Maynard G. Webb, Jr.
16
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides information about compensation paid by us
during the fiscal years ended September 30, 2000, 2001 and 2002 to (i) our Chief
Executive Officer and (ii) each of our other executive officers who were serving
in such capacity at the end of fiscal 2002 (collectively, the "Named Executive
Officers"):
Long-Term
Compensation
Awards
Annual ------------
Compensation(1) Securities
Fiscal ------------------------ Underlying All Other
Name and Principal Position Year Salary ($) Bonus ($)(2) Options(#) Compensation($)(3)
- --------------------------- ---- ---------- ------------ ---------- ------------------
Michael D. Fleisher (4) 2002 $450,000 $450,000 500,000 $16,451
Chief Executive Officer 2001 450,000 360,000 ------ 10,383
And President 2000 450,000 803,250 500,000 10,362
Regina M. Paolillo(5) 2002 350,000 300,000 250,000 14,710
Executive Vice President and 2001 346,000 240,000 ------ 12,014
Chief Financial Officer 2000 315,000 539,498 500,000 11,982
Robert E. Knapp (6) 2002 325,000 250,000 150,000 7,550
Executive Vice President, 2001 325,000 200,000 100,000 5,283
Research and Advisory 2000 49,376 75,000 250,000 60,625
Services
Steven Tait (7) 2002 300,000 200,000 150,000 110,121
Executive Vice President, 2001 300,000 160,000 175,000 7,400
Sales and Client Operations
- ----------
(1) The amounts shown exclude certain perquisites and other personal benefits,
such as car allowances. These amounts, in the aggregate, did not equal or
exceed the lesser of $50,000 or 10 percent of the total annual salary and
bonus for each executive officer.
(2) The amounts shown include bonuses earned in the fiscal year noted although
such amounts are payable in the subsequent fiscal year. The amounts shown
exclude bonuses paid in the fiscal year noted but earned in prior fiscal
years. The bonus awards indicated for Mr. Fleisher and Ms. Paolillo for
fiscal 2000 include 75 percent of a retention bonus approved in fiscal
1999 but not earned until fiscal 2000 (the other 25 percent was earned in
fiscal 1999). For fiscal 2000, the retention portion of these bonus awards
were $135,000 and $93,750, respectively, for Mr. Fleisher and Ms.
Paolillo.
(3) For fiscal 2002, the amount shown represents (i) premiums paid for life
insurance as follows: Mr. Fleisher - $8,213; Ms. Paolillo - $7,874; Mr.
Knapp - $1,450; and Mr. Tait - $2,850; (ii) premiums paid for long term
disability insurance: Mr. Fleisher - $2,138; Ms. Paolillo - $736; (iii)
matching and profit sharing contributions under our 401(k) plan as
follows: Mr. Fleisher - $6,100; Ms. Paolillo - $6,100; Mr. Knapp - $6,100;
and Mr. Tait - $6,100; and (iv) relocation expenses for Mr. Tait -
$101,171.
(4) Mr. Fleisher was appointed Chief Executive Officer in October 1999 and
President in May 2001.
(5) Ms. Paolillo was appointed Executive Vice President and Chief Financial
Officer in October 1999. Ms. Paolillo resigned as of September 30, 2002.
(6) Mr. Knapp was appointed Executive Vice President in August 2000 when he
joined Gartner.
(7) Mr. Tait was appointed Executive Vice President in June 2001. Mr. Tait
announced his resignation effective March 31, 2003.
17
OPTIONS GRANTED IN FISCAL 2002 TO THE NAMED EXECUTIVE OFFICERS
The following table provides information regarding stock options to
purchase our Class A Common Stock granted to the Named Executive Officers during
fiscal 2002:
Individual Grant (1) Potential Realizable
-------------------------------------------- Value at Assumed Annual
Number of % of Total Options Stock Price Rates of
Securities Granted to Exercise Appreciation for Option Term (2)
Underlying Employees Price Expiration --------------------------------
Name Options in Fiscal Year Per Share Date 5% 10%
---- ------- -------------- --------- -------- -- ---
Michael D. Fleisher 500,000 8.97% $8.90 10/02/11 $2,798,581 $7,092,154
Regina M. Paolillo 250,000 4.49% 8.90 10/02/11 943,108 2,368,972
Robert E. Knapp 150,000 2.69% 8.90 10/02/11 839,574 2,127,646
Steven Tait 150,000 2.69% 8.90 10/02/11 839,574 2,127,646
- ----------
(1) These options were granted under our 1994 or 1996 Long Term Stock Option
Plan and are subject to the terms of the applicable plan. Twenty-five
percent of the options become exercisable on the first anniversary of the
grant date and 2.08% of the options become exercisable monthly thereafter.
(2) Shown are the hypothetical gains or option spreads that would exist for
the respective options. These gains are based on assumed rates of annual
compounded stock price appreciation on our Class A Common Stock of 5% and
10% from the date the option was granted over the option term of ten
years. The 5% and 10% assumed rates of appreciation are mandated by SEC
rules and do not represent our projection of future increases in the price
of our Class A Common Stock.
OPTIONS EXERCISED IN FISCAL 2002 BY THE NAMED EXECUTIVE OFFICERS AND FISCAL 2002
YEAR-END OPTION VALUES
The following table provides information regarding options exercised by
each Named Executive Officer during fiscal 2002, the number of unexercised
options at fiscal year-end and the value of unexercised "in-the-money" options
at fiscal year-end:
Number of Securities Value of Unexercised
Number of Underlying Unexercised In-the-Money Options
Shares Options at Fiscal Year-End at Fiscal Year-End (1)
Acquired Value ---------------------------- ---------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
Michael D. Fleisher -- $ -- 906,167 793,333 $27,360 $ --
Regina M. Paolillo -- -- 445,767 347,291 54,720 --
Robert E. Knapp ... -- -- 197,917 302,083 -- --
Steven Tait ....... -- -- 103,125 296,875 -- --
- ----------
(1) The values for "in-the-money" options represent the difference between the
exercise price of the options and the closing price of our Class A Common
Stock on September 30, 2002, which was $8.10 per share.
18
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table provides information as of the end of fiscal 2002
regarding compensation plans under which shares of our Class A Common Stock are
authorized for issuance:
Number of securities
remaining available for
future issuance under
Number of securities to Weighted-average equity compensation plans
be issued upon exercise exercise price of (excluding securities
of outstanding options, outstanding options, reflected in the first
Plan category warrants and rights warrants and rights column)
------------- ------------------------- ----------------------- ---------------------------
Equity compensation plans approved by
stockholders
Employee stock option plans(1) .... 15,406,483 $ 15.39 2,008,047
Employee stock purchase plans(2) .. 0 N/A 4,125,885
Equity compensation plans not approved
by stockholders(3) ................... 18,599,834 $ 10.15 3,990,266
---------- ---------- ----------
Total ............... 34,006,317 $ 12.52 10,124,198
- ----------
(1) Consists of the 1993 Director Stock Option Plan, 1994 Long Term Option
Plan, 1996 Long Term Stock Option Plan and 1998 Long Term Stock Option
Plan.
(2) Consists of the 1993 Employee Stock Purchase Plan and 2002 Employee Stock
Purchase Plan.
(3) Consists of the 1999 Stock Option Plan.
We did not ask our stockholders to approve the 1999 Stock Option Plan. If
our stockholders approve the 2003 Long-Term Incentive Plan, no further awards
will be made under the 1999 Plan and our stockholders will have approved all of
our broad-based equity incentive plans. The 1999 Plan permits our Compensation
Committee to grant non-qualified and incentive stock options and other types of
awards relating to our Class A Common Stock to eligible employees and to set the
terms and conditions of the awards. Directors and executive officers may not
receive grants under this plan. All awards under the 1999 Plan have been
non-qualified stock options and are fully exercisable in (i) three equal
installments in the three years following the date of grant; or (ii) twenty-five
percent of the options become exercisable on the first anniversary of the grant
date and 2.08% of the options become exercisable monthly thereafter. All awards
have a term of ten years, assuming continued employment. If additional awards
under the 1999 Stock Option Plan are prohibited as a result of the approval of
the 2003 Long-Term Incentive Plan, awards outstanding under the 1999 Stock
Option Plan will continue to be subject to its terms.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our Compensation Committee currently consists of Messrs. Roux, Smith and
Webb. No member of our Compensation Committee is a current or former officer or
employee of Gartner or any of our subsidiaries. None of our executive officers
has served on the board of directors or on the compensation committee of any
other entity that had an executive officer serving on our Board or our
Compensation Committee.
EMPLOYMENT AGREEMENTS WITH CURRENT AND NAMED EXECUTIVE OFFICERS
Mr. Fleisher. Mr. Fleisher entered into an Employment Agreement effective
October 1, 2002 (the "Fleisher Agreement"). Mr. Fleisher's new compensation
package was designed to compensate him for the additional responsibilities he
holds as Chairman of our Board and was determined after considering compensation
levels of other chairmen and chief executive officers at comparable companies.
Under the Fleisher Agreement, he will serve as Chairman and Chief Executive
Officer through September 30, 2005, and thereafter for subsequent one year
periods unless either party provides ninety days' written notice of its
intention not to renew. During the term of the Fleisher Agreement, Mr. Fleisher
will be included on our slate of nominees to be elected to our Board.
19
Under the Fleisher Agreement, Mr. Fleisher will receive a base salary of
$650,000 for fiscal 2003; thereafter his base salary is subject to annual
adjustments by our Board or Compensation Committee. For fiscal 2003, Mr.
Fleisher's target bonus is between $650,000 and $975,000; thereafter our Board
or Compensation Committee will establish the annual target bonus, and the bonus
will be payable based on achievement of specified objectives. Under the Fleisher
Agreement, Mr. Fleisher received a grant of 250,000 stock options on October 1,
2002, and will receive additional grants of 250,000 options each on October 1,
2003 and October 1, 2004. These stock options will vest 25% one year after grant
and 2.08% per month thereafter, subject to continuous status as an employee or
consultant.
Mr. Fleisher's employment is at will and may be terminated by him or us
upon sixty days' notice. If we terminate Mr. Fleisher's employment involuntarily
without Business Reasons (as defined in the Fleisher Agreement) or a
Constructive Termination (as defined in the Fleisher Agreement) occurs, or if we
do not renew the Fleisher Agreement upon its expiration, Mr. Fleisher will be
entitled to receive: (a) his base salary for two years following the Termination
Date (as defined in the Fleisher Agreement) at the rate then in effect, payable
in accordance with our regular payroll schedule; (b) his target bonus for the
year in which the Termination Date occurs, target bonus for the next fiscal
year, and a pro-rated portion of his target bonus for the balance of the two
year severance period, payable concurrently with our payment of bonuses to other
executives; (c) acceleration in full of vesting of all equity arrangements
subject to vesting and granted prior to October 1, 2002; (d) continued vesting
during the Severance Period (as defined in the Fleisher Agreement) of all
outstanding equity awards granted on or after October 1, 2002; (e) the ability
to exercise all equity arrangements for either one year following the
Termination Date or one year following the end of the Severance Period; (f) at
our cost, group health benefits pursuant to our standard programs for himself,
his spouse and any children for two years after the Termination Date or until he
obtains other employment, if that occurs sooner; and (g) reasonable office
support for one year following the Termination Date, or until he obtains other
employment, if that occurs sooner. We will not be required to continue to pay
the bonus specified in clause (b) above if Mr. Fleisher violates his
non-competition obligations to us.
If a Change in Control (as defined in the Fleisher Agreement) occurs, upon
the Change in Control Mr. Fleisher will be entitled to receive: (a) three times
his base salary then in effect; (b) three times his minimum target bonus for the
fiscal year in which the Change in Control occurs (plus any unpaid bonus from
the prior fiscal year); (c) acceleration in full of vesting of all equity
arrangements subject to vesting; (d) the ability to exercise all options
received for either 90 days or one year following the Change in Control; (e) at
our cost, group health benefits pursuant to our standard programs for himself,
his spouse and any children for three years after the Change in Control; and (f)
any Gross-Up Payments (as defined in the Fleisher Agreement) for Mr. Fleisher's
excise tax liabilities.
If Mr. Fleisher's employment is terminated due to his disability, Mr.
Fleisher will be entitled to receive (a) base salary for three years after the
Termination Date at the rate then in effect; (b) his minimum target bonus for
the fiscal year in which the termination occurs, payable on the Termination
Date; (c) following the end of the fiscal year in which the termination occurs,
any bonus that would have been payable in excess of the minimum target bonus for
the year in which the termination occurs; (d) acceleration in full of vesting of
all equity arrangements subject to vesting, and all options will remain
exercisable for either 90 days or one year after the Termination Date; and (e)
at our cost, group health benefits pursuant to our standard programs for
himself, his spouse and any children for three years after the Termination Date.
We may deduct from the salary specified in clause (a) above, any payments
received by Mr. Fleisher under any disability benefit program maintained by us.
Ms. Paolillo. Ms. Paolillo entered into an employment agreement effective
July 1, 2000 (the "Paolillo Agreement"). Under the Paolillo Agreement, she was
to serve as Executive Vice President and Chief Financial Officer through
September 30, 2003, unless either she or we terminated the Agreement upon sixty
days' notice. Ms. Paolillo resigned her position as of September 30, 2002 and
accordingly has received or will receive the following benefits under the
Paolillo Agreement: (i) salary for eighteen months following her termination
date, at the rate then in effect; (ii) the right to vest in all equity
arrangements subject to vesting while salary continues to be paid and the right
to exercise all stock options held by Ms. Paolillo for thirty days following the
last date on which salary is paid (or such longer period as may be provided in
the applicable stock option plan or agreement), but only to the extent vested as
of the last date on which salary is paid; and (iii) continuation of group health
plan benefits pursuant to our standard programs as in effect from time to time.
Ms. O'Connell. Ms. O'Connell entered into an Employment Agreement
effective September 23, 2002 (the "O'Connell Agreement"). Under the O'Connell
Agreement, she will serve as Executive Vice President and Chief Financial and
Administrative Officer through September 30, 2005, and thereafter for subsequent
one year periods unless either party provides ninety days' written notice of its
intention not to renew.
20
Under the O'Connell Agreement, Ms. O'Connell will receive a base salary of
$500,000 for fiscal 2003; thereafter her base salary is subject to annual
adjustments by our Board or Compensation Committee. For fiscal 2003, Ms.
O'Connell's target bonus is between $400,000 and $800,000; thereafter our Board
or Compensation Committee will establish the annual target bonus, and the bonus
will be payable based on achievement of specified objectives. Under the
O'Connell Agreement, Ms. O'Connell received a grant of 650,000 stock options on
October 17, 2002. These stock options will vest 25% one year after grant and
2.08% per month thereafter, subject to continuous status as an employee or
consultant. Ms. O'Connell also received a sign-on bonus of $400,000.
Ms. O'Connell's employment is at will and may be terminated by her or us
upon thirty days' notice. If we terminate Ms. O'Connell's employment
involuntarily without Business Reasons (as defined in the O'Connell Agreement)
or a Constructive Termination (as defined in the O'Connell Agreement) occurs, or
if we do not renew the O'Connell Agreement upon its expiration, Ms. O'Connell
will be entitled to receive: (a) her base salary for two years following the
Termination Date (as defined in the O'Connell Agreement) at the rate then in
effect, payable in accordance with our regular payroll schedule; (b) her target
bonus for the year in which the Termination Date occurs, target bonus for the
next fiscal year, and a pro-rated portion of her target bonus for the balance of
the two year severance period, payable concurrently with our payment of bonuses
to other executives; (c) continued vesting during the Severance Period (as
defined in the O'Connell Agreement) of all outstanding equity awards; (d) the
ability to exercise all equity arrangements for one year following the Severance
Period; (e) at our cost, group health benefits pursuant to our standard programs
for herself, her spouse and any children for two years after the Termination
Date or until she obtains other employment if that occurs sooner; and (f)
reasonable office support for one year following the Termination Date, or until
she obtains other employment, if that occurs sooner. We will not be required to
continue to pay the bonus specified in clause (b) above if Ms. O'Connell
violates her non-competition obligations to us.
If a Change in Control (as defined in the O'Connell Agreement) occurs,
upon the Change in Control, Ms. O'Connell will be entitled to receive: (a) three
times her base salary then in effect; (b) three times her minimum target bonus
for the fiscal year in which the Change in Control occurs (plus any unpaid bonus
from the prior fiscal year); (c) acceleration in full of vesting of all
outstanding equity arrangements subject to vesting; (d) the ability to exercise
all options received for one year following the Change in Control or termination
of employment, whichever is later; (e) at our cost, group health benefits
pursuant to our standard programs for herself, her spouse and any children for
three years after the Change in Control; and (f) any Gross-Up Payments (as
defined in the O'Connell Agreement) for Ms. O'Connell's excise tax liabilities.
If Ms. O'Connell's employment is terminated due to her disability, Ms.
O'Connell will be entitled to receive: (a) base salary for three years after the
Termination Date at the rate then in effect; (b) her minimum target bonus for
the fiscal year in which the termination occurs, payable on the Termination
Date; (c) following the end of the fiscal year in which the termination occurs,
any bonus that would have been payable in excess of the minimum target bonus for
the year in which the termination occurs; (d) acceleration in full of vesting of
all outstanding stock options, and all options will remain exercisable for one
year after the Termination Date; and (e) at our cost, group health benefits
pursuant to our standard programs for herself, her spouse and any children for
three years after the Termination Date. We may deduct from the salary specified
in clause (a) above, any payments received by Ms. O'Connell under any disability
benefit program maintained by us.
Other Executive Officers. Mr. Knapp entered into an employment agreement
effective August 7, 2000, as amended by Addendum No. 1 to Employment Agreement
dated February 1, 2001 (the "Knapp Agreement"). Under the Knapp Agreement, he
will serve as Executive Vice President through September 30, 2003, and
thereafter for subsequent one year periods unless either party provides ninety
days' written notice of its intention not to renew. Mr. Tait entered into an
employment agreement effective June 15, 2001 (the "Tait Agreement"). Under the
Tait Agreement, he will serve as Executive Vice President through September 30,
2003, and thereafter for subsequent one year periods unless either party
provides ninety days' written notice of its intention not to renew. Mr. Tait has
resigned his position as of March 31, 2003.
During fiscal 2002, Mr. Knapp received a base salary of $325,000 and Mr.
Tait received a base salary of $300,000. These salaries are subject to annual
adjustments by our Board or our Compensation Committee. For fiscal 2002, Mr.
Knapp's bonus target was between $250,000 and $500,000 and Mr. Tait's bonus
target was between $200,000 and $400,000. These target bonuses will be
established annually by our Board or our Compensation Committee, and will be
payable based on achievement of specified objectives.
21
Mr. Knapp's and Mr. Tait's employment is at will and may be terminated by
them or us upon sixty days' notice. Mr. Tait has resigned his position as of
March 31, 2003. If we terminate their employment involuntarily without Business
Reasons (as defined in the respective Agreements) or if a Constructive
Termination (as defined in the respective Agreements) occurs, other than
following a Change in Control, each will be entitled to receive: (a) his base
salary for three years following the Termination Date at the rate then in
effect, payable in accordance with our regular payroll schedule; (b) his minimum
bonus for the fiscal year in which the termination occurs, plus any unpaid bonus
from the prior fiscal year, payable on the Termination Date; (c) following the
end of the fiscal year in which the termination occurs, a pro rata share (based
on the proportion of the year during which he was employed) of the bonus that
would have been payable in excess of the target bonus for the year in which the
termination occurs; (d) following the end of the first fiscal year following the
fiscal year in which the Termination Date occurs, his minimum target bonus for
such following fiscal year (or, if the target bonus for such year was not
previously set, then his minimum target bonus for the fiscal year in which the
Termination Date occurred); (e) acceleration in full of vesting of all
outstanding equity arrangements subject to vesting, and all options and other
exercisable rights will remain exercisable for one year after the Termination
Date; (f) group health benefits pursuant to our standard programs for himself,
his spouse and any children for three years after the Termination Date; and (g)
automobile benefits for one year. We will not be required to continue to pay the
salary or bonus specified in clauses (a) through (d) above if the executive
violates his non-competition obligations to us.
If a Change in Control (as defined in the respective Agreement) occurs,
upon the Change in Control each will be entitled to receive: (a) three times his
base salary then in effect; (b) three times his target bonus for the fiscal year
in which the Change in Control occurs (plus any unpaid bonus from the prior
fiscal year); (c) acceleration in full of vesting of all outstanding equity
arrangements subject to vesting, and all options and other exercisable rights
will remain exercisable for one year after the Change in Control; (d) group
health benefits pursuant to our standard programs for himself, his spouse and
any children for three years after the Termination Date; and (e) any Gross-Up
Payments (as defined in the respective Agreement) for his excise tax
liabilities.
If Mr. Knapp's or Mr. Tait's employment is terminated due to his
disability, he will be entitled to receive: (a) base salary for three years
after the Termination Date at the rate then in effect; (b) his minimum target
bonus for the fiscal year in which the termination occurs, plus any unpaid bonus
from the prior fiscal year, payable on the Termination Date; (c) following the
end of the fiscal year in which the termination occurs, any bonus that would
have been payable in excess of the minimum target bonus for the year in which
the termination occurs; (d) acceleration in full of vesting of all outstanding
stock options, and all options will remain exercisable for one year after the
Termination Date; and (e) group health benefits pursuant to our standard
programs for himself, his spouse and any children for one and one half years
after the Termination Date. We may deduct from the salary specified in clause
(a) above, any payments received by the executive under any disability benefit
program maintained by us.
22
AUDIT COMMITTEE REPORT
Our Board has appointed an Audit Committee consisting of three
"independent" directors, as defined under current New York Stock Exchange
listing standards and the Sarbanes-Oxley Act of 2002 (the "Act").
We operate under a written charter adopted by our Board. We review the
charter at least annually and we last modified the charter in October 2002. A
copy of the modified charter is attached as Appendix B. We hold regularly
scheduled meetings at least four times each fiscal year and we meet more
frequently as appropriate. We have the power and funding to retain independent
counsel and other advisers as we deem necessary to carry out our duties as
required by Section 301 of the Act.
We are directly responsible for the appointment, compensation and
oversight of the independent auditors, including establishing the independence
of the auditors, approving the engagement letter describing the scope of the
audit and resolving disagreements between management and the auditors regarding
financial reporting, for the purpose of issuing an audit report in connection
with our financial statements. The auditors report directly to us. By meeting
regularly with independent auditors, internal auditing and operating and
financial management personnel, we oversee matters relating to accounting
standards, policies and practices, changes to these standards, polices and
practices and the effects of any changes on our financial statements, financial
reporting practices and the quality and adequacy of internal controls.
KPMG, LLC has audited our financial statements since September 1996.
During fiscal 2002, KPMG performed recurring audit services, including the
examination of our annual financial statements, limited reviews of quarterly
financial information and certain statutory audits. KPMG also performed services
for us in other business areas. The following table sets forth the fees billed
for these professional services during fiscal 2002:
Audit Fees $ 550,000
Financial Information Systems
Design and Implementation Fees $ 0
All Other Fees $ 450,000
Tax Consultations $ 38,000
International Tax Fees $ 262,000
Transfer Pricing Study $ 150,000
Total $1,000,000
We reviewed and discussed our audited financial statements for fiscal 2002
with management and KPMG. We also discussed with KPMG the matters required by
Statement on Auditing Standards No. 61 (Communications with Audit Committees),
as amended. This included a discussion of our auditors' judgments as to the
quality, not just the acceptability, of our accounting principles, and other
matters that generally accepted auditing standards require to be discussed with
an audit committee. We also received the written disclosures and the letter from
KPMG required by Independence Standards Board Standard No. 1 (Independence
Discussion with Audit Committees) and discussed with KPMG their independence. We
have determined that the provision of financial information systems design and
implementation services and all other non-audit services by KPMG is compatible
with the auditors' independence.
Based on our review and discussions noted above, we recommended to our
Board, and our Board approved, that the audited financial statements be included
in our Annual Report on Form 10-K for the fiscal year ended September 30, 2002.
We have reappointed KPMG as our independent auditors for our next fiscal
year. We are not asking stockholders to ratify this appointment since the Act
requires that the audit committee have the sole responsibility for appointing
the independent auditors. A representative of KPMG will be at the Annual
Meeting, will have the opportunity to make a statement and will answer
appropriate questions.
AUDIT COMMITTEE OF THE BOARD OF
DIRECTORS (as of September 30, 2002)
Stephen G. Pagliuca (Chairman)
Glenn H. Hutchins
Dennis G. Sisco
23
COMPARISON OF TOTAL CUMULATIVE STOCKHOLDER RETURN
The following graph compares our Class A Common Stock performance to the
performance of Standard & Poor's Stock 400 Index and a Peer Group Index.
We have removed the JP Morgan H&Q Technology Index from our performance
graph because this index is no longer published. We have replaced it with a peer
group consisting of Forrester Research, Inc., Giga Information Group, Inc. and
Meta Group, Inc. These companies represent the most significant publicly traded
companies that we believe compete with us in our most important line of
business: independent research and analysis on information technology, computer
hardware, software, communications and related technology industries. There are
no publicly traded information technology research companies that also compete
with us in our consulting and events businesses.
The comparison assumes $100.00 was invested on September 30, 1997 in our
Class A Common Stock and in each of the indices, and assumes the reinvestment of
dividends, if any.
The comparisons in the graph below are provided in response to SEC
disclosure requirements and are not intended to forecast or be indicative of
future performance of our Class A Common Stock.
[PERFORMANCE GRAPH]
Date Gartner Class A S&P Mid Cap 400 Peer Index
9/30/1997 100.00 100.00 100.00
9/30/1998 69.58 93.67 121.08
9/30/1999 57.31 117.47 100.32
9/30/2000 41.64 168.14 207.35
9/30/2001 32.41 136.26 146.63
9/30/2002 38.86 127.83 90.67
24
OTHER INFORMATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Based on our review of information on file with the Securities and
Exchange Commission and our stock records, the following table provides certain
information about beneficial ownership of our Class A and Class B Common Stock
as of December 31, 2002 by: (i) each person (or group of affiliated persons)
which is known by us to own beneficially more than five percent of our Class A
or Class B Common Stock, (ii) each of our directors, (iii) each Named Executive
Officer, and (iv) all directors and current executive officers as a group.
Except as indicated in the footnotes to this table, the persons named in the
table have sole voting and investment power with respect to all shares shown as
owned beneficially by them, subject to community property laws where applicable.
Number of Percent of Number of Percent of
Name of Beneficial Owner Class A Shares Class A Class B Shares Class B
------------------------ -------------- ------- -------------- -------
VA Partners, L.L.C. (1) 6,308,500 11.8% 3,976,246 13.4%
One Maritime Plaza, Suite 1400, San Francisco, CA 94111
Wellington Management Company, LLP (2) 6,190,700 11.6% -- --
75 State Street, Boston, MA 02109
Lazard Freres & Co., L.L.C. (3) 4,244,575 8.0% -- --
30 Rockefeller Plaza, New York, NY 10020
Shapiro Capital Management Company, Inc.(4) -- -- 4,562,230 15.3%
3060 Peachtree Road, N.W., Atlanta, GA 30305
First Manhattan Co. (5) -- -- 2,115,543 7.1%
437 Madison Avenue, New York, NY 10022
John A. Levin & Co., Inc. (6) -- -- 1,783,400 6.0%
One Rockefeller Plaza, New York, NY 10020
Franklin Resources, Inc. (7) -- -- 1,661,096 5.6%
777 Mariners Island Boulevard, San Mateo, CA 94404
Michael D. Fleisher (8) 1,294,279 2.5% 3,000 *
Anne Sutherland Fuchs (9) 34,001 * -- --
William O. Grabe (10) 98,001 * -- --
Max D. Hopper (11) 45,001 * -- --
Glenn H. Hutchins -- -- -- --
Stephen G. Pagliuca (12) 92,001 * -- --
David J. Roux -- -- -- --
Dennis G. Sisco (13) 29,001 * 1,089 *
James C. Smith -- -- -- --
Maynard G. Webb, Jr. (14) 25,000 -- -- --
Regina M. Paolillo (15) 614,958 1.2% -- --
Robert E. Knapp (16) 262,557 * -- --
Steven Tait (17) 171,655 * -- --
All current directors, director nominees and current executive
officers as a group (14 persons) (18) 2,163,189 4.2% 4,089 *
* Less than 1%
- ----------
(1) The shares shown as beneficially owned by VA Partners, L.L.C. were
reported in its Amended Schedules 13D filed with the SEC on October 7,
2002 and October 15, 2002. Such Schedules indicate that VA Partners,
L.L.C. beneficially owns such shares as general partner or investment
manager of ValueAct Capital Partners, L.P., ValueAct Capital Partners II,
L.P. and ValueAct Capital International, Ltd. Such Schedules also indicate
that such shares are beneficially owned by Jeffrey W. Ubben, George F.
Hamel, Jr. and Peter H. Kamin, who are each managing members, principal
owners and controlling persons of VA Partners, L.L.C., and directors and
principal executive officers of ValueAct Capital International, Ltd. Such
Schedules indicate that VA Partners, L.L.C. and the individuals have
shared voting and dispositive power over all the shares, but that the
other entities have shared voting and dispositive power over the shares
held by each.
25
(2) The shares shown as beneficially owned by Wellington Management Company,
LLP were reported in its Amended Schedule 13G filed with the SEC on
February 12, 2002. Such Schedule indicates that Wellington has shared
voting power with respect to 4,929,300 shares and shared dispositive power
with respect to all 6,190,700 shares.
(3) The shares shown as beneficially owned by Lazard Freres & Co., L.L.C. were
reported in its Amended Schedule 13G filed with the SEC on February 15,
2002. Such Schedule indicates that Lazard has sole voting power with
respect to 3,417,794 shares and shared voting power with respect to
826,780 shares.
(4) The shares shown as beneficially owned by Shapiro Capital Management
Company, Inc. were reported in its Schedule 13G filed with the SEC on
February 15, 2002.
(5) The shares shown as beneficially owned by First Manhattan Co. were
reported in its Amended Schedule 13G filed with the SEC on February 15,
2002. Such Schedule indicates that First Manhattan Co. has sole voting
power and sole dispositive power with respect to 255,875 shares, shared
voting power with respect to 1,637,445 shares and shared dispositive power
with respect to 1,859,668 shares.
(6) The shares shown as beneficially owned by John A. Levin & Co., Inc. were
reported in its Schedule 13G filed with the SEC on February 14, 2002. Such
Schedule indicates that John A. Levin & Co., Inc. has sole voting and
dispositive power with respect to 1,597,400 shares and shared voting and
dispositive power with respect to 186,000 shares.
(7) The shares shown as beneficially owned by Franklin Resources, Inc. were
reported in its Amended Schedule 13G filed with the SEC on February 14,
2002. Such Schedule indicates that investment advisory subsidiaries, and
other affiliates of, Franklin Resources, Inc., have, in the aggregate,
sole voting and dispositive power with respect to all 1,661,096 shares.
(8) Includes 1,185,334 shares of Class A Common Stock issuable upon the
exercise of stock options that are exercisable within 60 days of December
31, 2002.
(9) Includes 29,001 shares of Class A Common Stock issuable upon the exercise
of stock options that are exercisable within 60 days of December 31, 2002.
(10) Includes 24,001 shares of Class A Common Stock issuable upon the exercise
of stock options that are exercisable within 60 days of December 31, 2002.
(11) Includes 24,001 shares of Class A Common Stock issuable upon the exercise
of stock options that are exercisable within 60 days of December 31, 2002.
(12) Includes 24,001 shares of Class A Common Stock issuable upon the exercise
of stock options that are exercisable within 60 days of December 31, 2002,
and includes 10,000 shares of Class A Common Stock that are owned by Mr.
Pagliuca indirectly.
(13) Includes 24,001 shares of Class A Common Stock issuable upon the exercise
of stock options that are exercisable within 60 days of December 31, 2002.
(14) Includes 5,000 shares of Class A Common Stock issuable upon the exercise
of stock options that are exercisable within 60 days of December 31, 2002.
(15) Includes 585,350 shares of Class A Common Stock issuable upon the exercise
of stock options that are exercisable within 60 days of December 31, 2002.
(16) Includes 258,334 shares of Class A Common Stock issuable upon the exercise
of stock options that are exercisable within 60 days of December 31. 2002,
and 4,223 shares of Class A Common Stock that are held by Mr. Knapp
indirectly through our 401(k) plan.
(17) Includes 171,355 shares of Class A Common Stock issuable upon the exercise
of stock options that are exercisable within 60 days of December 31, 2002.
(18) Includes 1,850,819 shares of Class A Common Stock issuable upon the
exercise of stock options that are exercisable within 60 days of December
31, 2002.
26
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our
executive officers, directors and persons who beneficially own more than 10% of
either class of our Common Stock to file reports of ownership and changes of
ownership with the SEC and to furnish us with copies of the reports they file.
Based solely on our review of the reports received by us, or written
representations from certain reporting persons, we believe that all reports were
timely filed, except as follows: Ms. Fuchs filed one late form 5 which reported
five transactions.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
RELATIONSHIP WITH SILVER LAKE PARTNERS, L.P.
On April 17, 2000, we issued and sold an aggregate of $300 million
principal amount of our unsecured 6% Convertible Junior Subordinated Promissory
Notes due April 17, 2005 to Silver Lake Partners, L.P. ("Silver Lake") and
certain of Silver Lake's affiliates and to Integral Capital Partners IV, L.P.
and one of its affiliates. In connection with the issuance of the Notes, we
agreed that Silver Lake would recommend two nominees for director and we would
include the Silver Lake nominees on our slate of nominees to be elected to our
Board. This obligation exists while Silver Lake owns the Notes, or Class A
Common Stock that, on an "as converted" basis, represents at least 20 percent of
our Class A Common Stock into which the Notes were convertible when they were
issued. As of December 31, 2002, if Silver Lake were to convert the notes into
shares, it would own more than 20 percent of our Class A Common Stock. Mr.
Hutchins and Mr. Roux are each a nominee of Silver Lake.
Mr. Hutchins is a managing member of the general partner of Silver Lake
and is a member of some of the affiliates of Silver Lake and receives
compensation from those affiliates. Mr. Roux is a managing member of the general
partner of Silver Lake and is a member of some of the affiliates of Silver Lake
and receives compensation from those affiliates.
Silver Lake purchased subscription research services from us between
September 1, 2001 and August 31, 2002 for $106,000 and has contracted to
purchase subscription research services from us between September 1, 2002 to
August 31, 2003 for $150,000.
RELATIONSHIPS WITH OTHER THIRD PARTIES
Several of our other directors are employed by companies that purchase our
research and consulting services in the ordinary course of their business.
During fiscal 2002, Bain Capital, Inc. purchased research and consulting
services for $196,300; Behrman Capital purchased research services for $162,100;
eBay, Inc. purchased research services for $66,000 and General Atlantic Partners
purchased research and consulting services for $398,100. For fiscal 2003, Bain
Capital, Inc. has contracted to purchase research services for $176,300 and
General Atlantic Partners has contracted to purchase research services for
$313,100.
LOANS TO EXECUTIVE OFFICERS
On July 6, 2000 we provided a $400,000 term loan to Ms. Paolillo, our
former Executive Vice President and Chief Financial Officer, which she repaid in
full upon termination of her employment. The interest rate on the loan was
6.52%, compounded annually. If it had not been repaid, the outstanding principal
balance and accrued interest would have been due and payable on December 15,
2007 (subject to certain mandatory prepayments out of bonuses she might have
earned). The largest aggregate amount of indebtedness during fiscal 2002 was
$461,710.79.
On December 17, 2001 we provided a $400,000 term loan to Mr. Tait, our
Executive Vice President, Sales and Client Operations, which was repaid in full
in connection with his planned termination of employment. The interest rate on
the loan was 3.97%, compounded annually. If it had not been repaid, the
outstanding principal balance and accrued interest would have been due and
payable on December 15, 2008 (subject to certain mandatory prepayments out of
bonuses he might have earned). The largest aggregate amount of indebtedness
outstanding during fiscal 2002 was $412,659.57.
27
MISCELLANEOUS
SOLICITATION OF PROXIES
We will pay the cost for the solicitation of proxies for the Annual
Meeting, including the cost of the mailing. We will request that brokerage
houses and other custodians mail proxy materials to their customers and we will
reimburse them for reasonable out-of-pocket expenses incurred in the mailing.
We have retained Georgeson Shareholder, at an estimated cost of $9,500,
plus out-of-pocket expenses, to assist us in the solicitation of proxies.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS FOR OUR 2004 ANNUAL MEETING
If you want to make a proposal for consideration at next year's Annual
Meeting and have it included in our proxy materials, we must receive your
proposal by December 16, 2003, and the proposal must comply with the rules of
the Securities and Exchange Commission.
If you want to make a proposal for consideration at next year's Annual
Meeting without having the proposal included in our proxy materials, we must
receive your proposal at least 90 days prior to the 2004 Annual Meeting. If we
give less than 100 days' notice of the 2004 Annual Meeting, we must receive your
proposal within ten days after we give the notice.
If we do not receive your proposal by the appropriate deadline, then it
may not be brought before the 2004 Annual Meeting.
Proposals should be addressed to the Corporate Secretary, Gartner, Inc.,
56 Top Gallant Road, P.O. Box 10212, Stamford, Connecticut 06904-2212.
ANNUAL REPORT
Our Annual Report for the fiscal year ended September 30, 2002 is being
mailed to our stockholders of record concurrently with this Proxy Statement. Our
Annual Report is not part of this Proxy Statement.
Upon written request of any person solicited, our Annual Report on Form
10-K for the fiscal year ended September 30, 2002 as filed with the SEC may be
obtained, without charge, by writing to Investor Relations, Gartner, Inc., 56
Top Gallant Road, P.O. Box 10212, Stamford, Connecticut 06904-2212.
THE BOARD OF DIRECTORS
GARTNER, INC.
/s/ Lewis G. Schwartz
Lewis G. Schwartz
Corporate Secretary
Stamford, Connecticut
January 17, 2003
28
APPENDIX A
GARTNER, INC.
2003 LONG-TERM INCENTIVE PLAN
1. Purpose of the Plan. The purpose of this 2003 Long-Term Incentive Plan is to
enable the Company to provide incentive to eligible employees, officers,
consultants and directors whose present and potential contributions are
important to the continued success of the Company, to afford these individuals
the opportunity to acquire a proprietary interest in the Company, and to enable
the Company to enlist and retain qualified personnel. This purpose will be
effected through the granting of (a) stock options, (b) stock appreciation
rights, (c) restricted stock awards, (d) long-term performance awards, and (e)
director common stock equivalents.
2. Definitions.
(a) "Award" means an Option, SAR, Restricted Stock Award, Long-Term
Performance Award or Common Stock Equivalent awarded under the Plan.
(b) "Award Agreement" means a written agreement between the Company and a
Participant evidencing the terms and conditions of an individual Award.
(c) "Board" means the Board of Directors of the Company.
(d) "Change in Control" means the happening of any of the following:
(i) when any "person," as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than the Company, a Subsidiary or a
Company employee benefit plan, including any trustee of such plan acting
as trustee) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Company representing more than fifty (50%) of the combined voting power of
the Company's then outstanding securities entitled to vote generally in
the election of directors (other than as a result of a repurchase of
securities by the Company or in connection with a transaction described in
clause (ii) below); or
(ii) a merger or consolidation of the Company with any other entity,
other than a merger or consolidation that would result in the voting
securities of the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Company
or such surviving entity outstanding immediately after such merger or
consolidation; or
(iii) the stockholders of the Company approve an agreement for the
sale or disposition by the Company of all or substantially all the
Company's assets; or
(iv) a change in the composition of the Board occurring after
approval of the Plan by the Company's stockholders, as a result of which
fewer than a majority of the Directors holding voting rights on the Board
are Incumbent Directors.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Committee" means a Committee appointed by the Board in accordance
with Section 10 to administer the Plan or, if no Committee is appointed, the
entire Board.
(g) "Common Stock" means the Class A Common Stock of the Company.
(h) "Common Stock Equivalent" means a right to receive Shares in the
future that may be granted to an Outside Director pursuant to Section 9.
(i) "Company" means Gartner, Inc., a Delaware corporation.
(j) "Consultant" means any person, including an advisor, engaged by the
Company or a Parent or Subsidiary to render services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the
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Company for their services as Directors.
(k) "Director" means a member of the Board and, except for the purposes of
determining the eligibility for grants of Options under Section 9, also means
any Director Emeritus appointed in accordance with the Company's Bylaws.
(l) "Employee" means any person, including any officer or Director,
employed by the Company or any Parent or Subsidiary of the Company. A Director
whose services to the Company are limited to services as a Director will not be
considered "employed" by the Company.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(n) "Existing Plans" means the Company's 1993 Director Stock Option Plan,
1994 Long Term Option Plan, 1996 Long Term Stock Option Plan, 1998 Long Term
Stock Option Plan and 1999 Stock Option Plan.
(o) "Fair Market Value" means, as of any date, the fair market value of
the Common Stock as determined in good faith by the Committee. Absent a specific
determination by the Committee to the contrary, the fair market value of the
Common Stock will be the closing price of the Common Stock reported on a
consolidated basis on the New York Stock Exchange on the relevant date or, if
there were no sales on such date, the closing price on the nearest preceding
date on which sales occurred.
(p) "Freestanding SARs" means a SAR granted under Section 6 without a
related Option.
(q) "Incentive Stock Option" means an Option that is intended to qualify
as an "incentive stock option" under Section 422 of the Code or any successor
provision.
(r) "Incumbent Directors" means Directors who either are (A) directors of
the Company as of the date the Plan is approved by the Company's stockholders,
or (B) elected, or nominated for election, to the Board with the affirmative
votes of at least a majority of the Incumbent Directors (or majority of the
Incumbent Directors serving as members of any nominating or similar committee of
the Board) at the time of such election or nomination (but shall not include an
individual whose election or nomination is in connection with an actual or
threatened proxy contest relating to the election of Directors).
(s) "Long-Term Performance Award" means an award under Section 8. A
Long-Term Performance Award will permit the recipient to receive a cash or stock
bonus upon satisfaction of such Performance Objectives as the Committee may
determine.
(t) "Nonstatutory Stock Option" means an Option that is not intended to
qualify as an Incentive Stock Option.
(u) "Option" means an option to purchase Shares of Common Stock granted
under Section 5 or 9(f).
(v) "Outside Director" means a Director who is not an Employee.
(w) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(x) "Participant" means any person who receives an Award under the Plan.
(y) "Performance Objectives" means the performance objectives established
under this Plan for Participants who receive grants of Long-Term Performance
Awards or, if determined by the Committee, Restricted Stock Awards. Any
Performance Objectives that are intended to qualify as "performance-based
compensation" under Section 162(m) of the Code shall be limited to specified
levels of, or increases in, the Company's, Parent's or Subsidiary's return on
equity, earnings per share, total earnings, earnings growth, return on capital,
return on assets, economic value added, earnings before interest and taxes,
sales growth, gross margin return on investment, increase in the Fair Market
Value of the Shares, share price (including, but not limited to, growth measures
and total stockholder return), net operating profit, cash flow (including, but
not limited to, operating cash flow and free cash flow), cash flow return on
investment (which equals net cash flow divided by total capital), internal rate
of return, increase in net present value or expense targets. Except in the case
of an Award intended to qualify under Section
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162(m) of the Code, if the Committee determines that a change in the business,
operations, corporate structure or capital structure of the Company, or other
circumstances render the Performance Objectives unsuitable, the Committee may
modify such Performance Objectives or the related minimum acceptable level of
achievement, in whole or in part, as the Committee deems appropriate and
equitable.
(z) "Plan" means this 2003 Long-Term Incentive Plan.
(aa) "Quarterly Compensation" means the retainer fee and committee fees,
as applicable, that an Outside Director receives from the Company for each of
the Company's fiscal quarters.
(bb) "Restricted Stock" means shares of Common Stock that are subject to a
risk of forfeiture or other restrictions that will lapse upon the satisfaction
of specified conditions or the achievement of specified Performance Objectives.
(cc) "Restricted Stock Award" means a grant under Section 7 of Restricted
Stock or the right to purchase Restricted Stock.
(dd) "Rule 16b-3" means Rule 16b-3 under the Exchange Act or any successor
rule, as in effect when discretion is being exercised with respect to the Plan.
(ee) "SAR" means a stock appreciation right granted under Section 6.
(ff) "Share" means a share of Common Stock, as adjusted in accordance with
Section 11.
(gg) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
(hh) "Tandem SAR" means a SAR granted under Section 6 in connection with a
related Option.
3. Shares Available Under the Plan.
(a) Subject to adjustment under Section 11, 10,000,000 Shares are reserved
and available for distribution to Participants and their beneficiaries under the
Plan, less any Shares that are the subject of new awards under the Existing
Plans during the period from January 1, 2003 through the date that such awards
are prohibited under Section 22.
(b) The following Shares will continue to be available for distribution
under this Plan through the grant of additional Awards:
o Shares subject to any Award that is canceled, expires or lapses for
any reason;
o Shares used to pay the exercise or purchase price under any Award,
or to satisfy any tax withholding obligation attributable to any
Award, whether such Shares are withheld by the Company upon exercise
of the Award or are tendered by the Participant from previously
owned Shares; and
o Shares available under any Award to the extent the Award is settled
in cash rather than Shares.
(c) The payment of stock dividends and dividend equivalents settled in
Shares on outstanding Awards will not reduce the number of Shares available for
distribution under the Plan.
4. Eligibility, Award Limits and Other General Matters.
(a) All Employees and Consultants selected by the Committee for their
potential to contribute to the success of the Company are eligible to
participate in this Plan. Outside Directors may be granted Nonstatutory Stock
Options and Common Stock Equivalents under Section 9, but are otherwise
ineligible to participate in the Plan.
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(b) The following limits will apply to Awards under the Plan:
o No more than 2,000,000 Shares may be issued under the Plan as
Restricted Stock Awards, Freestanding SARs or, to the extent payable
in or measured by the value of Shares, Long-Term Performance Awards
during the life of the Plan. Restricted Stock that is forfeited, and
any Freestanding SARs or such Long-Term Performance Awards that are
forfeited or that otherwise lapse without being exercised, will be
restored to the number of shares available under this limitation.
o No Participant may receive Options, Freestanding SARs, Restricted
Stock Awards or, to the extent payable in or measured by the value
of Shares, Long-Term Performance Awards during any one (1) fiscal
year of the Company covering in the aggregate more than 1,000,000
Shares.
o No Participant may receive Long-Term Performance Awards payable in
cash and not measured by the value of Shares during any one (1)
fiscal year of the Company covering an amount in excess of
$2,500,000.
(c) The Committee, in its discretion, may grant Awards on terms and
conditions that vary from Participant to Participant.
(d) Each Award under this Plan, other than an award of Common Stock
Equivalents, will be evidenced by a written Award Agreement between the Company
and the Participant in such form and containing such provisions, not
inconsistent with this Plan, as the Committee, in its discretion, determines
from time to time. Common Stock Equivalents will be evidenced by the Company on
a book-entry basis and administered in accordance with this Plan.
(e) The Company may, but will not be required to, issue any fractional
Share under the Plan. The Committee may provide for the elimination of fractions
or for the settlement of fractions in cash.
(f) This Plan does not constitute a contract of employment, and adoption
of the Plan or the grant of any Award will not confer upon any Employee any
right to continued employment or interfere in any way with the right of the
Company (or its Parent or any Subsidiary) to terminate the employment of any
Employee at any time. This Plan or the grant of any Award does not confer upon
any Director any right to continuation of service as a director or any right to
nomination as a Director, or interfere in any way with any rights that a
Director or the Company may have to terminate his or her directorship at any
time.
(g) Unless otherwise determined by the Committee, Awards may not be sold,
pledged, assigned, transferred or disposed of in any manner other than by will
or by the laws of descent or distribution, and during the lifetime of a
Participant may be exercised only by a Participant. The Committee may, in its
discretion, provide for the transfer of an Award by a Participant to any member
of the Participant's immediate family. In such case, the Award will be
exercisable only by such transferee. Following transfer, any such Award will
continue to be subject to the same terms and conditions as were applicable
immediately prior to the transfer. For purposes of this Section 4(g), a
Participant's "immediate family" shall mean any of the following who have
acquired the Award from the Participant through a gift or domestic relations
order: a child, stepchild, grandchild, parent, stepparent, grandparent, spouse,
sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law, including adoptive relationships, trusts for
the exclusive benefit of these persons and any other entity owned solely by
these persons, and such other persons and entities as shall be eligible to be
included as transferees in the Form S-8 Registration Statement under the
Securities Act of 1933, as amended, filed or to be filed by the Company to
register shares of Common Stock to be issued upon the exercise of Awards granted
under the Plan.
(h) Unless otherwise determined by the Committee, the date of grant of an
Award will be the date on which the Committee makes the determination to grant
such Award.
(i) The Committee may determine the manner in which the exercise price or
purchase price is payable with respect to any Award, which may include: (i) cash
in the form of currency or check or other cash equivalent acceptable to the
Company; (ii) nonforfeitable, unrestricted Shares owned by the Participant which
have a Fair Market Value at the time of exercise that is equal to the price
payable by the Participant; (iii) any other legal consideration that the
Committee may deem appropriate, including restricted Shares or other Shares that
are subject to risk or forfeiture or restrictions on transfer, on such basis as
the Committee may determine; or (iv) any combination of the foregoing. Unless
otherwise determined by the Committee, whenever any exercise price or purchase
price is paid in whole or in part by forfeitable or restricted Shares, the
Shares received by the Participant
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upon the exercise or receipt of the Award shall be subject to the same risks of
forfeiture or restrictions on transfer as those that applied to the Shares
surrendered by the Participant, provided that such risks of forfeiture and
restrictions on transfer shall apply only to the same number of Shares received
by the Participant as applied to the forfeitable or restricted Shares
surrendered by the Participant. Any Award may provide for deferred payment of
the exercise price from the proceeds of the sale of such Shares through a bank
or broker.
(j) The Company may not make loans to Participants for the purpose of
paying the exercise price, purchase price or taxes related to any Award. Any of
the methods of payment specified in clause (i) above shall not be deemed to be a
loan by the Company.
(k) Unless otherwise determined by the Committee upon the grant of an
Award, in the event of a Change in Control of the Company the following
provisions shall apply:
o any Award outstanding on the date of such Change in Control that is
not yet exercisable and vested on such date shall become fully
exercisable and vested, and will remain exercisable by the
Participant for a period of at least ninety (90) days from the date
the Participant receives written notice of the Change in Control and
the Participant's exercise rights;
o all restrictions imposed on Restricted Stock will immediately lapse;
o all Performance Objectives applicable to Awards will be deemed fully
met;
o each outstanding Common Stock Equivalent shall convert into Shares
(as provided in Section 9(d)) immediately prior to the Change in
Control; and
o each outstanding Award shall be assumed by the successor entity (if
any) or by a Parent or Subsidiary of the successor entity (if any).
5. Options.
(a) Grant of Options. The Committee, in its discretion, may grant Options
to eligible Employees and, subject to Section 9, to Outside Directors, subject
to the following:
o each grant will specify the number of Shares issuable upon exercise
of the Option;
o each grant will specify whether it is intended to be an Incentive
Stock Option or a Nonstatutory Stock Option;
o each grant will specify the term during which the Option is
exercisable, but no Option will be exercisable more than 10 years
after its date of grant;
o each grant will specify the exercise price for the Shares issuable
upon exercise of an Option, which price shall not be less than the
Fair Market Value of the Shares on the date of grant;
o each grant will specify the form of consideration to be paid in
satisfaction of the exercise price and the manner of payment of such
consideration; and
o each grant will specify the other terms and conditions under which
the Shares underlying the Option may be purchased, including any
vesting requirements and the treatment of the Option upon
termination of the Participant's employment or directorship
(including by reason of death or disability).
(b) Buyout Provisions. The Committee may at any time offer to buy from a
Participant an Option previously granted, on such terms and conditions as the
Committee shall establish and communicate to the Participant at the time that
such offer is made.
(c) Repricing Prohibited. Except for adjustments made under Section 11,
the exercise price for any outstanding Option may not be declared or reduced
after the date of grant and any outstanding Option may not be surrendered to the
Company as consideration for the grant of a new Option with a lower exercise
price without approval of the Company's stockholders.
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6. SARs.
(a) Tandem SARs. The Committee may grant Tandem SARs to eligible Employees
in connection with all or part of an Option, either concurrently with the grant
of the Option or at any time thereafter during the term of the Option, subject
to the following:
o the Tandem SAR will entitle the Participant to exercise it by
surrendering to the Company the unexercised Option in connection
with which the Tandem SAR was granted. The Participant will receive
in exchange from the Company an amount equal to the excess of (i)
the Fair Market Value on the date of exercise of the Tandem SAR of
the Shares covered by the surrendered Option, over (ii) the exercise
price of the Shares covered by the surrendered Option, provided that
the Committee may place limits on the amount that may be paid upon
exercise of a Tandem SAR, which limits will not restrict the
exercisability of the related Option;
o when a Tandem SAR is exercised, the related Option will cease to be
exercisable;
o a Tandem SAR will be exercisable only when and to the extent that
the related Option is exercisable and shall expire no later than the
date on which the related Option expires; and
o each grant will specify the other terms and conditions under which
the Tandem SAR is exercisable, including any vesting requirements
and the treatment of the Tandem SAR upon termination of the
Participant's employment (including by reason of death or
disability).
(b) Freestanding SARs. The Committee may grant Freestanding SARs to
eligible Employees without related Options, subject to the following:
o the Freestanding SAR will entitle the Participant, by exercising the
Freestanding SAR, to receive from the Company an amount equal to the
excess of (i) the Fair Market Value of the Shares covered by the
exercised portion of the Freestanding SAR, as of the date of such
exercise, over (ii) the Fair Market Value of the Shares covered by
the exercised portion of the Freestanding SAR on the date of grant,
provided that the Committee may place limits on the aggregate amount
that may be paid upon exercise of a Freestanding SAR;
o each grant will specify the number of Shares covered by the
Freestanding SAR;
o each grant will specify the term during which the Freestanding SAR
is exercisable, but no Freestanding SAR will be exercisable more
than 10 years after its date of grant; and
o each grant will specify the other terms and conditions under which
the Freestanding SAR is exercisable, including any vesting
requirements and the treatment of the Freestanding SAR upon
termination of the Participant's employment (including by reason of
death or disability).
7. Restricted Stock Awards.
(a) Grant of Restricted Stock. The Committee may grant Restricted Stock to
eligible Employees on such terms and conditions as the Committee may determine,
subject to the following:
o each grant of Restricted Stock will provide that the Restricted
Stock will be subject to a "substantial risk of forfeiture" within
the meaning of Section 83 of the Code, on such terms and for such
period as may be determined by the Committee;
o each grant will constitute an immediate transfer of the ownership of
the Restricted Stock to the Participant in consideration for the
performance of services. Unless otherwise determined by the
Committee, a Restricted Stock Award will entitle the Participant to
dividend, voting and other ownership rights during the period in
which the Restricted Stock is subject to substantial risk of
forfeiture;
o each grant may be made without additional consideration from the
Participant or in consideration of a payment by the Participant that
is less than the Fair Market Value of the Restricted Stock on the
date of grant;
o each grant will provide that during the period in which the Stock is
subject to substantial risk of forfeiture, the transferability of
the Restricted Stock will be prohibited or restricted in the manner
and to the extent determined by the Committee. Such restrictions may
include rights of repurchase or first refusal in favor of the
Company or provisions subjecting the Restricted Stock to a
continuing substantial risk of forfeiture in the hands of any
transferee;
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o any grant or the vesting of any Restricted Stock may be further
conditioned upon the attainment of Performance Objectives
established by the Committee in accordance with the applicable
provisions of Section 8 of this Plan regarding Long-Term Performance
Awards; and
o any grant may require that any or all dividends or other
distributions paid on the Restricted Stock during the period that it
is subject to a substantial risk of forfeiture be automatically set
aside and reinvested on an immediate or deferred basis in additional
Shares, which may be subject to the same restrictions as the
underlying Restricted Stock or such other restrictions as the
Committee may determine.
(b) Repurchase Option. Unless the Committee determines otherwise, the
Award Agreement for each Restricted Stock Award will grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the Participant's employment with the Company for any reason (including death or
disability), on such terms and conditions as the Committee shall determine.
(c) Certificates. Shares of Restricted Stock shall be evidenced in such
manner as the Committee may deem appropriate, including book-entry registration
or by the issuance of one or more certificates. Any certificates representing
Restricted Stock shall bear a legend as the Committee shall deem appropriate
referring to the applicable terms, conditions and restrictions. The Committee
may require that each Certificate representing Restricted Stock be held in
custody by the Company, together with a stock power endorsed in blank by the
Participant, until such Restricted Stock is no longer subject to a substantial
risk of forfeiture.
8. Long-Term Performance Awards. The Committee may grant Long-Term Performance
Awards to eligible Employees on such terms and conditions as the Committee may
determine, subject to the following:
o each grant will specify the payment for which the Participant is
eligible, which may be a fixed or variable number of Shares (subject
to adjustment in accordance with Section 11), or a fixed or variable
cash bonus. The Committee may provide any Participant with a choice
to elect between Shares, cash and a combination of Shares and cash;
o each grant will specify the nature, length and starting date of the
performance period during which the payment under the Long-Term
Performance Award may be earned;
o each grant will specify the Performance Objectives that are to be
achieved by the Participant and, to the extent that any payments
under the Long-Term Performance Award are variable, the formula
under which such payments are to be computed;
o each grant will specify the terms and manner of payment of any
Shares or amounts earned under the Long-Term Performance Award;
o a grant may provide, in the Committee's discretion, for the payment
of divided equivalents in cash or additional Shares on a current,
deferred or contingent basis; and
o no payment will be made with respect to a Long-Term Performance
Award until the Committee has determined that the relevant
Performance Objectives have been achieved.
9. Awards to Outside Directors.
(a) Award of Common Stock Equivalents. On an annual basis, each Outside
Director may elect to receive up to 50% of his or her compensation in cash and
the balance in Common Stock Equivalents. Such election shall be made no later
than December 31st of each calendar year for the following calendar year,
provided that during the first fiscal year during which the Plan is in effect,
the elections made by the Outside Directors with respect to the common stock
equivalents provided for in the Company's 1993 Director Stock Option Plan shall
be deemed to be their elections under this Plan. Beginning on April 1, 2003, and
on the first business day of each of the Company's fiscal quarters during the
term of this Plan, the Company shall grant to each Outside Director that number
of Common Stock Equivalents equal in value to that portion of the Outside
Director's Quarterly Compensation for the immediately preceding quarter that he
or she has elected to receive in Common Stock Equivalents divided by the Fair
Market Value of the Common Stock on such day.
(b) Book-Entry Account; Nontransferability. The number of Common Stock
Equivalents awarded to each Outside Director shall be credited to a book-entry
account established in the name of the Outside Director. The Company's
obligation with respect to such Common Stock Equivalents will not be funded or
secured in any manner. No Common Stock Equivalent may be sold, pledged,
assigned, transferred or disposed of in any manner, other than by will, the laws
of descent or distribution or pursuant to a qualified domestic relations order,
and may be exercised during the life of the Outside Director only by the Outside
Director or a permitted transferee.
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(c) Dividends. If the Company pays a cash dividend with respect to the
Shares at any time while Common Stock Equivalents are credited to an Outside
Director's account, additional Common Stock Equivalents shall be credited to the
Outside Director's account equal to (i) the dollar amount of the cash dividend
the Outside Director would have received had he or she been the actual owner of
the Shares to which the Common Stock Equivalents then credited to the Outside
Director's account relate, divided by (ii) the Fair Market Value of one Share on
the dividend payment date.
(d) Conversion. As soon as practicable following the date on which an
Outside Director ceases to be a member of the Board for any reason, or as
otherwise provided by this Plan, the Company shall deliver to the Outside
Director (or his or her designated beneficiary or estate) a number of Shares
equal to the whole number of Common Stock Equivalents then credited to the
Outside Director's account, or at the Outside Director's option, shall have the
Shares credited to an account for the Director with a brokerage firm of the
Outside Director's choosing.
(e) Stockholder Rights. An Outside Director (or his or her designated
beneficiary or estate) shall not be entitled to any voting or other stockholder
rights as a result of the credit of Common Stock Equivalents to the Outside
Director's account, until certificates representing Shares are delivered to the
Outside Director (or his or her designated beneficiary or estate) upon
conversion of the Outside Director's Common Stock Equivalents to Shares pursuant
to Section 9(d).
(f) Award of Options. (i) Initial Grant. Each Outside Director who shall
first join the Board on or after February 1, 2003, shall be granted
automatically a Nonstatutory Stock Option to purchase 15,000 Shares on the date
on which such person first becomes an Outside Director, whether through election
by the stockholders of the Company, appointment by the Board to fill a vacancy,
or termination of employment by the Company while remaining a Director (a
"One-Time Grant").
(ii) Annual Grant. On each March 1st during the term of this Plan,
each Outside Director who shall have been an Outside Director for at least six
(6) months as of such date shall automatically receive an Option to purchase
7,000 Shares (an "Annual Grant"). No person shall have any discretion to select
which Outside Directors will be granted Options or to determine the number of
Shares to be covered by Options granted to Outside Directors.
(g) Option Terms. The terms of each Option granted under Section 9(f) to
an Outside Director shall be as follows:
o the term of the Option shall be ten (10) years;
o the Option shall be exercisable only while the Outside Director
remains a Director of the Company, except as set forth in Section
9(h);
o the exercise price per Share shall be the Fair Market Value on the
date of grant of the Option;
o each Annual Grant and One-Time Grant shall become exercisable in
installments cumulatively as to one-third of the Shares subject to
the Option on each anniversary of the date of grant, so that 100% of
the Shares granted under any grant shall be exercisable in full
three (3) years after the date of grant of the Option, assuming in
each case continuous status as a Director; and
o no Option may be sold, pledged, assigned, transferred or disposed of
in any manner other than by will, the laws of descent or
distribution or pursuant to a qualified domestic relations order,
and may be exercised, during the life of the Outside Director, only
by the Outside Director or a permitted transferee.
(h) Exercise Following Death, Disability or Other Termination. If an
Outside Director dies, the Outside Director's estate or a person who acquired
the right to exercise any Option granted under Section 9(f) by bequest or
inheritance may exercise the Option, but only within one year following the date
of death, and only to the extent that the Outside Director was entitled to
exercise it at the date of death (but in no event later than the expiration of
its ten-year term). If an Outside Director's directorship terminates as a result
of total and permanent disability (as defined in Section 22(e)(3) of the Code),
the Outside Director may exercise any Option granted under Section 9(f), but
only within six months from the date of such termination, and only to the extent
that the Outside Director was entitled to exercise it at the date of such
termination (but in no event later than the expiration of its ten-year term). If
an Outside Director's directorship terminates (other than upon the Outside
Director's death or total and permanent disability), the Outside Director may
exercise any Option granted under Section 9(f), but only within 90 days from the
date of such termination, and only to the extent that the Outside Director was
entitled to exercise it at the date of such termination (but in no event later
than the expiration of its ten-year term). To the extent that the Outside
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Director was not entitled to exercise an Option at the date of such termination,
and to the extent that the Outside Director does not exercise such Option (to
the extent otherwise so entitled) within the time specified, the Option shall
terminate.
(i) Automatic Reduction of Grant. If any Option granted under Section 9(f)
would cause the number of Shares subject to outstanding Awards plus the number
of Shares previously issued under this Plan to exceed the number of shares
authorized for issuance under Section 3(a), then each such automatic grant shall
be for that number of Shares determined by dividing the total number of Shares
remaining available for grant by the number of Outside Directors entitled to
receive Options on the grant date. No further grants shall be made until such
time, if any, as additional Shares become available for grant under the Plan
pursuant to Section 3 or through action of the stockholders to increase the
number of Shares which may be issued under the Plan.
10. Administration.
(a) The Committee. This Plan shall be administered by one or more
committees appointed by the Board. If the Board does not appoint a specific
committee, the Compensation Committee of the Board, or a subcommittee appointed
by the Compensation Committee, shall administer the Plan. Each member of the
Committee shall meet such standards of independence as the Board shall determine
from time to time. The interpretation and construction by the Committee of any
provision of this Plan or of any Award Agreement or other document evidencing
the grant of any Award and any determination by the Committee pursuant to any
provision of this Plan or any such Award Agreement or other document, shall be
final and conclusive. No member of the Committee shall be liable to any person
for any such action taken or determination made in good faith.
(b) Powers of the Committee. Subject to the provisions of the Plan, and in
the case of the Committee, subject to the specific duties delegated by the Board
to the Committee, the Committee shall have the authority, in its discretion:
o to determine the Fair Market Value of the Common Stock;
o to select the Employees and Consultants to whom Awards are granted;
o except as provided in Section 9, to determine whether and to what
extent Awards are granted;
o except as provided in Section 9, to determine the number of Shares
to be covered by each Award;
o to approve forms of agreement for use under the Plan;
o to determine the terms and conditions, not inconsistent with the
terms of the Plan, of each Award;
o to construe and interpret the provisions of the Plan;
o to prescribe, amend and rescind rules and regulations relating to
the Plan;
o to determine whether and under what circumstances an Award may be
settled in cash instead of Common Stock or Common Stock instead of
cash;
o to modify or amend any Award (subject to the restrictions contained
in this Plan, including Sections 5(c) (repricing), 9 (Outside
Directors) and 15(b) (rights of Participants));
o to authorize any person to execute on behalf of the Company any
instrument required to effect the grant of an Award approved by the
Committee or provided for in this Plan; and
o to make all other determinations deemed necessary or advisable for
administering the Plan.
11. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset
Sale.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Award, the number of Shares and other Awards provided for in
Section 9 (Outside Directors), the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Awards have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Award, and the limitations set forth in Section 4(b), as well
as the price per share of Common Stock covered by each such outstanding Award,
shall be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Board, whose determination in that respect
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shall be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Award.
(b) Dissolution or Liquidation. Subject to Section 4(k) (Change in
Control), in the event of the proposed dissolution or liquidation of the
Company, to the extent that an Award has not been previously exercised, it will
terminate immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. Subject to Section 4(k) (Change in Control), if
the Company is merged with or into another corporation, or substantially all of
its assets are sold, each outstanding Award shall be assumed or an equivalent
Award substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. If the successor corporation does not agree to assume an
Award or to substitute an equivalent Award, the Committee shall provide for the
Participant to have the right to exercise the Award, in whole or in part,
including Awards that would not otherwise be exercisable. If the Committee makes
an Award exercisable in lieu of assumption or substitution in the event of a
merger or sale of assets, the Committee shall notify the Participant that the
Award shall be exercisable for at least fifteen (15) days from the date of such
notice, and the Award will terminate upon the expiration of the notice period.
For the purposes of this Section, an Award shall be considered assumed if,
immediately following the merger or sale of assets, the Award confers the right
to purchase, for each underlying Share subject to the Award immediately prior to
the merger or sale of assets, the consideration (whether stock, cash or other
securities or property) received in the merger or sale of assets by holders of
Common Stock for each Share held on the effective date of the transaction (and
if holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding Shares); provided, that
if the consideration received in the merger or sale of assets was not solely
common stock of the successor corporation or its Parent, the Committee may, with
the consent of the successor corporation and the Participant, provide for the
consideration to be received upon the exercise of the Award, for each underlying
Share, to be solely common stock of the successor corporation or its Parent
equal in Fair Market Value to the per Share consideration received by holders of
the Common Stock in the merger or sale of assets.
12. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the exercise
of an Award unless the exercise of such Award and the issuance and delivery of
such Shares shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules
and regulations promulgated thereunder, and the requirements of any stock
exchange or quotation system upon which the Shares may then be listed or quoted,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
Award, the Company may require the person exercising such Award to represent and
warrant at the time of any such exercise that the Shares issuable upon exercise
of the Award are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is necessary or desirable.
13. Liability of Company. The inability of the Company to obtain authority from
any regulatory body having jurisdiction, which authority is deemed by the
Company's counsel to be necessary to the lawful issuance and sale of any Shares
hereunder, shall relieve the Company of any liability in respect of the failure
to issue or sell such Shares as to which such requisite authority shall not have
been obtained.
14. Reservation of Shares. During the term of this Plan, the Company will at all
times reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter,
suspend or terminate the Plan, but no amendment shall increase the number of
Shares available for issuance under the Plan (except as contemplated by Section
11) or increase any of the limitations provided for in Section 4(b) without the
further approval of the stockholders of the Company.
(b) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any
Participant, unless mutually agreed between the Participant and the Committee,
which agreement must be in writing and signed by the Participant and the
Company.
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16. Term of the Plan. The Plan shall become effective upon its approval by the
stockholders of the Company as described in Section 22. It shall continue in
effect for new Awards until January 31, 2013, unless sooner terminated under
Section 15.
17. Tax and Social Security Indemnity. Each Participant shall indemnify the
Company against any tax arising in respect of the grant or exercise of an Award
which is a liability of the Participant but for which the Company is required to
account under the laws of any relevant jurisdiction. The Company may recover the
tax from the Participant in such manner as the Committee deems appropriate,
including:
(a) withholding Shares or payment upon the exercise of an Award;
(b) deducting the necessary amount from the Participant's compensation; or
(c) requiring the Participant to make a cash payment to the Company.
18. Options Granted to Employees of French Subsidiaries.
(a) Purpose. Options granted under the Plan to employees of French
subsidiaries are intended to qualify under the French regulations as provided in
articles 208-1 to 208-8-2 of the French Company Act (Code des Societes). The
purpose of this Section is to specify the applicable rules for Options granted
to French Employees and shall not be applicable to any other Employee of the
Company.
(b) General. Options granted to French Employees under the Plan are
subject to the provisions of the Plan and any related Award Agreement unless
otherwise provided in this Section.
(c) Eligible Participants. Only Employees of French Subsidiaries are
eligible to receive Options. Payment of Director fees by the Company shall not
be sufficient to constitute employment for this purpose. Employees of French
subsidiaries may not be granted Options if, at the date of grant, they hold more
than ten percent (10%) of the Common Stock of the Company.
(d) Options. Eligible Employees may be granted Options as provided in
Section 5 of the Plan. This Section shall not apply to the grant of SARs,
Restricted Stock or Long-Term Performance Awards.
(e) Option Price. The exercise price of each Option shall be determined as
set forth in the Plan but it shall not be less than 80% of the average Fair
Market Value of the Common Stock during the twenty (20) market trading days
prior to the date of the grant. The exercise price shall remain unchanged once
the Option is granted. Any authority of the Committee to reduce the Option
exercise price shall, with respect to Options granted to Employees of French
Subsidiaries, be limited to the extent that such reduction may not be to a price
less than 80% of the average Fair Market Value of the Common Stock during the
twenty (20) market trading days prior to the date of such reduction.
(f) Exercise of the Option. Upon exercise of an Option, Employees of
French Subsidiaries will receive Shares of Common Stock and may not settle any
Option in cash.
(g) Qualification of Plan. In order to have the Plan qualify in France,
any other provision of the Plan that would be inconsistent with French company
law or tax law requirements shall not apply to Employees of French Subsidiaries.
19. Options Granted to Employees of Italian Subsidiaries.
(a) Purpose. Options granted under the Plan to Employees of Italian
Subsidiaries are intended to qualify under Italian law. The purpose of this
Section is to specify the applicable rules for Options granted to Italian
Employees and shall not be applicable to any other Employee of the Company.
(b) General. Options granted to Italian Employees under the Plan are
subject to the provisions of the Plan and any related Award Agreement unless
otherwise provided in this Section.
(c) Eligible Participants. Only Employees of Italian Subsidiaries may be
granted Options. The amount of Shares (or related option rights) assigned to
each Italian Employee shall not exceed 10% of the voting rights in the
A-11
ordinary shareholders' meeting or 10% of the capital or equity of the offering
Company. This Section shall not apply to the grant of SARs, Restricted Stock or
Long-Term Performance Awards granted.
(d) Option Price. The exercise price of Options granted to Italian
Employees shall be the higher of (i) the Fair Market Value determined as set
forth in the Plans, and (ii) the average closing price of the Common Stock
during the month preceding the grant date. The exercise price shall remain
unchanged once the Options are granted. Any authority of the Committee to reduce
the Option exercise price shall, with respect to Options granted to Employees of
Italian Subsidiaries, be limited to the extent that such reduction may not be to
a price less than the price calculated under (ii) above on the grant date.
(e) Qualification of Plan. In order to have the Plan qualify in Italy, any
other provision of the Plan that would be inconsistent with Italian law shall
not apply to Employees of Italian subsidiaries.
20. Options Granted to Employees of Indian and Dutch Subsidiaries.
(a) Purpose. The purpose of this Section is to specify the applicable
rules for Options granted to Indian and Dutch Employees and shall not be
applicable to any other Employee of the Company.
(b) General. Options granted to Indian and Dutch Employees under the Plan
are subject to the provisions of the Plan and any related Award Agreement unless
otherwise provided in this Section.
(c) Exercise of Options. The consideration to be paid for Options
exercised by Indian and Dutch Employees under the Plan shall be limited to a
"cashless exercise", which is delivery of a properly executed exercise notice
together with such other documentation as the Committee and any broker approved
by the Company, if applicable, shall require to effect an exercise of the Option
and delivery to the Company of the sale or loan proceeds required to pay the
exercise price.
21. Foreign Jurisdictions. In order to facilitate the making of any Award under
this Plan, the Committee may provide for special terms for Awards to
Participants who are foreign nationals or who are employed by the Company (or
its Parent or any Subsidiary) outside of the United States, as the Committee may
consider necessary or appropriate to accommodate differences in local law, tax
policy or custom. In addition, the Committee may approve such supplements to, or
amendments, restatements or alternative versions of, this Plan as it may
consider necessary or appropriate for such purposes without affecting the terms
of this Plan as in effect for any other purpose, provided that no such
supplements, amendments, restatements or alternative versions shall include any
provisions that are inconsistent with the terms of this Plan, as then in effect,
unless the Plan could have been amended to eliminate such inconsistency without
further approval by the stockholders of the Company.
22. Stockholder Approval. This Plan shall be subject to approval by the
stockholders of the Company at the first annual meeting of stockholders held
subsequent to the Board of Director's approval of the Plan. Such stockholder
approval shall be obtained as required under applicable state and federal law.
As of the date of stockholder approval, no new awards may be made under the
Existing Plans. Any awards outstanding under such plans as of the date of
stockholder approval of this Plan shall remain outstanding and shall otherwise
continue to be subject to the terms and conditions of such plans.
A-12
APPENDIX B
GARTNER, INC.
AUDIT COMMITTEE CHARTER
I. Statement of Policy
The Audit Committee (the "Committee") shall be, through regular and special
meetings with management, the supervisor of the Company's internal auditors and
the Company's independent auditors, and shall assist the Board of Directors (the
"Board") in fulfilling its oversight responsibilities on matters relating to
accounting, financial reporting, internal control, auditing, regulatory
compliance and other matters as the Board or the Committee Chairperson deems
appropriate. The Company shall post this Charter on its website.
The Committee shall:
o serve as an independent party to assist Board oversight of (i) the
integrity of the Company's financial statements, (ii) the Company's
compliance with legal and regulatory requirements, (iii) the
independent auditor's qualifications and independence, and (iv) the
performance of the Company's internal audit function and independent
auditors;
o prepare the report required by the SEC for inclusion in the
Company's annual proxy statement;
o retain and terminate the Company's independent auditors (subject, if
applicable, to stockholder ratification); and
o provide an open avenue of communication among the independent
accountants, management and the Board of Directors.
The Committee's role is one of oversight. The Company's management is
responsible for preparing the Company's financial statements and the independent
auditors are responsible for auditing the financial statements. The independent
auditors are ultimately accountable to the Committee. However, in carrying out
its oversight responsibilities, the Committee is not providing any expert or
special assurance as to the Company's financial statements or any professional
certification as to the independent auditors' work.
The Committee will fulfill its responsibilities by carrying out the activities
enumerated in Sections III and IV.
II. Committee Membership
The Committee shall consist of at least three (3) "independent" directors, as
such term is defined in the New York Stock Exchange, Inc. ("NYSE") Listed
Company Manual or by another relevant listing authority and the rules of the
Securities and Exchange Commission ("SEC") and other applicable authority, from
time to time, one of whom shall act as Chairperson. If an Audit Committee member
simultaneously serves on the audit committee of more than three public
companies, the Board must determine that such simultaneous service would not
impair the ability of such member to effectively serve on the Company's Audit
Committee prior to including that director and the committee, and this
determination must be disclosed in the Company's proxy statement.
The Board shall appoint the Committee members and the Chairman, upon
recommendation from the Nominating/Governance Committee, and shall have the
power to remove a Committee member for any reason. If a Chairperson is not
designated or present, the members of the Committee may designate a Chairperson
by majority vote.
Each member of the Committee shall have a basic understanding of finance and
accounting practices, and the Chairperson of the Committee must have accounting
or related financial management expertise as contemplated by the NYSE listing
requirements and the rules of the SEC.
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III. Meetings of the Committee
The Committee will meet regularly at least four times each fiscal year and more
frequently as appropriate. The Committee shall have separate direct lines of
communication between itself and management, the internal auditors and the
independent auditors, and shall meet separately with each of them, at least
quarterly, to discuss any matters the Committee deems necessary or appropriate.
The Committee shall regularly report to the Board of Directors from time to time
as appropriate.
IV. Responsibilities
A. Documents and Reports Review.
1. Audited Financial Statements. The Committee shall review and discuss
with management and the independent auditors the audited financial
statements to be included in the Company's Annual Report on Form 10-K (or
the Annual Report to Stockholders if distributed prior to the filing of
the Annual Report on Form 10-K).
2. Interim Financial Statements. The Committee shall review with
management and the independent auditors the Company's interim financial
results to be included in the Company's Quarterly Report on Form 10-Q.
3. MD&A. The Committee's review of all financial statements shall include
a review of the Company's disclosures under "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
B. Independent Auditors. The Audit Committee has the sole authority to
retain, oversee and terminate the outside independent auditors (subject,
if applicable, to stockholder ratification). The Committee may, if it
deems appropriate, seek the input of management in this decision making,
but these responsibilities may not be delegated to management.
Additionally, the Committee shall:
1. have sole authority to pre-approve all audit engagement fees and terms,
as well as all non-audit engagements, with the independent auditors. Such
pre-approval may be delegated to one or more members of the Committee who
shall report on any pre-approvals to the full Audit Committee at its
regularly scheduled meetings or may be waived in compliance with the
de-minimus exceptions provided by applicable law;
2. at least annually, obtain and review a report by the independent
auditor describing:
(a) the firm's internal quality-control procedures;
(b) any material issues raised by the most recent internal
quality-control review, or peer review, of the firm, or by any
inquiry or investigation by governmental or professional
authorities, within the preceding five (5) years, respecting
one or more independent audits carried out by the firm, and
any steps taken to deal with such issues; and
(c) all relationships between the independent auditors and the
Company (to assess the auditor's independence);
3. after reviewing the foregoing report and the independent auditor's work
throughout the year, evaluate the auditor's qualifications, performance
and independence. This evaluation should include the review and evaluation
of the lead partner of the independent auditor. In making its evaluation,
the Committee should take into account the opinions of management and the
Company's internal auditors.
4. ensure that the lead audit partner is rotated at the intervals required
by law, and consider whether, in order to assure continuing auditor
independence, there should be more frequent rotation of the lead audit
partner, or even of the audit firm itself;
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5. review with the independent auditor any audit problems or difficulties
the auditor encountered in the course of the audit work and management's
response. The review should include any restrictions on the scope of the
independent auditor's activities or on access to requested information,
and any significant disagreements with management. Among the items the
Audit Committee should review with the auditor are:
(a) any accounting adjustments that were noted or proposed by the
auditor but were "passed" by management as immaterial or
otherwise;
(b) any communications between the audit team and the audit firm's
national office respecting auditing or accounting issues
presented by the engagement;
(c) any management or internal control letter issued, or proposed
to be issued, by the audit firm to the Company; and
(d) a discussion of the responsibilities, budget and staffing of
the Company's internal audit functions;
6. set clear hiring policies for employees or former employees of the
independent auditors;
7. review the proposed scope of the annual independent audit of the
Company's financial statements and the associated fees, as well as any
significant variations in the actual scope of the independent audit and
the associated fees; and
8. present its conclusions with respect to the independent auditor to the
full Board.
C. Financial Reporting Processes. On a continuing and periodic basis, the
Committee shall review and discuss with management, the internal audit
function and the independent auditors and take appropriate action with
respect to:
1. Issues regarding accounting principles and financial statement
presentations, including any significant changes in the Company's
selection or application of accounting principles.
2. Issues as to the adequacy of the Company's internal controls and any
special audit steps adopted in light of material control deficiencies.
3. Analyses prepared by management and/or the independent auditor setting
forth significant financial reporting issues and judgments made in
connection with the preparation of the financial statements, including
analyses of the effects of alternative GAAP methods on the financial
statements.
4. The effect of regulatory and accounting initiatives, as well as
off-balance sheet structures, on the financial statements of the Company.
5. 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 rating
agencies.
6. The quality and adequacy of the Company's internal accounting controls
and the Company's financial reporting processes, and the results of the
internal auditor's examinations.
7. Policies with respect to risk assessment and risk management. The Audit
Committee should discuss the Company's major financial risk exposures and
the steps management has taken to monitor and control such exposures.
8. The nature of any unusual or significant commitments or contingent
liabilities together with the underlying assumptions and estimates of
management. In connection with the foregoing, the Committee should review
with the General Counsel legal and regulatory matters that may have a
material impact on the financial statements.
B-3
9. The information provided by the independent auditors pursuant to
applicable law concerning (i) all critical accounting policies and
practices; (ii) all alternative treatments of financial information within
GAAP that have been discussed with management, the ramifications of the
use of such alternatives and the treatment preferred by the independent
auditors; and (iii) other material written communications with management.
10. The resolution of any disagreements between management and the
independent auditors regarding financial reporting.
D. General
1. The Committee shall review the adequacy of this Charter on an annual
basis. The Committee will recommend to the Board any modifications to this
Charter that the Committee deems appropriate for approval by the Board.
2. On an as needed basis, the Committee shall review such other matters as
the Board or the Committee considers appropriate.
3. The Committee may receive presentations from management personnel on
key functional activities of the Company, including information
technology, taxes, treasury, risk management and legal.
4. The Committee may cause an investigation to be made into any matter
within the scope of its responsibility. The Committee may engage
independent resources to assist in its investigations as it deems
necessary.
5. The Committee Chairperson shall make regular reports to the Board on
the Committee's activities and review with the full Board any issues that
arise with respect to the quality or integrity of the Company's financial
statements, the Company's compliance with legal or regulatory
requirements, the performance and independence of the Company's
independent auditors, or the performance of the internal control function.
6. As appropriate, the Committee may obtain advice and assistance from
outside legal, accounting or other advisors without seeking board
approval.
7. Director's and Committee service fees are the only compensation an
Audit Committee member may receive from the Company.
8. The Committee shall establish procedures for (i) the receipt, retention
and treatment of complaints regarding accounting, internal accounting
controls or auditing matters and (ii) the confidential, anonymous
submission by employees of concerns regarding questionable accounting or
auditing matters.
9. The Committee shall receive, and act upon as appropriate, the
disclosures made by the Chief Executive Officer and the Chief Financial
Officer concerning internal controls and fraud required by Rule 13a-14 of
the Securities Exchange Act of 1934.
V. Evaluation
The Nominating/Governance Committee shall conduct an annual performance
evaluation of the Audit Committee in light of its duties and responsibilities as
set forth in this Charter.
B-4
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE VOTED "FOR" THE PROPOSALS. Please mark
your votes as
indicated in |X|
this example
1. 2003 Long-Term Incentive Plan FOR AGAINST ABSTAIN 2. Other FOR AGAINST ABSTAIN
To vote for the approval of the |_| |_| |_| To vote or otherwise represent the |_| |_| |_|
2003 Long-Term Incentive Plan. shares on other business which may
properly come before the meeting or
any adjournments, according to
their discretion.
Mark here for address change |_|
and note at left
Note: Please sign exactly as your name appears on
your stock certificate. If shares are held jointly,
each holder should sign. Executors, administrators,
trustees, guardians, attorneys and agents should sign
using their full title. Corporations should sign
using the full corporate name by the authorized
officer.
Signature _________________________Date______________
Signature _________________________Date______________
- ------------------------------------------------------------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
Vote by Internet or Telephone or Mail
24 Hours a Day, 7 Days a Week
Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner
as if you marked, signed and returned your proxy card.
- ------------------------------------- ----------------------------------------- ------------------------
Internet Telephone Mail
http://www.eproxy.com/it 1-800-435-6710
Use the Internet to vote your Use any touch-tone telephone to Mark, sign and date
proxy. Have your proxy card in OR vote your proxy. Have your proxy OR your proxy card
hand when you access the web card in hand when you call. You will and
site. You will be prompted to enter be prompted to enter your control return it in the
your control number, located in number, located in the box below, enclosed postage-paid
the box below, to create and and then follow the directions given. envelope.
submit an electronic ballot. There is no charge to you for this call.
- ------------------------------------- ----------------------------------------- ------------------------
If you vote your proxy by Internet or by telephone,
you do NOT need to mail back your proxy card.
Thank you for voting.
Gartner, Inc.
Proxy for Annual Meeting of Stockholders
To Be Held on February 13, 2003
Class A Common Stock
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
I acknowledge receipt of the Notice of Annual Meeting of Stockholders and Proxy
Statement of Gartner, Inc., each dated January 17, 2003. I appoint Michael D.
Fleisher and Maureen E. O'Connell, and each of them, Proxies and
attorneys-in-fact, with full power to each of substitution, to represent me at
Gartner's Annual Meeting, to be held on February 13, 2003, at 10:00 a.m. local
time, and at any adjournments, and to vote all shares of my Class A Common Stock
as I direct on the reverse side of this card.
THE PROXYHOLDERS WILL VOTE THE SHARES REPRESENTED BY THIS PROXY AS DIRECTED. IF
NO DIRECTION IS INDICATED, THE PROXYHOLDERS WILL VOTE THE SHARES REPRESENTED BY
THIS PROXY "FOR" THE PROPOSALS AND FOR SUCH OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE MEETING AS THE PROXYHOLDERS DEEM ADVISABLE.
- --------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE VOTED "FOR" THE PROPOSALS. Please mark
your votes as
indicated in |X|
this example
FOR all nominees WITHHOLD AUTHORITY
listed below (except as to vote for all the
marked to the contrary) nominees listed below FOR AGAINST ABSTAIN
1. Election of Directors |_| |_| 2. 2003 Long-Term Incentive Plan |_| |_| |_|
To vote for the approval of the
Nominees: (01) Glenn H. Hutchins, (02) Stephen G. 2003 Long-Term Incentive Plan.
Pagliuca, and (03) David J. Roux.
FOR AGAINST ABSTAIN
3. Other |_| |_| |_|
To vote or otherwise represent
the shares on other business
which may properly come before
the meeting or any adjournments,
according to their discretion.
(Instruction: To withhold authority to vote for
any individual nominee, write that nominee's
name on the space provided below.)
_______________________________________________
Mark here for address change |_|
and note at left
Note: Please sign exactly as your name appears on
your stock certificate. If shares are held jointly,
each holder should sign. Executors, administrators,
trustees, guardians, attorneys and agents should sign
using their full title. Corporations should sign
using the full corporate name by the authorized
officer.
Signature _________________________Date______________
Signature _________________________Date______________
- ------------------------------------------------------------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
Vote by Internet or Telephone or Mail
24 Hours a Day, 7 Days a Week
Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner
as if you marked, signed and returned your proxy card.
- ------------------------------------- ----------------------------------------- ------------------------
Internet Telephone Mail
http://www.eproxy.com/it.b 1-800-435-6710
Use the Internet to vote your Use any touch-tone telephone to Mark, sign and date
proxy. Have your proxy card in OR vote your proxy. Have your proxy OR your proxy card
hand when you access the web card in hand when you call. You will and
site. You will be prompted to enter be prompted to enter your control return it in the
your control number, located in number, located in the box below, enclosed postage-paid
the box below, to create and and then follow the directions given. envelope.
submit an electronic ballot. There is no charge to you for this call.
- ------------------------------------- ----------------------------------------- ------------------------
If you vote your proxy by Internet or by telephone,
you do NOT need to mail back your proxy card.
Thank you for voting.
Gartner, Inc.
Proxy for Annual Meeting of Stockholders
To Be Held on February 13, 2003
Class B Common Stock
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
I acknowledge receipt of the Notice of Annual Meeting of Stockholders and Proxy
Statement of Gartner, Inc., each dated January 17, 2003. I appoint Michael D.
Fleisher and Maureen E. O'Connell, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution, to represent me at
Gartner's Annual Meeting, to be held on February 13, 2003, at 10:00 a.m. local
time, and at any adjournments, and to vote all shares of my Class B Common Stock
as I direct on the reverse side of this card.
THE PROXYHOLDERS WILL VOTE THE SHARES REPRESENTED BY THIS PROXY AS DIRECTED. IF
NO DIRECTION IS INDICATED, THE PROXYHOLDERS WILL VOTE THE SHARES REPRESENTED BY
THIS PROXY "FOR" THE PROPOSALS AND FOR SUCH OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE MEETING AS THE PROXYHOLDERS DEEM ADVISABLE.
- --------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^