<PAGE> 1
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ]Confidential, for use of the
Commission only
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
WMS INDUSTRIES INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
WMS INDUSTRIES INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
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:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
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<PAGE> 2
WMS LOGO
WMS INDUSTRIES INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
January 27, 1998
------------------------
To the Stockholders of
WMS INDUSTRIES INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of WMS
Industries Inc. (the "Company") will be held on Tuesday, January 27, 1998 at
11:30 A.M. Eastern Standard Time at the New York Athletic Club, President's
Room, 10th Floor, 180 Central Park South, New York, New York 10019, to consider
and act upon the following matters:
1. Electing a board of eight (8) directors;
2. Amending the Restated Certificate of Incorporation of the Company,
as amended (the "Certificate of Incorporation"), to increase the number of
authorized shares of common stock of the Company, par value $.50 per share
(the "Common Stock"), from 60,000,000 to 100,000,000;
3. Amending the Certificate of Incorporation and the Amended and
Restated Bylaws of the Company (the "Bylaws") to provide for the
classification of the Board of Directors into three classes with staggered
terms;
4. Amending the Certificate of Incorporation and the Bylaws to
provide that any vacancy on the Board of Directors may be filled for the
unexpired term only by a vote of a majority of the remaining directors then
in office;
5. Amending the Certificate of Incorporation and the Bylaws to
eliminate stockholder action by written consent;
6. Amending the Certificate of Incorporation and the Bylaws to permit
only the President, the Chairman of the Board or the Board of Directors to
call special meetings of stockholders and to limit the business permitted
to be conducted at such meetings to that brought before the meetings by or
at the direction of the Board of Directors;
7. Amending the Certificate of Incorporation and the Bylaws to
implement an advance notice procedure for the submission of director
nominations and other business to be considered at annual meetings of
stockholders;
8. Amending the Bylaws to require either a majority vote of the Board
of Directors or an affirmative vote of 80% of the outstanding Common Stock
entitled to vote thereon in order to adopt, amend or repeal the Bylaws, and
amending the Certificate of Incorporation to require an affirmative vote of
80% of the outstanding Common Stock entitled to vote thereon in order to
adopt, amend or repeal the amendments to the Certificate of Incorporation
proposed herein;
9. Ratifying the appointment of Ernst & Young LLP as independent
auditors for the 1998 fiscal year; and
10. Transacting such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
The close of business on December 8, 1997 has been fixed as the record date
for the determination of stockholders entitled to notice of and to vote at the
meeting and any adjournments thereof. A list of the stockholders entitled to
vote at the Annual Meeting will be open to the examination of any stockholder of
the Company for any purpose germane to the Annual Meeting during regular
business hours at the offices of the Company for the ten-day period prior to the
Annual Meeting.
YOU ARE EARNESTLY REQUESTED, WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE
MEETING, TO MARK, DATE, SIGN AND RETURN PROMPTLY THE ACCOMPANYING PROXY IN THE
ENCLOSED ENVELOPE TO WHICH NO POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED
STATES.
By Order of the Board of Directors,
ORRIN J. EDIDIN
Vice President, Secretary and General
Counsel
Chicago, Illinois
December , 1997
<PAGE> 3
ANNUAL MEETING OF STOCKHOLDERS
OF
WMS INDUSTRIES INC.
-------------------------
PROXY STATEMENT
-------------------------
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors (the "Board") of WMS Industries Inc. (the "Company" or
"WMS") of proxies to be voted at the Annual Meeting of Stockholders to be held
at the New York Athletic Club, President's Room, 10th Floor, 180 Central Park
South, New York, New York 10019, on Tuesday, January 27, 1998 at 11:30 A.M.
Eastern Standard Time, and at any adjournment or adjournments thereof (the
"Annual Meeting").
All proxies in the accompanying form which are properly executed and duly
returned will be voted in accordance with the instructions specified therein. If
no instructions are given, such proxies will be voted in accordance with the
recommendations of the Board as indicated in this Proxy Statement. A proxy may
be revoked at any time prior to its exercise by written notice to the Company,
by submission of another proxy bearing a later date or by voting in person at
the meeting. Such revocation will not affect a vote on any matters taken prior
thereto. The mere presence at the meeting of the person appointing a proxy will
not revoke the appointment.
The mailing address of the Company's principal executive offices is 3401
North California Avenue, Chicago, Illinois 60618. This Proxy Statement and the
accompanying proxy card are being mailed to stockholders on or about December
, 1997.
Only holders of the Company's Common Stock, $.50 par value per share (the
"Common Stock"), of record at the close of business on December 8, 1997 (the
"Record Date") will be entitled to vote at the Annual Meeting or any adjournment
or adjournments of such meeting. There were 26,793,419 shares of Common Stock
outstanding on the Record Date (excluding 52,312 treasury shares). Each such
share entitles the holder thereof to one vote.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of the Record Date
(except as otherwise footnoted) concerning persons which, to the knowledge of
WMS, beneficially own more than 5% of the outstanding shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS OF OF COMMON STOCK PERCENTAGE OF OUTSTANDING
BENEFICIAL OWNER BENEFICIAL OWNED(1) COMMON STOCK
------------------- ------------------- -------------------------
<S> <C> <C>
Sumner M. Redstone and
National Amusements, Inc. .......................... 6,917,700(2) 25.8%
200 Elm Street
Dedham, MA 02026
FMR Corp. ............................................ 2,735,350(3) 10.2%
82 Devonshire St.
Boston, MA 02109
Neil D. Nicastro...................................... 7,986,986(4) 28.7%(5)
WMS Industries Inc.
3401 North California Avenue
Chicago, IL 60618
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS OF OF COMMON STOCK PERCENTAGE OF OUTSTANDING
BENEFICIAL OWNER BENEFICIAL OWNED(1) COMMON STOCK
------------------- ------------------- -------------------------
<S> <C> <C>
Louis J. Nicastro..................................... 7,551,886(6) 27.5%(5)
WMS Industries Inc.
3401 North California Avenue
Chicago, IL 60618
</TABLE>
- -------------------------
(1) Pursuant to Rule 13d-3(d)(1) of the Securities Exchange Act of 1934, as
amended, shares underlying options are deemed to be beneficially owned if
the holder of the option has the right to acquire beneficial ownership of
such shares within 60 days.
(2) The number of shares reported is based upon information contained in
Amendment No. 20, dated January 7, 1997, to the Schedule 13D filed with the
Securities and Exchange Commission by Sumner M. Redstone. Pursuant to such
Schedule, as amended, Mr. Redstone and National Amusements, Inc., a Maryland
corporation, reported beneficial ownership of and sole investment power with
respect to 3,433,800 and 3,843,900 shares, respectively, of the Common Stock
and shared voting power with respect to such shares pursuant to a Proxy
Agreement entered into with the Company, and Messrs. Louis J. and Neil D.
Nicastro (see "Voting Proxy Agreement" described below). Mr. Redstone is the
beneficial owner of 66 2/3% of the issued and outstanding shares of the
common stock of National Amusements, Inc.
(3) The number of shares reported is based upon information contained in a
letter dated June 27, 1997 addressed to Shack & Siegel, P.C., counsel to the
Company, from FMR Corp. Pursuant to such letter, FMR Corp. reported that
Fidelity Management & Research Company, a wholly-owned subsidiary of FMR
Corp. and an investment adviser registered under Section 203 of the
Investment Advisers Act of 1940, as amended, is the beneficial owner of
2,735,350 shares of the Common Stock as a result of acting as investment
adviser to various investment companies registered under Section 8 of the
Investment Company Act of 1940. FMR Corp. reported it has sole power to
dispose of or direct the disposition of all such shares and sole power to
vote 7,000 of such shares.
(4) The number of shares reported as beneficially owned includes 6,917,700
shares of Common Stock owned by Sumner M. Redstone and National Amusements,
Inc. for which the reporting person has shared voting power but no
dispositive power. Additionally, the number of shares reported as
beneficially owned includes 1,069,286 shares for which the reporting person
has sole voting and sole dispositive power, 1,007,286 of which may be
acquired upon the exercise of stock options. For a discussion concerning the
shared voting power with respect to the 6,917,700 shares of Common Stock
referred to above, see "Voting Proxy Agreement" below.
(5) For purposes of calculating the percentage of shares of Common Stock owned,
shares issuable to such person upon the exercise of options within 60 days
have been deemed to be outstanding.
(6) The number of shares reported as beneficially owned includes 6,917,700
shares owned by Sumner M. Redstone and National Amusements, Inc. for which
the reporting person has shared voting power but no dispositive power.
Additionally, the number of shares reported as beneficially owned includes
634,186 shares for which the reporting person has sole voting and sole
dispositive power, 629,554 of which may be acquired upon the exercise of
stock options. For a discussion concerning the shared voting power with
respect to the 6,917,700 shares of Common Stock referred to above, see
"Voting Proxy Agreement" below.
2
<PAGE> 5
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of the Record Date, certain information
concerning beneficial ownership of Common Stock by each director of WMS, each
executive officer of WMS and by all directors and executive officers of WMS as a
group:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENTAGE OF
NAME OF BENEFICIAL COMMON STOCK OUTSTANDING
OWNER BENEFICIALLY OWNED(1) COMMON STOCK(2)
------------------ --------------------- ---------------
<S> <C> <C>
Harold H. Bach, Jr. ...................... 96,433(3) **
William C. Bartholomay*................... 81,755(4) **
Orrin J. Edidin........................... 0 **
Kenneth J. Fedesna*....................... 163,742(5) **
William E. McKenna*....................... 65,549(4) **
Norman J. Menell*......................... 65,171(4) **
Louis J. Nicastro*........................ 7,551,886(6) 27.5%
Neil D. Nicastro*......................... 7,986,986(7) 28.7%
Harvey Reich*............................. 64,145(4) **
Ira S. Sheinfeld*......................... 93,173(8) **
--------- ----
Directors and Executive Officers as a
group (10 persons)...................... 9,251,140(9)(10) 31.9%
========= ====
</TABLE>
- -------------------------
* Nominee for Director
** Less than 1%
(1) Pursuant to Rule 13d-3(d)(1) of the Securities Exchange Act of 1934, as
amended, shares underlying options are deemed to be beneficially owned if
the holder of the option has the right to acquire beneficial ownership of
such shares within 60 days. Except as otherwise indicated in the following
footnotes, each of the persons listed in the table owns the shares of
Common Stock opposite his or her name and has sole voting and dispositive
power with respect to such shares.
(2) For purposes of calculating the percentage of outstanding shares of Common
Stock, shares issuable to such person upon the exercise of stock options
within 60 days have been deemed to be outstanding.
(3) Includes 94,433 shares of Common Stock which the reporting person has the
right to acquire upon the exercise of stock options.
(4) Includes 62,955 shares of Common Stock which the reporting person has the
right to acquire upon the exercise of stock options.
(5) Includes 163,684 shares of Common Stock which the reporting person has the
right to acquire upon the exercise of stock options.
(6) The number of shares reported as beneficially owned include the 6,917,700
shares of Common Stock owned by Sumner M. Redstone and National Amusements,
Inc. for which the reporting person has shared voting power but no
dispositive power. Additionally, the number of shares reported as
beneficially owned includes 634,186 shares for which the reporting person
has sole voting and sole dispositive power, 629,554 of which may be
acquired upon the exercise of stock options. For a discussion concerning
the shared voting power with respect to the 6,917,700 shares of Common
Stock referred to above, see "Voting Proxy Agreement" below.
(7) The number of shares reported as beneficially owned include the 6,917,700
shares of Common Stock owned by Sumner M. Redstone and National Amusements,
Inc. for which the reporting person has shared voting power but no
dispositive power. Additionally, the number of shares reported as
beneficially owned includes 1,069,000 shares for which the reporting person
has sole voting and sole dispositive power, 1,007,286 of which may be
acquired upon the exercise of stock options.. For a discussion concerning
the shared voting power with respect to the 6,917,700 shares of Common
Stock referred to above, see "Voting Proxy Agreement" below.
3
<PAGE> 6
(8) Includes 93,173 shares of Common Stock which the reporting person has the
right to acquire upon the exercise of stock options.
(9) Includes 2,239,950 shares of Common Stock which directors and executive
officers have the right to acquire upon the exercise of stock options.
Additionally, includes the 6,917,700 shares of Common Stock owned by Sumner
M. Redstone and National Amusements, Inc. with respect to which Mr. Louis
J. Nicastro and Mr. Neil D. Nicastro both have shared voting power but no
dispositive power. For a discussion concerning the shared voting power with
respect to the 6,917,700 shares of Common Stock referred to above, see
"Voting Proxy Agreement" below.
(10) For purposes of this calculation, the 6,917,700 shares of Common Stock
owned by Sumner M. Redstone and National Amusements, Inc. with respect to
which Mr. Louis J. Nicastro and Mr. Neil D. Nicastro have shared voting
power but no dispositive power have only been counted once. For a
discussion concerning the shared voting power with respect to the 6,917,700
shares of Common Stock referred to above, see "Voting Proxy Agreement"
below.
VOTING PROXY AGREEMENT
In order for the Company to be permitted to manufacture and sell slot
machines in Nevada, the Company and certain of its subsidiaries and Mr. Louis J.
Nicastro and Mr. Neil D. Nicastro were required to be registered, licensed or
found suitable and have been registered, licensed or found suitable by the
Nevada State Gaming Control Board and the Nevada Gaming Commission (the "Nevada
Gaming Authorities"), as applicable, as a registered corporation, as registered
holding companies, for licensure as a manufacturer and distributor of gaming
devices and as directors, officers and stockholders of such entities, as
applicable. Under applicable Nevada law and administrative procedure, as a
greater than 10% stockholder of the Company, Mr. Sumner M. Redstone ("SMR") was
required to apply and has an application pending with the Nevada Gaming
Authorities for a finding of suitability as a stockholder of the Company.
Pending completion of the processing of SMR's application, SMR and National
Amusements, Inc. ("NAI") have voluntarily granted to Mr. Louis J. Nicastro and,
if he is unable to perform his duties under the Proxy Agreement (as defined
herein), Mr. Neil D. Nicastro, individually, a voting proxy for all of the
shares of Common Stock which they own beneficially or of record.
On September 21, 1995, Mr. Louis J. Nicastro and Mr. Neil D. Nicastro
entered into a Voting Proxy Agreement (the "Proxy Agreement") with the Company,
SMR and NAI, pursuant to which Mr. Louis J. Nicastro and, if he is unable to
perform his duties under the Proxy Agreement, Mr. Neil D. Nicastro have been
appointed, individually, as proxy holder with full power of substitution during
and for the term of the voting proxy, to vote all shares of the Company's Common
Stock as the proxy of SMR and NAI at any annual, special or adjourned meeting of
the stockholders of the Company, including the right to execute consents,
certificates or other documents relating to the Company that the law of the
State of Delaware may permit or require on any and all matters which may be
presented to the stockholders of the Company. The term of the Proxy Agreement is
for 10 years commencing August 25, 1995, unless sooner terminated upon 30 days
written notice. The Proxy Agreement will be deemed terminated as to any subject
matter that will be presented for approval, consent or ratification to the
stockholders of the Company if the Company fails to give SMR and NAI 45 days'
notice of such subject matter. The Proxy Agreement will also terminate if SMR
and NAI are found suitable as stockholders of the Company by the Nevada Gaming
Authorities or are no longer subject to the provisions of Nevada gaming laws
applicable to holders of more than 10% of the Company's Common Stock. The Proxy
Agreement is not applicable to any shares of the Company's Common Stock sold or
otherwise disposed of by SMR or NAI to any person who is not an affiliate of SMR
or NAI. SMR and NAI have agreed to give notice of any sale or disposition to the
Chairman of the Nevada State Gaming Control Board within 10 days after such sale
or disposition. The Proxy Agreement was entered into to assure that the passive
investment position of SMR and NAI relative to the Company will not change
without prior notification to the Nevada Gaming Authorities.
Mr. Louis J. Nicastro and Mr. Neil D. Nicastro have advised WMS that they
plan to utilize the voting proxy with respect to the 6,917,700 shares of Common
Stock beneficially owned by SMR and NAI to vote in favor of the nominees for
election as director and FOR Proposals 2, 3, 4, 5, 6, 7, 8 and 9.
4
<PAGE> 7
PROPOSAL 1 -- ELECTION OF DIRECTORS
Upon the recommendation of the Nominating Committee, eight (8) directors,
constituting the entire Board, are to be elected to serve until the next Annual
Meeting of Stockholders and until their respective successors are duly elected
and qualify. All of the nominees are at present directors of the Company. Mr.
Neil D. Nicastro is the son of Mr. Louis J. Nicastro. Should any of the nominees
be unable to serve or refuse to serve as a director (an event which the Board
does not anticipate), proxies solicited hereunder will be voted in favor of
those nominees who do remain as candidates and may be voted for substituted
nominees.
<TABLE>
<CAPTION>
POSITION WITH COMPANY AND DIRECTOR
NAME OF NOMINEE(AGE) PRINCIPAL OCCUPATION SINCE
-------------------- ------------------------- --------
<S> <C> <C>
Louis J. Nicastro (69)............................... Chairman of the Board of 1974
Directors of the Company,
and Chairman of the Board of
Directors and Chief
Executive Officer of WHG
Resorts & Casinos Inc.
Neil D. Nicastro (41)................................ President, Chief Executive 1986
Officer, Chief Operating
Officer and a Director of
the Company, and Chairman of
the Board of Directors,
President, Chief Executive
Officer and Chief Operating
Officer of Midway Games Inc.
Kenneth J. Fedesna (48).............................. Vice President and General 1993
Manager of the Company's
Coin-Op Amusement Game
Operations and a Director of
the Company, and Executive
Vice President Coin-Op Video
of Midway Games Inc.
Norman J. Menell (66)................................ Vice Chairman of the Board 1980
of Directors of the Company
William C. Bartholomay (69).......................... Director of the Company and 1981
President of Near North
National Group
William E. McKenna (78).............................. Director of the Company and 1981
General Partner of MCK
Investment Company
Harvey Reich (68).................................... Director of the Company and 1983
Attorney, Of Counsel to the
firm of Robinson Brog
Leinwand Greene Genovese &
Gluck, P.C.
Ira S. Sheinfeld (59)................................ Director of the Company and 1993
Attorney, Member of the firm
of Squadron, Ellenoff,
Plesent & Sheinfeld LLP
</TABLE>
LOUIS J. NICASTRO, Chairman of the Board of Directors of the Company. Mr.
Nicastro has served as Chairman of the Board of Directors of the Company since
its incorporation in 1974. He served as Co-Chief Executive Officer of the
Company from 1994 until June 26, 1996, having served as Chief Executive Officer
5
<PAGE> 8
(1974-1994), President (1985-1988 and 1990-1991) and Chief Operating Officer
(1985-1986). Mr. Nicastro also serves as a Director of Midway Games
Inc.("Midway"), a 86.8% subsidiary of the Company, and is the Chairman of the
Board and Chief Executive Officer of WHG Resorts & Casinos Inc.
NEIL D. NICASTRO, President, Chief Executive Officer and Chief Operating
Officer of the Company. Mr. Nicastro became a director of the Company in 1986
and was elected President of the Company on June 18, 1991, sole Chief Executive
Officer effective July 1, 1996 and Chief Operating Officer on September 30,
1990. He served as Co-Chief Executive Officer (1994-1996), Treasurer
(1986-1994), Executive Vice President (1988-1991), Senior Vice President
(1987-1988), Vice President (1986-1987) and Director of Stockholder Relations
(1981-1986). Mr. Nicastro also serves as Chairman of the Board of Directors,
President, Chief Executive Officer and Chief Operating Officer of Midway.
KENNETH J. FEDESNA has served as Vice President and General Manager of
Williams Electronics Games, Inc., a subsidiary of the Company, for in excess of
five years. Mr. Fedesna also serves as Executive Vice President -- Coin-Op Video
and as a Director of Midway.
NORMAN J. MENELL became Vice Chairman of the Board of Directors of the
Company effective September 30, 1990. He served as President (1988-1990), Chief
Operating Officer (1986-1990) and Executive Vice President (1981-1988) of the
Company. Mr. Menell also serves as a Director of Midway.
WILLIAM C. BARTHOLOMAY is President of Near North National Group, Chicago,
Illinois (insurance brokers) and Chairman of the Board of the Atlanta Braves
(National League Baseball). He has served as Vice Chairman of Turner
Broadcasting System, Inc., a division of Time Warner Inc., since April 1994,
having also held that office during the period 1976-1992 and having served as a
Director (1976-1994). Mr. Bartholomay also serves as a Director of Midway.
WILLIAM E. MCKENNA has served as a General Partner of MCK Investment
Company, Beverly Hills, California for in excess of five years. He also is a
Director of California Amplifier, Inc., Drexler Technology Corporation,
Safeguard Health Enterprises, Inc. and Midway.
HARVEY REICH has been a member of or of counsel to the law firm of Robinson
Brog Leinwand Greene Genovese & Gluck, P.C., New York, New York and its
predecessor firms for in excess of five years. Mr. Reich also serves as a
Director of Midway.
IRA S. SHEINFELD has been a member of the law firm of Squadron, Ellenoff,
Plesent & Sheinfeld LLP, New York, New York, for in excess of five years. Mr.
Sheinfeld also serves as a Director of Midway.
Proposal 3 below provides for the classification of the Board of Directors
into three classes, with one class to be elected each year, with the initial
term of office of Class III directors to expire at the annual meeting of
stockholders to be held in 1999, with the initial term of office of Class II
directors to expire at the annual meeting of stockholders to be held in 2000,
and with the initial term of office of Class I directors to expire at the annual
meeting of stockholders to be held in 2001. If Proposal 3 is approved, the
nominees for directors will be designated members of the class of directors set
forth in Proposal 3.
REQUIRED VOTE
The affirmative vote of a plurality of the shares of Common Stock present
in person or by proxy at the Annual Meeting is required to elect directors.
-------------------------
THESE INDIVIDUALS WILL BE PLACED IN NOMINATION FOR ELECTION TO THE BOARD OF
DIRECTORS. THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE NOMINEES FOR ELECTION AS
DIRECTORS
-------------------------
6
<PAGE> 9
THE BOARD OF DIRECTORS
The Board of Directors is responsible for the overall affairs of the
Company. To assist it in carrying out its duties, the Board has delegated
certain authority to several committees. The majority of the Board, five of the
eight directors, are outside directors who are neither officers nor employees of
the Company or its subsidiaries.
During the 1997 fiscal year, the Board of Directors of the Company held six
meetings. All other action taken by the Board was by the unanimous written
consent of the members after review of proposals presented to each member. Each
director attended at least 75% of the aggregate of meetings of the Board and
committees on which he served during the fiscal year.
DIRECTOR COMPENSATION
During the 1997 fiscal year, the Company paid a fee of $40,000 per annum to
each director who was not also an employee of the Company or its subsidiaries.
Each such director who served as the chairman of any committee of the Board of
Directors received a further fee of $5,000 per annum for his services in such
capacity and each member of the Company's Audit and Ethics Committee received an
additional fee of $5,000 per annum.
During the 1997 fiscal year and prior to the April 21, 1997 distribution to
WMS stockholders of all of the outstanding and voting common stock of WHG
Resorts & Casinos Inc. (the "WHG Distribution"), each non-employee director of
the Company's then 95%-owned subsidiary Posadas de Puerto Rico Associates,
Incorporated (which included Messrs. Bartholomay, Menell and Reich) also
received an annual fee of $10,000 for services as a director and, for those
non-employee directors who serve as a member of the Audit, Ethics and
Compensation Committee of such subsidiary's Board of Directors (which included
Messrs. Bartholomay and Reich) a further fee of $12,500 was paid. During the
1997 fiscal year and prior to the WHG Distribution, each non-employee director
of the Company's then 62%-owned subsidiary Williams Hospitality Group Inc.
(which included Messrs. McKenna and Menell) also received an annual fee of
$22,500 for services as a director.
The Company's 1991 and 1993 Stock Option Plans (the "Option Plans") provide
for the issuance of shares of Common Stock of the Company pursuant to stock
options which may be granted to non-employee directors of the Company, among
others, at not less than 100% of the fair market value of such shares on the
date of grant. Under the terms of the Option Plans, non-qualified stock options
may be granted to non-employee directors pursuant to the following formula --
upon the date of adoption of the Plan by the Board of Directors and on each
anniversary thereof, each non-employee director of the Company is entitled to
receive a non-qualified option to purchase, at 100% of the fair market value of
the Company's Common Stock on such date, such shares of the Company's Common
Stock as shall be determined (a) in the case of the 1991 Stock Option Plan, by
multiplying 5,036 (after adjustment for the WHG Distribution) times the number
of years he or she has served on the Board of Directors, subject to a maximum of
37,773 shares (after adjustment for the WHG Distribution); and (b) in the case
of the 1993 Stock Option Plan, by multiplying 12,591 (after adjustment for the
WHG Distribution) times the number of years he or she has served on the Board of
Directors or as a consultant or adviser, subject to a maximum of 62,954 shares
(after adjustment for the WHG Distribution). Upon adoption of the 1991 Stock
Option Plan, the following non-employee directors became entitled to and were
granted non-qualified stock options to purchase 37,773 shares (after adjustment
for the WHG Distribution) each of the Company's Common Stock at a purchase price
of $7.31 -- Messrs. Bartholomay, McKenna and Reich. On September 6, 1997, 1996,
1995 and 1994, Mr. Sheinfeld was granted a non-qualified option to purchase
7,555, 15,109, 10,073 and 5036 shares (all after adjustment for the WHG
Distribution), respectively, at a price of $26.19, $18.97, $18.57 and $15.19
(all after adjustment for the WHG Distribution) per share, respectively,
pursuant to the formula established in the 1991 Option Plan. Upon adoption of
the 1993 Stock Option Plan, the following non-employee directors became entitled
to and were granted non-qualified stock options to purchase 62,954 shares (after
adjustment for the WHG Distribution) each of the Company's Common Stock at a
purchase price of $21.34 each -- Messrs. Bartholomay, McKenna, Menell, Reich and
Sheinfeld.
7
<PAGE> 10
Each director of the Company who is not also an employee of the Company or
its subsidiaries is also a non-employee director of Midway. During the 1997
fiscal year, Midway paid a fee of $22,500 per annum to each such Midway
director. Each such director who serves as the chairman of any committee of the
Midway Board of Directors receives a further fee of $2,500 per annum for his
services in such capacity and each other member of Midway's Audit Committee
receives an additional fee of $2,500 per annum.
Midway's 1996 Stock Option Plan provides for the issuance of shares of
Midway common stock pursuant to stock options which may be granted to
non-employee directors of Midway, among others, at not less than 100% of the
fair market value of such shares on the date of grant. Immediately prior to the
initial public offering by the Company of the Midway common stock in October
1996, Midway granted options to purchase 25,000 shares of Midway common stock to
each of its non-employee directors.
Directors also are entitled to participate at the Company's expense in a
medical reimbursement plan which is supplementary to the primary medical
insurance maintained by each such individual.
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit and Ethics Committee is currently composed of three members,
Messrs. McKenna (Chairman), Bartholomay and Sheinfeld. This Committee is charged
with meeting periodically with the independent auditors and Company personnel
with respect to the adequacy of internal accounting controls, receiving and
reviewing the recommendations of the independent auditors, recommending the
appointment of auditors and reviewing the scope of the audit and the
compensation of the independent auditors, reviewing consolidated financial
statements and, generally, reviewing the Company's accounting policies and
resolving potential conflicts of interest. During the 1997 fiscal year this
Committee held two meetings.
The Nominating Committee is currently composed of Messrs. L.J. Nicastro
(Chairman) and Bartholomay. This Committee is charged with making
recommendations with respect to the nomination of candidates for election to the
Board and does not accept recommendations from stockholders of the Company.
During the 1997 fiscal year this Committee held one meeting.
The Stock Option Committee is currently composed of Messrs. Reich
(Chairman) and McKenna. This Committee approves the selection of individuals for
participation in, and determines the timing, pricing and the amount of option
grants under the provisions of, the Company's Stock Option Plans other than
formula awards made to Non-Employee Directors of the Company. During the 1997
fiscal year this Committee held one meeting and took all other action by the
unanimous written consent of the members.
The Compensation Committee is currently composed of Messrs. Bartholomay
(Chairman) and McKenna. This Committee is charged with making recommendations
regarding the compensation of senior management personnel. During the 1997
fiscal year this Committee held one meeting and took other action by the
unanimous written consent of the members. The Compensation Committee and Stock
Option Committee jointly report to stockholders on executive compensation items
as required by the Securities and Exchange Commission. Their Report follows
below.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
During the last fiscal year, Mr. William C. Bartholomay served as Chairman
of the Company's Compensation Committee and Mr. William E. McKenna served as the
sole additional member, neither of whom are employees or officers of the Company
or any of its subsidiaries or had any relationship requiring disclosure herein
by the Company.
8
<PAGE> 11
EXECUTIVE OFFICERS
The following individuals were elected to serve in the capacities set forth
until the 1998 Annual Meeting of the Board of Directors or until their
respective successors are duly elected and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Neil D. Nicastro..................... 41 President, Chief Executive Officer and
Chief Operating Officer
Harold H. Bach, Jr................... 65 Vice President-Finance, Treasurer, Chief
Financial Officer and Chief Accounting
Officer
Orrin J. Edidin...................... 36 Vice President, Secretary and General
Counsel
</TABLE>
The principal occupation and employment of Mr. N.D. Nicastro during the
last five years is set forth on page 6 hereof.
Mr. Bach served as Secretary of the Company from July 5, 1990 to June 15,
1992. He assumed the positions of Treasurer effective September 13, 1994 and
Vice President-Finance, Chief Financial Officer and Chief Accounting Officer
effective September 30, 1990. Additionally, Mr. Bach has served as Executive
Vice President-Finance, Chief Financial Officer and a director of Midway since
August 30, 1996. Previously, he served as Senior Vice President-Finance and
Chief Financial Officer of Midway from September 17, 1990 to August 30, 1996,
and he has served as Treasurer of Midway continuously since December 1, 1994.
Prior to joining the Company, Mr. Bach was a partner in the accounting firms of
Ernst & Young (1989-1990) and Arthur Young & Company (1967-1989).
Mr. Edidin has served as Vice President, Secretary and General Counsel of
the Company since May 30, 1997. Mr. Edidin served as Associate General Counsel
of Fruit of the Loom, Inc., an apparel company, from August 1992 until May 1997.
Mr. Edidin has also served as Vice President, Secretary and General Counsel of
Midway since June 30, 1997.
EXECUTIVE COMPENSATION
To provide stockholders with an understanding of the Company's executive
compensation program, the following are presented below: (i) the Summary
Compensation Table; (ii) the Stock Option Tables; (iii) a description of the
Adjustments to the Options Resulting from Midway Spin-Off; (iv) the Joint Report
by the Compensation and Stock Option Committees of the Board of Directors on
Fiscal 1997 Executive Compensation; (v) the Corporate Performance Graph; and
(vi) a description of Employment Agreements.
9
<PAGE> 12
SUMMARY COMPENSATION TABLE
The Summary Compensation Table below sets forth the cash compensation paid
by the Company (or in the case of Mr. Nicastro, for the period from the date of
the initial public offering by Midway, by the Company and Midway) for service in
all capacities during the fiscal years ended June 30, 1997, 1996 and 1995 to
each of the Company's executive officers who served during such periods and
whose salary and bonus exceeded $100,000. Pursuant to the Manufacturing and
Services Agreement between the Company and Midway, after the Offering the
compensation paid by the Company to the executive officers of the Company (other
than Mr. Nicastro) is allocated to Midway based upon estimates by management of
the Company. Management of the Company believes that such executive officers
devoted at least 50% of their time to Midway. Mr. Orrin J. Edidin, Vice
President, Secretary and General Counsel of the Company, commenced his
employment with the Company on May 19, 1997 and, therefore, is not included in
the Summary Compensation Table set forth below.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
---------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION ($)
--------------------------- ---- ---------- --------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Neil D. Nicastro...................... 1997 600,000 969,160 1,007,286(1) 54,632(2)
President, Chief Executive Officer 1996 532,500 267,600 -- 35,791(2)
and Chief Operating Officer 1995 532,500 489,100 -- 35,762(2)
Harold H. Bach, Jr.................... 1997 300,000 175,000 94,433(1) --
Vice President -- Finance, 1996 262,000 67,800 -- --
Treasurer, Chief Financial Officer 1995 250,000 67,800 -- --
and Chief Accounting Officer
Barbara M. Norman (3)................. 1997 168,270 50,000 94,433(1)(4) --
Vice President, Secretary and 1996 157,500 27,200 -- --
General Counsel 1995 150,000 27,200 -- --
</TABLE>
- -------------------------
(1) The number of options set forth herein reflect an adjustment to options
previously granted by the Company, which number of options and the exercise
price thereof were adjusted to reflect the WHG Distribution. The number of
options set forth herein does not include Midway stock options granted to
such persons by Midway under the Midway 1996 Stock Option Plan. In fiscal
1997, Mr. Nicastro received options to acquire 500,000 shares of Midway
common stock, Mr. Bach received options to acquire 100,000 shares of Midway
common stock and Ms. Norman received options to acquire 25,000 shares of
Midway common stock.
(2) Amount shown includes for fiscal 1997, 1996 and 1995 life insurance premiums
of $1,467, $691 and $662, respectively, and $53,165, $35,100 and $35,100
each for fiscal 1997, 1996 and 1995, respectively, accrual for contractual
retirement benefits.
(3) Ms. Norman served as Vice President, Secretary and General Counsel to the
Company from June 15, 1992 until May 30, 1997.
(4) These options were issued in exchange for options previously issued to Ms.
Norman which terminated upon termination of her employment with the Company.
Ms. Norman currently is Vice President, Secretary and General Counsel of WHG
Resorts & Casinos Inc. and is a consultant to the Company and Midway
pursuant to a consulting agreement whereby Ms. Norman renders consulting
services to the Company and Midway in consideration of supplemental medical
benefits to the extent not provided to her by WHG.
10
<PAGE> 13
STOCK OPTION TABLES
The Company currently has the following four stock option plans in effect:
the 1982 Employee Stock Option Plan; the 1991 Stock Option Plan; the 1993 Stock
Option Plan; and the 1994 Stock Option Plan (collectively the "Stock Option
Plans" or "Plans'). The Plans provide for the issuance of shares of Common Stock
pursuant to options which may be granted thereunder. Options granted under the
Plans may be in the form of options meeting the requirements of Section 422 of
the Internal Revenue Code, as amended ("incentive stock options"), or options
not meeting the requirements of such section ("non-qualified stock options").
The purpose of each of the Plans is to encourage key employees of the
Company and its subsidiaries and under certain of the Plans non-employee
directors, consultants and advisers of the Company to acquire a proprietary
interest in the Company and to enable such individuals to realize benefits from
an increase in the value of the Common Stock, to provide such individuals with
greater incentive and to encourage their continued provision of services to the
Company and, generally, to promote the interests of the Company and all of its
stockholders.
The following tables set forth certain information with respect to options
to purchase Common Stock granted under the Company's Stock Option Plans and the
Midway 1996 Stock Option Plan to persons who served as executive officers of the
Company during fiscal year 1997.
WMS OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(1)
---------------------------------------------------------- ---------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR(%) ($/SHARE) DATE 5%($) 10%($)
---- ---------- -------------- -------------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Neil D. Nicastro....... -- -- -- -- -- --
Harold H. Bach, Jr. ... -- -- -- -- -- --
Orrin J. Edidin........ 25,000(2) 7.8 20.25 05/19/07 318,378 806,832
Barbara M. Norman...... 94,433(3) 29.3 21.34 09/30/03 752,875 1,733,353
</TABLE>
- -------------------------
(1) The assumed appreciation rates are set pursuant to the rules and regulations
promulgated under the Securities Exchange Act of 1934, as amended, and are
not derived from the historical or projected prices of the Company's Common
Stock or results of operations or financial conditions and they should not
be viewed as a prediction of possible prices for the Common Stock in the
future. Total potential stock price appreciation from May 19, 1997 to May
19, 2007 for all stockholders based on the price of $20.25 per share of
Common Stock on May 19, 1997 and a total of 24,217,854 shares of Common
Stock outstanding would be $308,417,276 and $781,589,583 at assumed rates of
stock appreciation of 5% and 10%, respectively.
(2) These options become exercisable up to 10%, 30%, 60% and 100% of the total
number of options granted upon the first, second, third and fourth
anniversaries, respectively, of the date of the grant.
(3) These options were granted to Ms. Norman in exchange for options which
terminated upon termination of her employment with the Company on June 16,
1997. However, Ms. Norman currently is a consultant to the Company and such
options remain outstanding.
11
<PAGE> 14
MIDWAY OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(1)
--------------------------------------------------------- -------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR(%) ($/SHARE) DATE 5%($) 10%($)
---- ---------- -------------- --------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Neil D. Nicastro......... 500,000(2) 28.4 20.00 10/31/06 6,288,946 15,937,425
Harold H. Bach, Jr....... 100,000(2) 5.7 20.00 10/31/06 1,257,789 3,187,485
Barbara M. Norman........ 25,000(2)(3) 1.4 20.00 10/31/06 314,447 796,871
</TABLE>
- -------------------------
(1) The assumed appreciation rates are set pursuant to the rules and regulations
promulgated under the Securities Exchange Act of 1934, as amended, and are
not derived from the historical or projected prices of Midway's common stock
or results of operations or financial conditions and they should not be
viewed as a prediction of possible prices for Midway's common stock in the
future. Total potential stock price appreciation from November 1, 1996 to
October 31, 2006 for all stockholders based on the price of $20.00 per share
of Midway common stock on November 1, 1996 and a total of 38,500,000 shares
of Midway common stock outstanding would be $496,829,104 and $1,259,056,575
at assumed rates of stock appreciation of 5% and 10%, respectively.
(2) In connection with the initial public offering of Midway common stock in
October 1996, the optionee was granted options to purchase Midway common
stock, 40% of which became exercisable upon completion of such offering and
the balance of which become exercisable in equal installments on each of the
three succeeding anniversary dates of the completion of such offering.
(3) Ms. Norman's employment with Midway terminated effective June 16, 1997.
However, Ms. Norman is a consultant to Midway, and the options previously
issued to her remain outstanding.
AGGREGATED WMS OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END WMS OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY
SHARES 6/30/97(#) OPTIONS AT 6/30/97($)(1)
ACQUIRED ON VALUE EXERCISABLE(E) EXERCISABLE(E)
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE(U) UNEXERCISABLE(U)
---- ----------- ----------- ---------------------- ------------------------
<S> <C> <C> <C> <C>
Neil D. Nicastro............... -- -- 1,007,286(E) 6,401,929(E)
Harold H. Bach, Jr. ........... -- -- 94,433(E) 351,149(E)
Barbara M. Norman.............. -- -- 94,433(E) 351,149(E)
Orrin J. Edidin(2)............. -- -- 25,000(U) 120,312(U)
</TABLE>
- -------------------------
(1) Based on the closing price of Common Stock on the New York Stock Exchange on
June 30, 1997, which was $25.0625.
(2) Mr. Edidin became Vice President, Secretary and General Counsel of the
Company on May 30, 1997.
12
<PAGE> 15
AGGREGATED MIDWAY OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END MIDWAY OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY
SHARES 6/30/97(#) OPTIONS AT 6/30/97($)(1)
ACQUIRED ON VALUE EXERCISABLE(E) EXERCISABLE(E)
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE(U) UNEXERCISABLE(U)
---- ----------- ----------- ---------------------- ------------------------
<S> <C> <C> <C> <C>
Neil D. Nicastro............... -- -- 200,000(E) 275,000(E)
300,000(U) 412,500(U)
Harold H. Bach, Jr. ........... -- -- 40,000(E) 55,000(E)
60,000(U) 82,500(U)
Barbara M. Norman.............. -- -- 10,000(E) 13,750(E)
15,000(U) 20,625(U)
</TABLE>
- -------------------------
(1) Based on the closing price of the Common Stock on the New York Stock
Exchange on June 30, 1997, which was $21.375.
ADJUSTMENTS TO OPTIONS RESULTING FROM MIDWAY SPIN-OFF
On October 29, 1996, Midway completed an initial public offering of
5,100,000 shares of Midway common stock for $20.00 per share (the "Offering").
As of September 22, 1997, Midway had 38,500,000 shares outstanding of which the
Company owned 33,400,000 shares, representing approximately 86.8% of the
outstanding shares of Midway common stock.
In August 1997, the Company announced that its Board of Directors had
approved in principle a spin-off of the Company's remaining interest in Midway
pro rata to the Company's stockholders (the "Spin-Off"). The proposed Spin-Off
is conditioned upon several requirements, including the receipt of a ruling from
the Internal Revenue Service that the transaction will be tax free to the
Company and its stockholders. The Company anticipates that the Spin-Off will be
completed in early 1998.
Each of the Company's four stock option plans provides that in the event of
a dividend or other distribution, such as the Spin-Off, outstanding options are
to be adjusted so as to prevent dilution of the benefits or potential benefits
intended to be made available by the options in such manner as the Board of
Directors deems equitable. Several alternatives were considered by the Board.
Some companies that have implemented a spin-off of a subsidiary have followed a
strategy where existing option holders were given replacement options in both
the parent and the subsidiary. However, since Midway is already a public company
with 13.2% of its stock held by stockholders other than the Company, the Board
concluded that it would not be appropriate for the Company to cause Midway to
issue options to satisfy the Company's obligations to its option holders.
The Board also considered adjusting the number and exercise price of the
options so that their intrinsic value after the Spin-Off would equal the
intrinsic value of the options before the Spin-Off. Such an adjustment would be
accomplished by both reducing the exercise price of the options and increasing
the number of shares issuable upon exercise of the options. However, in light of
the significant value of Midway to the Company as a whole, such an approach
would have resulted in the issuance of options to acquire more than twice the
number of shares of Common Stock outstanding, which the Board believed would not
be in the best interests of stockholders.
Instead, the Board adopted an approach that would give option holders the
same number of options to acquire shares of Common Stock after the Spin-Off (at
the exercise price described below) as such holders currently have and
compensate option holders for the lost opportunity value represented by the
shares of common stock of Midway being distributed in the Spin-Off to
stockholders of the Company which option holders will not participate in. In
order to preserve the Company's cash resources, the Board also provided that
such compensation be paid through a combination of cash and shares of Common
Stock and would be capped.
13
<PAGE> 16
The Board also believed it was desirable to advise the Company's
stockholders at the earliest time of the minimum number of Midway shares they
will receive as a result of the Spin-Off. Such number would have varied by
reason of the exercise of any options prior to the completion of the Spin-Off.
The Board believed that it was therefore in the interest of stockholders to
obtain an undertaking from each current option holder not to exercise his or her
options prior to the completion of the Spin-Off.
After considering all of the foregoing and in consultation with its
financial advisors, the Board approved and proposed to option holders the plan
described below. The plan was accepted by holders of all outstanding options
under the Company's four stock option plans, including each of the persons
listed in the Summary Compensation Table. The implementation of the Spin-Off is
subject to the receipt of an opinion from the Company's financial advisors, CIBC
Oppenheimer Corp., that the Spin-Off, including the adjustments to stock options
resulting from the Spin-Off, is fair to the Company and its stockholders.
Pursuant to the plan, each option holder agreed not to exercise his or her
outstanding options until the earliest of (i) the record date for the Spin-Off,
(ii) the date the Company publicly announces that it has abandoned its plan to
complete the Spin-Off, (iii) the termination of employment of such holder by the
Company for any reason, or (iv) June 30, 1998. In consideration for such
agreement, each option holder will be afforded one of two choices (at their
election to be made shortly before the Spin-Off) in the event the Spin-Off is
completed:
(1) Each option holder will be entitled to receive a guaranteed
minimum payment for all of his or her options in an amount equal to the
spread between the trading price of shares of Common Stock on September 22,
1997 ($30.00), the date the plan was approved by the Board, and the
exercise price of the option, plus a premium which represents the value of
the option holder's commitment not to exercise the options, determined
using the Black-Scholes method of determining option values.
(2) At the time of the Spin-Off, the option holder may elect to
receive the minimum payment described above or the following: (a) an
ongoing option (the "Surviving Option") to purchase the same number of
shares of Common Stock as they currently hold at an exercise price
determined by multiplying the exercise price of the applicable options by a
fraction, the numerator of which is the projected value of shares of Common
Stock after the date on which shares of Common Stock trade ex-dividend
(i.e. without entitlement to the Midway shares being spun off), as
determined by the Board upon advice of its financial advisors, and the
denominator of which is the average closing price of shares of Common Stock
on the NYSE for a period of time prior to the Spin-Off determined by the
Board and (b) payment for the lost opportunity value of options to purchase
the number of shares of common stock of Midway that such optionee would
have received prior to the Spin-Off (the "Phantom Midway Options"). The
number of shares subject to the Phantom Midway Options will be determined
by multiplying the number of options by the ratio of shares of common stock
of Midway being distributed as part of the Spin-Off for each outstanding
share of Common Stock (the "SpinOff Ratio"). The exercise price of the
Phantom Midway Options will be determined by subtracting the exercise price
of the applicable Surviving Option from the exercise price of the
applicable option and dividing the result by the Spin-Off Ratio. The
Phantom Midway Options will then be valued using the Black-Scholes
methodology, utilizing such assumptions as may be approved by the Board and
its financial advisors, and will be purchased by the Company.
Payments by the Company for either the minimum guarantee or the Phantom
Midway Options will be paid in cash up to a maximum of $30.0 million and in
shares of Common Stock up to a maximum of 2,000,000 shares. Such shares will be
distributed prior to the completion of the Spin-Off so that payment is based on
the price of Common Stock for a trading period prior to the completion of the
Spin-Off.
14
<PAGE> 17
JOINT REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEES
ON FISCAL 1997 EXECUTIVE COMPENSATION
The Compensation Committee is charged with making recommendations to the
Board of Directors regarding the compensation of senior management personnel. To
the extent stock options form a portion of a compensation package, the
Compensation Committee works together with the Stock Option Committee, which is
responsible for making recommendations regarding stock option grants and awards.
It is the policy of the Compensation and Stock Option Committees to provide
attractive compensation packages to senior management so as to motivate them to
devote their full energies to the success of the Company, to reward them for
their services and to align the interests of senior management with the
interests of stockholders. The Company's executive compensation packages are
comprised primarily of base salaries, annual contractual and discretionary cash
bonuses, stock options and retirement and other benefits. It is the philosophy
of the Compensation Committee that the Company be staffed with a small number of
well compensated senior management personnel.
In general, the level of base salary is intended to provide appropriate
basic pay to senior management taking into account historical contributions to
the Company and each person's unique value and the recommendation of the Chief
Executive Officer. The amount of any discretionary bonus is subjective but is
generally based on the actual performance of the Company in the preceding fiscal
year, the special contribution of the executive to such performance and the
overall level of the executive's compensation including other elements of the
compensation package. The Company also has used stock options, which increase in
value only if the Company's Common Stock increases in value, and which terminate
a short time after an executive leaves the Company, as a means of long-term
incentive compensation. The Stock Option Committee determined the size of stock
option grants to the executive officers and to key employees throughout the
Company on an individual, discretionary basis in consideration of corporate
results and each recipient's performance, contributions and responsibilities
without assigning specific weight to any factor.
The cash bonus paid to Mr. N.D. Nicastro for the fiscal year 1997 was
determined through a negotiated formula set forth in his employment agreements
with the Company and with Midway which provided for base salary and bonus
compensation as fully described under "Employment Agreements" below. In fiscal
1997, Mr. N.D. Nicastro also received from Midway stock options to purchase
500,000 shares of Midway common stock.
Senior executives other than Mr. N.D. Nicastro were granted discretionary
bonuses for the 1997 fiscal year and also received from the Company options to
purchase in the aggregate, 94,433 shares of Common Stock and from Midway options
to purchase, in the aggregate, 325,000 shares of Midway common stock. The
decision to pay such bonuses was subjective but involved consideration of the
efforts expended by such executives as well as consideration of the financial
performance of the Company. For information with respect to options held by
senior management at fiscal year end, see "Stock Option Tables" set forth above.
The Omnibus Budget Reconciliation Act of 1993 (the "Budget Act") generally
provides that, for fiscal years commencing in 1994, compensation paid by
publicly-held corporations to the chief executive officer and the four most
highly paid senior executive officers in excess of one million dollars per year
per executive will be deductible by the Company only if paid pursuant to
qualifying performance-based compensation plans approved by stockholders of the
Company. Compensation as defined by the Budget Act includes, among other things,
base salary, incentive compensation and gains on stock option transactions.
Since the ultimate value of an option cannot be determined until it is exercised
or until the stock underlying the option is sold, executive compensation
relating to options may, in a given year, exceed one million dollars. It is the
present policy of the Compensation Committee to submit for stockholder approval
stock option plans in which the chief executive officer and the most highly paid
senior executive officers of the Company may participate. The Compensation
Committee intends to consider, on a case by case basis, how the Budget Act will
affect contractual and discretionary cash compensation. The Compensation
Committee does not intend to request Mr. N. D. Nicastro to submit his employment
agreement for stockholder approval. See "Employment Agreements -- Employment
Contracts." Depending on the performance of the Company, payments to Mr.
Nicastro under
15
<PAGE> 18
such agreement may exceed one million dollars in any particular fiscal year and
such excess payments will not be deductible by the Company.
<TABLE>
<S> <C>
The Compensation Committee The Stock Option Committee
William C. Bartholomay, Chairman Harvey Reich, Chairman
William E. McKenna William E. McKenna
</TABLE>
The foregoing Joint Report of the Compensation and Stock Option Committees
on executive compensation shall not be deemed to be incorporated by reference
into any filing of the Company under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, except to the extent that the
Company specifically incorporates such information by reference.
CORPORATE PERFORMANCE GRAPH
The following graph compares for the five years ended June 30, 1997 the
yearly percentage change in cumulative total stockholder return on the Company's
Common Stock with (1) the cumulative total return of the Standard and Poor's 500
Stock Index ("S & P 500") and (2) the cumulative total return of the Standard
and Poor's Leisure Time Index ("S&P Leisure"). The graph assumes an investment
of $100 on July 1, 1992 in the Company's Common Stock and $100 invested at that
time in each of the Indexes and the reinvestment of dividends where applicable.
The WHG Distribution resulted in an adjustment to total stockholder return as a
reinvested dividend of $2.25.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) WMS S&P 500 S&P - Leisure
<S> <C> <C> <C>
1992 100 100 100
1993 177 114 120
1994 117 115 121
1995 121 145 146
1996 152 183 191
1997 173 247 240
</TABLE>
The foregoing table shall not be deemed to be incorporated by reference
into any filing of the Company under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, except to the extent that the
Company specifically incorporates such information by reference.
EMPLOYMENT AGREEMENTS
EMPLOYMENT CONTRACTS
The Company and Midway each entered into separate employment agreements
(each an "Employment Agreement" and collectively, the "Employment Agreements")
with Mr. Neil D. Nicastro effective as of July 1, 1996. Each of the Employment
Agreements provides that Mr. Nicastro will receive salaried
16
<PAGE> 19
compensation at the rate of $300,000 per annum, or such greater amount as may be
determined by the Board of Directors of the Company or Midway, as applicable.
Mr. Nicastro's Employment Agreement with Midway provides for bonus compensation
in an amount equal to two percent of the pre-tax income of Midway multiplied by
the percentage of Midway common stock outstanding which is not owned by the
Company (which is 13.2%). Mr. Nicastro's Employment Agreement with the Company
also provides for bonus compensation in an amount equal to two percent of the
pre-tax income of the Company. The portion of Mr. Nicastro's bonus from the
Company that is attributable to the pre-tax income of Midway will be charged to
Midway pursuant to the Manufacturing and Services Agreement between the Company
and Midway. The Employment Agreement with the Company provides for, among other
things, full participation in all benefit plans available to senior executives
and for reimbursement of all medical and dental expenses incurred by Mr.
Nicastro or his spouse and incurred by his children under the age of twenty-one.
Additionally, the Company and Midway will each provide Mr. Nicastro with
$1,000,000 of life insurance coverage in addition to the standard amount
provided to Company employees. Mr. Nicastro's Employment Agreement with Midway
provides that should the Company fail for any reason to provide the medical,
dental and other employee benefits to be provided to Mr. Nicastro under the
terms of his Employment Agreement with the Company, Midway will provide such
benefits to him at its expense. Each of the Employment Agreements provides that
Mr. Nicastro may divide his attention between the business of the Company and
the business of Midway as he shall consider appropriate.
The Employment Agreements will expire November 4, 2001, subject to
automatic extensions in order that the term of each of the Employment Agreements
shall at no time be less than three years. Upon retirement or death and for a
period of seven years thereafter, each of the Company and Midway is required to
pay to Mr. Nicastro or his designee, or if no designation is made, to his
estate, for a period equal to the greater of the balance of the remaining term
of the respective Employment Agreement or seven years, an annual benefit equal
to one-half of the annual base salary being paid to him on such retirement or
death, as the case may be, but in no event less than $150,000 per annum under
each Employment Agreement. Such benefits are payable under each of the
Employment Agreements notwithstanding Mr. Nicastro's termination of employment
with the Company or Midway, as the case may be, for any reason. The Employment
Agreements may be terminated at the election of Mr. Nicastro upon the occurrence
without his consent or acquiescence of any one or more of the following events:
(i) the placement of Mr. Nicastro in a position of lesser stature or the
assignment to Mr. Nicastro of duties, performance requirements or working
conditions significantly different from or at variance with those presently in
effect under the respective Employment Agreement; (ii) the treatment of Mr.
Nicastro in a manner which is in derogation of his status as a senior executive
of WMS or Midway, as applicable; (iii) the cessation of service of Mr. Nicastro
as a member of the Board of Directors of WMS or Midway, as applicable; (iv) the
discontinuance or reduction of amounts payable or personal benefits available to
Mr. Nicastro pursuant to the applicable Employment Agreement; or (v) the
requirement that Mr. Nicastro work outside his agreed upon metropolitan area. In
any such event, and in the event the Company or Midway is deemed to have
wrongfully terminated Mr. Nicastro's Employment Agreement with WMS or Midway, as
applicable, under the terms thereof, the Company and/or Midway, as applicable,
is obligated (a) to make a lump sum payment to Mr. Nicastro equal in amount to
the sum of the aggregate base salary during the remaining term of his employment
agreement (but in no event less than three times the highest base salary payable
to him during the one-year period prior to such event), the bonus (assuming all
objectives for payment had been met) and the retirement benefit (assuming the
date of termination was his retirement date) otherwise payable under the terms
of the applicable Employment Agreement and (b) to purchase at the election of
Mr. Nicastro all stock options held by him with respect to the Company's Common
Stock or Midway common stock, as applicable, at a price equal to the spread
between the option price and the fair market price of such stock as defined in
the agreement. The applicable Employment Agreement may also be terminated at the
election of Mr. Nicastro if individuals who presently constitute the Board of
Directors of WMS or Midway, or successors approved by such Board members, cease
for any reason to constitute at least a majority of such Board. Upon such an
event, the Company or Midway, as applicable, may be required to purchase the
stock options held by Mr. Nicastro and make payments similar to those described
above.
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RETIREMENT PLANS
Under the Company's noncontributory pension plan for salaried employees of
the Company and its wholly-owned subsidiaries, the amount of monthly benefits
payable upon attainment of normal retirement age (assumed to be 65) are computed
as follows: $50.00 plus $7.50 per year of credited service to a maximum of 30
years' credited service. Under this plan an employee's benefits vest after five
years of service. The estimated annual benefit payable upon retirement to each
officer listed in the Summary Compensation Table who is entitled to such
benefit, assuming continued employment and retirement at age 65, is as follows:
Mr. Neil D. Nicastro $1,500; Mr. Harold H. Bach, Jr. $690; and, for all
executive officers as a group, $2,190. The plan was amended effective September
1, 1990, to discontinue on that date the acceptance of new participants in the
plan and on December 31, 1991 to discontinue the accrual of future benefits.
TREASURY SHARE BONUS PLAN
On April 19, 1993, the Board of Directors adopted a Treasury Share Bonus
Plan for key employees (the "Bonus Plan"). The shares of Common Stock allocated
to the Bonus Plan consist as of the close of the 1997 fiscal year of 52,312
shares of the Company's Common Stock. Awards are made at no direct cost to the
employees selected by management for awards and vest on dates selected in the
discretion of management. Unvested portions of awards are forfeited upon the
termination of employment by award recipients for any reason other than death,
in which event, shares representing the remaining portion of any award are to be
issued to the executor or administrator of the employee's estate. During the
1997 fiscal year, no shares were awarded under the Bonus Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH MIDWAY
Prior to the Offering, Midway was a wholly-owned subsidiary of WMS. As a
result of the Offering, WMS' beneficial ownership of Midway common stock was
reduced from 100.0% to 86.8%. A majority of Midway's directors are directors
and/or officers of WMS. Additionally, several of the executive officers of
Midway are officers and/or directors of WMS.
In contemplation of the Offering, Midway and WMS entered into the following
agreements:
Manufacturing and Services Agreement. Midway and WMS entered into the
Manufacturing and Services Agreement with respect to various aspects of their
future relationship. The Manufacturing and Services Agreement became effective
as of July 1, 1996 and will continue in effect unless terminated (a) by either
party for any reason upon 180 days' notice or (b) in the event of a material
default, immediately at the election of the non-defaulting party. Midway also
has the right, upon 180 days' notice, to terminate the manufacturing and related
services provided by WMS while retaining WMS' other services. The Manufacturing
and Services Agreement provides, among other things, that WMS will provide
Midway with management, legal and administrative services and certain services
for its coin-operated video games including, without limitation, (i)
manufacturing; (ii) engineering support; (iii) sales and marketing; (iv)
warranty and field services; and (v) creative services. The aforementioned
services are provided to Midway upon terms which Midway believes are fair and
reasonable. The parties have agreed that with respect to matters not
specifically covered in the Manufacturing and Services Agreement, or if changes
in business circumstances should cause the method of handling matters
specifically covered to be unfair to either party, such matters will be referred
to a negotiating committee consisting of two designees of each party.
All of Midway's coin-operated video games are manufactured and assembled by
WMS at its facilities in Cicero and Waukegan, Illinois. Materials used in the
manufacture of coin-operated video games are purchased by Midway at its expense.
Certain other manufacturing costs are allocated based upon units produced for
Midway and the other amusement games businesses of WMS. All labor costs
associated with the manufacturing of coin-operated video games are charged to
Midway at actual cost to WMS. Certain management, legal and administrative
expenses and sales and marketing expenses are allocated based upon
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the revenues of and/or units produced for Midway and the other amusement games
businesses of WMS or other methods appropriate for the allocation of the
particular expense.
For so long as the Manufacturing and Services Agreement remains in effect
and for a period of five years thereafter, (i) WMS is precluded from engaging,
directly or indirectly, in the business of designing, developing, manufacturing,
marketing or distributing coin-operated video games or home video games (except
for its activities on behalf of Midway) and (ii) Midway is precluded from
engaging, directly or indirectly, in the business of designing, developing,
manufacturing, marketing or distributing coin-operated pinball games, novelty
games, video lottery terminals or gaming machines such as slot machines.
Tax Sharing Agreement. Midway has been a member of the consolidated group
of corporations of which WMS was the common parent for federal income tax
purposes (the "WMS Group") since 1988. Therefore, Midway is jointly and
severally liable for any federal tax liability incurred by the WMS Group. Midway
and WMS entered into a Tax Sharing Agreement (the "Tax Sharing Agreement")
whereby WMS and Midway have agreed upon a method for: (i) determining the amount
which Midway must pay to WMS in respect of federal income taxes; (ii)
compensating any member of the WMS Group for use of its net operating losses,
tax credits and other tax benefits in arriving at the WMS Group tax liability as
determined under the federal consolidated return regulations; and (iii)
providing for the receipt of any refund arising from a carryback of net
operating losses or tax credits from subsequent taxable years and for payments
upon subsequent adjustments. The amount Midway is required to pay to WMS in
respect of federal income taxes is determined as if Midway was filing a separate
tax return. If any two or more members of the WMS Group are required to elect,
or WMS elects to cause two or more members of the WMS Group to file combined or
consolidated income tax returns under state or local income tax law, the
financial consequences of such filings among such members shall be determined in
a manner as similar as practicable to those provided for under the Tax Sharing
Agreement for federal taxes. The Tax Sharing Agreement is not binding on the
Internal Revenue Service (the "IRS") or upon state, local or foreign taxing
authorities. The effectiveness of the Tax Sharing Agreement is therefore
dependent on each member of the WMS Group having the ability to pay its relative
share of taxes. Because the IRS or other taxing authorities can be expected to
seek payment from WMS prior to seeking payment from the individual group
members, it is likely that Midway would seek to enforce any rights it may have
against WMS for sharing at a time when WMS was unable to pay its proportionate
share of taxes.
Registration Rights Agreement. Prior to the consummation of the Offering,
Midway entered into a registration rights agreement (the "Registration Rights
Agreement") with WMS, pursuant to which Midway has agreed, upon the request of
WMS, to file up to two registration statements under the Securities Act of 1933,
as amended, in order to permit WMS to offer and sell shares of Common Stock that
WMS or its affiliates may beneficially own. Midway will pay all registration
fees and expenses in connection with any requested registration, except that WMS
will pay any underwriting discounts or commissions relating to shares owned by
it and included in any such registration. Midway will not be required to comply
with any request for registration unless the request involves at least 5% of the
total number of the then outstanding shares of Common Stock. The Registration
Rights Agreement also provides WMS the right to include its Common Stock
holdings in certain registration statements covering offerings by Midway and
Midway will pay all fees and expenses of such offerings other than underwriting
discounts or commissions as they relate to WMS' shares. Midway will indemnify
WMS and its officers, directors and controlling persons against certain
liabilities in respect of any registrations or other offerings covered by the
Registration Rights Agreement. WMS will indemnify Midway against any liability
arising as a result of information provided by WMS and included in any offering
document covered by the Registration Rights Agreement. Midway has the right to
request WMS to delay any exercise by WMS of its rights to require registration
and other actions for a period of up to 60 days under certain circumstances. WMS
has further agreed that it will not include any Common Stock in any registration
statement of Midway which, in the judgment of the underwriters for such
offering, would adversely affect such offering by Midway. The rights of WMS
under the Registration Rights Agreement are transferable to an assignee of WMS
at its option.
Patent License Agreement. Midway and WMS entered into a patent license
agreement pursuant to which Midway and WMS each licensed to the other, on a
perpetual, royalty-free basis, certain patents used in the
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development and manufacture of both coin-operated video games and video lottery
terminals and other gaming machines.
RELATIONSHIP WITH WHG
For the purpose of governing certain of the ongoing relationships between
WHG and WMS and to provide mechanisms for an orderly transition after the WHG
Distribution, WHG and WMS entered into a Plan of Reorganization and Distribution
Agreement (the "Distribution Agreement") and a tax sharing agreement, as amended
(the "WHG Tax Sharing Agreement").
Distribution Agreement. The Distribution Agreement provides for, among
other things: (i) the WHG Distribution; (ii) cross-indemnification between WHG
and WMS with respect to the respective businesses of WHG and WMS; and (iii)
certain other arrangements for the furnishing of certain financial, legal and
corporate secretary functions for a transitional period following the WHG
Distribution.
Subject to certain exceptions, the Distribution Agreement provides for
cross-indemnities designed to allocate, effective as of the date of the WHG
Distribution, financial responsibility for the liabilities arising out of or in
connection with the business of WHG and its subsidiaries, and financial
responsibility for the liabilities arising out of or in connection with WMS and
its subsidiaries remaining businesses.
The Distribution Agreement provides for WHG to indemnify WMS in respect of
certain limited guarantees provided by WMS in respect of the El Conquistador
Partnership L.P., and for WMS to provide, following the date of the WHG
Distribution, certain financial, legal and corporate services to WHG on a
transitional basis. With respect to any services provided by WMS to WHG, WHG
will reimburse WMS for the estimated cost of such services based upon an hourly
rate for employees furnishing the services calculated using the individual's
base salary. WMS anticipates that costs associated with the aforementioned
services will not exceed $200,000.
WMS has a registered trademark of the name "Williams" for video game
machines, coin-operated video games, video game cartridges and disks, computer
video game software and coin-operated pinball machines. The Distribution
Agreement provides that following the WHG Distribution, WHG and its
subsidiaries, particularly Williams Hospitality Group Inc. ("WHGI"), will
continue to be able to use the "Williams" name in the ownership and management
of hotels and casinos but will not use the "Williams" name as a corporate name,
except WHGI, and will not use the "Williams" name outside its business of owning
and managing hotels and casinos. WMS has agreed not to use the "Williams" name
in the future in connection with the ownership and management of hotels and
casinos.
The Distribution Agreement provides that, except as otherwise set forth
therein or in any related agreement, all costs and expenses in connection with
the WHG Distribution will be borne by WMS.
WHG Tax Sharing Agreement. WHG and WMS have entered into the WHG Tax
Sharing Agreement that defines the parties' rights and obligations with respect
to deficiencies and refunds of federal, state, Puerto Rico and other income or
franchise taxes relating to WHG's business of tax years prior to the
Distribution and with respect to certain tax attributes of WHG after the WHG
Distribution. In general, with respect to periods ending on or before the last
day of the year in which the WHG Distribution occurred, WMS is responsible for:
(i) filing both consolidated federal tax returns for the WMS affiliated group
and combined or consolidated state tax returns for any group that includes a
member of the WMS affiliated group, including in each case WHG and its
subsidiaries for the relevant periods of time that such companies were members
of the applicable group; and (ii) paying state taxes relating to such returns
(including any subsequent adjustments resulting from the redetermination of such
tax liabilities by the applicable taxing authorities). WHG will reimburse WMS
for a defined portion of such taxes relating to WHG's business. WHG is
responsible for filing returns and paying taxes related to WHG's business for
subsequent periods. WHG and WMS have agreed to cooperate with each other and to
share information in preparing such tax returns and in dealing with other tax
matters.
Mr. Ira S. Sheinfeld, a Director of each of the Company and Midway, is a
member of the law firm of Squadron, Ellenoff, Plesent & Sheinfeld LLP which the
Company and Midway retained to provide tax
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services during the 1997 fiscal year and which each proposes to retain for such
services during the current fiscal year.
------------------------
ANTI-TAKEOVER PROPOSALS
Proposals 2 through 8 in this Proxy Statement are proposals to amend the
Company's Restated Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), and Amended and Restated Bylaws (the "Bylaws") which
amendments, as discussed below, may have certain anti-takeover effects. The
following section discusses the general consequences to stockholders of these
proposals and should be read in conjunction with the individual discussions with
respect to each proposal.
The Board has evaluated the potential vulnerability of the Company's
stockholders to the threat of unfair or coercive takeover tactics and, although
the Board is not currently aware of any such threat, has considered the range of
possible responses to any such threat. The Board has unanimously approved, and
recommends to the Company's stockholders for their approval, the amendments to
the Certificate of Incorporation and Bylaws described in Proposals 2 through 8
set forth below. Proposals 2 through 8 are referred to collectively as the
"Anti-Takeover Amendments." Mr. Louis J. Nicastro and Mr. Neil D. Nicastro have
advised the Company that they plan to vote the 6,917,700 shares of Common Stock
beneficially owned by SMR and NAI and as to which Mr. Louis J. Nicastro and Mr.
Neil D. Nicastro have shared voting power pursuant to the Proxy Agreement in
favor of the Anti-Takeover Amendments. See "Voting Proxy Agreement" above.
THE ANTI-TAKEOVER AMENDMENTS
The Anti-Takeover Amendments involve related amendments to the Certificate
of Incorporation and Bylaws designed to assist the Company's stockholders in
obtaining fair and equitable treatment in the event of a threatened takeover of
the Company. The Anti-Takeover Amendments, if approved, will: (i) increase the
number of authorized shares of Common Stock; (ii) divide the Board into three
classes with staggered terms; (iii) provide that any vacancy on the Board may be
filled only by a vote of a majority of the remaining directors then in office;
(iv) eliminate stockholder action by written consent; (v) permit only the
President, the Chairman of the Board or the Board of Directors to call special
meetings of stockholders and to limit the business permitted to be conducted at
such meetings to that brought before the meetings by or at the direction of the
Board; (vi) provide for an advance notice procedure for the submission by
stockholders of director nominations and other business to be considered at an
annual meetings of stockholders; and (vii) require either a majority vote of the
Board or an affirmative vote of at least 80% of the outstanding Common Stock
entitled to vote thereon in order to adopt, amend or repeal the Bylaws, and
require an affirmative vote of 80% of the outstanding Common Stock entitled to
vote thereon in order to adopt, amend or repeal the amendments to the
Certificate of Incorporation proposed herein.
The Anti-Takeover Amendments are not in response to any effort, of which
the Company is aware, to accumulate Common Stock or to obtain control of the
Company. The Board has observed the relatively common use of certain coercive
takeover tactics in recent years, including the accumulation of substantial
common stock positions as a prelude to a threatened takeover or corporate
restructuring, proxy fights and partial tender offers and the related use of
"two-tiered" pricing. In addition, persons who do not intend to gain control of
companies use the threat of takeover bids to force the companies to repurchase
their shares at a premium or temporarily drive up the market price of their
stock. The Board believes that the use of these tactics can place undue pressure
on a corporation's board of directors and stockholders to act hastily and on
incomplete information and, therefore, can be highly disruptive to a corporation
as well as divert valuable corporate resources and result in unfair differences
in treatment of stockholders who act immediately in response to announcement of
takeover activity and those who choose to act later, if at all. The
Anti-Takeover Amendments are intended to encourage persons seeking to acquire
control of the Company to initiate such an acquisition through arm's-length
negotiations with the Board.
While the Anti-Takeover Amendments, individually and collectively, give
added protection to the Company's stockholders and may help the Company obtain
the best price in a potential transaction, they may
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also have the effect of making more difficult and discouraging a merger, tender
offer or proxy contest, even if such transaction or event may be favorable to
the interests of some or all of the Company's stockholders. The Anti-Takeover
Amendments also may delay the assumption of control by a holder of a large block
of Common Stock and the removal of incumbent management, even if such removal
might be beneficial to some or all of the stockholders. Furthermore, the
Anti-Takeover Amendments may have the effect of deterring or frustrating certain
types of future takeover attempts that may not be approved by the incumbent
Board, but that the holders of a majority of the shares of Common Stock may deem
to be in their best interests or in which some or all of the stockholders may
receive a substantial premium over prevailing market prices for their stock. By
discouraging takeover attempts, the Anti-Takeover Amendments also could have the
incidental effect of inhibiting certain changes in management (some or all of
the members of which might be replaced in the course of a change of control) and
also the temporary fluctuations in the market price of Common Stock that often
result from actual or rumored takeover attempts.
The Board recognizes that a takeover might in some circumstances be
beneficial to some or all of the Company's stockholders but, nevertheless,
believes that the stockholders as a whole will benefit from the adoption of the
Anti-Takeover Amendments. The Board further believes that it is preferable to
act on the proposed Anti-Takeover Amendments when they can be considered
carefully rather than hastily during an unsolicited bid for control. Under
Delaware law, each of the proposed Anti-Takeover Amendments described in
Proposals 2 through 8 requires the affirmative vote of the holders of a majority
of the Company's outstanding shares of Common Stock. All of the proposals are
permitted by law.
If stockholders approve any or all of the Anti-Takeover Amendments, the
Company will file with the Secretary of State of the State of Delaware an
amendment to the Certificate of Incorporation that reflects the amendments which
have been approved containing the provisions as set forth under each proposal.
The approved amendments to the Certificate of Incorporation will become
effective upon the filing with the Secretary of State of the State of Delaware
of a certificate with respect to such amendment, and the approved amendments to
the Bylaws will become effective immediately upon such approval. Each of the
Anti-Takeover Amendments adopted by the Company's stockholders will become
effective regardless of whether any of the other Anti-Takeover Amendments to be
acted upon at the Annual Meeting is adopted.
Stockholders are urged to read carefully the following descriptions and
discussions of each of the proposed Anti-Takeover Amendments before voting on
the Anti-Takeover Amendments.
OTHER ANTI-TAKEOVER DEVICES
Existing Provisions of the Certificate and Bylaws
In addition to the proposed Anti-Takeover Amendments, an existing provision
of the Certificate of Incorporation may be deemed to be an anti-takeover device
which could be utilized as a method of discouraging, delaying or preventing a
change in control of the Company or diluting the public ownership of the
Company, even if such transaction or occurrence may be favorable to the
interests of some or all of the Company's stockholders. The Certificate of
Incorporation currently authorizes the Board to issue 5,000,000 shares of
preferred stock having such rights, preferences and privileges as designated
from time to time by the Board (the "Preferred Stock") without stockholder
approval. Accordingly, the Board is empowered to issue preferred stock with
dividend, liquidation, conversion, voting or other rights which could adversely
affect the voting power or other rights of the holders of Common Stock. The
Preferred Stock could be used by the Board for defensive purposes, including the
issuance of shares having special privileges or rights to third parties, which
may have the effect of delaying or discouraging an attempt to acquire control of
the Company. For example, the Board has the ability to adopt a stockholder
rights plan pursuant to which it might issue shares of preferred stock having
the same economic value and voting rights as shares of Common Stock upon the
occurrence of certain triggering events. In November 1997, the Board adopted
such a rights plan. See "Rights Agreement" below. None of the preferred stock
has been issued to date, and the proposed amendments will not change the number
of authorized shares of preferred stock. Other than existence of a class of
preferred stock and the existence of authorized but unissued Common Stock (see
Proposal 2 below), the Certificate of
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Incorporation and Bylaws do not currently contain any other anti-takeover
provisions, and no such other provisions are currently contemplated, other than
the proposals contained herein.
Rights Agreement
In November 1997, the Board adopted a Rights Agreement (the "Rights
Agreement"). The Rights Agreement provides that one right (a "Right") will be
issued with each share of the Common Stock outstanding on the date of the
adoption of the Rights Agreement or issued (whether originally issued or from
the Company's treasury) on or after the date of the adoption of the Rights
Agreement and prior to the Rights Distribution Date (as defined). The Rights
will not be exercisable until the Rights Distribution Date and will expire at
the close of business on November 30, 2007 (the "Final Expiration Date") unless
previously redeemed by the Company as described below. When exercisable, each
Right will entitle the owner to purchase from the Company one one-hundredth
(1/100) of a share of the Company's Series A Preferred Stock at an exercise
price of $100.00, subject to certain antidilution adjustments. The Rights will
not, however, be exercisable, transferable separately or trade separately from
the shares of Common Stock, until (a) the tenth business day after the "Stock
Acquisition Date" (i.e., the date of a public announcement that a person or
group is an "Acquiring Person") or (b) the tenth business day (or such later day
as the Board, with the concurrence of a majority of Continuing Directors (as
defined), determines) after a person or group announces a tender or exchange
offer, which, if consummated, would result in such person or group beneficially
owning 15% or more of the Common Stock (the earlier of such dates being the
"Rights Distribution Date").
In general, any person or group of affiliated persons (other than the
Company, any of its subsidiaries, any person who as of the date of the adoption
of the Rights Agreement beneficially owns 15% or more of the Common Stock,
certain of the Company's benefit plans and any person or group of affiliated
persons whose acquisition of 15% or more is approved by the Board in advance)
who, after the date of adoption of the Rights Agreement, acquires beneficial
ownership of 15% or more of the Common Stock will be considered an "Acquiring
Person."
If a person or group of affiliated persons becomes an Acquiring Person,
then each Right (other than Rights owned by such Acquiring Person and its
affiliates and associates, which will be null and void) will entitle the holder
thereof to purchase, for the exercise price, a number of shares of the Common
Stock having a then current market value of twice the exercise price.
Accordingly, at the original exercise price, each Right would entitle its
registered holder to purchase $200.00 worth of Common Stock for $100.00.
If at any time after the Stock Acquisition Date, (a) the Company merges
into another entity, (b) an acquiring entity merges into the Company and the
Common Stock of the Company is changed into or exchanged for other securities or
assets of the acquiring entity or (c) the Company sells more than 50% of its
assets or earning power, then each Right will entitle the holder thereof to
purchase, for the exercise price, the number of shares of common stock of such
other entity having a current market value of twice the exercise price. The
foregoing will not apply to (i) a transaction approved by a majority of the
Board of Directors (or from and after the Stock Acquisition Date, a majority of
the Continuing Directors) or (ii) a merger which follows a cash tender offer
approved by the Board of Directors (or after the Stock Acquisition Date, a
majority of Continuing Directors) for all outstanding shares of Common Stock so
long as the consideration payable in the merger is the same in form and not less
than the amount as was paid in the tender offer. A Continuing Director is a
director in office prior to the distribution of the Rights and any director
recommended or approved for election by such directors but does not include any
representative of an Acquiring Person.
Subject to the limitations summarized below, the Rights will be redeemable
at the Company's option, at any time prior to the earlier of the Stock
Acquisition Date or the Final Expiration Date, for $.01 per Right, payable in
cash or shares of Common Stock. Under certain circumstances, the decision to
redeem requires the concurrence of a majority of the Continuing Directors. In
the event a majority of the Board is changed by vote of the Company's
stockholders, the Rights shall not be redeemable for a period of ten business
days after the date that the new directors so elected take office and it shall
be a condition to such redemption that any tender or exchange offer then
outstanding be kept open within such ten business day period. At any time after
any
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person becomes an Acquiring Person, the Board may exchange the Rights (other
than Rights owned by the Acquiring Person and associates, which will be null and
void), in whole or in part, for Common Stock on the basis of an exchange ratio
of one share of Common Stock for each Right (subject to adjustment).
As long as the Rights are attached to the Common Stock, each share of
Common Stock issued by the Company will also evidence one Right. Until the
Rights Distribution Date, the Rights will be represented by the Common Stock
certificates and will be transferred only with the Common Stock certificates;
separate certificates representing the Rights will be mailed, however, to
holders of the Common Stock as of the Rights Distribution Date. The holders of
Rights will not have any voting rights or be entitled to dividends until the
Rights are exercised. The purchase price payable, and the number of shares of
Preferred Stock or other securities or property issuable, upon exercise of the
Rights are subject to adjustment from time to time to prevent dilution in the
event of certain stock dividends on, or subdivisions, combinations or
reclassification of, the shares of Common Stock prior to the Rights Distribution
Date, and in certain other events. The Board will be able to amend the Rights
Agreement in any manner prior to the Rights Distribution Date. After the Rights
Distribution Date, the Board will be able to amend the Rights Agreement only to
cure ambiguities, to shorten or lengthen any time period (subject to certain
limitations) or if such amendment does not adversely affect the interest of the
Rights Holders and does not relate to any principal economic term of the Rights.
Delaware General Corporation Law
Generally, Section 203 of the Delaware General Corporation Law prohibits a
publicly-held Delaware corporation from engaging in a broad range of business
combinations with an "interested stockholder" (defined generally as a person
owning 15% of more of a corporations outstanding voting stock) for three years
following the time such person became an interested stockholder unless: (i)
before the person becomes an interested stockholder, the transaction resulting
in such person becoming an interested stockholder or the business combination is
approved by the board of directors of the corporation; (ii) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock of the corporation (excluding shares owned by directors who are
also offices of the corporation or shares held by employee stock plans that do
not provide employees with the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender offer or exchange offer);
or (iii) at or subsequent to such time the business combination is approved by
the Board and authorized at an annual or special meeting of stockholders, and
not by written consent, by the affirmative vote of at least two-thirds of the
outstanding voting stock excluding shares owned by the interested stockholder.
Section 203 may discourage persons from making a tender offer for or
acquisitions of substantial amounts of the Common Stock, which could have the
effect of inhibiting changes in management and may also prevent temporary
fluctuations in the Common Stock that often result from takeover attempts.
PROPOSAL 2 -- INCREASING THE AUTHORIZED COMMON STOCK
The Company's authorized Common Stock is currently 60,000,000 shares. The
Board has adopted, subject to stockholder approval, an amendment to the
Certificate of Incorporation to increase the number of authorized shares of
Common Stock from 60,000,000 to 100,000,000 shares. At the Annual Meeting,
stockholders will be asked to consider and vote on this amendment to the
Certificate of Incorporation.
As of the Record Date, 26,793,419 shares of Common Stock were issued and
outstanding, an additional 5,118,104 shares were reserved for issuance upon
exercise of outstanding and issuable options. Shares of Common Stock may also be
issuable pursuant to the Rights Agreement. In addition, as part of anti-dilutive
measures to be taken with respect to existing options to purchase the Common
Stock, up to a maximum of 2,000,000 shares of Common Stock may be issued as a
result of the Spin-Off. See "Adjustments to Options Resulting from Midway
Spin-Off" above. Accordingly, only 26,088,477 shares of Common Stock remain
available for issuance (giving effect to the reserve for outstanding options and
assuming issuance of 2,000,000 shares as a result of the Spin-Off, but not
giving effect to any shares that may be issuable pursuant to the Rights
Agreement).
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<PAGE> 27
Although the Company does not currently have any plans, agreements,
commitments or understandings with respect to the issuance of additional shares
of Common Stock to be available under the proposed amendment, the Board is
proposing this amendment at this time in order to provide flexibility for future
activities. The Board believes that the proposed amendment is desirable in order
to assure that there will be sufficient authorized shares for a variety of
corporate purposes, including, without limitation, to obtain financing, to
consummate future acquisitions, to facilitate the growth and expansion of the
Company, for stock splits and dividends and for stock options and other employee
benefit plans.
The Board may issue the additional shares of Common Stock, together with
currently authorized but unissued and unreserved shares of Common Stock, at such
times, to such persons and for such consideration as the Board may determine to
be in the Company's best interests without further stockholder approval, except
as otherwise required by statute or stock exchange rules. Depending on the
circumstances, issuance of additional shares of Common Stock could affect the
existing holders of shares by diluting the voting power of the outstanding
shares. The stockholders do not have preemptive rights under the Certificate of
Incorporation and will not have such rights with respect to the additional
authorized shares of Common Stock. While Delaware General Corporation Law
Section 214 provides that a company's certificate of incorporation may provide
for cumulative voting, such voting is not provided for under the Certificate of
Incorporation. Therefore, the holders of a majority of the shares of Common
Stock can elect all of the directors being elected at any annual meeting of
stockholders.
While such proposed amendment is not designed to deter or to prevent a
change in control, under certain circumstances, the Company could use the
additional shares of Common Stock (as it could use the currently authorized but
unissued shares of Common Stock or Preferred Stock) to create voting impediments
or to frustrate persons seeking to effect a takeover or otherwise gain control
of the Company or to dilute the public ownership of the Company and thereby to
protect the continuity of the Company's management. The Company could also
privately place any such shares with purchasers who might favor the Board in
opposing a hostile takeover bid, although the Company has no present intention
to do so and has no present knowledge of any such takeover efforts. See,
generally, the section entitled "Anti-Takeover Proposals" above.
PROPOSED RESOLUTION
"RESOLVED, that the Certificate of Incorporation be amended by changing the
first paragraph of the Fourth Article thereof so that, as amended, said
paragraph shall be and read as follows:
FOURTH: The total number shares of all classes of stock which the
corporation shall have authority to issue shall be 105,000,000, of which
100,000,000 shares shall be Common Stock, having a par value of $.50 per
share, and 5,000,000 shares shall be Preferred Stock, having a par value of
$.50 per share."
REQUIRED VOTE
The affirmative vote of a majority of the Common Stock outstanding and
entitled to vote at the Annual Meeting is required to approve this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF
PROPOSAL 2.
------------------------
PROPOSAL 3 -- CLASSIFICATION OF THE BOARD OF DIRECTORS
AND ELECTION FOR STAGGERED TERMS
The Company's Bylaws provide that the directors shall be elected at each
annual meeting of the stockholders. Presently there are eight directors, and the
Board is not divided into classes. The Board has adopted, subject to stockholder
approval, an amendment to the Certificate of Incorporation and a corresponding
amendment to the Bylaws to cause the Board to be divided into three classes. At
the Annual Meeting, stockholders will be asked to consider and vote on these
proposed amendments.
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<PAGE> 28
If Proposal 3 is approved, the Board will be divided into Class I, Class II
and Class III Directors, with one class to be elected each year. The initial
term of office for the Class III Directors would expire at the Annual Meeting of
Stockholders to be held in 1999; the initial term of office for the Class II
Directors would expire at the Annual Meeting of Stockholders to be held in 2000;
and the initial term of the Class I Directors would expire at the Annual Meeting
of Stockholders to be held in 2001. Upon the expiration of the initial staggered
terms, Directors would be elected for three year terms to succeed those
Directors whose terms expire. New directors elected to fill a vacancy on the
Board will serve until the next election of the class of directors to which such
director belongs. In addition, under Delaware law, because such directors serve
on a classified board, stockholders may only remove them for cause. "Cause"
under Delaware law is not defined by statute and its meaning has not been
definitively articulated by the courts. The amendments contemplated by this
Proposal 3 will define "cause" as being convicted of a felony or being adjudged
to be liable for negligence or misconduct in the performance of his or her duty
to the Company.
If this proposal is approved, the following persons, if elected as
directors pursuant to Proposal 1, shall be members of the class of directors set
forth opposite their names below, to serve for the terms described above and
until their successors are duly elected and qualified:
<TABLE>
<CAPTION>
CLASS OF
NAME DIRECTORS
---- ---------
<S> <C>
, and ..................................... I
, and ..................................... II
and ........................................................ III
</TABLE>
Since directors will be serving for longer terms which expire at different
times, and may be removed only for cause by the stockholders, the Board of
Directors believes that a classified Board will promote continuity of management
and thereby enhance the ability of the Company to carry out long-range plans and
goals for its benefit and the benefit of its stockholders. Although the Company
has not experienced difficulties in the past in maintaining continuity of the
Board and management, the Board of Directors believes that a classified Board
will assist the Company in maintaining this continuity of management into the
future.
This proposal, if adopted, could have the effect of discouraging, or making
it more difficult to effect, a merger, a tender offer, the assumption of control
by a holder of a large block of the Common Stock or the removal of incumbent
management, because the proposed amendment would require a longer period of time
to change the Board even if a majority of the stockholders desired a change.
This effect could occur even if such actions would be favorable to the interest
of the stockholders. Assuming each class of directors is equal in size, a
majority stockholder could not obtain control of the Board until the second
annual stockholder's meeting after it acquired a majority of the voting stock.
During this time, the Board of Directors would have a better opportunity to
negotiate with any such majority stockholder to obtain more favorable price and
terms in any merger or tender offer. However, the Board is not aware of any
efforts to obtain control of the Company, and the proposal of this measure is
not being made in response to any such efforts. For a general discussion of
certain anti-takeover effects of Proposal 3, see the section entitled
"Anti-Takeover Proposals" above.
PROPOSED RESOLUTIONS
"RESOLVED, that the Certificate of Incorporation be amended by adding a new
Article Eleventh, which shall be and read as follows:
ELEVENTH: The directors shall be divided into three classes, designated
Class I, Class II and Class III. Each class shall consist, as nearly as may
be possible, of one-third of the total number of directors constituting the
entire Board of Directors. The term of the initial Class I directors shall
terminate on the date of the 2001 annual meeting of stockholders; the term
of the initial Class II directors shall terminate on the date of the 2000
annual meeting of stockholders; and the term of the initial Class III
directors shall terminate on the date of the 1999 annual meeting of
stockholders. At each annual meeting of stockholders beginning in 1999,
successors to the class of directors whose term expires at that annual
meeting shall be elected for a three-year term. If the number of directors
is changed, any increase or decrease in directorships shall be apportioned
among the classes so as to maintain the number
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<PAGE> 29
of directors in each class as nearly equal as possible, and any additional
directors of any class elected to fill a vacancy resulting from an increase
in such class shall hold office only until the next election of directors
of that class by the stockholders of the corporation, but in no case will a
decrease in the number of directors shorten the term of any incumbent
director. Directors shall hold office until the annual meeting for the year
in which their terms expire and until their successors shall be duly
elected and shall qualify, subject, however, to prior death, resignation,
retirement, disqualification or removal from office.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the corporation shall have
the right, voting separately by class or series, to elect directors at an
annual or special meeting of stockholders, the election, term of office,
filling of vacancies and other features of such directorships shall be
governed by the terms of this Certificate of Incorporation, or the
resolution or resolutions adopted by the board of directors creating such
class or series, as the case may be, applicable thereto, and such directors
so elected shall not be divided into classes pursuant to this Article
ELEVENTH unless expressly provided by such terms.
For purposes of Section 141(k) of the General Corporation Law of the State
of Delaware, "Cause" is defined as being convicted of a felony by a court
of competent jurisdiction and such conviction is no longer subject to
direct appeal, or being adjudged to be liable for negligence or misconduct
in the performance of his or her duty to the corporation by a court of
competent jurisdiction and such adjudication is no longer subject to direct
appeal.
RESOLVED, that Section 3 of Article II of the Bylaws of the Company be
amended by adding a provision substantially the same as the provision set forth
in the preceding resolution and other provisions, if any, as may be necessary to
make the Bylaws consistent with this amendment."
REQUIRED VOTE
The affirmative vote of a majority of the Common Stock outstanding and
entitled to vote at the Annual Meeting is required to approve this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF
PROPOSAL 3.
------------------------
PROPOSAL 4 -- FILLING OF VACANCIES ON THE BOARD
The Bylaws currently provide that a vacancy on the Board resulting from an
increase in the number of directors and vacancies occurring in the Board for any
reason except the removal of directors by stockholders may be filled by vote of
a majority of the directors then in office, although less than a quorum exists,
and that vacancies occurring as a result of the removal of directors by
stockholders shall be filled by the stockholders. The Board has adopted, subject
to stockholder approval, an amendment to the Certificate of Incorporation and a
corresponding amendment to the Bylaws providing that a vacancy on the Board,
including a vacancy created by an increase in the authorized number of
directors, may be filled only by the remaining directors. In addition, the
amendments provide that any new director elected to fill a vacancy on the Board
will serve until the next election of the class of directors to which such
director belongs (or until the next annual meeting of the Company if Proposal 3
above is not approved). At the Annual Meeting, stockholders will be asked to
consider and vote on these proposed amendments.
Because, by increasing or decreasing the size of the Board, a filling of
vacancies by stockholders could circumvent the continuity to be provided for by
the proposal for a classified board, the Board believes that this provision
governing the filling of vacancies on the Board will promote such continuity of
management and thereby enhance the ability of the Company to carry out
long-range plans and goals for its benefit and the benefit of its stockholders.
In addition, this proposal, coupled with the foregoing proposal relating to the
removal of directors, if adopted, will preclude stockholders from removing
incumbent directors without cause and simultaneously gaining control of the
Board by filling the vacancies created by such removal with their own nominees.
Although the Company has not experienced difficulties in the past in maintaining
continuity of
27
<PAGE> 30
the Board and management, the Board of Directors believes that this proposal
will assist the Company in maintaining this continuity of management into the
future.
This proposal would protect the continuity of the Board resulting from both
a classified board and the inability to remove directors other than for cause,
and thus may have the effect of discouraging potential unfriendly bids for
shares of the Company even if a majority of the stockholders desired a change.
The effects could occur even if such actions would be favorable to the interest
of the stockholders. However, the Board is not aware of any efforts to obtain
control of the Company, and the proposal of this measure is not in response to
any such efforts. For a general discussion of certain anti-takeover effects of
Proposal 4, see the section entitled "Anti-Takeover Proposals" above.
PROPOSED RESOLUTIONS
"RESOLVED, that the Certificate of Incorporation be amended by adding an
additional paragraph to new Article Eleventh, which paragraph shall be and read
as follows:
Any vacancy on the board of directors, howsoever resulting, including
through an increase in the number of directors, shall only be filled by the
affirmative vote of a majority of the remaining directors then in office,
even if less than a quorum, or by the sole remaining director. Any director
elected to fill a vacancy shall hold office for the same remaining term as
that of his or her predecessor, or if such director was elected as a result
of an increase in the number of directors, then for the term indicated in
paragraph one of this Article ELEVENTH.
RESOLVED, that Section 8 of Article II of the Bylaws be amended by adding a
provision substantially the same as the provision set forth in the preceding
resolution and other provisions, if any, as may be necessary to make the Bylaws
consistent with this amendment."
REQUIRED VOTE
The affirmative vote of a majority of the Common Stock outstanding and
entitled to vote at the Annual Meeting is required to approve this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF
PROPOSAL 4.
------------------------
PROPOSAL 5 -- ELIMINATING STOCKHOLDER ACTION BY WRITTEN CONSENT
Under Delaware law, unless otherwise provided in the certificate of
incorporation, any action required or permitted to be taken by stockholders of a
corporation may be taken without a meeting, without prior notice and without a
stockholder vote if a written consent setting forth the action to be taken is
signed by the holders of shares of outstanding stock having the requisite number
of votes that would be necessary to authorize such an action at a meeting of
stockholders at which all shares entitled to vote thereon were present and
voted. The Bylaws also currently provide for such stockholder action by written
consent. The Board has adopted, subject to stockholder approval, an amendment to
the Certificate of Incorporation and a corresponding amendment to the Bylaws to
provide that actions required or permitted to be taken at any annual or special
meeting of the stockholders may be taken only upon the vote of the stockholders
at a meeting duly called and may not be taken by written consent of the
stockholders. At the Annual Meeting, stockholders will be asked to consider and
vote on these proposed amendments.
The Board of Directors believes that this Proposal would give all the
stockholders of the Company increased opportunity to participate in determining
any proposed action and would prevent the holders of a simple majority of the
voting power of the Company from using the written consent procedure to take
stockholder action without a meeting. The ability of holders of a simple
majority of the voting stock of the Company to take action without the
opportunity for discussion at a meeting decreases the ability of minority
stockholders to have their views considered.
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<PAGE> 31
The adoption of this amendment would eliminate the ability of the Company's
stockholders to act by written consent in lieu of a meeting. The Board does not
believe that the elimination of stockholder action by written consent will
create a significant impediment to a tender offer or other effort to take
control of the Company. Nevertheless, the effect of this proposal may be to make
more difficult or less attractive, or delay, certain actions by a person or a
group acquiring a substantial percentage of the Company's stock, even though
such actions might be desired by, or beneficial to, the holders of a majority
the Company's stock. For these reasons, Proposal 5 may have an anti-takeover
effect. The Board, however, is not aware of any efforts to obtain control of the
Company, and the proposal of this measure is not in response to any such
efforts. For a general discussion of certain anti-takeover effects of Proposal
5, see the section entitled "Anti-Takeover Proposals" above.
PROPOSED RESOLUTIONS
"RESOLVED, that the Certificate of Incorporation be amended by adding a new
Article Twelfth, which shall be and read as follows:
TWELFTH: Except as otherwise provided in the resolutions of the board of
directors designating any series of Preferred Stock, any action required or
permitted to be taken by the stockholders of the corporation must be
effected at a duly called annual or special meeting of stockholders and may
not be effected by a consent in writing by any such stockholders.
RESOLVED, that Section 11 of Article I of the Bylaws be amended by adding a
provision substantially the same as the provision set forth in the preceding
resolution and other provisions, if any, as may be necessary to make the Bylaws
consistent with this amendment."
REQUIRED VOTE
The affirmative vote of a majority of the Common Stock outstanding and
entitled to vote at the Annual Meeting is required to approve this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF
PROPOSAL 5.
------------------------
PROPOSAL 6 -- LIMITATIONS ON STOCKHOLDERS
WITH RESPECT TO SPECIAL MEETINGS
The Bylaws currently provide that special meetings of stockholders may be
called by any two directors or the President, or by the Secretary at the
direction of the foregoing, and shall be called by the Board upon written
request of the holders of record of a majority of the outstanding shares of the
Company entitled to vote at the meeting requested to be called. The Board has
adopted, subject to stockholder approval, an amendment to the Certificate of
Incorporation and a corresponding amendment to the Bylaws to require that
special meetings of stockholders may only be called by the President, the
Chairman of the Board or by the Board of Directors, that stockholders of the
Company are not permitted to call a special meeting or to require that the Board
call a special meeting of stockholders and that the business permitted to be
conducted at such meetings be limited to that brought before the meetings by or
at the direction of the Board. At the Annual Meeting, stockholders will be asked
to consider and vote on these proposed amendments.
The amendment will provide for the orderly conduct of all Company affairs
at special meetings of stockholders. Accordingly, a stockholder could not force
stockholder consideration of a proposal over the opposition of the Board by
calling a special meeting of stockholders prior to the next annual meeting or
prior to such time that the Board believed such consideration to be appropriate.
As a result, the Board would have the opportunity to inform other stockholders
adequately of the matters to be considered.
Persons attempting a takeover bid could be delayed or deterred by not being
able to propose a transaction at a time advantageous for them. For these
reasons, this Proposal may have an anti-takeover effect. The
29
<PAGE> 32
Board, however, is not aware of any efforts to obtain control of the Company,
and the proposal of this measure is not in response to any such efforts. For a
general discussion of certain anti-takeover effects of Proposal 6, see the
section entitled "Anti-Takeover Proposals" above.
PROPOSED RESOLUTIONS
"RESOLVED, that the Certificate of Incorporation be amended by adding an
additional paragraph to new Article Twelfth, which shall be and read as follows:
Subject to the rights of holders of any class or series of Preferred Stock,
special meetings of stockholders may be called only by the Chairman of the
Board or President of the corporation or by the board of directors pursuant
to a resolution adopted by a majority vote of the total number of
authorized directors (whether or not there exists any vacancies in
previously authorized directorships) at the time any such resolutions are
presented to the Board for adoption. Stockholders of the corporation are
not permitted to call a special meeting or to require that the Board call a
special meeting of stockholders. The business permitted at any special
meeting of stockholders shall be limited to the business brought before the
meeting by or at the direction of the Board.
RESOLVED, that Section 2 of Article I of the Bylaws be amended by adding a
provision substantially the same as the provision set forth in the preceding
resolution and other provisions, if any, as may be necessary to make the Bylaws
consistent with this amendment."
REQUIRED VOTE
The affirmative vote of a majority of the Common Stock outstanding and
entitled to vote at the Annual Meeting is required to approve this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF
PROPOSAL 6.
------------------------
PROPOSAL 7 -- ADVANCE NOTICE OF STOCKHOLDER NOMINATIONS AND PROPOSALS
The Board has adopted, subject to stockholder approval, an amendment to the
Certificate of Incorporation and a corresponding amendment to the Bylaws
requiring that stockholders submit director nominations and other business to be
considered at annual meetings of stockholders in accordance with a specific
advance notice procedure. No such procedure is currently provided for in either
the Certificate of Incorporation or the Bylaws. At the Annual Meeting,
stockholders will be asked to consider and vote on these proposed amendments.
The proposed amendments will provide a detailed and circumscribed notice
procedure with regard to the nomination other than by or at the direction of the
Board of candidates for election as directors (the "Nomination Procedure") and
with regard to stockholder proposals to be brought before an annual meeting of
stockholders (the "Business Procedure"). The Nomination Procedure provides that
only persons who are nominated by or at the direction of the Board, or by a
stockholder who has given timely prior written notice to the Corporate Secretary
of the Company prior to the meeting at which directors are to be elected, will
be eligible for election as directors. The Business Procedure provides that
stockholder proposals must be submitted in writing in a timely manner in order
to be considered at any annual meeting. To be timely, notice for nominations or
stockholder proposals must be received by the Company not less than 60 days nor
more than 90 days prior to the annual meeting; provided, however, that in the
event that less than 70 days notice or prior public disclosure of the date of
the annual meeting is given or made to stockholders, notice by a stockholder, to
be timely, must be received no later than the close of business on the tenth day
following the date on which such notice of the date of the annual meeting was
made or such public disclosure was made, whichever first occurs.
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<PAGE> 33
Under the Nomination Procedure, notice to the Company from a stockholder
who proposes to nominate a person at a meeting for election as a director must
contain certain information about that person, including age, business and
residence addresses, principal occupation, the class and number of shares of
Common Stock beneficially owned, the consent of such person to be nominated and
such other information as would be required to be included in a proxy statement
soliciting proxies for the election of the proposed nominee, and certain
information about the stockholder proposing to nominate that person. Under the
Business Procedure, notice relating to a stockholder proposal must contain
certain information about such proposal and about the stockholder who proposes
to bring the proposal before the meeting.
The purpose of the Nomination Procedure is, by requiring a specified amount
of advance notice of nominations by stockholders, to afford the Board a
meaningful opportunity to consider the qualifications of the proposed nominees
during the appropriate period when the Board is focused on nominations and, to
the extent deemed necessary or desirable by the Board, to inform stockholders
about such qualifications. The purpose of the Business Procedure is, by
requiring a specified amount of advance notice of stockholder proposals, to
provide a more orderly procedure for conducting annual meetings of stockholders
and, to the extent deemed necessary or desirable by the Board, to provide the
Board with a meaningful opportunity to analyze such proposals and to decide
whether it is appropriate to either (i) omit such proposal or (ii) inform
stockholders, prior to such meetings, of any proposal to be introduced at such
meetings, together with any recommendation or the Board's position or belief as
to action to be taken with respect to such proposal, so as to enable
stockholders better to determine whether they desire to attend such meeting or
grant a proxy to the Board as to the disposition of any such proposal.
Although the amendment does not give the Board any power to approve or
disapprove stockholder nominations for the election of directors or any other
proposal submitted by stockholders, the amendment may have the effect of
precluding or making more difficult a stockholder nomination for the election of
directors or the submission by stockholders of proposals at a particular
stockholders meeting, because of the difficulty of the procedures to be
followed, and may discourage a stockholder from conducting a solicitation of
proxies to elect its own slate of directors or otherwise attempting to obtain
control of the Company, even if the conduct of such solicitation or such attempt
might be beneficial to the Company and its stockholders. For these reasons, this
Proposal may have an anti-takeover effect, particularly when combined with
Proposal 6 above. The Board, however, is not aware of any efforts to obtain
control of the Company, and the proposal of this measure is not in response to
any such efforts. For a general discussion of certain antitakeover effects of
Proposal 7, see the section entitled "Anti-Takeover Proposals" above.
PROPOSED RESOLUTIONS
"RESOLVED, that the Certificate of Incorporation be amended by adding a new
Article Thirteenth, which shall be and read as follows:
THIRTEENTH: Subject to the rights of holders of any class or series of
Preferred Stock,
(i) nominations for the election of directors, and
(ii) business proposed to be brought before an annual meeting of
stockholders
may be made by the board of directors or proxy committee appointed by the
board of directors or by any stockholder entitled to vote in the election
of directors generally. However, any such stockholder may nominate one or
more persons for election as directors at an annual meeting or propose
business to be brought before an annual meeting, or both, only if such
stockholder has given timely notice in proper written form of his or her
intent to make such nomination or nominations or to propose such business.
To be timely, a stockholder's notice must be delivered to or mailed and
received by the Secretary of the corporation not less than 60 days nor more
than 90 days prior to the annual meeting; provided, however, that in the
event that less than 70 days notice or prior public disclosure of the date
of the annual meeting is given or made to stockholders, notice by a
stockholder, to be timely, must be received no later than the close of
business on the tenth day following the date on which such notice of the
date of the annual
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<PAGE> 34
meeting was made or such public disclosure was made, whichever first
occurs. To be in proper written form, a stockholder's notice to the
Secretary shall set forth:
a. the name and address of the stockholder who intends to make the
nominations or propose the business and, as the case may be, of the person
or persons to be nominated or of the business to be proposed;
b. a representation that the stockholder is a holder of record of
stock of the corporation entitled to vote at such meeting and, if
applicable, intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice;
c. if applicable, a description of all arrangements or understandings
between the stockholder and each nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder;
d. such other information regarding each nominee or each matter of
business to be proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated, or
intended to be nominated, or the matter been proposed, or intended to be
proposed, by the board of directors, and such other information about the
nominee as the board of directors deems appropriate, including, without
limitation, the nominee's age, business and residence addresses, principal
occupation and the class and number of shares of Common Stock beneficially
owned by the nominee, or such other information about the business to be
proposed and about the stockholder making such business proposal before the
annual meeting as the Board of Directors deems appropriate, including,
without limitation, the class and number of shares of Common Stock
beneficially owned by such stockholder; and
e. if applicable, the consent of each nominee to serve as director of
the corporation if so elected.
The chairman of the meeting may refuse to acknowledge the nomination
of any person or the proposal of any business not made in compliance with
the foregoing procedure.
RESOLVED, that Article I of the Bylaws be amended by adding a new Section
13 containing a provision substantially the same as the provision set forth in
the preceding resolution and other provisions, if any, as may be necessary to
make the Bylaws consistent with this amendment."
REQUIRED VOTE
The affirmative vote of a majority of the Common Stock outstanding and
entitled to vote at the Annual Meeting is required to approve this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF
PROPOSAL 7.
------------------------
PROPOSAL 8 -- SUPERMAJORITY VOTING REQUIRED TO AMEND BYLAWS
AND PROPOSED PROVISIONS OF THE CERTIFICATE OF INCORPORATION
Delaware law confers sole authority to adopt, amend or repeal bylaws in the
stockholders unless the certificate of incorporation also confers such a power
upon the board of directors. The Certificate of Incorporation expressly confers
such powers upon the Board. In addition, the Bylaws currently provide that the
Bylaws may be adopted, amended or repealed by the vote of the stockholders at
the time entitled to vote or by the Board. However, any bylaw adopted by the
Board may be amended or repealed by the stockholders entitled to vote thereon.
Delaware Law further provides that the Certificate of Incorporation may be
amended by the vote of a majority of the shares of Common Stock outstanding and
entitled to vote. The Board has adopted, subject to stockholder approval, an
amendment to the Bylaws to require the affirmative vote of eighty percent (80%)
of the outstanding shares of Common Stock entitled to vote thereon to adopt,
amend or repeal the Bylaws and an amendment to the Certificate of Incorporation
to require the affirmative vote of eighty
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<PAGE> 35
percent (80%) of the shares of Common Stock outstanding and entitled to vote
thereon to amend the provisions added by Proposals 3 through 7 above and this
Proposal 8. At the Annual Meeting, stockholders will be asked to consider and
vote on the proposed amendment.
Proposal 8, by limiting the manner in which the Bylaws and the proposed
amendments to the Certificate of Incorporation may be amended, is intended not
only to promote continuity of operations and thereby enhance the Company's
ability to attain its long term goals, but also to allow the Board to more
effectively manage the affairs of and internal operating procedures of the
Company. These proposals are intended to have the effect of making it more
difficult for stockholders, following the Annual Meeting, to eliminate the
constituent elements contained within Proposals 3 through 7.
Proposal 8 will have the effect of making it more difficult for
stockholders and the Board to change the internal operating procedures of the
Company. These provisions may further discourage potentially unfriendly bids for
shares of the Company. For these reasons, Proposal 8 may have an anti-takeover
effect. The Board, however, is not aware of any efforts to obtain control of the
Company, and the proposal of this measure is not in response to any such
efforts. For a general discussion of certain anti-takeover effects of Proposal
8, see the section entitled "Anti-Takeover Proposals" above.
PROPOSED RESOLUTIONS
"RESOLVED, that the Bylaws be amended by changing Section 3 of Article VI
so that, as amended, said Section shall be and read as follows:
Section 3. Amendments. In furtherance, and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized to
make, alter, amend, change, add to or repeal the By-laws of the Corporation
and shall have the right (which, to the extent exercised, shall be
exclusive) to establish the rights, powers, duties, rules and procedures
that from time to time shall govern the Board of Directors and each of its
members, including, without limitation, the vote required for any action by
the Board of Directors, and that from time to time shall affect the
directors' powers to manage the business and affairs of the Corporation,
provided that such By-laws are not inconsistent with the General
Corporation Law of the State of Delaware or the Restated Certificate of
Incorporation, as amended, and such By-laws relate to the business of the
Corporation, the conduct of its affairs, and its rights or powers or the
rights or powers of its stockholders, directors, officers or employees. In
addition, the By-laws of the Corporation may be adopted, repealed, altered,
amended or rescinded by the affirmative vote of eighty percent (80%) of the
outstanding stock of the Corporation entitled to vote thereon, provided
that such By-laws are not inconsistent with the General Corporation Law of
the State of Delaware or the Certificate of Incorporation, and such By-laws
relate to the business of the Corporation, the conduct of its affairs, and
its rights or powers, or the rights or powers of its stockholders,
directors, officers or employees. In addition to the powers and authority
hereinbefore or by statute expressly conferred upon them, the directors are
hereby empowered to exercise all such powers and do all such acts and
things as may be exercised or done by the Corporation, subject,
nevertheless, to the provisions of the General Corporation Law of the State
of Delaware, the Certificate of Incorporation, and any By-laws adopted by
the stockholders; provided, however, that no By-laws hereafter adopted by
the stockholders shall invalidate any prior act of the directors which
would have been valid if such By-laws had not been adopted.
If any By-law regulating an impending election of directors is made,
altered, amended, changed, added or repealed by the Board of Directors,
there shall be set forth in the notice of the next meeting of stockholders
for the election of directors the By-law so made, altered, amended, changed
or repealed, together with a concise statement of the changes made.
RESOLVED, that the Restated Certificate of Incorporation of the Company be
amended by adding a new Article Fourteenth, which shall be and read as follows:
FOURTEENTH: Notwithstanding anything contained in the Certificate of
Incorporation or the by-laws of this corporation to the contrary (and
notwithstanding the fact that a lesser percentage or separate class vote
may be specified by law, this Certificate of Incorporation, the by-laws of
this corporation or any
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<PAGE> 36
common stock or preferred stock designation), Articles ELEVENTH, TWELFTH
and THIRTEENTH hereby shall not be altered, amended or repealed and no
provision inconsistent therewith shall be adopted without the affirmative
vote of the holders of at least eighty percent (80%) of the voting power of
all the outstanding stock of the corporation entitled to vote generally in
the election of directors, voting together as a single class.
Notwithstanding anything contained in this Certificate of Incorporation to
the contrary, the affirmative vote of the holders of at least eighty
percent (80%) of the voting power of all the stock of the corporation
entitled to vote generally in the election of directors, voting together as
a single class, shall be required to alter, amend or adopt any provision
inconsistent with or repeal this Article FOURTEENTH."
REQUIRED VOTE
The affirmative vote of a majority of the Common Stock outstanding and
entitled to vote at the Annual Meeting is required to approve this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF
PROPOSAL 8.
------------------------
PROPOSAL 9 -- APPOINTMENT OF INDEPENDENT AUDITORS
It is proposed that the stockholders ratify the appointment by the Board of
Directors of Ernst & Young LLP as independent auditors for the Company for the
1998 fiscal year. The Company expects representatives of Ernst & Young LLP to be
present at the Annual Meeting at which time they will respond to appropriate
questions submitted by stockholders and may make such statements as they may
desire.
Approval by the stockholders of the appointment of independent auditors is
not required but the Board deems it desirable to submit this matter to the
stockholders. If holders of a majority of the Common Stock present and entitled
to vote at the meeting should not approve the selection of Ernst & Young LLP,
the selection of independent auditors will be reconsidered by the Board of
Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE RATIFICATION OF
THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS OF THE COMPANY.
------------------------
GENERAL
As of the date of this Proxy Statement, the Board does not intend to
present any other matters for action. However, if any other matters are properly
brought before the meeting, it is intended that the persons voting the
accompanying proxy will vote the shares represented thereby in accordance with
their best judgment.
STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Stockholder proposals in respect of matters to be acted upon at the
Company's next Annual Meeting of Stockholders should be received by the Company
on or before August 14, 1998 in order that they may be considered for inclusion
in the Company's proxy materials.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers, directors and persons who beneficially own greater than
10% of a registered class of the Company's equity securities to file reports of
ownership and changes in ownership with the Securities and Exchange
34
<PAGE> 37
Commission. Based solely on a review of the forms it has received and on
representations from certain reporting persons that no such forms were required
for them, the Company believes that during fiscal 1997 all Section 16(a) filing
requirements applicable to its officers, directors and 10% beneficial owners
were complied with by such persons.
OTHER MATTERS
THE COMPANY WILL PROVIDE WITHOUT CHARGE A COPY OF THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1997, INCLUDING FINANCIAL
STATEMENTS AND SCHEDULES THERETO, TO EACH OF THE COMPANY'S STOCKHOLDERS OF
RECORD ON DECEMBER 8, 1997, AND EACH BENEFICIAL OWNER OF STOCK ON THAT DATE UPON
RECEIPT OF A WRITTEN REQUEST THEREFOR MAILED TO THE COMPANY'S OFFICES, 3401
NORTH CALIFORNIA AVENUE, CHICAGO, ILLINOIS 60618, ATTENTION: TREASURER. IN THE
EVENT THAT EXHIBITS TO SUCH FORM 10-K ARE REQUESTED, A REASONABLE FEE WILL BE
CHARGED FOR REPRODUCTION OF SUCH EXHIBITS. REQUESTS FROM BENEFICIAL OWNERS OF
COMMON STOCK MUST SET FORTH A GOOD FAITH REPRESENTATION AS TO SUCH OWNERSHIP.
It is important that the accompanying proxy card be returned promptly.
Therefore, whether or not you plan to attend the meeting in person, you are
earnestly requested to mark, date, sign and return your proxy in the enclosed
envelope to which no postage need be affixed if mailed in the United States. The
proxy may be revoked at any time before it is exercised. If you attend the
meeting in person, you may withdraw the proxy and vote your own shares.
MANNER AND EXPENSES OF SOLICITATION
The solicitation of proxies in the accompanying form is made by the Board
and all costs thereof will be borne by the Company. In addition to the
solicitation of proxies by use of the mails, some of the officers, directors and
other employees of the Company may also solicit proxies personally or by mail,
telephone or telegraph, but they will not receive additional compensation for
such services. The Company has retained the services of Corporate Investor
Communications, Inc., a professional proxy solicitation firm, to assist in the
solicitation of proxies at an approximate cost of $6,000. Brokerage firms,
custodians, banks, trustees, nominees or other fiduciaries holding shares of
Common Stock in their names will be required by the Company to forward proxy
material to their principals and will be reimbursed for their reasonable out of
pocket expenses in such connection.
VOTING PROCEDURES
Inspectors of election will be appointed to tabulate the number of shares
of Common Stock represented at the meeting in person or by proxy, to determine
whether or not a quorum is present and to count all votes cast at the meeting.
The inspectors of election will treat abstentions and broker non-votes as shares
that are present and entitled to vote for purposes of determining the presence
of a quorum. Votes withheld in connection with the election of one or more of
the nominees for director will not be counted in determining the votes cast and
will have no effect on the vote. With respect to the tabulation of votes cast on
a specific proposal presented to the stockholders at the meeting, abstentions
will be considered as present and entitled to vote with respect to that specific
proposal, whereas broker non-votes will not be considered as present and
entitled to vote with respect to that specific proposal. Abstentions and broker
nonvotes with respect to each proposal that requires approval by holders of a
majority of the outstanding Common Stock will have the effect of a vote against
the proposal. Brokers who hold shares in street name for customers have
authority to vote on certain
35
<PAGE> 38
items when they have not received instructions from beneficial owners, including
voting upon election of directors and the selection of independent auditors.
By Order of the Board of Directors,
ORRIN J. EDIDIN
Vice President, Secretary and General
Counsel
Chicago, Illinois
December , 1997
36
<PAGE> 39
WMS INDUSTRIES INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
THE UNDERSIGNED, revoking all previous proxies, hereby appoints NEIL
D. NICASTRO and HAROLD H. BACH, JR., or either of them, as attorneys, agents
and proxies with power of substitution, and with all powers the undersigned
would possess if personally present, to vote all shares of common stock of WMS
Industries Inc. (the "Company") which the undersigned is entitled to vote at
the Annual Meeting of Stockholders of the Company to be held on Tuesday,
January 27, 1998 and at all adjournments thereof. The shares represented by
this Proxy will be voted as indicated below upon the following matters, all
more fully described in the accompanying Proxy Statement.
(1) Election of a board of eight (8) directors.
[ ] FOR all nominees listed (except [ ] WITHHOLD AUTHORITY
as marked to the contrary) to vote for nominees listed
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW:
Louis J. Nicastro, Neil D. Nicastro, Kenneth J. Fedesna, Norman J. Menell,
William C. Bartholomay, William E. McKenna, Harvey Reich, Ira S. Sheinfeld.
(2) The amendment to the Company's Restated Certificate of Incorporation, as
amended (the "Certificate") to increase the number of authorized shares of
common stock of the Company, par value $.50 per share (the "Common
Stock"), from 60,000,000 to 100,000,000.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(3) The amendments to the Certificate and the Company's Amended and Restated
Bylaws (the "Bylaws") to provide for the classification of the Board of
Directors into three classes with staggered terms.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(4) The amendments to the Certificate and Bylaws to provide that any vacancy
on the Board of Directors may be filled for the unexpired term only by a
vote of a majority of the remaining directors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(See reverse side)
<PAGE> 40
(5) The amendments to the Certificate and Bylaws to eliminate stockholder
action by written consent.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(6) The amendments to the Certificate and Bylaws to permit only the President,
the Chairman of the Board or the Board of Directors to call special
meetings of stockholders and to limit the business permitted to be
conducted at such meetings to that brought before the meetings by the
Board of Directors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(7) The amendments to the Certificate and Bylaws to require an advance notice
procedure for the submission of director nominations and other stockholder
proposals.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(8) The amendments to the Bylaws to require either a vote of the Board of
Directors or a vote of 80% of the Common Stock entitled to vote thereon in
order to adopt, amend or repeal the Bylaws, and to the Certificate to
require a vote of 80% of the Common Stock entitled to vote thereon in
order to adopt, amend or repeal the amendments to the Certificate proposed
herein.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(9) Ratification of the appointment of Ernst & Young LLP as independent
auditors for the 1998 fiscal year.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS GIVEN. IF NO SUCH INSTRUCTIONS ARE GIVEN, THE SHARES REPRESENTED
BY THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF THE NOMINEES FOR DIRECTORS
DESIGNATED BY THE BOARD OF DIRECTORS AND "FOR" ITEMS 2, 3, 4, 5, 6, 7, 8 AND 9.
Dated: __________________________, 199__
________________________________________
(Signature)
________________________________________
(Signature)
NOTE: Please sign exactly as your name
or names appear hereon, and when
signing as attorney, executor,
administrator, trustee or guardian,
give your full title as such. If
signatory is a corporation, sign the
full corporate name by a duly
authorized officer. If shares are held
jointly, each stockholder named should
sign.
NOTE: PLEASE MARK, DATE, SIGN AND MAIL THIS PROXY IN THE ENVELOPE ENCLOSED FOR
THIS PURPOSE. NO POSTAGE IS REQUIRED FOR MAILING IN THE UNITED STATES.
