<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for use of the
Commission only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
WMS INDUSTRIES INC.
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
WMS LOGO
WMS INDUSTRIES INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on January 25, 2000
------------------------
To the Stockholders of
WMS INDUSTRIES INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of WMS
Industries Inc. ("WMS") will be held on Tuesday, January 25, 2000 at 1:30 p.m.
Central Standard Time at The Standard Club, Chicago Room, 4th Floor, 320 South
Plymouth Court, Chicago, Illinois 60604, to consider and act upon the following
matters:
1. Electing a board of eight (8) directors;
2. Ratifying the appointment of Ernst & Young LLP as independent
auditors for our fiscal year ending June 30, 2000; and
3. Transacting such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
The close of business on December 8, 1999 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
WMS for any purpose germane to the annual meeting during regular business hours
at the offices of WMS for the ten-day period prior to the annual meeting.
YOU ARE REQUESTED, WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE ANNUAL
MEETING, TO MARK, DATE, SIGN AND RETURN PROMPTLY THE ACCOMPANYING PROXY IN THE
ENCLOSED ENVELOPE. 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 13, 1999
<PAGE> 3
ANNUAL MEETING OF STOCKHOLDERS
OF
WMS INDUSTRIES INC.
------------------------
PROXY STATEMENT
------------------------
INTRODUCTION
WMS Industries Inc. ("we", "us" or "WMS") is furnishing this proxy
statement to you in connection with the solicitation by the Board of Directors
of proxies to be voted at our Annual Meeting of Stockholders. The meeting is
scheduled to be held at The Standard Club, Chicago Room, 4th Floor, 320 South
Plymouth Court, Chicago, Illinois 60604, on Tuesday, January 25, 2000 at 1:30
p.m. Central Standard Time, or at any proper adjournments.
If you properly execute and return your proxy form, it will be voted in
accordance with your instructions. If you return your proxy but give us no
instructions as to any matters, the proxy will be voted on those matters in
accordance with the recommendations of the Board as indicated in this proxy
statement. You may revoke your proxy, at any time prior to its exercise, by
written notice to us, by submission of another proxy bearing a later date or by
voting in person at the meeting. Your revocation will not affect a vote on any
matters already taken. Your mere presence at the meeting will not revoke your
proxy.
The mailing address of our principal executive offices is 3401 North
California Avenue, Chicago, Illinois 60618. We are mailing this proxy statement
and the accompanying form of proxy to our stockholders on or about December 13,
1999.
Only holders of our common stock, $.50 par value per share, of record at
the close of business on December 8, 1999 (the "Record Date") will be entitled
to vote at our annual meeting or any adjournments. There were 30,620,409 shares
of our common stock outstanding on the Record Date (excluding 77,312 treasury
shares). Each share of our common stock entitles the holder to one vote on each
matter at the meeting.
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of the Record Date, except as
otherwise footnoted, about persons which, to our knowledge, beneficially own
more than 5% of the outstanding shares of our common stock:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS OF OF COMMON STOCK PERCENTAGE OF OUTSTANDING
BENEFICIAL OWNER BENEFICIALLY OWNED(1) COMMON STOCK(1)
------------------- --------------------- -------------------------
<S> <C> <C>
Sumner M. Redstone and
National Amusements, Inc. ........................ 7,180,200(2) 23.4%
200 Elm Street
Dedham, MA 02026
FMR Corp. .......................................... 3,920,080(3) 12.8%
82 Devonshire St
Boston, MA 02109
Neil D. Nicastro.................................... 7,180,214(4) 23.4%
Midway Games Inc.
3401 North California Avenue
Chicago, IL 60618
Louis J. Nicastro................................... 7,734,832(5) 24.9%
WMS Industries Inc.
3401 North California Avenue
Chicago, IL 60618
</TABLE>
- -------------------------
(1) Under Rule 13d-3(d)(1) of the Securities Exchange Act of 1934, shares
underlying options are deemed to be beneficially owned if the holder of the
option has the right to acquire beneficial ownership of the underlying
shares within 60 days.
(2) Based upon Amendment No. 20, dated January 7, 1997, to the Schedule 13D
filed by Sumner M. Redstone with the SEC and a Form 4, dated June 30, 1999,
filed by Mr. Redstone with the SEC. On those filings, Mr. Redstone and
National Amusements, Inc. ("NAI") reported beneficial ownership of and sole
investment power with respect to 3,671,300 and 3,483,900 shares,
respectively, and shared voting power with respect to those shares under a
Proxy Agreement entered into with WMS and Messrs. Louis J. and Neil D.
Nicastro. See "Voting Proxy Agreement." As a result of his stock ownership
in National Amusements, Mr. Redstone is considered the beneficial owner of
the shares owned by NAI.
(3) Based upon Schedule 13G filed with the SEC by FMR Corp., the sole
stockholder of Fidelity Management & Research Company, dated September 24,
1999. FMR reported that it is the beneficial owner of the shares as a result
of Fidelity Management's and other subsidiaries' acting as investment
advisers to various investment companies and that Fidelity Advisor Value
Strategies Fund, one of those investment companies, was a beneficial owner
of 1,890,100 of these shares. FMR reported that it has sole power to dispose
of or direct the disposition of 3,604,100 of the shares. FMR also reported
that it may be deemed to be controlled by members of the Edward C. Johnson
3d family.
(4) Includes 7,180,200 shares owned by Mr. Redstone and NAI for which the
reporting person has shared voting power but no dispositive power. For a
discussion concerning the shared voting power with respect to the 7,180,200
shares referred to above, see "Voting Proxy Agreement."
(5) Includes 7,180,200 shares owned by Mr. Redstone and NAI for which the
reporting person has shared voting power but no dispositive power. Includes
500,000 shares that Mr. Nicastro may acquire upon the exercise of stock
options. For a discussion concerning the shared voting power with respect to
the 7,180,200 shares referred to above, see "Voting Proxy Agreement."
2
<PAGE> 5
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of the Record Date, information about
the beneficial ownership of our common stock by each of our directors and the
executive officers named in the Summary Compensation Table below and by all of
our directors and executive officers as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENTAGE OF
COMMON STOCK OUTSTANDING
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) COMMON STOCK(1)
------------------------ --------------------- ---------------
<S> <C> <C>
Harold H. Bach, Jr....................... 91,230(2) **
William C. Bartholomay*.................. 92,486(3) **
Terence M. Dunleavy...................... 3,000(4) **
Orrin J. Edidin.......................... 10,000(5) **
William E. McKenna*...................... 76,280(3) **
Norman J. Menell*........................ 75,902(3) **
Louis J. Nicastro*....................... 7,734,832(6) 24.9%
Neil D. Nicastro*........................ 7,180,214(7) 23.4%
Harvey Reich*............................ 49,876(8) **
Ira S. Sheinfeld*........................ 118,930(9) **
David M. Satz, Jr.*...................... 51,000(10) **
Kevin L. Verner.......................... 45,359(11) **
Directors and Executive Officers as a
group (12 persons)..................... 8,348,909(12) 26.4%
</TABLE>
- -------------------------
* Nominee for Director
** Less than 1%
(1) Under Rule 13d-3(d)(1) of the Securities Exchange Act of 1934, shares
underlying options are deemed to be beneficially owned if the holder of the
option has the right to acquire beneficial ownership of the underlying
shares within 60 days.
(2) Includes 73,133 shares that Mr. Bach may acquire upon the exercise of stock
options. Mr. Bach resigned from his offices with WMS to devote
substantially all of his business time to our former subsidiary, Midway
Games Inc. ("Midway"), on October 4, 1999, at which time Jeffrey M.
Schroeder was appointed to the offices formerly held by Mr. Bach.
(3) Includes 62,955 shares that this person may acquire upon the exercise of
stock options.
(4) Includes 2,000 shares that Mr. Dunleavy may acquire upon the exercise of
stock options.
(5) Represents 10,000 shares that Mr. Edidin may acquire upon the exercise of
stock options.
(6) Includes 7,180,200 shares owned by Sumner M. Redstone and National
Amusements, Inc. for which the reporting person has shared voting power but
no dispositive power. Includes 500,000 shares that Mr. Nicastro may acquire
upon the exercise of stock options. For a discussion concerning the shared
voting power with respect to the 7,180,200 shares referred to above, see
"Voting Proxy Agreement."
(7) Includes 7,180,200 shares owned by Sumner M. Redstone and National
Amusements, Inc. for which the reporting person has shared voting power but
no dispositive power. For a discussion concerning the shared voting power
with respect to the 7,180,200 shares referred to above, see "Voting Proxy
Agreement."
(8) Includes 37,955 shares that Mr. Reich may acquire upon the exercise of
stock options.
(9) Includes 100,728 shares that Mr. Sheinfeld may acquire upon the exercise of
stock options.
(10) Includes 50,000 shares that Mr. Satz may acquire upon the exercise of stock
options.
(11) Includes 37,773 shares that Mr. Verner may acquire upon the exercise of
stock options.
(12) Includes 1,000,454 shares that directors and executive officers may acquire
upon the exercise of stock options. Additionally, includes 7,180,200 shares
of common stock owned by Sumner M. Redstone and
3
<PAGE> 6
National Amusements, Inc. with respect to which Louis J. Nicastro and Neil
D. Nicastro both have shared voting power but no dispositive power. See
"Voting Proxy Agreement."
VOTING PROXY AGREEMENT
In order for us to manufacture and sell gaming machines in Nevada, our
officers are required to be, and have been, registered, licensed or found
suitable by the Nevada Gaming Authorities. In addition, under applicable Nevada
law and administrative procedure, as a greater than 10% stockholder of WMS,
Sumner M. Redstone was required to apply, and has an application pending with
the Nevada Gaming Authorities, for a finding of suitability as a stockholder of
WMS. Mr. Redstone and National Amusements, Inc. ("NAI"), a company that he
controls, collectively own 7,180,200 shares of our common stock. Pending
completion of the processing of this application, Mr. Redstone and NAI, on
September 21, 1995, voluntarily granted a voting proxy under a voting agreement
to Louis J. Nicastro and, if he is unable to perform his duties under the voting
agreement, to Neil D. Nicastro, individually, to vote all of Mr. Redstone's and
NAI's shares of our common stock. The voting agreement is intended to ensure
that the passive investment position of Mr. Redstone and NAI relative to WMS
will not change without prior notification to the Nevada Gaming Authorities.
Under the voting agreement, Mr. Nicastro votes each share of our common
stock owned by Mr. Redstone and NAI at his discretion at meetings of our
stockholders or acts as proxy in connection with any written consent of our
stockholders. The term of the voting agreement ends August 24, 2004 unless Mr.
Redstone terminates it upon 30 days' written notice. It may also be terminated
upon a finding by the Nevada Gaming Authorities that Mr. Redstone and NAI are
suitable as stockholders of WMS or are no longer subject to the applicable
provisions of Nevada gaming laws.
Louis J. Nicastro and Neil D. Nicastro have advised us that they plan to
use the voting proxy to vote all 7,180,200 shares of our common stock
beneficially owned by Mr. Redstone and NAI (approximately 23.6% of our common
stock) in favor of the nominees for election as director and FOR Proposal 2.
PROPOSAL 1 -- ELECTION OF DIRECTORS
Upon the recommendation of the Nominating Committee, the following eight
(8) directors, constituting the entire Board, are nominated for election to
serve until the next Annual Meeting of Stockholders and until their respective
successors are elected and shall qualify. All of the nominees are at present
directors. Neil D. Nicastro is the son of Louis J. Nicastro. If any of the
nominees are unable to serve or refuse to serve as directors, an event which the
Board does not anticipate, the proxies will be voted in favor of those nominees
who do remain as candidates, except as you otherwise specify, 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 (71)................. President, Chief Executive Officer and 1974
Chairman of the Board
Neil D. Nicastro (43).................. Director; Chairman of the Board, 1986
President, Chief Executive Officer and
Chief Operating Officer of Midway
Norman J. Menell (68).................. Vice Chairman of the Board 1980
William C. Bartholomay (71)............ Director; President of Near North 1981
National Group
William E. McKenna (80)................ Director; General Partner of MCK 1981
Investment Company
Harvey Reich (70)...................... Director; Attorney 1983
David M. Satz, Jr. (73)................ Director; Attorney, Saiber Schlesinger 1998
Satz & Goldstein
Ira S. Sheinfeld (61).................. Director; Attorney, Squadron, Ellenoff, 1993
Plesent & Sheinfeld LLP
</TABLE>
4
<PAGE> 7
LOUIS J. NICASTRO has been our President and Chief Executive Officer since
April 1998 and was also Chief Operating Officer from April 1998 to May 1998. He
has served as our Chairman of the Board since our incorporation in 1974. From
1983 to January 1998, Mr. Nicastro was also the Chairman of the Board and Chief
Executive Officer of WHG Resorts & Casinos, Inc. and its predecessors. Mr.
Nicastro also served as our Chief Executive Officer or Co-Chief Executive
Officer from 1974 to June 1996, President (1985 - 1988 and 1990 - 1991) and
Chief Operating Officer (1985 - 1986). Mr. Nicastro is a director of Midway, and
he held executive positions for Midway from 1988 until June 1996.
NEIL D. NICASTRO has been Midway's President and Chief Operating Officer
for more than five years, Co-Chief Executive Officer since 1994, Chairman of the
Board and Chief Executive Officer since July 1996 and has held various other
executive positions for Midway since 1988. Mr. Nicastro was also our President,
Chief Executive Officer and Chief Operating Officer for more than five years
before his resignation from those positions in April 1998. Mr. Nicastro became a
director of WMS in 1986, and he remains a director and a consultant to WMS.
NORMAN J. MENELL has been Vice Chairman of the Board since 1990 and a
director since 1980. He has also served as our President (1988 - 1990), Chief
Operating Officer (1986 - 1990) and Executive Vice President (1981 - 1988). Mr.
Menell is also a director of Midway.
WILLIAM C. BARTHOLOMAY is President of Near North National Group, insurance
brokers in Chicago, Illinois and Chairman of the Board of the Atlanta Braves. He
has served as Vice Chairman of Turner Broadcasting System, Inc., a division of
Time Warner Inc., for more than five years. Mr. Bartholomay was elected a
director of WMS in 1981. Mr. Bartholomay is also a director of Midway.
WILLIAM E. MCKENNA has served as a General Partner of MCK Investment
Company, Beverly Hills, California for more than five years. He also is a
director of Midway, California Amplifier, Inc., Drexler Technology Corporation
and Safeguard Health Enterprises, Inc. Mr. McKenna has served as a director of
WMS since 1981.
HARVEY REICH was a member of the law firm of Robinson Brog Leinwand Greene
Genovese & Gluck, P.C., New York, New York and its predecessor firms for more
than five years until his retirement in July 1998. Mr. Reich was elected a
director of WMS in 1983. Mr. Reich is also a director of Midway.
DAVID M. SATZ JR. became a diror of WMS in April 1998. Mr. Satz has been a
member of the law firm Saiber Schlesinger Satz & Goldstein, Newark, New Jersey,
for more than five years. Mr. Satz is also a director of the Atlantic City
Racing Association.
IRA S. SHEINFELD became a director of WMS in 1993. He has been a member of
the law firm of Squadron, Ellenoff, Plesent & Sheinfeld LLP, New York, New York,
for more than five years. Mr. Sheinfeld is also a director of Midway.
REQUIRED VOTE
The affirmative vote of a plurality of the shares of our common stock
present in person or by proxy at the annual meeting is required to elect
directors.
-------------------------
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE NOMINEES FOR ELECTION AS
DIRECTORS.
-------------------------
THE BOARD OF DIRECTORS
The Board of Directors is responsible for managing our overall affairs. To
assist it in carrying out its duties, the Board has delegated specific authority
to several committees. Seven of our eight directors are neither officers nor
employees of WMS.
During fiscal 1999, the Board held four meetings. Each director attended at
least 75% of the aggregate number of meetings of the Board and committees on
which he served during the fiscal year.
5
<PAGE> 8
DIRECTOR COMPENSATION
We pay a fee of $30,000 per year to each director who is not also our
employee. Each director who serves as the chairman of any committee of our Board
receives a further fee of $5,000 per year for his services in that capacity, and
each member of our Audit and Ethics Committee receives an additional fee of
$5,000 per year.
Under our 1991 Stock Option Plan, Mr. Sheinfeld holds options to purchase
37,773 shares of our common stock. Under our 1993 Stock Option Plan, the
following non-employee directors each hold options to purchase 62,955 shares of
our common stock: Messrs. Bartholomay, McKenna, Menell and Sheinfeld. Mr. Reich
holds options to purchase 37,955 shares of our common stock under that Plan.
Under our 1998 Stock Option Plan, Mr. Satz holds options to purchase 50,000
shares of our common stock. See "Stock Option Plans" below.
Directors are also entitled to participate, at our expense, in a medical
reimbursement plan which is supplementary to their primary medical insurance.
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 meets
periodically with the independent auditors and internal personnel to consider
the adequacy of internal accounting controls, to receive and review the
recommendations of the independent auditors, to recommend the appointment of
auditors, to review the scope of the audit and the compensation of the
independent auditors, to review our consolidated financial statements and,
generally, to review our accounting policies and to resolve potential conflicts
of interest. During fiscal 1999, this Committee held two meetings.
The Nominating Committee is currently composed of Messrs. N. D. Nicastro
(Chairman) and Bartholomay. This Committee makes recommendations about the
nomination of candidates for election to the Board and does not accept
recommendations from stockholders. During fiscal 1999, this Committee did not
hold any meetings, taking all actions by the unanimous written consent of its
members.
The Negotiating Committee is currently composed solely of Mr. Satz. This
Committee reviews and authorizes any agreement to be entered into in the future
and any modification to any existing agreement between Midway and WMS. During
fiscal 1999, this Committee did not hold any meetings, taking all actions by the
unanimous written consent of its members.
The Stock Option Committee is currently composed of Messrs. Reich
(Chairman) and McKenna. This Committee determines the timing, pricing and the
amount of option grants to be made under the provisions of our stock option
plans. During fiscal 1999, this Committee did not hold any meetings, taking all
actions by the unanimous written consent of its members.
The Compensation Committee is currently composed of Messrs. Bartholomay
(Chairman) and McKenna. This Committee makes recommendations regarding the
compensation of senior management personnel. During fiscal 1999, this Committee
held one meeting.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
No member of our Compensation Committee or Stock Option Committee is an
employee or officer of WMS, and no officer, director or other person had any
interlock relationship required to be disclosed in this proxy statement.
EXECUTIVE OFFICERS
The following individuals were elected to serve in the capacities set forth
below until the 2000 Annual Meeting of the Board of Directors or until their
respective successors are elected and shall qualify.
6
<PAGE> 9
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Louis J. Nicastro..................... 71 Chairman of the Board, President and
Chief Executive Officer
Kevin L. Verner....................... 41 Vice President and Chief Operating
Officer
Jeffrey M. Schroeder.................. 42 Vice President -- Finance, Treasurer,
Chief Financial Officer and Chief
Accounting Officer
Orrin J. Edidin....................... 38 Vice President, Secretary and General
Counsel
Terence M. Dunleavy................... 42 Vice President, Assistant General
Counsel and Chief Compliance Officer
</TABLE>
The principal occupation and employment of Louis J. Nicastro during the
last five years is set forth on page 5 above.
Mr. Verner has served as our Vice President and Chief Operating Officer
since May 1998 and as Executive Vice President and General Manager of WMS Gaming
Inc. since February 1997. Previously, Mr. Verner served as Vice President and
Director of New Business Development of R.J. Reynolds Tobacco Company from 1993
until February 1997.
Mr. Schroeder joined us in June 1999, and he assumed the offices of Vice
President -- Finance, Treasurer, Chief Financial Officer and Chief Accounting
Officer on October 4, 1999. Mr. Schroeder is a certified public accountant and
was, until July 1998, the chief financial officer of Farley Industries, Inc., a
management services company. He joined that company in 1985.
Mr. Edidin has served as our Vice President, Secretary and General Counsel
since May 1997. Mr. Edidin served as Associate General Counsel of Fruit of the
Loom, Inc., an apparel company, from 1992 until May 1997. Mr. Edidin has also
served as Vice President, Secretary and General Counsel of Midway since June
1997. We anticipate that, by the end of this fiscal year, Mr. Edidin will begin
to devote substantially all of his business time to Midway but will remain as a
consultant to WMS. We are in the process of searching for a new general counsel.
Mr. Dunleavy joined us in May 1997 and was appointed Vice President,
Assistant General Counsel and Chief Compliance Officer in June 1999. Mr.
Dunleavy was Assistant General Counsel/Director of Compliance of Mikohn Gaming
Nevada, Inc. a gaming systems manufacturer, from April 1996 to November 1996,
Senior Regulatory Attorney with Madison Gas & Electric Company, from 1994 to
January 1996 and Commissioner of the Wisconsin Gaming Commission from 1992 to
1994.
EXECUTIVE COMPENSATION
To provide stockholders with an understanding of our executive compensation
program, the following are presented below: (i) the Summary Compensation Table;
(ii) the Stock Option Tables; (iii) the Joint Report by the Compensation and
Stock Option Committees of the Board of Directors on Fiscal 1999 Executive
Compensation; (iv) the Corporate Performance Graph; and (v) a description of
employment agreements.
The Summary Compensation Table below sets forth the compensation paid for
service in all capacities during the fiscal years ended June 30, 1999, 1998 and
1997 to each of our executive officers whose fiscal 1999 compensation exceeded
$100,000. Where an officer served as an employee of both WMS and Midway, the
table sets forth the aggregate compensation paid by WMS and Midway. Before the
Midway spinoff, compensation that we paid to our executive officers who also
serve Midway was allocated to Midway based upon management's estimates of the
percentage of time devoted to Midway. After the Midway spinoff, compensation
that one party pays to these executive officers is reimbursed by the other party
in amounts equal to the allocated cost under the Temporary Support Services
Agreement dated as of April 6, 1998 between Midway and WMS. Our management
believes that these executive officers devoted, from time to time, 40% to 70% of
their time to Midway during fiscal 1999 and 1998. See "Certain Relationships and
Related Transactions" below for a description of the Temporary Support Services
Agreement.
7
<PAGE> 10
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION AWARDS
-----------------------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
--------------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)(1) ($)
--------------------------- ---- --------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Louis J. Nicastro........................... 1999 450,000 500,000 -- --
Chairman of the Board, 1998 107,308 -- 500,000 4,956,640(2)
President and Chief Executive Officer(5) 1997 -- -- 629,554(3) 9,261,503(4)
Kevin L. Verner............................. 1999 250,000 200,000 50,000 72,000(6)(7)
Vice President and Chief Operating 1998 250,000 100,000 -- 50,100(6)(7)
Officer(8)
Harold H. Bach, Jr.......................... 1999 315,000 -- -- --(6)
Vice President -- Finance, 1998 300,000 220,000 -- --(6)
Treasurer, Chief Financial Officer 1997 300,000 175,000 94,433(3) --
and Chief Accounting Officer(9)
Orrin J. Edidin............................. 1999 200,000 75,000 -- --(6)
Vice President, Secretary and 1998 180,000 75,000 25,000 --(6)
General Counsel(10)
Terence M. Dunleavy......................... 1999 113,000 36,000 5,000 --
Vice President, Assistant General Counsel
and Chief Compliance Officer(11)
</TABLE>
- -------------------------
(1) Excludes Midway stock options, all of which were granted at an exercise
price equal to market value on the date of grant. In fiscal 1999, Mr. Bach
received options to purchase 43,842 shares of Midway common stock, and Mr.
Edidin received options to purchase 41,304 shares of Midway common stock.
In fiscal 1998, Mr. Nicastro received options to purchase 10,000 shares of
Midway common stock, Mr. Bach received options to purchase 50,000 shares of
Midway common stock, and Mr. Edidin received options to purchase 35,000
shares of Midway common stock. In fiscal 1997, Mr. Nicastro received an
option to purchase 25,000 shares of Midway common stock, and Mr. Bach
received options to purchase 100,000 shares of Midway common stock.
(2) Represents a payment made to Mr. Nicastro to compensate him in lieu of
adjusting his WMS stock options in connection with the Midway spinoff. In
order to raise cash in connection with the spinoff, we requested that Mr.
Nicastro forego his entitlement to the adjustment of his options and,
shortly before the spinoff, exercise his 629,554 options and sell the
underlying shares of our common stock. The payment equalled the difference
between the value of that entitlement and the net amount he received from
the exercise and sale.
(3) Reflects the total amount of stock options previously granted to Mr.
Nicastro by WMS due to the distribution of the common stock of our former
subsidiary, WHG Resorts & Casinos.
(4) Represents a termination payment received in connection with Mr. Nicastro's
leaving WMS in fiscal 1997 to devote his full time to WHG Resorts &
Casinos.
(5) Mr. Nicastro rejoined WMS in April 1998. He has been Chairman of the Board
of Directors since 1974 and had served as Co-Chief Executive Officer until
June 1996.
(6) Excludes the value of adjustments to WMS stock options of these holders due
to the Midway spinoff. These amounts are as follows: Kevin L. Verner
received $175,615 in cash and common stock valued at $85,904 in fiscal 1998
and $531,959 in cash in fiscal 1999. Mr. Verner will receive additional
cash adjustment payments, up to a total of $1,755,133 (plus interest) if he
is still serving WMS through the end of the vesting period, on the dates
that his options would have vested. Harold H. Bach, Jr. received $1,093,193
in cash and common stock valued at $534,722. Orrin J. Edidin received
$49,442 in cash in fiscal 1998 and $105,748 in cash in fiscal 1999. He will
receive additional cash adjustment payments, up to a total of $343,260
(plus interest) if he is still serving WMS or Midway through the end of the
vesting period, on the dates that his options would have vested. Our common
stock was valued, for purposes of these adjustments, at the average of the
high and low sale prices on the NYSE on April 3, 1998, the last day of
trading prior to the spinoff.
(7) Includes $72,000 and $50,100 paid in fiscal 1999 and 1998, respectively, to
Mr. Verner in consideration of his forfeiture of performance units granted
by his previous employer.
(8) Mr. Verner was elected Vice President and Chief Operating Officer of WMS in
May 1998.
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<PAGE> 11
(9) Mr. Bach resigned from WMS to devote substantially all of his business time
to Midway in October 1999.
(10) Mr. Edidin joined WMS as Vice President, Secretary and General Counsel in
May 1997.
(11) Mr. Dunleavy was elected Vice President, Assistant General Counsel and
Chief Compliance Officer of WMS as of June 1, 1999.
STOCK OPTION TABLES
The following table sets forth information about options to purchase common
stock granted in fiscal 1999 under our stock option plans to persons named in
the Summary Compensation Table above.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------
PERCENT OF POTENTIAL REALIZABLE VALUE
TOTAL AT ASSUMED ANNUAL RATES
NUMBER OF OPTIONS OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES EXERCISE TERM(1)
OPTIONS IN FISCAL PRICE EXPIRATION --------------------------
NAME GRANTED(#) YEAR(%) ($/SHARE) DATE 5%($) 10%($)
---- ---------- ---------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Louis J. Nicastro............... -- -- -- -- -- --
Kevin L. Verner(2).............. 50,000 11.0 $10.0625 4/29/09 881,500 1,701,500
Harold H. Bach, Jr.............. -- -- -- -- -- --
Orrin J. Edidin................. -- -- -- -- -- --
Terence M. Dunleavy(2).......... 5,000 1.1 $10.0625 4/29/09 88,150 170,150
</TABLE>
- -------------------------
(1) The assumed appreciation rates are set under the rules and regulations
promulgated under the Securities Exchange Act of 1934 and are not derived
from the historical or projected prices of our common stock.
(2) This option becomes exercisable for up to 10%, 30%, 60% and 100% of the
option grant upon the first, second, third and fourth anniversaries,
respectively, of the date of the grant.
The following table sets forth information about the number and assumed
values of options to purchase our common stock owned by persons named in the
Summary Compensation Table above.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL-YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES 6/30/99(#) 6/30/99($)(1)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- ----------- ----------- --------------- -------------------
<S> <C> <C> <C> <C>
Louis J. Nicastro................. -- -- 500,000/ -- 5,781,250/ --
Kevin L. Verner................... -- -- 37,773/ 138,138 525,271/ 1,572,522
Harold H. Bach, Jr................ -- -- 94,433/ -- 1,273,051/ --
Orrin J. Edidin................... -- -- 10,000/ 40,000 133,864/ 521,724
Terence M. Dunleavy............... -- -- 2,000/ 23,000 25,125/ 260,813
</TABLE>
- -------------------------
(1) Based on the closing price of our common stock on the New York Stock
Exchange on June 30, 1999, which was $17.
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<PAGE> 12
STOCK OPTION PLANS
We currently have the following five stock option plans in effect: the 1982
Employee Stock Option Plan; the 1991 Stock Option Plan; the 1993 Stock Option
Plan; the 1994 Stock Option Plan; and the 1998 Non-Qualified Stock Option Plan
(collectively, the "Plans"). The Plans are intended to encourage our employees
and, under certain of the Plans, non-employee directors, consultants and
advisers to acquire a proprietary interest in WMS and to enable these
individuals to realize benefits from an increase in the value of our common
stock.
The total number of shares of our common stock that may be purchased under
stock options under the Plans shall not exceed, in the aggregate, 2,729,810
shares. The Plans permit us to grant options that either meet the requirements
of Section 422 of the Internal Revenue Code ("incentive stock option", except in
the case of the 1998 Plan) or do not meet those requirements ("non-qualified
stock options"). The option price per share with respect to each option
generally is not less than 100% of the fair market value of our common stock on
the date the option is granted, as determined by the Committee. The Plans each
have a term of ten years, unless terminated earlier.
At December 3, 1999, there were 112,560 options outstanding under the 1982
Plan, 142,386 under the 1991 Plan, 443,469 under the 1993 Plan, 675,374 under
the 1994 Plan and 678,400 under the 1998 Plan. The average exercise price of the
outstanding exercisable options at December 8, 1999 was approximately $5.25. Of
the 2,052,189 options outstanding, 1,000,454 were held by officers and directors
of WMS (including 500,000 held by Louis J. Nicastro).
JOINT REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEES ON FISCAL 1999
EXECUTIVE COMPENSATION
The Compensation Committee is responsible for making recommendations to the
Board of Directors regarding the compensation of senior management personnel. To
the extent that 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 our success, to reward them for their services and
to align the interests of senior management with the interests of stockholders.
Our 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 WMS
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 their historical
contributions to our success, 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 our actual financial performance in the
preceding fiscal year, the special contribution of the executive to this
performance and the overall level of the executive's compensation including
other elements of the compensation package. We also have used stock options,
which increase in value only if our common stock increases in value, and which
terminate a short time after an executive leaves, as a means of long-term
incentive compensation. The Stock Option Committee determines the size of stock
option grants to our executive officers and other employees on an individual,
discretionary basis in consideration of financial corporate results and each
recipient's performance, contributions and responsibilities without assigning
specific weight to any of these factors.
Our CEO, Louis J. Nicastro, under a negotiated formula set forth in his
employment agreement, receives a salary, a bonus of a percentage of our pre-tax
income and various retirement and other benefits. Mr. Nicastro's employment
agreement reflects the same compensation philosophy described above.
The Omnibus Budget Reconciliation Act of 1993 (the "Budget Act") generally
provides that publicly-held corporations will only be able to deduct, for income
tax purposes, compensation paid to the chief
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<PAGE> 13
executive officer or any of the four most highly paid senior executive officers
in excess of one million dollars per year if it is paid pursuant to qualifying
performance-based compensation plans approved by stockholders. Compensation as
defined by the Budget Act includes, among other things, base salary, incentive
compensation and gains on stock option transactions. Total compensation of some
of our officers may be paid pursuant to plans or agreements that have not been
approved by stockholders and may exceed one million dollars in a particular
fiscal year. We will not be able to deduct these excess payments for income tax
purposes. The Compensation Committee intends to consider, on a case by case
basis, how the Budget Act will affect our compensation plans and contractual and
discretionary cash compensation.
<TABLE>
<S> <C>
The Compensation Committee The Stock Option Committee
William C. Bartholomay, Chairman Harvey Reich, Chairman
William E. McKenna William E. McKenna
</TABLE>
This Joint Report of the Compensation and Stock Option Committees on
Executive Compensation shall not be deemed to be incorporated by reference into
any of our filings under the Securities Act of 1933 or the Securities Exchange
Act of 1934, except to the extent that we specifically incorporate this
information by reference.
11
<PAGE> 14
CORPORATE PERFORMANCE GRAPH
The following graph compares, for the five fiscal years ended June 30,
1999, the yearly percentage change in cumulative total stockholder return on our
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 at the market close on June 30, 1994 in our common stock and $100 invested
at that time in each of the indexes and the reinvestment of dividends where
applicable. The 1997 spinoff of WHG Resorts & Casinos resulted in an adjustment
to total stockholder return as a reinvested dividend of $2.25. The 1998 Midway
spinoff resulted in an adjustment to total stockholder return as a reinvested
dividend of $27.10.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
06/30/94 06/30/95 06/30/96 06/30/97 06/30/98 06/30/99
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C>
- ---
M WMS $100 $103 $130 $148 $156 $632
- ----------------------------------------------------------------------------------------------------------------------------
- ---
O S&P 500 $100 $126 $159 $214 $279 $342
- ----------------------------------------------------------------------------------------------------------------------------
- ---
-- S&P - Leisure $100 $121 $159 $199 $240 $194
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
This table shall not be deemed to be incorporated by reference into any of
our filings under the Securities Act of 1933 or the Securities Exchange Act of
1934, except to the extent that we specifically incorporate this information by
reference.
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<PAGE> 15
EMPLOYMENT AGREEMENTS
We employ Louis J. Nicastro under the terms of an Employment Agreement
dated September 2, 1999. The agreement provides for salaried compensation at the
rate of $450,000 per year, or a greater amount if determined by the Board of
Directors. Under the agreement, Mr. Nicastro is entitled to a bonus in an amount
equal to two percent of our pre-tax income. Mr. Nicastro may participate in all
benefit plans and perquisites generally available to senior executives and is
entitled to reimbursement of all medical and dental expenses incurred by him or
his wife during their lives to the extent that these expenses are not otherwise
reimbursed by insurance that we provide. Additionally, Mr. Nicastro is entitled
to receive any special bonuses that may be determined by the Board of Directors.
The agreement also provides that the stock options granted to Mr. Nicastro in
1998, when he rejoined WMS, will be exercisable for their full 10-year term,
even if he dies or retires, as long as he complies with his non-competition
obligations. The agreement expires on June 30, 2003, subject to automatic
extensions so that the term of Mr. Nicastro's employment shall at no time be
less than two years.
In addition, Mr. Nicastro or his estate is entitled to receive certain
death, retirement and disability benefits. The death and retirement benefits are
payable in installments and are equal to one-half of Mr. Nicastro's salary at
the time of death or retirement, provided that payments would not be less than
$225,000 per annum. The payment period of the death or retirement benefits is
the lesser of 7 years or the number of years Mr. Nicastro is employed by WMS,
beginning April 6, 1998, times 2 1/3. If Mr. Nicastro is disabled for more than
six consecutive months, and Mr. Nicastro is not able to resume his duties within
30 days of notice of disability, Mr. Nicastro's employment terminates, and he is
entitled to receive retirement or death benefits under the agreement.
Either party may terminate the agreement effective upon expiration of the
original term or an extended term upon written notice from the terminating party
to the other party dated and received at least two years prior to the respective
termination date. The employment agreement may be terminated at the election of
Mr. Nicastro upon the occurrence without his prior written consent of any one or
more of the following events:
- the placement of Mr. Nicastro in a position of lesser status, the
assignment to Mr. Nicastro of duties inconsistent with his current
positions with us or duties which, if performed, would result in a
significant change in the nature or scope of powers, authority,
functions or duties inherent in his positions, the assignment to Mr.
Nicastro of performance requirements or working conditions which are at
variance with those presently in effect, or the treatment of Mr.
Nicastro in a manner which is in derogation of his status as President
and Chief Executive Officer;
- the cessation of service of Mr. Nicastro as a member of the Board of
Directors of WMS;
- the discontinuance or reduction (from the highest level in effect during
the term of the employment agreement) of base salary payable to Mr.
Nicastro; and
- the discontinuance or reduction (from the level in effect on the date of
the employment agreement) of the perquisites inherent in Mr. Nicastro's
position on the date of the employment agreement.
If any of these events occurs, if the individuals who presently constitute
the Board of Directors, or successors approved by these Board members, cease for
any reason to constitute at least a majority of the Board or if we are
considered to have wrongfully terminated Mr. Nicastro's employment agreement,
then we would be obligated (a) to pay Mr. Nicastro a lump sum payment equal in
amount to Mr. Nicastro's base salary, at the highest annual rate in effect
during the one-year period immediately preceding termination, through the end of
the term of the agreement; (b) the greater of $500,000 or the aggregate bonus
which would have been payable during the remaining term of the agreement at the
highest level achieved in either of the last two fiscal years prior to
termination and (c) the maximum aggregate retirement benefits which would have
been payable in the event of retirement on the date of termination; provided
that the aggregate payment would not be less than three times base salary. In
addition, we would be obligated to purchase at the election of Mr. Nicastro all
stock options held by him with respect to our common stock and options to
purchase the securities of any other company at least 20% of the voting
securities of which we own at a price equal to the
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<PAGE> 16
spread between the option price and the fair market price of our common stock as
defined in the employment agreement.
If payments made to Mr. Nicastro under the employment agreement after a
change of control are considered "excess parachute payments" under Section 280G
of the Internal Revenue Code of 1986 (the "Code"), additional compensation is
required to be paid to Mr. Nicastro to the extent necessary to eliminate the
economic effect on him of the resulting excise tax. Under Section 4999 of the
Code, in addition to income taxes, the recipient is subject to a 20%
nondeductible excise tax on excess parachute payments. An excess parachute
payment is a payment in the nature of compensation which is contingent on a
change of ownership or effective control and which exceeds the portion of the
base amount (i.e., the average compensation for the five-year period prior to
the change of control) allocable to the payment. These rules apply only if the
present value of all payments of compensation contingent on the change of
control (including non-taxable fringe benefits) is at least equal to three times
the base amount. We cannot deduct excess parachute payments for income tax
purposes.
Kevin L. Verner is employed by us under the terms of an Employment
Agreement dated as of June 1, 1999. The employment agreement provides for
salaried compensation at the rate of $250,000 per year, or a greater amount as
may be determined by the Board of Directors. The employment agreement of Mr.
Verner provides for, among other things, full participation in all benefit plans
and perquisites generally available to executive employees. The agreement
expires on May 31, 2001, subject to automatic extensions so that the term of Mr.
Verner's employment shall at no time be less than two years. Either party may
terminate the agreement effective upon expiration of the original term or an
extended term upon written notice from the terminating party to the other party
dated and received at least two years prior to the respective termination date.
WMS may also terminate the agreement upon 30 days written notice for cause. The
employment agreement may also be terminated at the election of Mr. Verner if the
individuals who presently constitute the Board of Directors, or successors
approved by these Board members, cease for any reason to constitute at least a
majority of the Board. If this happens, and Mr. Verner gives us notice of
termination within 60 days, then in lieu of any other rights under the
agreement, all of Mr. Verner's unvested stock options will immediately vest, and
we will be required to pay him a lump sum of three times his base salary. If any
portion of the amount paid to Mr. Verner is subject to the excise tax imposed by
Section 4999 of the Code, then additional compensation is required to be paid to
him to the extent necessary to eliminate the economic effect on him of the
resulting excise tax.
Terence M. Dunleavy is employed by us under the terms of an Employment
Agreement dated as of June 1, 1999. The employment agreement provides for
salaried compensation at the rate of $120,000 per year, or a greater amount as
we may determine. Mr. Dunleavy may participate in all benefit plans generally
available to employees. Additionally, Mr. Dunleavy may receive discretionary
bonuses of up to 30% of his base salary. The agreement expires May 31, 2000,
subject to automatic extensions so that the term of Mr. Dunleavy's employment
shall at no time be less than one year, unless the agreement is terminated
voluntarily by Mr. Dunleavy or for cause by WMS. The employment agreement may
also be terminated at the election of Mr. Dunleavy if the individuals who
presently constitute the Board of Directors, or successors approved by these
Board members, cease for any reason to constitute at least a majority of the
Board and if we then breach our obligations to Mr. Dunleavy under the agreement.
If both of these conditions are satisfied, and Mr. Dunleavy gives us notice of
termination within 60 days of the breach, then in lieu of any other rights under
the agreement, all of Mr. Dunleavy's unvested stock options will immediately
vest, and we will be required to pay to Mr. Dunleavy the lesser of the
following: (a) one year's base salary; or (b) the maximum amount which could be
paid to him without any portion of that amount being subject to the excise tax
imposed by Section 4999 of the Code.
On March 5, 1998 in connection with the Midway spinoff, and at the request
of our Board of Directors, Neil D. Nicastro entered into an agreement with us
(the "Termination Agreement") under which Mr. Nicastro's employment with us
terminated effective at the time of the spinoff. Under the Termination
Agreement, at the time of the spinoff, Mr. Nicastro resigned as our President,
Chief Executive Officer and Chief Operating Officer to devote his full time to
Midway. As full consideration for payments that would otherwise have been made
to Mr. Nicastro under his earlier employment agreement with us, we paid
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<PAGE> 17
Mr. Nicastro a lump sum of $2,500,000, and we granted to him a 10-year option to
purchase 250,000 shares of our common stock at an exercise price of $5.4375.
In connection with the Midway spinoff, we also entered into a consulting
agreement (the "Consulting Agreement") with Neil D. Nicastro under which Mr.
Nicastro agreed to make himself reasonably available at our request, to render
services to us that the Board of Directors or the Chairman of the Board and
Chief Executive Officer of WMS may reasonably request. The term of the
Consulting Agreement is for five years from the date of the spinoff, and is
automatically renewable for successive one year terms unless either party shall
give notice of termination not less than six months prior to the end of the term
then in effect. We pay Mr. Nicastro $1,000 per month for his services under the
Consulting Agreement.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH MIDWAY
Midway was formerly a wholly-owned subsidiary of WMS. Since we distributed
all of our Midway stock to our stockholders in April 1998, we do not own any
Midway common stock. Seven of our directors are also directors of Midway.
Additionally, two of the executive officers of Midway are officers or directors
of WMS.
We have the following agreements with Midway, each of which became
effective on April 6, 1998:
Manufacturing Agreement. We manufacture coin-operated video games and kits
for Midway under this agreement. The agreement has a term of three years and
will automatically renew for successive terms of six months unless terminated
(a) by either party for any reason upon six months' notice or (b) if there is a
material default under the agreement or under the confidentiality provisions of
the Confidentiality and Non-Competition Agreement discussed below, immediately
at the election of the non-defaulting party. The agreement requires us to
allocate 65% of our combined production and storeroom square footage at our
Waukegan plant to perform our obligations under the agreement. Midway designs
its coin-operated video games, including programming, graphic design, electrical
engineering, sound engineering and model shop engineering. We provide some
production engineering activities, such as the design process for the assembly
of each game, creating work station profiles and quality control of incoming
parts and the assembly process. Midway supplies most of the materials used in
the manufacture of coin-operated video games, but we supply about 5% of the
materials and charge Midway our cost plus 9.0% for these materials. All labor
costs, including fringe benefits, directly associated with the manufacturing of
coin-operated video games are charged to Midway at our cost, plus 9.0%. The
Waukegan plant's operating costs are either identified as Midway costs and
charged to Midway, or allocated as agreed between the parties plus 9%. The
identified or allocated costs include manufacturing costs, materials management
costs, quality assurance costs and administration costs.
Cabinet Supply Agreement. We supply cabinets for coin-operated video games
to Midway. We have delivered a notice terminating this agreement as of April 25,
2000. Until that date, to initiate the purchase of video game cabinets, Midway
issues a pricing inquiry to us specifying the number of cabinets to be ordered
and the cabinet specifications. We then provide a formal quote on the pricing
inquiry, and, upon agreement on a final price, a purchase order is issued. We
build the cabinets in our Cicero, Illinois plant and ship them to our Waukegan,
Illinois plant for use in the manufacture of coin-operated video games. Midway
may purchase cabinets from manufacturers other than us if we do not meet
competitive bona-fide quotes.
Spare Parts Sales and Service Agreement. We sell spare parts for Midway's
coin-operated video games. The agreement has a five-year term but is terminable
upon six months notice by either party. Midway is required to refer their
customers to us for spare parts purchases during the term of the agreement.
Sales Agreement. This agreement was amended as of June 15, 1999. We have
delivered a notice terminating this agreement as of April 25, 2000. Until that
date, Midway will continue to market, sell and field test pinball products for
us, coordinating and negotiating print advertising and video presentations with
advertising and media firms, and negotiating distribution and sales agency
agreements with distributors. For these services, we pay Midway $500,000 per
annum (or a higher amount if agreed to between the parties; through December 31,
1999, we have agreed to pay Midway at the rate of approximately $135,000 per
month)
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<PAGE> 18
plus a commission of 1.5% on the first $25.0 million of annual net sales by
Midway of our products and 1.0% on annual net sales of our products in excess of
$25.0 million. An annual budget for marketing and testing is developed and
agreed upon in advance between the parties annually and modified quarterly by
mutual agreement. Additional services that were not included in the budget are
provided at Midway's cost plus 8.0% for payroll, overhead and expense.
Information Systems Service Agreement. This agreement has a term of three
years with successive renewal periods of 18 months and is terminable by either
party (a) upon 18 months' notice or (b) upon a material default, immediately by
the non-defaulting party. We provide Midway with access to our computer systems
for many of their computing needs, including order entry, financial and
manufacturing modules, marketing and sales and engineering (including
engineering documentation and blueprint systems) as well as support for the
computer system. We also coordinate the provision and maintenance of cabling,
wiring, switching components, routers and gateway and the purchasing,
maintaining and upgrading of network services for Midway. These services include
purchasing of desktop computers and related hardware as well as providing some
telecommunications services to Midway. Midway may also request that we provide
services to it to develop their communications networking, operating and
computer system and other related services. Midway pays us an amount equal to
our cost for all services provided plus 6.6%.
Confidentiality and Non-Competition Agreement. Under this agreement, Midway
or we may designate business information as confidential, and the other party
must use its best efforts to keep this information confidential. The agreement
also includes five year non-competition and one year post-employment non-
solicitation clauses.
Right of First Refusal Agreement. We granted Midway a right of first
refusal with respect to any offer to us to purchase the Waukegan plant, as long
as the offer is not made in connection with the sale of our stock or assets and
business as a going concern, if we intend to accept the offer. The term of the
agreement expires April 5, 2008.
Third Parties Agreement. This agreement governs the treatment of the
numerous arrangements with third parties with respect to game development,
licensing and other matters. Under the agreement, Midway and we allocate the
rights and obligations under third party arrangements so that the party
receiving the benefits will bear the burdens of those agreements. The agreement
will remain in effect as long as any prior third party arrangements remain
outstanding.
Temporary Support Services Agreement. We supply all or a portion of
Midway's administrative, legal and accounting, information services, and
janitorial and other agreed upon services, including the use of space by Midway
in any of our facilities, as requested at any time by Midway. In exchange for
these services, Midway pays us an amount equal to our direct or allocated cost
(including wages, salaries, fringe benefits and materials), as indicated on our
monthly invoices. The agreement will continue for successive renewal periods of
three months each; provided, however, that each party may, upon 60 days' notice,
terminate any one or more of the services provided, except the use of space by
Midway in any WMS facility.
Tax Separation 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 of the WMS Group. The agreement
sets forth the parties' respective liabilities for federal, state and local
taxes as well as their agreements as a result of Midway and its subsidiaries
ceasing to be members of the WMS Group. The agreement governs, among other
things, (i) the filing of tax returns with federal, state and local authorities,
(ii) the carryover of any tax benefits of Midway, (iii) the treatment of the
deduction attributable to the exercise of stock options to purchase our common
stock which are held by employees or former employees of Midway and any other
similar compensation related tax deductions, (iv) the treatment of certain net
operating loss carrybacks, (v) the treatment of audit adjustments, (vi)
procedures with respect to any proposed audit adjustment or other claim made by
any taxing authority with respect to a tax liability of Midway or any of its
subsidiaries. Some other tax matters are addressed in the Tax Sharing Agreement
described below.
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<PAGE> 19
Tax Indemnification Agreement. This agreement provides for indemnification
if the Midway spinoff fails to qualify under Section 355 of the Code. Each of
the parties agreed, among other things, that for a period of two years after the
spinoff, each would continue active conduct of an historic trade or business as
conducted by it during the five-year period prior to the spinoff. Additionally,
each party agreed not to: (i) merge or consolidate with another entity; (ii)
liquidate or partially liquidate; (iii) sell or transfer all or substantially
all its assets in a single transaction or a series of transactions; (iv) redeem
or otherwise repurchase any of its capital stock in a manner contrary to certain
Internal Revenue Service ("IRS") revenue procedures; (v) enter into any
transaction or make any change in its equity structure which may cause the
spinoff to be treated as a plan under which one or more persons acquire directly
or indirectly its common stock representing a 50 percent or greater interest
within the meaning of Section 355(d)(4) of the Code; or (vi) in the case of
Midway, except in connection with stock issued under an employee benefit or
compensation plan, and except as described in the private letter ruling issued
in connection with the spinoff, issue additional shares of its capital stock,
unless that party first obtains the consent of the other party and, if
applicable, the person or persons acquiring a 50 percent or greater interest in
the party have agreed to become jointly or severally liable for payments
required to be made by that party under the Tax Indemnification Agreement.
Midway will indemnify WMS with respect to any action referred to above
which it takes that causes the spinoff to fail to qualify under Section 355 of
the Code, against any federal, state and local taxes, interest, penalties and
additions to tax imposed upon or incurred by the WMS Group or any member. WMS
will indemnify Midway and its subsidiaries against federal, state and local
taxes, interest, penalties and additions to tax resulting from the spinoff,
other than any of these liabilities for which Midway is required to indemnify
WMS. The agreement also governs the procedures for indemnification, calculation
of the amount of indemnified liability for income taxes and reduction of
indemnity by income tax benefits from indemnified liabilities.
We also have the following agreements with Midway:
Tax Sharing Agreement. This agreement is dated July 1, 1996 and remains in
effect, except to the extent described in the Tax Separation Agreement referred
to above. Under this agreement, 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 that Midway is required
to pay to WMS for 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 these filings are 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 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 is
unable to pay its proportionate share of taxes.
Patent License Agreement. We entered into a patent license agreement dated
July 1, 1996 with Midway under which each party licensed to the other, on a
perpetual, royalty-free basis, some patents used in the development and
manufacture of both coin-operated video games and video lottery terminals and
other gaming machines.
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OTHER RELATED PARTY TRANSACTIONS
Ira S. Sheinfeld, one of our directors, is a member of the law firm of
Squadron, Ellenoff, Plesent & Sheinfeld LLP which we have retained to provide
tax services during the last fiscal year and propose to retain for tax services
during the current fiscal year.
Under the Termination Agreement, as full consideration for payments that we
would otherwise have made to Neil D. Nicastro under his earlier employment
agreement with us with respect to base salary, bonus, retirement and death
benefits, we paid Mr. Nicastro a lump sum of $2,500,000, and we granted to him a
10-year option to purchase 250,000 shares of our common stock at an exercise
price of $5.4375. See "Employment Agreements."
PROPOSAL 2 -- APPOINTMENT OF INDEPENDENT AUDITORS
We propose that the stockholders ratify the appointment by the Board of
Directors of Ernst & Young LLP as our independent auditors for fiscal 2000. We
expect that representatives of Ernst & Young LLP will be present at the annual
meeting and that they will be available to respond to appropriate questions
submitted by stockholders at the meeting. They may make any statements that they
may desire.
Approval by the stockholders of the appointment of independent auditors is
not required, but the Board believes that it is desirable to submit this matter
to the stockholders. If holders of a majority of our common stock present and
entitled to vote on the matter should not approve the selection of Ernst & Young
LLP, the selection of independent auditors will be reconsidered by the Board.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE RATIFICATION OF
THE APPOINTMENT OF ERNST & YOUNG LLP AS OUR INDEPENDENT AUDITORS.
OTHER MATTERS
STOCKHOLDER PROPOSALS
As of the date of this proxy statement, the Board has not been informed of
and does not intend to propose any other matters for stockholder 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 by the proxy in accordance with their best judgment.
We must receive any stockholder proposals of matters to be acted upon at
our next Annual Meeting of Stockholders on or before August 23, 2000 in order to
consider including them in our proxy materials for that meeting.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our officers,
directors and persons who beneficially own greater than 10% of a registered
class of our equity securities to file reports of ownership and changes in
ownership with the SEC. These persons are required by regulation to furnish us
with copies of all Section 16(a) reports that they file. Based solely on our
review of copies of these reports that we have received and on representations
from some reporting persons that no Form 5 report was required to be filed by
them, we believe that during fiscal 1999 our officers, directors and 10%
beneficial owners complied with all of their Section 16(a) filing requirements.
MANNER AND EXPENSES OF SOLICITATION
This solicitation of proxies is made by the Board, and we will bear all
solicitation costs. In addition to the solicitation of proxies by use of the
mails, some of our officers, directors and other employees may also solicit
proxies personally or by mail, telephone or telegraph, but they will not receive
additional compensation for those services. We will request that brokerage
firms, custodians, banks, trustees, nominees or other fiduciaries
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holding shares of our common stock in their names forward proxy material to
their principals and will reimburse them for their reasonable out of pocket
expenses.
VOTING PROCEDURES
We will appoint inspectors of election 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 with
respect to each proposal that requires approval by holders of a majority of our
outstanding common stock will have the effect of a vote against the proposal.
Broker non-votes will have no effect on the vote for or against these proposals.
The term "broker non-votes" commonly refers to shares held in street name for
customers, and the broker does not have authority to vote on particular items,
and the broker has not received instructions from the beneficial owners.
HOW TO OBTAIN OUR FORM 10-K
we will provide without charge a copy of our annual report on Form 10-K for
the fiscal year ended June 30, 1999, including financial statements and
schedules, to each of our stockholders of record on December 8, 1999 and each
beneficial owner of stock on that date, upon receipt of a written request mailed
to our offices, 3401 North California Avenue, Chicago, IL 60618, attention:
Treasurer. In the event that exhibits to the Form 10-K are requested, a
reasonable fee will be charged for reproduction of the exhibits. Requests from
beneficial owners of common stock must set forth a good faith representation as
to their ownership.
IT IS IMPORTANT THAT YOU RETURN THE ACCOMPANYING PROXY CARD 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. YOU
MAY REVOKE THE PROXY AT ANY TIME BEFORE IT IS EXERCISED. IF YOU ATTEND THE
MEETING IN PERSON, YOU MAY WITHDRAW THE PROXY AND VOTE YOUR OWN SHARES.
By Order of the Board of Directors,
ORRIN J. EDIDIN
Vice President, Secretary and
General Counsel
Chicago, Illinois
December 13, 1999
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WMS INDUSTRIES INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
THE UNDERSIGNED, revoking all previous proxies, hereby appoints LOUIS
J. NICASTRO, JEFFREY M. SCHROEDER and ORRIN J. EDIDIN, or any of them, as
attorneys, agents and proxies with power of substitution, and with all powers
that 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 January 25, 2000 and at all adjournments thereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH
THE SPECIFICATIONS MADE BY THE UNDERSIGNED UPON THE FOLLOWING PROPOSALS, MORE
FULLY DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT. IF NO INSTRUCTIONS ARE
GIVEN BY THE UNDERSIGNED, 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" PROPOSAL 2.
(1) Election of Directors.
[ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees
contrary) listed
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEES, STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW:
Louis J. Nicastro / William C. Bartholomay / William E. McKenna /
Norman J. Menell / Neil D. Nicastro / Harvey Reich / David M. Satz, Jr. /
Ira S. Sheinfeld
(2) Ratification of appointment of Ernst & Young LLP as independent auditors
for fiscal 2000.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
----------------------------
Dated:
----------------------------
(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.
