<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(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:
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(4) Date Filed:
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<PAGE> 2
WMS LOGO
WMS INDUSTRIES INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 23, 2001
------------------------
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 23, 2001 at 1:30 p.m.
Central Standard Time at the Drake Hotel, 140 East Walton Place, Chicago,
Illinois 60611, in The Gold Coast Room, to consider and act upon the following
matters:
1. Electing a board of nine (9) directors;
2. Ratifying the WMS Industries Inc. 2000 Stock Option Plan;
3. Ratifying the appointment of Ernst & Young LLP as independent
auditors for our fiscal year ending June 30, 2001; and
4. Transacting such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
The close of business on December 4, 2000 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
Executive Vice President, Secretary
and General Counsel
Chicago, Illinois
December 8, 2000
<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 Drake Hotel, 140 East Walton Place, Chicago,
Illinois 60611, in The Gold Coast Room, on Tuesday, January 23, 2001 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 800 South
Northpoint Road, Waukegan, Illinois 60085. We are mailing this proxy statement
and the accompanying form of proxy to our stockholders on or about December 8,
2000.
Only holders of our common stock, $.50 par value per share, of record at
the close of business on December 4, 2000 (the "Record Date") will be entitled
to vote at our annual meeting or any adjournments. There were 31,616,953 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 PERCENTAGE OF
OF COMMON STOCK OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) COMMON STOCK(1)
------------------------------------ --------------------- ---------------
<S> <C> <C>
Sumner M. Redstone and National Amusements, Inc. ......... 8,061,200(2) 25.5%
200 Elm Street
Dedham, MA 02026
FMR Corp. ................................................ 4,175,020(3) 13.2%
82 Devonshire St
Boston, MA 02109
Merrill Lynch & Co., Inc. ................................ 3,188,667(4) 10.1%
250 Vesey Street
New York, NY 10381
Neil D. Nicastro(5)....................................... 8,053,214(6) 25.5%
Louis J. Nicastro(5)...................................... 8,582,832(7) 26.7%
</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. Percentage calculations are based on 31,616,953
shares outstanding on December 4, 2000.
(2) Based upon Amendment No. 21, dated April 27, 2000, to Schedule 13D filed by
Sumner M. Redstone and National Amusements, Inc. and a Form 4 for October
2000 filed by Mr. Redstone with the SEC. On those filings, Redstone and
National Amusements reported sole dispositive power over 4,577,300 and
3,483,900 shares, respectively, and shared voting power over 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, Redstone is considered the beneficial
owner of the shares owned by National Amusements.
(3) Based upon Amendment No. 7 to Schedule 13G filed February 14, 2000 with the
SEC by Fidelity International Limited and FMR Corp., the sole stockholder of
Fidelity Management & Research Company and Fidelity Management Trust
Company. FMR reported that it has sole voting power over 698,700 of the
shares and sole dispositive power over 3,666,800 of the shares as a result
of Fidelity Management's acting as investment adviser to various investment
companies holding 2,968,100 of the shares and Fidelity Management Trust's
holding 698,700 of the shares. FMR Corp. also reported that Fidelity
Advisors Value Strategies Fund, one of the investment companies, was a
beneficial owner of 1,890,100 of these shares. In addition, Fidelity
International reported that it has sole voting and investment power over
508,220 of the shares as a result of its acting as investment adviser to
various investment companies. Fidelity International was spun off from FMR
Corp. in 1980. Fidelity International and FMR also reported that they each
may be deemed to be controlled by members of the Edward C. Johnson 3d
family.
(4) Based on Amendment No. 1 to Schedule 13G filed May 5, 2000 with the SEC by
Merrill Lynch & Co., Inc. on behalf of its division, Merrill Lynch Asset
Management Group ("AMG") and by Merrill Lynch Special Value Fund, Inc.
("SVF"). AMG reported shared voting and dispositive power over 3,188,667
shares, and SVF reported shared voting and dispositive power over 2,113,600
shares.
(5) This person's address is c/o WMS Industries Inc., 800 South Northpoint Road,
Waukegan, Illinois 60085.
2
<PAGE> 5
(6) Includes 8,061,200 shares owned by Sumner M. Redstone and National
Amusements, Inc. for which the reporting person has shared voting power but
no dispositive power. Also includes 25,000 shares underlying stock options.
For a discussion concerning the shared voting power over the 8,061,200
shares referred to above, see "Voting Proxy Agreement."
(7) Includes 8,061,200 shares owned by Sumner M. Redstone and National
Amusements, Inc. for which the reporting person has shared voting power but
no dispositive power. Also includes 500,000 shares underlying stock options.
For a discussion concerning the shared voting power over the 8,061,200
shares referred to above, see "Voting Proxy Agreement."
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 PERCENTAGE OF
OF COMMON STOCK OUTSTANDING
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) COMMON STOCK(2)
------------------------ ---------------------- ---------------
<S> <C> <C>
William C. Bartholomay*................. 117,486(3) **
Terence M. Dunleavy..................... 0(4) 0%
Orrin J. Edidin......................... 7,500(5) **
Brian R. Gamache........................ 5,000 **
William E. McKenna*..................... 101,280(3) **
Norman J. Menell*....................... 62,902(6) **
Donna B. More*.......................... 50,000(7) **
Louis J. Nicastro*...................... 8,615,832(8) 26.7%
Neil D. Nicastro*....................... 8,086,214(9) 25.5%
Harvey Reich*........................... 46,921(10) **
David M. Satz, Jr.*..................... 51,000(11) **
Scott D. Schweinfurth................... 1,000 **
Ira S. Sheinfeld*....................... 143,930(12) **
Jeffrey M. Schroeder.................... 0(13) 0%
Kevin L. Verner......................... 0(14) 0%
Directors and Executive Officers as a
group (16 persons).................... 9,229,635(15) 28.3%
</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) Percentages are calculated based on 31,616,953 shares outstanding on
December 4, 2000.
(3) Includes 87,955 shares underlying stock options.
(4) Mr. Dunleavy left WMS on October 3, 2000.
(5) Represents 7,500 shares underlying stock options.
(6) Includes 54,955 shares underlying stock options.
(7) Represents 50,000 shares underlying stock options.
(8) Includes 8,061,200 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 8,061,200 shares referred to above, see "Voting Proxy
Agreement." Also includes 500,000 shares underlying stock options. These
stock options are exercisable
3
<PAGE> 6
for their full ten year term, even if Mr. Nicastro dies or retires, so long
as he complies with the non-competition obligations contained in his
employment agreement.
(9) Includes 8,061,200 shares owned by Sumner M. Redstone and National
Amusements, Inc. for which the reporting person has shared voting power but
no dispositive power. Also includes 25,000 shares underlying stock options.
For a discussion concerning the shared voting power with respect to the
8,061,200 shares referred to above, see "Voting Proxy Agreement."
(10) Includes 35,000 shares underlying stock options.
(11) Includes 50,000 shares underlying stock options.
(12) Includes 125,728 shares underlying stock options.
(13) Mr. Schroeder left WMS on April 19, 2000.
(14) Mr. Verner left WMS on April 10, 2000.
(15) Includes 1,025,863 shares underlying stock options. Additionally, includes
8,061,200 shares of common stock owned by Sumner M. Redstone and 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 8,061,200 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 8,061,200 shares of our common stock
beneficially owned by Mr. Redstone and NAI (approximately 25.5% of our common
stock) in favor of the nominees for election as director and FOR proposals 2 and
3.
4
<PAGE> 7
PROPOSAL 1 -- ELECTION OF DIRECTORS
Upon the recommendation of the Nominating Committee, the following nine (9)
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 presently
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>
William C. Bartholomay (72)............ Director; President of Near North 1981
National Group
William E. McKenna (81)................ Director; General Partner of MCK 1981
Investment Company
Norman J. Menell (69).................. Vice Chairman of the Board 1980
Donna B. More (42)..................... Director; Attorney, More Law Group 2000
Louis J. Nicastro (72)................. Chief Executive Officer and Chairman of 1974
the Board
Neil D. Nicastro (44).................. Director; Chairman of the Board, 1986
President, Chief Executive Officer and
Chief Operating Officer of Midway Games
Inc.
Harvey Reich (71)...................... Director; Attorney 1983
David M. Satz, Jr. (74)................ Director; Attorney, Saiber Schlesinger 1998
Satz & Goldstein
Ira S. Sheinfeld (62).................. Director; Attorney, Squadron, Ellenoff, 1993
Plesent & Sheinfeld LLP
</TABLE>
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.
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.
DONNA B. MORE became a director of WMS in May 2000. She is the principal
partner in the More Law Group, which she founded on June 1, 2000. She was a
partner in the law firm of Freeborn and Peters from 1994 until May, 2000. Ms.
More served for four years as the first Chief Legal Counsel to the Illinois
Gaming Board and was formerly an Assistant U.S. Attorney for the Northern
District of Illinois. She serves on the Board of Directors of Mandalay Resort
Group and is a member of the Board of Trustees of the International Association
of Gaming Attorneys.
LOUIS J. NICASTRO has been our Chief Executive Officer since April 1998 and
was also President from April 1998 to April 2000. 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. ("WHG"). Mr. Nicastro has also served as our Chief
Executive Officer or Co-Chief Executive Officer from 1974 to June 1996 and
President (1985-1988 and 1990-1991), among other positions.
5
<PAGE> 8
Mr. Nicastro is a director of Midway Games Inc., our former subsidiary, and he
held executive positions for Midway from 1988 until June 1996. Mr. Nicastro is
Neil D. Nicastro's father.
NEIL D. NICASTRO has been Midway's Chief Executive Officer, President and
Chief Operating Officer for more than five years, Chairman of the Board 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 us. Mr. Nicastro is Louis J. Nicastro's son.
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 director 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. Eight of our nine directors are neither officers nor
employees of WMS.
During fiscal 2000, the Board held nine meetings. Each director attended at
least 75% of the aggregate number of meetings of the Board and all committees on
which he or she served during the fiscal year.
DIRECTOR COMPENSATION
We pay a fee of $30,000 per year to each director who is not also an
employee of WMS or our subsidiaries. Each director who serves as the chairman of
any committee of our Board of Directors 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.
Our 1991, 1993, 1998 and 2000 stock option plans permit the issuance of
shares of our common stock under non-qualified stock options which may be
granted to non-employee directors of WMS, generally at not less than 100% of the
fair market value of the shares on the date of grant. Under these plans, Mr.
Sheinfeld holds options to purchase 125,728 shares; Messrs. Bartholomay and
McKenna each hold options to purchase 87,955 shares; Mr. Menell holds options to
purchase 54,955 shares; Mr. Reich holds options to purchase 35,000 shares; Mr.
Neil D. Nicastro holds options to purchase 25,000 shares; and Mr. Satz and Ms.
More each hold options to purchase 50,000 shares of our common stock.
Directors are also entitled to participate, at our expense, in a medical
reimbursement plan which is supplementary to their primary medical insurance.
6
<PAGE> 9
In connection with our spinoff of our former subsidiary, Midway, in 1998,
we 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.
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit and Ethics Committee is currently composed of three independent
directors (as independence is defined in Section 303.01(B) of the NYSE listing
standards): 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. The Board has adopted a written charter for this
committee, and a copy of the charter is included as an appendix to this proxy
statement. The report of this committee is set forth later in this proxy
statement. During fiscal 2000, this committee held three 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 2000, 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. The joint report of this committee
and the Stock Option Committee is set forth later in this proxy statement.
During fiscal 2000, this committee held three meetings.
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. The joint report of this committee and the Compensation Committee is set
forth later in this proxy statement. During fiscal 2000, this committee held
five meetings.
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, except
that Mr. Bartholomay is President of Near North National Group, insurance
brokers, which we retained to provide insurance services during the last fiscal
year and propose to retain for insurance services during the current fiscal
year.
7
<PAGE> 10
EXECUTIVE OFFICERS
The following individuals were elected to serve in the capacities set forth
below until the 2001 Annual Meeting of the Board of Directors or until their
respective successors are elected and shall qualify.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Louis J. Nicastro......................... 72 Chairman of the Board and Chief Executive Officer
Brian R. Gamache.......................... 42 President and Chief Operating Officer
Scott D. Schweinfurth..................... 46 Executive Vice President, Chief Financial Officer
and Treasurer
Orrin J. Edidin........................... 39 Executive Vice President, Secretary and General
Counsel
Robert R. Rogowski........................ 42 Vice President of Finance and Controller
</TABLE>
The principal occupation and employment experience of Louis J. Nicastro
during the last five years is described on page 5-6 above.
BRIAN R. GAMACHE has served as our President and Chief Operating Officer
since April 10, 2000. Mr. Gamache served as President of the Luxury and Resort
Division of Wyndham International from January 1998 until April 2000.
Previously, he was President and Chief Operating Officer of WHG Hotels and
Casinos from April 1997 until January 1998. From 1990 until April 1997, when WMS
spun off WHG, Mr. Gamache served in various capacities for WMS's former hotel
and resort subsidiaries, rising to the position of President and Chief Operating
Officer. At the time of that spinoff, Mr. Gamache left WMS to devote his full
time to WHG.
SCOTT D. SCHWEINFURTH joined us on April 19, 2000, assuming the offices of
Executive Vice President, Chief Financial Officer and Treasurer. He is a
certified public accountant and was, from June 1996 until March 2000, Senior
Vice President, Chief Financial Officer and Treasurer of Alliance Gaming
Corporation, a diversified gaming company. Mr. Schweinfurth also acted as
Managing Director of Alliance's Germany-based Bally Wulff subsidiary from
November 1999 to March 2000. Alliance acquired Bally Gaming International in
June 1996, where Mr. Schweinfurth had served as Senior Vice President, Chief
Financial Officer and Treasurer since 1995. Prior to that time, he was employed
by Ernst & Young for 18 years, the last six as a partner.
ORRIN J. EDIDIN joined us in May 1997. He served as our Vice President,
Secretary and General Counsel from June 1997 until May 11, 2000, when he became
our Executive Vice President, Secretary and General Counsel. Mr. Edidin also
served as Vice President, Secretary and General Counsel of Midway from June 1997
to May 2000. He served as Associate General Counsel of Fruit of the Loom, Inc.
from 1992 until May 1997. Mr. Edidin is a member of the International
Association of Gaming Attorneys and serves as the Vice President of the
Association of Gaming Equipment Manufacturers.
ROBERT R. ROGOWSKI joined us in 1992 as internal auditor, becoming Vice
President of Finance of WMS Gaming in February 1996 and our Vice President of
Finance and Controller on April 19, 2000. He is a certified public accountant.
From 1982 to 1991, he served in the finance department at Sara Lee.
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 and other stock option information; (iii) the joint
report by the Compensation and Stock Option Committees on fiscal 2000 executive
compensation; (iv) the corporate performance graph; and (v) a description of
employment agreements.
The Summary Compensation Table below sets forth the compensation earned
during the fiscal years ended June 30, 2000, 1999 and 1998 by our Chief
Executive Officer, our four next most highly compensated executive officers
whose fiscal 2000 salary and bonus exceeded $100,000 and two former executive
officers.
8
<PAGE> 11
Mr. Edidin served as an employee of both WMS and Midway until May 2000, and the
table sets forth the aggregate employment compensation paid to him by WMS and
Midway through such date.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
----------------------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
-------------------------------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS ($) OTHER ($) OPTIONS(#)(1) ($)
--------------------------- ---- --------- --------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Louis J. Nicastro............. 2000 562,500 1,139,680 -- -- --
Chairman of the Board 1999 450,000 500,000 -- -- --
and Chief Executive 1998 107,308 -- -- 500,000 4,956,640(3)
Officer(2)
Brian R. Gamache.............. 2000 86,538 144,932(4) 22,500 250,000 --
President and Chief
Operating
Officer(5)
Scott D. Schweinfurth......... 2000 52,661 49,796(4) -- 100,000 --
Executive Vice President,
Chief Financial Officer and
Treasurer(6)
Orrin J. Edidin............... 2000 217,305 75,000 -- 100,000 --(7)
Executive Vice President, 1999 200,000 75,000 -- 25,000 --(7)
Secretary and General 1998 180,000 75,000 -- 25,000 --(7)
Counsel
Terence M. Dunleavy(8)........ 2000 138,653 45,000 -- 30,000 --
1999 113,000 36,000 -- 5,000 --
Kevin L. Verner(9)............ 2000 208,646 200,000 -- -- --(7)
1999 250,000 200,000 -- 50,000 72,000(7)(10)
1998 250,000 100,000 -- -- 50,100(7)(10)
Jeffrey M. Schroeder(11)...... 2000 173,906 -- 87,500 15,000 --
</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 2000, Mr.
Nicastro received options to purchase 10,000 shares of Midway common stock
and Mr. Edidin received options to purchase 65,000 shares of Midway common
stock. In fiscal 1999, 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 and Mr. Edidin
received options to purchase 35,000 shares of Midway common stock.
(2) Mr. Nicastro rejoined WMS on April 6, 1998.
(3) Represents a payment made to Mr. Nicastro to compensate him in lieu of
adjusting his WMS stock options in connection with the Midway spinoff. See
"Adjustment to Options Resulting from the Midway Spinoff."
(4) Includes signing bonuses of $100,000 for Mr. Gamache and $25,000 for Mr.
Schweinfurth.
(5) Mr. Gamache joined WMS on April 10, 2000. The amount shown in the "other"
column represents reimbursements for relocation expenses advanced at the
rate of $7,500 per month. After actual relocation expenses are determined,
an adjustment will be made to the actual amount.
(6) Mr. Schweinfurth joined WMS on April 19, 2000.
(7) Excludes the value of adjustments to WMS stock options of these holders due
to the Midway spinoff. These amounts are as follows: Mr. Edidin received
$49,442 in cash in fiscal 1998, $105,748 in cash in fiscal 1999 and
$147,112 in cash in fiscal 2000. He will receive additional cash adjustment
payments, up to a total of $196,149 (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. Mr. Verner received $175,615 in cash and
9
<PAGE> 12
common stock valued at $85,904 in fiscal 1998, $531,959 in cash in fiscal
1999 and $752,262 in cash in fiscal 2000. Our common stock was valued at
the average of the high and low sale prices on the New York Stock Exchange
on April 3, 1998, the last day of trading prior to the spinoff.
(8) Mr. Dunleavy resigned as Vice President, Assistant General Counsel and
Chief Compliance Officer of WMS effective on October 3, 2000.
(9) Mr. Verner resigned as Vice President and Chief Operating Officer of WMS
effective on April 10, 2000.
(10) Includes $72,000 and $50,100 paid in fiscal 1999 and 1998, respectively, to
Mr. Verner in consideration of his forfeiture of performance units granted
by his previous employer.
(11) Mr. Schroeder resigned as Vice President, Chief Financial Officer and
Treasurer of WMS on April 19, 2000. The amount shown under the "other"
column represents his severance payment.
The following table sets forth information with respect to options to
purchase common stock granted in fiscal 2000 under our stock option plans to
persons named in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------------------- ANNUAL RATES OF STOCK
% OF TOTAL PRICE APPRECIATION FOR
OPTIONS GRANTED OPTION TERM(1)
OPTIONS TO EMPLOYEES IN EXERCISE PRICE EXPIRATION -----------------------
NAME GRANTED (#) FISCAL YEAR (%) ($/SHARE) DATE 5% ($) 10% ($)
---- ----------- --------------- -------------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Louis J. Nicastro.......... -- -- -- -- -- --
Brian R. Gamache........... 250,000(2) 24.0 8.9375 4/9/10 1,405,185 3,561,017
Scott D. Schweinfurth...... 100,000(3) 9.6 8.125 4/19/10 510,500 1,294,915
Orrin J. Edidin............ 100,000(3) 9.6 8.125 4/19/10 510,500 1,294,915
Terence M. Dunleavy........ 20,000(3) 1.9 8.125 4/19/10 102,100 258,983
10,000(4) 1.0 10.375 11/23/09 65,248 165,351
Kevin L. Verner............ -- -- -- -- -- --
Jeffrey M. Schroeder....... 15,000(4) 1.4 10.9375 12/5/09 103,178 261,473
</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) Vests as to 100,000 shares on 4/10/2001 and as to an additional 30,000
shares on each April 10 beginning with 2002 until fully vested.
(3) This option becomes exercisable for up to 25%, 50%, 75% and 100% of the
option grant upon the first, second, third and fourth anniversaries,
respectively, of the date of grant.
(4) 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 grant.
10
<PAGE> 13
The following table sets forth certain information about the exercise of
options to purchase our common stock and the number and value of outstanding
options owned by persons named in the Summary Compensation Table.
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 6/30/00(#) 6/30/00($)(1)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- ----------- ----------- --------------- -------------------
<S> <C> <C> <C> <C>
Louis J. Nicastro................. -- -- 500,000/ -- 5,000,000/ --
Brian R. Gamache.................. -- -- --/ 250,000 --/ 1,625,000
Scott D. Schweinfurth............. -- -- --/ 100,000 --/ 731,250
Orrin J. Edidin................... -- -- 22,500/ 127,500 263,978/ 1,125,985
Terence M. Dunleavy............... -- -- 6,500/ 48,500 68,688/ 375,063
Kevin L. Verner................... 75,046 735,827 --/ -- --/ --
Jeffrey M. Schroeder.............. -- -- --/ -- --/ --
</TABLE>
-------------------------
(1) Based on the closing price of our common stock on the New York Stock
Exchange on June 30, 2000, which was $15.4375.
ADJUSTMENT TO OPTIONS RESULTING FROM THE MIDWAY SPINOFF
Each of our four stock option plans in effect prior to the Midway spinoff
provided that in the event of a dividend or other distribution, such as a
spinoff, outstanding options were to be adjusted to prevent dilution of the
benefits or potential benefits intended to be made available by the options in a
manner that the Board of Directors deemed equitable.
In consultation with our financial advisors, the Board approved, and our
option holders accepted, a plan in which option holders retained their options
to acquire shares of our common stock after the Midway spinoff at an exercise
price adjusted to reflect the difference in the value of our common stock
immediately before and after the spinoff, and option holders received
compensation for the lost value resulting from the distribution of the shares of
common stock of Midway to our stockholders in which option holders would not
participate. In order to preserve our cash resources, this compensation was paid
through a combination of cash and shares of our common stock. Shortly before the
spinoff, the Board became concerned that, after payment of taxes, optionees
would have little cash remaining and might be inclined, for investment
concentration or other reasons, to sell shares of Midway common stock received
in the spinoff, which sales might have a depressive effect on the market price
of that stock. The Board believed that this concern would be alleviated if $5.0
million of additional cash were available to pay to optionees so that optionees
would receive at least 70% of their adjustment payments in cash.
In order to raise the additional $5.0 million in cash as well as additional
cash of approximately $8.5 million used to pay expenses of the spinoff and for
additional working capital, we requested that Louis J. Nicastro, Chairman of the
Board of WMS, forego his entitlement under the adjustment plan to receive
payments valued at $10,406,059 and an adjustment of the exercise price of his
stock options to $3.519 per share. Instead, at the request of the Board, shortly
before the spinoff, Mr. Nicastro exercised his options to purchase 629,554
shares of our common stock, sold these shares in the public market and received
from us a payment of $4,956,640 representing the difference between $10,406,059
and the net amount he received from the exercise and sale. When Mr. Nicastro
exercised his options, we received an aggregate exercise price of $13,437,200.
11
<PAGE> 14
The consideration paid under the adjustment plan to the persons named in
the Summary Compensation Table is set forth in footnotes to that table.
STOCK OPTION PLANS
We currently have the following stock option plans in effect: the 1982,
1991, 1993 and 1994 Stock Option Plans, the 1998 Non-Qualified Stock Option Plan
and the 2000 Non-Qualified Stock Option Plan (collectively, the "Plans"). Our
Board has also approved a 2000 Stock Option Plan, which is being submitted for
stockholder approval. See Proposal 2 below. The Plans permit us to grant options
to purchase shares of our common stock. These options may be incentive stock
options, which meet the requirements of Section 422 of the Internal Revenue
Code, except in the case of the 1998 and 2000 Non-Qualified Stock Option Plans,
or may not meet the requirements of that section.
The purpose of each of the Plans is to encourage our employees and, under
some of the Plans, non-employee directors, consultants and advisors 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. We believe that this benefit
provides these individuals with greater incentive and encourages their continued
provision of services to us and, generally, promotes our interests and those of
our stockholders. The Stock Option Committee determines which of the eligible
directors, officers, employees, consultants and advisors receive Stock Options,
the terms, including applicable vesting periods, of the options, and the number
of shares for which options are granted. The option price per share with respect
to each option is determined by the Stock Option Committee and generally is not
less than the fair market value of our common stock of the date that the option
is granted. The Plans each have a term of ten years, unless terminated earlier.
As of December 1, 2000, under the 1982 Plan, 39,218 options were
outstanding, and no further options were available for grant. Under the 1991
Plan, 126,218 options were outstanding, and no further options were available
for grant. Under the 1993 Plan 299,331 options were outstanding, and no further
options were available for grant. Under the 1994 Plan, 340,513 options were
outstanding, and no further options were available for grant. Under the 1998
Plan, 803,950 options were outstanding, and 117,600 further options were
available for grant. Under the 2000 Plan, 1,470,514 options were outstanding,
and 279,486 further options were available for grant. The average exercise price
of outstanding options, at December 1, 2000, was approximately $12.00 per share.
Of the 3,079,744 options outstanding, 1,799,293 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 2000 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 determining 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
12
<PAGE> 15
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 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 under 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 executive officers may be
paid under 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>
13
<PAGE> 16
CORPORATE PERFORMANCE GRAPH
The following graph compares, for the five fiscal years ended June 30,
2000, the yearly percentage change in cumulative total stockholder return on our
common stock with the cumulative total return of (1) the Standard and Poor's 500
Stock Index ("S&P 500"), (2) the Standard and Poor's Leisure Time Index ("S&P
Leisure") and (3) an index of selected issuers in our industry, composed of
Alliance Gaming Corp., Anchor Gaming, Casino Data Systems, International Game
Technology, Mikohn Gaming Corp., and Shuffle Master Inc. We have decided to
discontinue comparing our change in cumulative total return with that of the S&P
Leisure index in the future, because we are now engaged in a single line of
business, the manufacture and sale of casino-style gaming machines and video
lottery terminals, and we are no longer in the video game and pinball business.
Accordingly, we believe that we are no longer comparable to the issuers included
in the S&P Leisure index. The graph assumes an investment of $100 at the market
close on June 30, 1995 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>
-----------------------------------------------------------------------------------------------------------------------------
06/30/95 06/30/96 06/30/97 06/30/98 06/30/99 06/30/00
<C> <S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------------------
---
M WMS $100 $125.48 $143.56 $150.83 $612.25 $556.00
-----------------------------------------------------------------------------------------------------------------------------
---
O S&P 500 $100 $126.00 $169.72 $220.91 $271.84 $290.84
-----------------------------------------------------------------------------------------------------------------------------
---
-- S&P - Leisure $100 $130.63 $164.09 $197.74 $160.06 $85.94
-----------------------------------------------------------------------------------------------------------------------------
X Peer Group.. $100 $129.38 $116.55 $162.25 $118.21 $157.67
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 17
EMPLOYMENT AGREEMENTS
We employ Louis J. Nicastro under the terms of an Employment Agreement
dated September 2, 1999. He receives salaried compensation at the rate of
$675,000 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 generally
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 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 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 spread between the option
price and the fair market price of our common stock as defined in the employment
agreement.
15
<PAGE> 18
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. Excess parachute payments are not deductible by us.
We employ Brian R. Gamache under the terms of an Employment Agreement dated
as of March 21, 2000. The employment agreement provides for salaried
compensation at the rate of $375,000 per year, or a greater amount as may be
determined by the Board of Directors. The agreement also provides for a fixed
bonus of the rate of $200,000 per year if the employment continues through the
end of that year. In addition, Mr. Gamache receives a performance bonus for each
full fiscal year of up to $175,000 per year and, among other things, life
insurance coverage in the amount of $200,000 and full participation in all
benefit plans and perquisites generally available to executive employees. Mr.
Gamache received a signing bonus of $100,000 and relocation expenses of up to
$115,000. The agreement expires on June 30, 2003. We may terminate the agreement
upon 30 days written notice for cause. The employment agreement may also be
terminated at the election of Mr. Gamache for material breach or 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 such a change of control occurs, and Mr. Gamache gives
us notice of termination within 60 days, then in lieu of any other rights under
the agreement, all of Mr. Gamache's unvested stock options will immediately
vest, and we will be required to pay him a lump sum of three times his base
salary and fixed bonus. If the agreement terminates by reason of death or
disability, we are required to pay Mr. Gamache or his legal representatives an
amount equal to one year's base salary and one year's fixed bonus. If we
terminate the agreement for a reason other than cause, we are required to pay
the greater of (i) one year or (ii) the remainder of the term multiplied by base
salary plus fixed bonus. If any portion of the amount paid to Mr. Gamache 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.
We employ Scott D. Schweinfurth under the terms of an Employment Agreement
dated as of May 19, 2000. The employment agreement provides for salaried
compensation at the rate of $275,000 per year, or a greater amount as may be
determined by us. Mr. Schweinfurth may receive annual discretionary bonuses of
up to 75% of his base salary, depending on performance criteria, and he received
a signing bonus of $25,000 and relocation expenses. Additionally, Mr.
Schweinfurth may participate in all benefit plans generally available to
executive employees and is provided with life insurance coverage in the amount
of $400,000 or whatever lesser amount is available at an annual premium of
$3,000. The agreement is subject to automatic extensions so that the term of Mr.
Schweinfurth's employment shall at no time be less than one year. We may
terminate the agreement upon 30 days written notice for cause. The employment
agreement may also be terminated at the election of Mr. Schweinfurth upon 30
days written notice for material breach. It may also be terminated by Mr.
Schweinfurth 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 such a change of control occurs,
and Mr. Schweinfurth gives us notice of termination within 60 days, then in lieu
of any other rights under the agreement, all of Mr. Schweinfurth'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 the agreement terminates by reason of
death, disability or material breach by us, or if we terminate the agreement
other than for cause, we are required to pay Mr. Schweinfurth or his legal
representatives an amount equal to all cash compensation that would otherwise be
payable to him until the expiration of the extended term of the agreement. If
any portion of the amount paid to Mr. Schweinfurth 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.
16
<PAGE> 19
We employ Orrin J. Edidin under the terms of an Employment Agreement dated
as of May 8, 2000. The employment agreement provides for salaried compensation
at the rate of $250,000 per year, or a greater amount as may be determined by
us. Mr. Edidin may receive annual discretionary bonuses of up to 50% of his base
salary, depending on performance criteria. Mr. Edidin also received a bonus of
$125,000 for serving us through October 30, 2000. Additionally, Mr. Edidin may
participate in all benefit plans generally available to executive employees and
is provided with life insurance coverage in the amount of $400,000 or whatever
lesser amount is available at an annual premium of $3,000. The agreement is
subject to automatic extensions so that the term of Mr. Edidin's employment
shall at no time be less than three years. We may terminate the agreement upon
30 days written notice for cause. The employment agreement may also be
terminated at the election of Mr. Edidin upon 30 days written notice for
material breach. It may also be terminated by Mr. Edidin 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 such a change of control occurs, and Mr. Edidin gives us notice of
termination within 60 days, then in lieu of any other rights under the
agreement, all of Mr. Edidin's unvested stock options will immediately vest, and
we will be required to pay him a lump sum of three times his base salary and
fixed bonus. If the agreement terminates by reason of death, disability or
material breach by us, or if we terminate the agreement other than for cause, we
are required to pay Mr. Edidin or his legal representatives an amount equal to
all cash compensation that would otherwise be payable to him until the
expiration of the extended term of the agreement. If any portion of the amount
paid to Mr. Edidin 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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH MIDWAY
Midway was formerly a wholly-owned subsidiary of ours. Since we distributed
all of our Midway stock to our stockholders in April 1998, we do not own any
Midway common stock. Seven of Midway's directors are also directors of ours,
including Louis J. Nicastro and Neil D. Nicastro, the Chief Executive Officer of
Midway.
In connection with our spinoff of Midway, we entered into a number of
agreements with Midway, each dated as of April 6, 1998. In connection with the
termination of our manufacturing relationship with Midway, notice has been given
to terminate several of the 1998 agreements early. In addition, the parties are
negotiating with respect to the purchase by Midway of specified equipment and
spare parts and for the lease by Midway of our building at 2704 Roscoe Street in
Chicago Illinois, anticipated to begin in 2001, among other matters. The
material agreements between Midway and us, each dated as of April 6, 1998, as
amended in some cases, are described below:
Manufacturing Agreement. We previously manufactured coin-operated video
games and kits for Midway under this agreement. On September 30, 2000, this
agreement was terminated, and we discontinued all manufacturing under the
agreement.
Spare Parts Sales and Service Agreement. We previously sold spare parts for
Midway's coin-operated video games. On September 30, 2000, this agreement was
terminated, and we discontinued all sales of spare parts under this agreement.
Information Systems Service Agreement. 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
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amount equal to our cost for all services provided plus 6.6%. It is anticipated
that this agreement will terminate on or before March 31, 2001, except with
respect to access to Midway's AS-400 System and related services, which access
and services shall terminate on December 31, 2001.
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 a five year non-competition clause.
Right of First Refusal Agreement. We have granted Midway a right of first
refusal with respect to any offer to us to purchase specified facilities of ours
as long as the offer is not made in connection with the sale of our stock or
assets and business as a going concern. 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 a portion of Midway's
janitorial and other agreed upon services, including the use of space by Midway
in some of our facilities, as requested 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 until December 31, 2001; 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. Until the Midway spinoff, Midway had 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 for the period that it was part 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 specified 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.
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 that for a period of two years after the spinoff, each would
continue active conduct of its historic trade or business as conducted by it
during the five-year period prior to the spinoff. Additionally, each party
agreed not to take specified actions or enter into specified transactions for
that two year period, unless that party first obtained the consent of the other
party. Midway will indemnify WMS if Midway's action 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.
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 for 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
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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.
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 coin-operated video games and of video lottery terminals and
other gaming machines.
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 retained to provide tax
services during the last fiscal year and propose to retain for tax services
during the current fiscal year.
Donna B. More, one of our directors, is a member of the More Law Group law
firm, which we retained to provide legal services during the last fiscal year
and propose to retain for legal services during the current fiscal year.
William C. Bartholomay, one of our directors, is President of Near North
National Group, insurance brokers, which we retained to provide insurance
services during the last fiscal year and propose to retain for insurance
services during the current fiscal year.
PROPOSAL 2 -- RATIFICATION OF 2000 STOCK OPTION PLAN
On April 18, 2000, the Board of Directors, subject to the approval of
stockholders, adopted our 2000 Stock Option Plan (the "Plan") covering an
aggregate of 1,000,000 shares of our common stock. Under our existing stock
option plans, as of December 1, 2000, options to purchase 3,079,744 shares were
outstanding, and options to purchase 397,086 shares were available for grant.
The total of the shares underlying options outstanding and available for grant
represented 11.0% of our outstanding common stock, as of December 1, 2000.
The Board has deemed that it is in our best interests to establish the
Plan. The purpose of the Plan is to provide our employees, directors,
independent contractors and consultants an opportunity to acquire a proprietary
interest in our business by means of grants of options to purchase our common
stock in order to provide a closer identification of their interests with ours
and our stockholders. It is the opinion of the Board that by providing to
persons involved in our success the opportunity to acquire an equity investment
in WMS, the Plan will maintain and strengthen their desire to remain with us,
stimulate their efforts on our behalf, and also attract other qualified
personnel to become employed by or otherwise become associated with us.
We have not yet granted any options under the Plan. The Board has directed
that, subject to stockholder ratification of the Plan, the shares underlying the
Plan be listed for trading on the New York Stock Exchange and registered under
the Securities Act of 1933, and we intend to take steps to file a registration
statement to register the shares promptly after approval of this proposal 2.
The last sale price of our common stock on December 1, 2000 was $17.56 per
share. As of December 1, 2000, we had a total of approximately 800 employees and
nine directors. We expect that only a few consultants and advisors will ever be
granted options under the Plan.
SUMMARY OF THE PLAN
Administration of the Plan. The Plan is administered by the Stock Option
Committee (the "Committee") of our Board of Directors. The Committee consists of
two or more persons who are appointed annually by our Board, each of whom is a
"non-employee director" as that term is defined in Rule 16b-3 under the
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Securities Exchange Act of 1934 and under Section 162(m) of the Internal Revenue
Code of 1986 (the "Code"). The Committee members may be removed by the Board of
Directors at any time. Except as otherwise specified in the Plan, the Committee
makes all decisions under the Plan, including:
- to whom among those eligible and the time or times at which, options will
be granted;
- the number of shares to be subject to each option;
- whether an option is an incentive stock option or a non-qualified stock
option;
- the manner in and price at which options may be exercised; and
- whether stock appreciation rights are associated with those options.
In making these decisions, the Committee may take into account the nature and
period of service of eligible employees, their level of compensation, their
past, present and potential contributions to our business and any other factors
that the Committee believes is relevant. Options are designated at the time of
grant as either "incentive stock options" intended to qualify under Section 422
of the Code or "non-qualified stock options" which do not qualify under that
section. The differences in tax treatment of qualified and non-qualified options
are described below.
Our Board of Directors may amend, suspend or terminate the Plan at any
time, except that no amendment may be adopted without the approval of
stockholders which would materially:
- increase the benefits provided in the Plan;
- increase the number of shares issuable upon the exercise of options
granted under the Plan; or
- modify the eligibility requirements for participation in the Plan.
The amendment or termination may not adversely affect the rights of a holder
without his or her consent.
Unless the Plan is terminated earlier by our Board, the Plan will terminate
on April 17, 2010.
Shares Subject to the Plan. Subject to the adjustments described below, no
more than 1,000,000 shares of our common stock may be issued upon the exercise
of options granted under the Plan. If an option expires without having been
exercised in full, the unpurchased shares subject to that option will be
available again for purposes of the Plan. No employee may receive options in any
calendar year to purchase more than 350,000 shares. Stock appreciation rights
may be granted in conjunction with the grant of an option. Not more than 50% of
the shares covered by the option may include stock appreciation rights.
The total number of shares of our common stock that may be allocated under
options granted under the Plan or that may be allocated to any one employee, the
number of shares subject to outstanding options, the exercise price for the
options and other terms and conditions of options may be equitably adjusted by
the Committee in the event of corporate transactions, including a dividend or
other distribution, recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, repurchase or
exchange of shares or other securities or other similar event. In addition, if
we are involved in a merger, consolidation, acquisition, separation,
reorganization, liquidation or other similar corporate transaction, the options
granted under the Plan will be substituted for comparable options, adjusted or,
under some conditions, will terminate, subject to the right of the option holder
to exercise the option prior to that event.
Participation. The Committee is authorized to grant incentive stock options
only to our employees and those of our subsidiaries. All of our employees and
directors, and those of our subsidiaries, and consultants and advisors providing
services to us or to our subsidiaries are eligible to receive non-qualified
stock options under the Plan.
Option Price. The exercise price of each option is determined by the
Committee but may not, in any case, be less than the fair market value of the
shares of our common stock on the date of grant. If an incentive stock option is
to be granted to an employee who owns over 10% of the total combined voting
power of all classes of our stock, then the exercise price may not be less than
110% of the fair market value of our common stock covered by the incentive stock
option on the date the option is granted.
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Transferability. Incentive stock options granted under the Plan are not
transferable except by will or under the laws of descent and distribution.
Non-qualified stock options may be transferable, at the discretion of the
Committee, to the extent specified in the optionee's option agreement.
Term of Options. The Committee has the discretion to fix the term of each
option granted under the Plan, except that the maximum length of term of each
option is 10 years (five years in the case of incentive stock options granted to
an employee who owns over 10% of the total combined voting power of all classes
of our stock), subject to earlier termination as provided in the Plan.
Acquisition of Shares. To assist an optionee in the acquisition of shares
of common stock upon the exercise of an option granted under the Plan, the
Committee may authorize, among other things:
- our extension of a loan to the optionee;
- the payment by the optionee of the exercise price in installments; or
- our guarantee of a loan obtained by the optionee from a third party.
In the case of incentive stock options, the rate of interest of any loans from
or guaranteed by us may not be less than the higher of the prime rate of a
commercial bank of recognized standing or the rate of interest required to avoid
the imputation of interest for federal income tax purposes. Subject to
applicable holding periods, and if it would not cause adverse accounting
effects, our common stock may be used to pay the exercise price of options. We
are not required to deliver shares upon exercise of an option until we receive
payment in full of the exercise price and unless the shares may be issued and
delivered under applicable securities law and stock exchange rules.
Termination of Service or Employment. Upon the termination of an optionee's
service with us voluntarily by the optionee or for cause, all unexercised
options held by the optionee shall expire and be forfeited as of the date of
termination. If an optionee quits his or her service with our written consent,
or if we terminate the service of the optionee for reasons other than cause, the
optionee may exercise his or her option within three months following the
termination of service. If an optionee violates the option agreement, competes
with us or acts to harm us, the Committee may cancel, suspend or otherwise
restrict any of the optionee's options and stock appreciation rights.
If an optionee dies while in our service (or within three months after
termination of service under some circumstances) the optionee's estate may
exercise his or her option within one year following his or her death.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material Federal income tax
consequences of the grant and exercise of options to residents of the U.S. and
is based on existing Federal law, which is subject to change, in some cases
retroactively. This discussion does not address the particular circumstances of
all optionees, which may substantially alter or modify the Federal income tax
consequences discussed below. In addition, this summary does not address state
and local tax consequences. The Plan is not subject to the provisions of ERISA
and is not qualified under Section 401(a) of the Code.
Non-qualified Options. An individual who is a United States taxpayer who is
granted a non-qualified stock option under the Plan will not realize any income
for Federal income tax purposes on the grant of an option. An optionee will
realize ordinary income for Federal income tax purposes on the exercise of an
option, provided the shares are not then subject to a substantial risk of
forfeiture within the meaning of Section 83 of the Code ("Risk of Forfeiture"),
in an amount equal to the excess, if any, of the fair market value of the shares
of our common stock on the date of exercise over their exercise price. If the
shares are subject to a Risk of Forfeiture on the date of exercise, the optionee
will realize ordinary income for the year in which the shares cease to be
subject to a Risk of Forfeiture in an amount equal to the excess, if any, of the
fair market value of the shares at the date they cease to be subject to a Risk
of Forfeiture over the exercise price, unless the optionee shall have made a
timely election under Section 83(b) of the Code to include in his income for the
year of exercise an amount equal to the excess of the fair market value of the
shares of our common stock on the date of exercise over the exercise price. The
amount realized for tax purposes by an optionee by reason of
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the exercise of a non-qualified stock option granted under the Plan is subject
to withholding by us, and, except under the circumstances described below, we
are entitled to a deduction in an amount equal to the income so realized by an
optionee.
Provided that an individual who is a United States taxpayer satisfies the
holding period requirements provided by the Code, that individual will realize
long-term capital gain or loss, as the case may be, if the shares issued upon
exercise of a non-qualified stock option are disposed of more than one year
after (i) the shares are transferred to the individual or (ii) if the shares
were subject to a Risk of Forfeiture on the date of exercise and a valid
election under Section 83(b) of the Code shall not have been made, the date as
of which the shares cease to be subject to a Risk of Forfeiture. The amount
recognized upon disposition will be the difference between the option holder's
basis in the shares and the amount realized upon disposition. Generally, an
option holder's basis in the shares will be equal to the exercise price plus the
amount of income recognized upon exercise of the option.
If a stock option is transferred (to the extent permissible) in a non-arms
length transaction, the transfer may be treated as a completed gift (depending
on the circumstances of the transfer) for purposes of the federal (and possibly
state) gift tax to the extent of the fair market value of the option on the day
of the transfer. The grantee of the option, however, will continue to realize
ordinary income on the exercise of the option as provided above. The transferee
of the option will be treated in the same manner as the grantee upon disposition
of the shares issued upon exercise of the option.
Incentive Stock Options. An incentive stock option holder who meets the
eligibility requirements of Section 422 of the Code will not realize income for
Federal income tax purposes, and we will not be entitled to a deduction, on
either the grant or the exercise of an incentive stock option. If the incentive
stock option holder does not dispose of the shares acquired within two years
after the date the incentive stock option was granted to him or within one year
after the transfer of the shares to him, (i) any proceeds realized on a sale of
the shares in excess of the option price will be treated as long-term capital
gain and (ii) we will not be entitled to any deduction for Federal income tax
purposes with respect to those shares.
If an incentive stock option holder disposes of shares during the two-year
or one-year periods referred to above (a "Disqualifying Disposition"), the
incentive stock option holder will not be entitled to the favorable tax
treatment afforded to incentive stock options under the Code. Instead, the
incentive stock option holder will realize ordinary income for Federal income
tax purposes in the year the Disqualifying Disposition is made, in an amount
equal to the excess, if any, of the fair market value of the shares of common
stock on the date of exercise over the exercise price.
An incentive stock option holder generally will recognize a long-term
capital gain or loss, as the case may be, if the Disqualifying Disposition is
made more than one year after the shares are transferred to the incentive stock
option holder. The amount of any such gain or loss will be equal to the
difference between the amount realized on the Disqualifying Disposition and the
sum of (x) the exercise price and (y) the ordinary income realized by the
incentive stock option holder as the result of the Disqualifying Disposition. We
will be allowed in the taxable year of a Disqualifying Disposition a deduction
in the same amount as the ordinary income recognized by the incentive stock
option holder.
Notwithstanding the foregoing, if the Disqualifying Disposition is made in
a transaction with respect to which a loss, if sustained, would be recognized to
the incentive stock option holder, then the amount of ordinary income required
to be recognized upon the Disqualifying Disposition will not exceed the amount
by which the amount realized from the disposition exceeds the exercise price.
Generally, a loss may be recognized if the transaction is not a "wash" sale, a
gift or a sale between persons or entities classified under the Code as "related
persons".
Alternative Minimum Tax. For purposes of computing the Federal alternative
minimum tax with respect to shares acquired upon the exercise of incentive stock
options, the difference between the fair market value of
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the shares on the date of exercise over the exercise price will be includable in
alternative minimum taxable income in the year of exercise if the shares are not
subject to a Risk of Forfeiture; if the shares are subject to a Risk of
Forfeiture, the amount includable in alternative minimum taxable income will be
taken into account in the year the Risk of Forfeiture ceases and will be the
excess of the fair market value of the shares at the date they cease to be
subject to a Risk of Forfeiture over the exercise price. The basis of the shares
for alternative minimum tax purposes, generally, will be an amount equal to the
exercise price, increased by the amount of the tax preference taken into account
in computing the alternative minimum taxable income. In general, the alternative
minimum tax is the excess of 26% of alternative minimum taxable income up to
$175,000 and 28% of income above $175,000 over the regular income tax, in each
case subject to various adjustments and exemptions.
Limitations on Deductions for Federal Income Tax Purposes. Except as
described in this paragraph, under Section 162(m) of the Code and the
regulations under that section, we are not able to deduct compensation to
"covered employees" to the extent compensation exceeds $1.0 million per tax
year. Covered employees include our chief executive officer and our four other
highest paid senior executive officers for the tax year. Performance-based
compensation, including stock options, is exempt from this limitation provided
that (i) the stock options are granted by a committee of our Board which is
comprised solely of two or more "outside directors", (ii) the plan under which
the options are granted is approved by stockholders, (iii) the plan states the
maximum number of shares with respect to which options may be granted during a
specified period to any employee, and (iv) the exercise price of a stock option
is not less than 100% of the fair market value of our common stock at the time
of grant.
REQUIRED VOTE
The Board of Directors believes the Plan to be in our best interest and
recommends that the stockholders ratify the Plan. We will submit the following
resolution to the stockholders for approval at the annual meeting:
"RESOLVED, that the WMS Industries Inc. 2000 Stock Option Plan be, and it
hereby is, ratified, approved and adopted."
The affirmative vote of holders of a majority of the shares of our common
stock present in person or by proxy and entitled to vote on the proposal is
required for approval of the Plan; provided that the total vote cast on the
proposal must represent a majority of all outstanding shares of our common stock
entitled to vote on the proposal.
-------------------------
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE RATIFICATION OF
THE 2000 STOCK OPTION PLAN.
-------------------------
PROPOSAL 3 -- 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 2001. We
expect that representatives of Ernst & Young will be present at the annual
meeting and that they will be available to respond to appropriate questions
submitted by stockholders at the meeting. Ernst & Young will have the
opportunity to make a statement if they desire to do so.
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 do not approve the selection of Ernst & Young at
the meeting, 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.
-------------------------
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AUDIT COMMITTEE REPORT
The audit committee of the Board of Directors of WMS is composed of three
independent directors and operates under a written charter adopted by the Board
of Directors, attached as Appendix A. WMS's management is responsible for its
internal accounting controls and the financial reporting process. WMS's
independent accountants, Ernst & Young LLP, are responsible for performing an
independent audit of WMS's consolidated financial statements in accordance with
auditing standards generally accepted in the United States and to issue a report
thereon. The audit committee's responsibility is to monitor and oversee these
processes.
In keeping with that responsibility, the audit committee has reviewed and
discussed WMS's audited consolidated financial statements with management. In
addition, the audit committee has discussed with WMS's independent accountants
the matters required to be discussed by Statement on Auditing Standards No. 61,
"Communications with Audit Committees."
The audit committee has received the written disclosures and the letter
from the independent accountants required by Independence Standards Board
Standard No. 1, "Independence Discussions with Audit Committees," and has
discussed with the independent accountants their independence.
Based on the audit committee's discussions with management and the
independent accountants and the audit committee's review of the representations
of management and the report of the independent accountants, the audit committee
recommended to the Board of Directors that the audited consolidated financial
statements be included in WMS's Annual Report on Form 10-K for the year ended
June 30, 2000 for filing with the Securities and Exchange Commission.
This report is respectfully submitted by the audit committee of the Board
of Directors.
William E. McKenna (Chairman)
William C. Bartholomay
Ira S. Sheinfeld
OTHER MATTERS
STOCKHOLDER PROPOSALS
As of the date of this proxy statement, the Board has not received notice
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 to be acted upon at our 2002
Annual Meeting of Stockholders on or before August 11, 2001 in order to consider
including them in our proxy materials for that meeting. If we do not receive
notice of a stockholder proposal to be acted upon at our 2002 Annual Meeting of
Stockholders on or before October 25, 2001, our proxy for that meeting may
confer discretionary authority to vote on any such proposal.
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 2000 our officers, directors and 10%
beneficial owners complied with all of their Section 16(a) filing requirements.
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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 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
each 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. Therefore, abstentions
will have the affect of a vote against each proposal, but broker non-votes will
have no effect on the vote for or against each proposal. Under NYSE rules,
however, with respect to any proposal that is a prerequisite to listing of
additional or new securities, the total vote cast on the proposal must represent
at least a majority of all outstanding shares of our common stock entitled to
vote on the proposal. With respect to these proposals, broker non-votes are not
counted as part of the total vote cast on the proposal. The term "broker
non-votes" commonly refers to shares held in street name for customers, where
the broker does not have authority under NYSE rules to vote on its own
initiative on particular items, and the broker has not received instructions
from the beneficial owners.
HOW TO OBTAIN OUR ANNUAL REPORT ON 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, 2000, including financial statements and
schedules, to each of our stockholders of record on December 4, 2000 and each
beneficial owner of stock on that date, upon receipt of a written request mailed
to our offices, 800 South Northpoint Road, Waukegan, Illinois 60085, 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
Executive Vice President, Secretary
and
General Counsel
Chicago, Illinois
December 8, 2000
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APPENDIX A
CHARTER OF THE AUDIT AND ETHICS COMMITTEE OF
THE BOARD OF DIRECTORS OF WMS INDUSTRIES INC.
I. PURPOSE
The primary purpose of the Audit Committee of the Board of Directors of WMS
Industries Inc. (the "Company") is to provide independent and objective
oversight of the accounting functions and internal controls of the Company, its
subsidiaries and affiliates and to ensure the objectivity of the Company's
financial statements. The Committee and the Board shall have the ultimate
authority and responsibility to select, evaluate and, where appropriate, replace
the independent accountants.
II. FUNCTIONS
The Audit Committee shall perform the following functions:
1. INDEPENDENT ACCOUNTANTS. Recommend to the Board the firm to be employed
by the Company as its independent accountants, which firm shall be
ultimately accountable to the Board and the Committee as representatives
of stockholders.
2. PLAN OF AUDIT. Consult with the independent accountants regarding the
plan of audit. The Committee also shall review with the independent
accountants their report on the audit and review with management the
independent accountants' suggested changes or improvements in the
Company's accounting practices or controls.
3. ACCOUNTING PRINCIPLES AND DISCLOSURE. Review significant developments in
accounting rules. The Committee shall review with management recommended
changes in the Company's methods of accounting or financial statements.
The Committee also shall review with the independent accountants any
significant proposed changes in accounting principles and financial
statements.
4. INTERNAL ACCOUNTING CONTROLS. Consult with the independent accountants
regarding the adequacy of internal accounting controls. Where
appropriate, consultation with the independent accountants regarding
internal controls shall be conducted out of management's presence.
5. FINANCIAL DISCLOSURE DOCUMENTS. Review with management and the
independent accountants the Company's financial disclosure documents,
including all year-end financial statements and reports filed with the
Securities and Exchange Commission or sent to stockholders and following
the satisfactory completion of each year-end review, recommend to the
Board the inclusion of the audited financial statements in the Company's
filing on Form 10-K.
6. INTERNAL CONTROL SYSTEMS. Review with management and internal auditors
the Company's internal control systems intended to ensure the
reliability of financial reporting and compliance with applicable codes
of conduct, laws, and regulations. The review shall include any
significant problems and regulatory concerns.
7. ETHICAL ENVIRONMENT. Consult with management on the establishment and
maintenance of an environment that promotes ethical behavior, including
the establishment, communication, and enforcement of codes of conduct to
guard against dishonest, unethical, or illegal activities.
8. OVERSIGHT OF EXECUTIVE OFFICERS AND DIRECTORS AND CONFLICTS OF INTEREST.
Review significant conflicts of interest involving directors or
executive officers. The Committee shall review compliance with Company
policies and procedures with respect to officers' expense accounts and
perquisites, including their use of corporate assets, and consider the
results of any review of these areas by the internal auditor or the
independent accountant.
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9. OVERSIGHT OF INDEPENDENT ACCOUNTANTS. Evaluate the independent
accountants on an annual basis and where appropriate recommend a
replacement for the independent accountants. In such evaluation, the
Committee shall ensure that the independent accountants deliver to the
Committee a formal written statement delineating all relationships
between the accountants and the Company. The Committee also shall engage
in a dialogue with the accountants with respect to any disclosed
relationships or services that may impact the objectivity and
independence of the independent accountants and in response to the
independent accountant's report take, or recommend that the Board take,
appropriate action to satisfy itself of the independent accountant's
independence.
10. OFFERINGS OF SECURITIES. Perform appropriate due diligence on behalf of
the Board of Directors with respect to the Company's offerings of
securities.
11. CHARTER AMENDMENTS. Review this Charter annually, assess its adequacy
and propose appropriate amendments to the Board.
The Committee's function is one of oversight and review, and it is not
expected to audit the Company, to define the scope of the audit, to control the
Company's accounting practices, or to define the standards to be used in
preparation of the Company's financial statements.
III. COMPOSITION AND INDEPENDENCE
The Committee shall consist of not less than three independent members, all
of whom shall have no relation to the Company that may interfere with the
exercise of their judgment independently from management and the Company, and
who shall be appointed by the Board of Directors. "Independent" shall have the
same meaning as defined in the New York Stock Exchange Listed Company Manual
sec.303.01(B)(3), including upon a determination by the Board of Directors that
the member is independent as described in such Section. Members of the Committee
shall be financially literate or become financially literate within a reasonable
period of time after appointment to the Committee, and at least one member of
the Committee shall have accounting, related financial management expertise, or
any other comparable experience or background that results in the individual's
financial sophistication. No member of the Committee shall be employed or
otherwise affiliated with the Company's independent accountants.
In the event that a Committee member faces a potential or actual conflict
of interest with respect to a matter before the Committee, that Committee member
shall be responsible for alerting the Committee Chairman, and in the case where
the Committee Chairman faces a potential or actual conflict of interest, the
Committee Chairman shall advise the Chairman of the Board of Directors. In the
event that the Committee Chairman, or the Chairman of Board of Directors,
concurs that a potential or actual conflict of interest exists, an independent
substitute Director shall be appointed as a Committee member until the matter,
posing the potential or actual conflict of interest, is resolved.
IV. QUORUM AND MEETINGS
A quorum of the Committee shall be declared when a majority of the
appointed members of the Committee are in attendance. The Committee shall meet
on a regular basis. Meetings shall be scheduled at the discretion of the
Chairman. Notice of the meetings shall be provided at least ten days in advance.
The Committee may ask members of management or others to attend the meeting and
provide pertinent information as necessary.
V. REPORTS
The Committee will report to the Board from time to time with respect to it
activities and its recommendations. When presenting any recommendation or advice
to the Board, the Committee will provide such background and supporting
information as may be necessary for the Board to make an informed decision. The
Committee will keep minutes of its meetings and will make such minutes available
to the full Board for its review.
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The Committee shall report to stockholders in the Company's proxy statement
for its annual meeting in accordance with applicable governmental and stock
exchange rules and regulations.
VI. OTHER AUTHORITY
The Committee is authorized to confer with Company management and other
employees to the extent it may deem necessary or appropriate to fulfill its
duties. The Committee is authorized to conduct or authorize investigations into
any matters within the Committee' scope of responsibilities. The Committee also
is authorized to seek outside legal or other advice to the extent it deems
necessary or appropriate, provided it shall keep the Board advised as to the
nature and extent of such outside advice.
The Committee will perform such other functions as are authorized for this
Committee by the Board of Directors.
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APPENDIX B
WMS INDUSTRIES INC.
2000 STOCK OPTION PLAN
ARTICLE I
PURPOSE OF THE PLAN
The 2000 Stock Option Plan (the "Plan") is intended to provide a method
whereby "Employees," "Directors" and "Consultants and Advisers" of WMS
Industries Inc. (the "Company") and its "Subsidiaries" (as such quoted terms are
hereinafter defined) may be encouraged to acquire a proprietary interest in the
Company and whereby such individuals may realize benefits from an increase in
the value of the shares of common stock, $.50 par value per share ("Common
Stock"), of the Company; to provide such Employees, Directors and Consultants
and Advisers with greater incentive to exert their efforts on behalf of the
Company and to encourage their continued provision of services to the Company;
to attract new personnel to become employed by or otherwise become associated
with the Company; and, generally, to promote the interests of the Company and
all of its stockholders. Under the Plan, from time to time on or before April
17, 2010, options to purchase shares of Common Stock and related Stock
Appreciation Rights may be granted to such persons as may be selected in the
manner hereinafter provided on the terms and subject to the conditions
hereinafter set forth. Capitalized terms are defined in Article XV hereof.
ARTICLE II
ADMINISTRATION OF THE PLAN
Section 1. Subject to the authority as described herein of the Board of
Directors (the "Board") of the Company, the Plan shall be administered by the
Stock Option Committee of the Board (the "Committee") which is composed of at
least two members of the Board who are Non-Employee Directors. The Committee is
authorized to interpret the Plan and may from time to time adopt such rules and
regulations for carrying out the Plan as it may deem best. All determinations by
the Committee shall be made by the affirmative vote of a majority of its members
but any determination reduced to writing and signed by a majority of its members
shall be fully enforceable and effective as if it had been made by a majority
vote at a meeting duly called and held. Subject to any applicable provisions of
the Plan, all determinations by the Committee or by the Board pursuant to the
provisions of the Plan, and all related orders or resolutions of the Committee
or the Board, shall be final, conclusive and binding on all Persons, including
the Company and its stockholders, employees, directors and optionees.
Section 2. All authority delegated to the Committee pursuant to the Plan
may also be exercised by the Board, except with respect to matters which under
Section 162(m) of the Code are required to be determined in the absolute
discretion of the Committee. Subject to the foregoing, in the event of any
conflict or inconsistency between determinations, orders, resolutions or other
actions of the Committee and the Board, the actions of the Board shall control.
Section 3. With respect to Section 16 of the 1934 Act, transactions under
the Plan are intended to comply with all applicable conditions of Rule 16b-3 or
its successors under the 1934 Act. To the extent any provision of the Plan or
action by the Committee fails to so comply, it shall be deemed null and void to
the extent permitted by law and deemed advisable by the Committee.
ARTICLE III
STOCK SUBJECT TO THE PLAN
Section 1. The shares to be issued or delivered upon exercise of options or
rights granted under the Plan shall be made available, at the discretion of the
Board, either from the authorized but unissued shares of
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Common Stock of the Company or from shares of Common Stock reacquired by the
Company, including shares purchased by the Company in the open market or
otherwise obtained.
Section 2. Subject to the provisions of Article X hereof, the aggregate
number of shares of Common Stock which may be purchased pursuant to options
granted at any time under the Plan shall not exceed 1,000,000. Such number shall
be reduced by the aggregate number of shares covered by options in respect of
which Stock Appreciation Rights are exercised. The maximum number of shares with
respect to which options may be granted under the Plan in any calendar year to
any one employee shall be 350,000 as such number may be adjusted by the
Committee in accordance with Article X hereof. The Committee shall calculate
such limit in a manner consistent with Section 162(m) of the Code.
Section 3. Shares subject to any options which are canceled, lapse or are
otherwise terminated shall be immediately available for reissuance under the
Plan to the extent permitted by Sections 162 and 422 of the Code.
ARTICLE IV
PURCHASE PRICE OF OPTIONED SHARES
Unless the Committee shall fix a greater purchase price, the purchase price
per share of Common Stock under each option granted to Employees, Directors,
Consultants and Advisers shall not be less than one hundred percent (100%) of
the Fair Market Value (as hereinafter defined) of the Common Stock at the time
such option is granted, but in no case shall such price be less than the par
value of the Common Stock as of the time of grant; provided, however, that in
the case of an Incentive Stock Option granted to an Employee who, at the time of
the grant, owns stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company (a "Ten Percent
Stockholder"), such purchase price per share shall be at least one hundred and
ten percent (110%) of the Fair Market Value.
ARTICLE V
ELIGIBILITY OF RECIPIENTS
Options will be granted only to Employees, Directors, Consultants or
Advisers of the Company or a Subsidiary. Incentive stock options will be granted
only to Employees.
ARTICLE VI
DURATION OF THE PLAN
Unless previously terminated by the Committee or the Board, the Plan will
terminate on April 17, 2010. Such termination will not terminate any option or
Stock Appreciation Right then outstanding.
ARTICLE VII
GRANT OF OPTIONS TO EMPLOYEES,
DIRECTORS, CONSULTANTS AND ADVISERS
Section 1. Each option granted under the Plan to Employees shall constitute
either an Incentive Stock Option or a Non-Qualified Stock Option, as determined
in each case by the Committee, and each option granted under the Plan to
Directors, Consultants and Advisers shall constitute a Non-Qualified Stock
Option. With respect to Incentive Stock Options granted to Employees, to the
extent that the aggregate Fair Market Value (determined at the time an option is
granted) of Common Stock of the Company with respect to which such Incentive
Stock Options are exercisable for the first time by any individual during any
calendar year (under the Plan and any other stock option plan of the Company)
exceeds $100,000, such Incentive Stock Options shall be treated as Non-Qualified
Stock Options to the extent of such excess. The foregoing rule shall be applied
by taking Incentive Stock Options into account in the order in which they were
granted. In the
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event outstanding Incentive Stock Options become immediately exercisable under
the terms hereof, such Incentive Stock Options will, to the extent the aggregate
Fair Market Value thereof exceeds $100,000, be treated as Non-Qualified Stock
Options.
Section 2. The Committee shall from time to time determine the Employees,
Directors, Consultants and Advisers to be granted options, it being understood
that options may be granted at different times to the same person; provided,
however, that no one person may receive an option or options under the Plan
covering more than the number of shares specified in Section 2 of Article III
hereof. In addition, the Committee shall determine subject to the terms of the
Plan the number of shares subject to each option, the time or times when the
options will be granted, whether such options shall be Incentive Stock Options,
Non-Qualified Stock Options or both, whether Stock Appreciation Rights will be
granted in connection with the grant of options, the purchase price of the
shares subject to each option, which price shall be not less than that specified
in Article hereof, the time or times when each option and any related Stock
Appreciation Rights may be exercised and (g) any other matters which the
Committee shall deem appropriate.
Section 3. All instruments evidencing options granted to Employees,
Directors, Consultants and Advisers under the Plan shall be in such form as the
Committee shall from time to time determine, which form shall be consistent with
the Plan and any applicable determinations, orders, resolutions or other actions
of the Committee or the Board.
Section 4. The Committee, in its sole discretion, on the granting of an
option to an Employee, Director, Consultant or Adviser under the Plan may also
grant Stock Appreciation Rights relating to any number of shares but, except as
hereinafter provided, not more than fifty percent (50%) of the number of shares
covered by such option shall include Stock Appreciation Rights. Such options
shall be subject to such terms and conditions, not inconsistent with the Plan,
that the Committee shall impose, including the following:
(i) Stock Appreciation Rights may be granted only in writing and only
attached to an underlying option at the time of the grant of the option;
(ii) Stock Appreciation Rights may be exercised only at the time when
the option to which it is attached is exercisable;
(iii) Stock Appreciation Rights shall entitle the optionee (or any
person entitled to act under the provisions of the Plan) to surrender
unexercised all or part of the then exercisable portion of the option to
which the Stock Appreciation Rights are attached to the Company and to
receive from the Company in exchange therefor a payment in cash equal to
the excess, if any, of the then value of one share covered by such portion
over the option price per share specified in such option (which excess is
herein called the "Appreciated Value"), multiplied by the number of shares
covered by the portion of the option so surrendered. For purposes of
computation of the Appreciated Value, the value of one share shall be
deemed to be the average Fair Market Value of such share during the
four-week period immediately preceding the date of notice of exercise of
the Stock Appreciation Rights;
(iv) if Stock Appreciation Rights attached to an option are exercised,
such option shall be deemed to have been canceled to the extent of the
number of shares surrendered on exercise of the Stock Appreciation Rights
and no further options may be granted covering such shares; and
(v) if an option to which Stock Appreciation Rights are attached is
exercised, such Stock Appreciation Rights shall be canceled to the extent
necessary to cause the number of shares to which such Stock Appreciation
Rights relate not to exceed the number of remaining shares subject to such
option.
ARTICLE VIII
TRANSFERABILITY OF OPTIONS
No Incentive Stock Option or any related Stock Appreciation Rights granted
under the Plan shall be transferable by the optionee otherwise than by will or
by the laws of descent and distribution, and any such
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Incentive Stock Option or any related Stock Appreciation Rights shall be
exercisable during the lifetime of the optionee solely by him or her. Any
Non-Qualified Stock Option granted under the Plan may be transferable by the
optionee to the extent permitted by the Committee as specified in the instrument
evidencing the option as the same may be amended from time to time. Except to
the extent permitted by such instrument, no Non-Qualified Stock Option shall be
transferable except by will or by the laws of descent and distribution.
ARTICLE IX
EXERCISE OF OPTIONS
Section 1. Subject to Article XII hereof, each option (and any related
Stock Appreciation Rights) granted under the Plan shall terminate on the date
specified by the Committee which date shall be not later than the expiration of
ten years from the date on which it was granted; provided, however, that in the
case of an Incentive Stock Option granted to an Employee who, at the time of the
grant is a Ten Percent Stockholder, such period shall not exceed five years from
the date of grant.
Section 2. A person electing to exercise an option or Stock Appreciation
Rights then exercisable shall give written notice to the Company of such
election and, if electing to exercise an option, of the number of shares of
Common Stock such person has elected to purchase. A person exercising an option
shall at the time of purchase tender the full purchase price of such shares,
which tender, except as provided in Section 3 of this Article , shall be made in
cash or cash equivalent (which may be such person's personal check) or, to the
extent permitted by applicable law, in shares of Common Stock already owned by
such person (which shares shall be valued for such purpose on the basis of their
Fair Market Value on the date of exercise), or in any combination thereof;
provided, however, that payment in shares of common stock already owned shall
not be permitted unless the chief financial officer of the Company determines
that such payment will not require the Company to recognize a compensation
expense under applicable accounting rules. In the event of payment in shares of
Common Stock already owned, such shares shall be appropriately endorsed for
transfer to the Company. The Company shall have no obligation to deliver shares
of Common Stock pursuant to the exercise of any option, in whole or in part,
until such payment in full of the purchase price therefor is received by the
Company.
Section 3. In order to assist an optionee in the exercise of an option
granted under the Plan, the Committee or Board may, in its discretion,
authorize, either at the time of the grant of the option or thereafter the
extension of a loan to the optionee by the Company, the payment by the optionee
of the purchase price of the Common Stock in installments, the guarantee by the
Company of a loan obtained by the optionee from a third party or make such other
reasonable arrangements to facilitate the exercise of options as are in
accordance with applicable law. The Committee or Board shall authorize the terms
of any such loan, installment payment arrangement or guarantee, including the
interest rate (which, in the case of incentive stock options, shall be not less
than the higher of the "prime rate" as from time to time in effect at a
commercial bank of recognized standing, and the rate of interest from time to
time required to avoid imputation of interest for federal income tax purposes)
and terms of repayment thereof, and shall cause the instrument evidencing any
such option to be amended, if required, to provide for any such extension of
credit. Loans, installment payment arrangements and guarantees may be authorized
without security, and the maximum amount of any such loan or guarantee shall be
the purchase price of the Common Stock being acquired, plus related interest
payments.
Section 4. Each option shall be subject to the requirement that if at any
time the Board shall in its discretion determine that the listing, registration
or qualification of the shares of Common Stock subject to such option upon any
securities exchange or under any state or Federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of or in connection with, the granting of such option or the issuance
or purchase of shares thereunder, such option may not be exercised in whole or
in part unless such listing, registration, qualification, consent or approval
shall have been effected or obtained free from any conditions not reasonably
acceptable to the Board. Unless at the time of exercise of an option and the
issuance of Common Stock so purchased, there shall be in effect as to such
Common Stock a registration
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statement under the Act, the optionee shall deliver a certification (a)
acknowledging that such shares of Common Stock may be "restricted securities" as
defined in Rule 144 promulgated under the Act; and (b) containing such
optionee's agreement that such Common Stock may not be sold or otherwise
disposed of except in compliance with applicable provisions of the Act. In the
event that the Common Stock is then listed on a national securities exchange,
the Company shall use its best efforts to cause the listing of the shares of
Common Stock subject to options upon such exchange.
Section 5. The Company may establish appropriate procedures to provide for
payment or withholding of such income or other taxes as may be required by law
to be paid or withheld in connection with the exercise of options or any other
matters under the Plan, and to ensure that the Company receives prompt advice
concerning the occurrence of any event which may create, or affect the timing or
amount of, any obligation to pay or withhold any such taxes or which may make
available to the Company any tax deduction resulting from the occurrence of such
event.
ARTICLE X
ADJUSTMENTS
Section 1. New option rights may be substituted for the options granted
under the Plan, or the Company's duties as to options outstanding under the Plan
may be assumed by a corporation other than the Company, or by a parent or
subsidiary of the Company or such corporation, in connection with any merger,
consolidation, acquisition, separation, reorganization, liquidation or other
similar corporate transaction in which the Company is involved. Notwithstanding
the foregoing or the provisions of this Article X, in the event such
corporation, or parent or subsidiary of the Company or such corporation, does
not substitute new option rights for, and substantially equivalent to, the
options granted hereunder, or assume the options granted hereunder, the options
granted hereunder shall terminate and thereupon become null and void (i) upon
dissolution or liquidation of the Company, or similar occurrence, (ii) upon any
merger, consolidation, acquisition, separation, reorganization, or similar
occurrence, where the Company will not be a surviving entity or (iii) upon a
transfer of substantially all of the assets of the Company or more than 80% of
the outstanding Common Stock in a single transaction; provided, however, that
each optionee shall have the right immediately prior to or concurrently with
such dissolution, liquidation, merger, consolidation, acquisition, separation,
reorganization or other similar corporate transaction, to exercise any unexpired
option granted hereunder whether or not then exercisable.
Section 2. In the event that the Committee determines that any dividend or
other distribution (whether in the form of cash, shares, other securities, or
other property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of shares or other securities of the Company, issuance
of warrants or other rights to purchase shares or other securities of the
Company, or other corporate transaction or event affects the shares such that an
adjustment is determined by the Committee to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan, then, the Committee shall, in such manner as it
may deem equitable, adjust any or all of (i) the number of shares of Common
Stock or other securities of the Company (or number and kind of other securities
or property) with respect to which options may be granted and any limitations
set forth in the Plan, (ii) the number of shares of Common Stock or other
securities of the Company (or number and kind of other securities or property)
subject to outstanding options and (iii) the grant or exercise or target price
with respect to any option or, if deemed appropriate, make provision for a cash
payment to the holder of an outstanding option including, if necessary, the
termination of such an option; provided, in each case, that with respect to
Incentive Stock Options no such adjustment shall be authorized to the extent
that such authority would cause the Plan to violate Section 422 of the Code.
Without limiting the generality of the foregoing, any such adjustment shall be
deemed to have prevented any dilution and enlargement of an optionee's rights if
such optionee receives in any such adjustment rights which are substantially
similar (after taking into account the fact that the optionee has not paid the
applicable exercise price) to the rights the optionee would have received had he
exercised his outstanding options and become a stockholder of the Company
immediately prior to the event giving rise to such adjustment.
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Section 3. Adjustments and elections under this Article X shall be made by
the Committee whose determination as to what adjustments, if any, shall be made
and the extent thereof shall be final, binding and conclusive. Adjustments
required under this Article X shall also be deemed to increase by a like number
the aggregate number of shares authorized for purchase pursuant to options
granted under the Plan as set forth in Section 2 of Article III hereof to the
extent consistent with Section 162(m) of the Code.
ARTICLE XI
PRIVILEGES OF STOCK OWNERSHIP
No optionee, or legal representative, legatee, distributee or transferee of
such optionee, shall be entitled to any rights or privileges of a stockholder of
the Company in respect of any shares of Common Stock covered by an option until
such shares have been paid for in full and issued and delivered by the Company.
ARTICLE XII
TERMINATION OF SERVICE OR EMPLOYMENT
Section 1. In the event that an optionee shall cease his or her
relationship with the Company or a Subsidiary by voluntarily terminating such
relationship without the written consent of the Company, or if the Company or a
Subsidiary shall terminate for cause such relationship, unless otherwise
provided in the instrument evidencing such option, the option and any associated
Stock Appreciation Rights held by such optionee shall terminate forthwith.
Section 2. If an optionee shall voluntarily terminate his or her
relationship with the Company or a Subsidiary with the written consent of the
Company, which written consent expressly sets forth a statement to the effect
that options which are exercisable on the date of such termination shall remain
exercisable, or if the optionee's relationship with the Company or a Subsidiary
shall have terminated by the Company or a Subsidiary for reasons other than
cause, unless otherwise provided in the instrument evidencing such option, such
optionee may exercise his or her option to the extent exercisable at the time of
such termination, at any time prior to the expiration of three months after such
termination or the date of expiration of the option as fixed at the time of
grant, whichever shall first occur. Options granted under the Plan to Employees
shall not be affected by any change in the position of employment so long as the
holder thereof continues to be an Employee, Director, Consultant or Adviser.
Section 3. The Committee or Board may also cancel, suspend, withhold or
otherwise limit or restrict any unexpired option and any Stock Appreciation
Right held by an optionee at any time if the optionee (i) is not in compliance
with all applicable provisions of the instrument evidencing the option or Stock
Appreciation Right; or (ii) engages in any activity in competition with any
activity of the Company or any Subsidiary, or inimical, contrary or harmful to
the interests of the Company and its Subsidiaries, including, but not limited
to: (A) conduct related to the optionee's employment for which either criminal
or civil penalties against the optionee may be sought, (B) violation of any
policies of the Company, including, without limitation, the Company's insider
trading policy or anti-harassment policies, (C) accepting employment with or
serving as a consultant, advisor or in any other capacity to an employer that is
in competition with or acting against the interests of the Company or any
Subsidiary, including employing or recruiting any present, former or future
employee of the Company or any Subsidiary, (D) disclosing or misusing any
confidential information or material concerning the Company or any Subsidiary or
(E) participating in a hostile takeover attempt against the Company.
Section 4. Should an optionee die during the existence of the optionee's
relationship with the Company or after the cessation of the optionee's
relationship with the Company, unless otherwise provided in the instrument
evidencing such option, all of the optionee's options shall be terminated,
except that any option (and any related Stock Appreciation Rights), to the
extent exercisable by the optionee at the time of such death, may be exercised
within one year after the date of such death but not later than the expiration
of the option solely in accordance with all of the terms and conditions of the
Plan by the optionee's personal
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representatives or by the person or persons to whom the optionee's rights under
the option shall pass by will or by the applicable laws of descent and
distribution.
ARTICLE XIII
AMENDMENTS TO THE PLAN
The Board may at any time terminate or from time to time amend, modify or
suspend the Plan; provided, however, that no such amendment or modification
without the approval of the stockholders of the Company shall:
(i) materially increase the benefits accruing to participants under
the Plan;
(ii) materially increase the maximum number (determined as provided in
the Plan) of shares of Common Stock which may be purchased pursuant to
options granted under the Plan; or
(iii) materially modify the requirements as to eligibility for
participation in the Plan.
The amendment or termination of the Plan shall not, without the written consent
of an optionee, adversely affect any rights or obligations under any option
theretofore granted to such optionee under the Plan.
ARTICLE XIV
EFFECTIVE DATE OF THE PLAN
The Plan shall be effective on April 18, 2000, subject to the ratification
of the Plan by the stockholders of the Company.
ARTICLE XV
DEFINITIONS
For the purposes of this Plan, the following terms shall have the meanings
indicated:
Act: The Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
Code: The Internal Revenue Code of 1986, as amended and the regulations
promulgated thereunder.
Committee: Such term is defined in Article II, Section 1 hereof.
Common Stock: Such term is defined in Article I hereof.
Consultants and Advisers: Such term includes any third party retained or
engaged by the Company or any Subsidiary to provide services to the Company or
such Subsidiary, including any employee of such third party providing such
services.
Director: Such term includes any director of the Company.
Employee: Such term includes any officer as well as any full-time salaried
executive, managerial, professional, administrative or other employee of the
Company or a Subsidiary. Such term also includes an employee on approved leave
of absence provided such employee's right to continue employment with the
Company or a Subsidiary upon expiration of such employee's leave of absence is
guaranteed either by statute or by contract with or by a policy of the Company
or a Subsidiary and any consultant, independent contractor, professional advisor
or other person who is paid by the Company or a Subsidiary for rendering
services or furnishing materials or goods to the Company or a Subsidiary.
Fair Market Value: The fair market value as of any date shall be determined
by the Committee or Board after giving consideration to the price of the Common
Stock in the public market and shall be determined otherwise in a manner
consistent with the provisions of the Code.
Incentive Stock Option: An option intended to qualify under Section 422 of
the Code.
B-7
<PAGE> 38
1934 Act: The Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder.
Non-Employee Director: Any director of the Company who is a Non-Employee
Director as that term is defined in Rule 16b-3 promulgated under the 1934 Act
and who also qualifies as an outside director within the meaning of Section
162(m) and the related regulations under the Code, except as otherwise
determined by the Board of Directors.
Non-Qualified Stock Option: An option which does not qualify under Section
422 of the Code.
Person: Such term shall have the meaning ascribed to it under the 1934 Act.
Plan: Such term is defined in Article I hereof and includes all amendments
hereof.
Stock Appreciation Rights: The rights granted by the Committee pursuant to
Section 4 of Article VII hereof.
Subsidiary: A "Subsidiary Corporation" of the Company as defined in Section
424 of the Code.
Ten Percent Stockholder: Such term is defined in Article IV hereof.
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<PAGE> 39
APPENDIX C
WMS INDUSTRIES INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
THE UNDERSIGNED, revoking all previous proxies, hereby appoints LOUIS
J. NICASTRO, SCOTT D. SCHWEINFURTH 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 23, 2001 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" PROPOSALS 2 AND 3.
(1) Election of Directors.
[ ] FOR all nominees listed (except as [ ] WITHHOLD AUTHORITY
marked to the contrary) to vote for all nominees listed
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEES, STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW:
William C. Bartholomay / William E. McKenna / Norman J. Menell / Donna B. More /
Louis J. Nicastro / Neil D. Nicastro / Harvey Reich / David M. Satz, Jr. / Ira
S. Sheinfeld
(2) Ratification of the WMS Industries Inc. 2000 Stock Option Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(3) Ratification of appointment of Ernst & Young LLP as independent auditors for
fiscal 2001.
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(s) appear hereon. If 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.
