<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. ____)
[X] FILED BY THE REGISTRANT
[_] Filed by a Party other than the Registrant
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted
|X| DEFINITIVE PROXY STATEMENT by Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
INTERLOTT TECHNOLOGIES, INC.
(Name of Registrant as Specified in Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] NO FEE REQUIRED.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(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(1):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
(1)Set forth the amount on which the filing fee is calculated and state how it
was determined.
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
INTERLOTT TECHNOLOGIES, INC.
NOTICE OF
1998 ANNUAL MEETING
AND
PROXY STATEMENT
<PAGE> 3
[Interlott Letterhead]
April 9, 1998
Dear Stockholder:
You are cordially invited to attend the 1998 Annual Meeting of
Stockholders of Interlott Technologies, Inc. to be held at the Holiday Inn
Cincinnati North located at Interstate 275 at Route 42 (Exit 46), Cincinnati,
Ohio, on Thursday, May 7, 1998, at 10:00 a.m., local time.
The attached Notice of Annual Meeting and Proxy Statement describe the
formal business to be transacted at the Annual Meeting. During the meeting, we
also will report on the operations of the Company during the past year, and the
directors and officers of the Company will be present to respond to appropriate
questions from stockholders.
I hope that you will be able to attend the Annual Meeting. If you plan
to attend, please mark the appropriate box at the bottom of your proxy card so
that we can make appropriate arrangements for the anticipated number of guests.
Whether or not you plan to attend the Annual Meeting, please sign, date and
return your proxy card in the enclosed envelope at your earliest convenience.
This will assure that your shares will be represented and voted at the Annual
Meeting even if you are unable to attend.
Sincerely,
L. Rogers Wells, Jr.
Chairman of the Board and
Chief Executive Officer
<PAGE> 4
INTERLOTT TECHNOLOGIES, INC.
10830 MILLINGTON COURT
CINCINNATI, OHIO 45242
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 7, 1998
NOTICE HEREBY IS GIVEN that the 1998 Annual Meeting of Stockholders of
Interlott Technologies, Inc. ("the Company") will be held at the Holiday Inn
Cincinnati North located at Interstate 275 at Route 42 (Exit 46),
Cincinnati, Ohio, on Thursday, May 7, 1998 at 10:00 a.m., local time, for the
purpose of:
1. Electing two directors to serve until the 2001 Annual Meeting
of Stockholders;
2. Ratifying the appointment of KPMG Peat Marwick LLP as
independent auditors of the Company for the fiscal year
ending December 31, 1998; and
3. Transacting such other business as may properly come
before the Annual Meeting or any adjournments thereof.
Information relating to matters 1 and 2 is set forth in the attached
Proxy Statement. Stockholders of record at the close of business on April 2,
1998 are entitled to receive notice of and to vote at the Annual Meeting and any
adjournments thereof. A list of stockholders of the Company as of the close of
business on April 2, 1998 will be available for inspection during normal
business hours from April 27, 1998 through May 7, 1998 at the headquarters of
the Company, 10830 Millington Court, Cincinnati, Ohio.
By Order of the Board of Directors.
Gary S. Bell
Secretary
Cincinnati, Ohio
April 9, 1998
PLEASE READ THE ATTACHED PROXY STATEMENT AND THEN PROMPTLY COMPLETE, EXECUTE AND
RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING POSTAGE-PAID ENVELOPE. YOU
CAN SPARE YOUR COMPANY THE EXPENSE OF FURTHER PROXY SOLICITATION BY RETURNING
YOUR PROXY CARD PROMPTLY. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY REVOKE THE
PROXY AND VOTE IN PERSON IF YOU SO DESIRE.
<PAGE> 5
INTERLOTT TECHNOLOGIES, INC.
------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 7, 1998
-------------
This Proxy Statement is furnished to the stockholders of Interlott
Technologies, Inc. (the "Company") in connection with the solicitation of
proxies by the Board of Directors of the Company for use at the 1998 Annual
Meeting of Stockholders of the Company and at any adjournments thereof (the
"Annual Meeting"). The Annual Meeting will be held on Thursday, May 7, 1998 at
10:00 a.m. local time at the Holiday Inn Cincinnati North located at
Interstate 275 at Route 42 (Exit 46), Cincinnati, Ohio.
The approximate date on which this Proxy Statement and the accompanying
proxy card are first being sent or given to stockholders is April 9, 1998.
VOTING
GENERAL
The securities that can be voted at the Annual Meeting consist of Common
Stock of the Company, $.01 par value per share, with each share entitling its
owner to one vote on each matter submitted to the stockholders. The record date
for determining the holders of Common Stock who are entitled to receive notice
of and to vote at the Annual Meeting is April 2, 1998. On the record date,
3,210,000 shares of Common Stock were outstanding and eligible to be voted at
the Annual Meeting.
QUORUM AND VOTE REQUIRED
The presence, in person or by proxy, of a majority of the outstanding
shares of Common Stock is necessary to constitute a quorum at the Annual
Meeting. In counting the votes to determine whether a quorum exists at the
Annual Meeting, the proposal receiving the greatest number of all votes cast
"for" or "against" as well as any abstentions (including instructions to
withhold authority to vote) will be used.
In accordance with Delaware law (under which the Company is organized) and
the Company's Bylaws, the affirmative vote of the holders of a plurality of the
shares of Common Stock represented in person or by proxy at the Annual Meeting
is required to elect directors (Proposal 1), provided a quorum is present. As a
result, shares that are withheld from voting on the proposal will have no
effect. The affirmative vote of the holders of a majority of the shares of
Common Stock represented in person or by proxy at the Annual Meeting is required
to approve the proposal to ratify the Board of Directors' appointment of
independent auditors for the Company (Proposal 2), provided a quorum is present.
As a result, shares that are abstained from voting on these proposals will have
the same effect as a vote against the proposal.
The Company has been advised by Mr. L. Rogers Wells, Jr., who owns a
majority of the outstanding Common Stock of the Company, that he intends to vote
all of his shares of Common Stock in favor of each of the two proposals.
Accordingly, adoption of the two proposals is assured.
<PAGE> 6
PROXIES
The accompanying proxy card is for use at the Annual Meeting if a
stockholder is unable to attend in person or is able to attend but does not wish
to vote in person. Stockholders should specify their choices with regard to the
two proposals on the enclosed proxy card. All properly executed and dated proxy
cards delivered by stockholders to the Company in time to be voted at the Annual
Meeting and not revoked will be voted at the Annual Meeting in accordance with
the instructions given. If no specific instructions are given, the shares
represented by a signed and dated proxy card will be voted "FOR" the election of
the two director nominees named in Proposal 1 and "FOR" the ratification of the
directors' selection of independent auditors described in Proposal 2. If any
other matters properly come before the Annual Meeting, the persons named as
proxies will vote upon such matters according to their judgment. The Board of
Directors is not aware of any other business to be presented to a vote of the
stockholders at the Annual Meeting.
The giving of a proxy does not affect the right to vote in person should
the stockholder attend the Annual Meeting. Any stockholder who has given a proxy
has the power to revoke it at any time before it is voted by giving written
notice of revocation to Gary S. Bell, the Secretary of the Company, at 10830
Millington Court, Cincinnati, Ohio 45242; by executing and delivering to Mr.
Bell a proxy card bearing a later date; or by voting in person at the Annual
Meeting.
In addition to soliciting proxies directly, the Company has requested
brokerage firms, nominees, custodians and fiduciaries to forward proxy materials
to the beneficial owners of shares held of record by them. The Company also may
solicit proxies through its directors, officers and employees in person and by
telephone and facsimile, without payment of additional compensation to such
persons. All expenses incurred in connection with the solicitation of proxies
will be borne by the Company.
PRINCIPAL STOCKHOLDERS
As of December 31, 1997, the only persons known to the Company to be the
beneficial owners of more than five percent of the Company's Common Stock were
Mr. L. Rogers Wells, Jr., who is the Chairman of the Board and Chief Executive
Officer of the Company, and Mr. Edmund F. Turek, who is the Vice Chairman of the
Company. For information regarding the beneficial ownership of the Company's
Common Stock as of December 31, 1997 by Messrs. Wells and Turek and by each of
the other directors of the Company, see "Proposal 1 - Election of Directors --
Information Regarding Nominees and Continuing Directors." As of December 31,
1997, the nine directors and executive officers of the Company as a group
beneficially owned 1,899,175 shares, equal to 57.5% of the Common Stock of the
Company (including 91,375 shares which may be acquired upon the exercise of
outstanding stock options within 60 days after December 31, 1997).
2
<PAGE> 7
PROPOSAL 1 -- ELECTION OF DIRECTORS
NOMINEES
Pursuant to the Company's Certificate of Incorporation and Bylaws, the
Board of Directors of the Company consists of seven members who are divided into
three classes as nearly equal in number as possible. The directors in each class
are elected by the stockholders for a term of three years and until their
successors are elected and qualified. The term of office of one of the classes
of directors expires each year at the Annual Meeting of Stockholders, and a new
class of either two or three directors is elected by the stockholders each year
at that time.
On August 22, 1997, W. Whitlow Wyatt submitted his resignation from the
Board of Directors citing the demands of his own business as precluding him from
having sufficient time available to perform his duties as a member of the Board.
On August 26, 1997, the Board regretfully accepted Mr. Wyatt's resignation and
expressed its gratitude for the services provided by Mr. Wyatt during his
tenure. On December 15, 1997, the Board of Directors unanimously elected David
F. Nichols, President of the Company, to serve as a member of the Board for the
remainder of Mr. Wyatt's term.
At the Annual Meeting, the terms of Kazmier J. Kasper and H. Jean
Marshall will expire, and the Board of Directors has nominated each of these
individuals to stand for re-election as directors at the Annual Meeting. If
elected by the stockholders, each of the nominees will serve a three-year term
which will expire at the 2001 Annual Meeting of Stockholders. If any of the
nominees should be unavailable to serve for any reason (which is not
anticipated), the Board of Directors may designate a substitute nominee or
nominees (in which case the persons named as proxies on the enclosed proxy card
will vote the shares represented by all valid proxy cards for the election of
such substitute nominee or nominees), allow the vacancy or vacancies to remain
open until a suitable candidate or candidates are located, or by resolution
provide for a lesser number of directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" THE PROPOSAL TO RE-ELECT KAZMIER J. KASPER AND H. JEAN MARSHALL AS
DIRECTORS OF THE COMPANY FOR A THREE-YEAR TERM EXPIRING AT THE 2001 ANNUAL
MEETING OF STOCKHOLDERS AND UNTIL THEIR SUCCESSORS HAVE BEEN DULY ELECTED AND
QUALIFIED.
INFORMATION REGARDING NOMINEES AND CONTINUING DIRECTORS
The following table sets forth certain information regarding the two
nominees for director as well as the five incumbent directors whose terms as
directors will continue following the Annual Meeting. Except as otherwise
indicated, each of the named persons has been engaged in his or her present
principal occupation for more than five years. Stock ownership information is as
of December 31, 1997.
3
<PAGE> 8
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
BENEFICIALLY OWNED
NAME BUSINESS INFORMATION (PERCENT OF CLASS)(1)
- ---- -------------------- ---------------------
<S> <C> <C>
PERSONS NOMINATED FOR ELECTION TO SERVE AS DIRECTORS
UNTIL THE 2001 ANNUAL MEETING OF STOCKHOLDERS
Kazmier J. Kasper Mr. Kasper, age 51, has been President and owner of 6,625(2)
Algonquin Industries, Inc. and HiTech Metals, Inc. in (*)
Bellingham, Massachusetts since 1974. These two
companies manufacture machine parts for the computer,
optic, robotic, gaming, environmental, biomedical and
electromechanical industries. Prior to the founding of
these two companies, Mr. Kasper had served in various
positions in the manufacturing industry since 1969.
Mr. Kasper has been a director of the Company since
1993.
H. Jean Marshall Ms. Marshall, age 52, has been a director of the 2,750(2)
Company since 1993 and since May 1997 has been a (*)
consultant to the Company for special projects related
to marketing. Ms. Marshall was the Company's Vice
President - Marketing from 1993 to May 1997 and the
Company's Director of Retailer Relations from 1992
until 1993. In these capacities, she was primarily
responsible for marketing to the lotteries and vendor
support services for the Company. Ms. Marshall served
from 1983 to 1987 as Regional Manager and then as
Regional Coordinator of the Ohio Lottery Commission.
From 1987 to 1989 she was an Account Manager for
British American Bank Note Company, a Canadian
manufacturer of instant lottery tickets, and in this
position had substantial involvement with the
Pennsylvania and New Jersey Lotteries. In 1989, Ms.
Marshall served as a consultant for the Ohio
Department of Rehabilitation and Corrections, Bureau
of Community Services. Ms. Marshall returned to the
Ohio Lottery in 1990 as Deputy Director of Sales,
where she was responsible for the development of
retailer policies and procedures and coordinating,
directing and managing the sales division. Ms.
Marshall currently serves as Vice President of the
Board of Trustees of the Cincinnati Arts Consortium.
</TABLE>
4
<PAGE> 9
DIRECTORS TO SERVE UNTIL THE 2000 ANNUAL MEETING OF STOCKHOLDERS
<TABLE>
<S> <C> <C>
Gary S. Bell Mr. Bell, age 47, has been Secretary and Treasurer of the 4,625(2)
Company since 1993. Mr. Bell has been a commercial loan (*)
officer for Peoples Bank & Trust Company, Greensburg,
Kentucky, since February 1997. He served as Chief
Financial Officer of International Investments, Inc.
("III"), an investment company owned by Mr. L. Rogers
Wells, Jr., from May 1995 until February 1997 and
previously served in this position from 1993 until
October 1994. He also has been an independent business
and financial consultant since October 1994. From 1982
until 1993, he served in various positions with The
New Farmers National Bank of Glasgow and its holding
company, Commonwealth Bancorp, including Executive
Vice President and Chief Credit Officer of The New
Farmers National Bank of Glasgow from 1986 until 1993.
Mr. Bell also served as Chief Credit Officer of
Bowling Green Bank & Trust Company, N.A., another
subsidiary of Commonwealth Bancorp, from 1991 until
1993. Mr. Bell has been a director of the Company
since 1993.
Edmund F. Turek Mr. Turek, age 71, has served as Vice Chairman of the 184,875 (2)
Board of Directors of the Company since May 1997. Mrs. 5.7%(3)
Turek was President and a director of the Company from
1990 until May 1997 and served as Chairman of the
Board and Chief Executive Officer of the Company from
1990 to 1992. In May 1997, Mr. Turek became Vice
Chairman of the Company and continued as a director.
Mr. Turek began to develop the Company's instant
ticket vending machine in 1987 and has guided the
product through six generations to the current model.
Mr. Turek was Vice President of Peripheral Products in
the computer division of SCI Systems, Inc. from 1984
to 1989 where he developed business opportunities in
the commercial market for the design and manufacture
of computer products. From 1953 to 1984, Mr. Turek
held management, product development and operations
positions with various companies in the computer and
aerospace industries.
</TABLE>
5
<PAGE> 10
<TABLE>
<S> <C> <C>
L. Rogers Wells, Jr. Mr. Wells, age 60, is Chairman of the Board and Chief 1,684,375 (2)
Executive Officer of the Company and has been the principal 51.6%(3)
stockholder of the Company since purchasing 80% of the
Common Stock of the Company in 1992. Mr. Wells served
as a director of the Company from 1992, and as
Chairman of the Board and Chief Executive Officer of
the Company from 1993, until his resignation from
these positions in October 1994. He was re-elected to
these positions in February 1995. In addition, Mr.
Wells owns American Materials, Incorporated, which
assembles and distributes automobile and truck
components and serves as a regional warehousing and
distribution center for various businesses. Mr. Wells
also owns International Investments, Inc. ("III"),
which invests in and provides financing to various
businesses, including the Company. See "Certain
Transactions." Mr. Wells also has been active in
various other industries, including manufacturing,
mining, explosives and banking. From 1987 through
1991, Mr. Wells served as Secretary of Finance and
Administration for the Commonwealth of Kentucky and
from 1989 through 1991 served as Secretary to the
Governor's Executive Cabinet. During his tenure as
Secretary of Finance and Administration, Mr. Wells
served as Chairman of various finance and development
authorities, including the Kentucky Rural Economic
Development Authority, the Kentucky Infrastructure
Authority and the Kentucky Housing Corporation.
DIRECTORS TO SERVE UNTIL THE 1999 ANNUAL MEETING OF STOCKHOLDERS
John J. Wingfield Mr. Wingfield, age 51, has been Vice President-Investments 8,625(2)
of A.G. Edwards & Sons, Inc., a stock brokerage firm, (*)
since September 1995. In April 1997, Mr. Wingfield was
named Manager of A.G. Edwards & Sons, Inc.'s
Louisville office and its satellite office in New
Albany, Indiana. He was First Vice President of
Stifel, Nicolaus & Company Incorporated, a stock
brokerage firm, from 1990 until September 1995. Mr.
Wingfield has been a registered stock broker since
1973. Mr. Wingfield has been a director of the Company
since 1994.
</TABLE>
6
<PAGE> 11
<TABLE>
<S> <C> <C>
David F. Nichols Mr. Nichols, age 36, has been President of the Company 3,300
since May 1997 and was named a director in December (*)
1997. Mr. Nichols served as Senior Vice President of
the Company from August 1994 to May 1997 and as Vice
President of Operations from March 1993 until August
1994. From December 1991 to December 1992, he was
Executive Director of the Board of Tax Appeals of the
Commonwealth of Kentucky. From March 1990 to December
1991, Nichols was Principal Assistant to the Secretary
of Finance and Administration for the Commonwealth of
Kentucky, and from March 1989 to March 1990, he was
Principal Assistant to the Kentucky Office for Social
Security. From June 1988 to December 1988, he was
Deputy Director of the Kentucky Democratic Party.
</TABLE>
- ------------------
* Denotes less than 1%.
(1) Beneficial ownership includes shares of Common Stock as to which a
person possesses sole or shared voting and/or investment power and
shares which may be acquired within 60 days after December 31, 1997
upon the exercise of outstanding stock options. Shares which may be
acquired upon the exercise of stock options are deemed to be
outstanding for the purpose of computing the percentage of Common
Stock owned by a particular individual but are not deemed to be
outstanding for the purpose of computing the percentage ownership of
any other person. To the Company's knowledge, the named persons have
sole voting and investment power with regard to the shares shown as
owned by them except as otherwise referenced in the footnotes below.
(2) The shares shown include, with regard to Mr. Kasper, 4,625 shares that
may be acquired upon the exercise of stock options; with regard to Ms.
Marshall, 2,750 shares that may be acquired upon the exercise of stock
options; with regard to Mr. Bell, 4,625 shares that may be acquired
upon the exercise of stock options; with regard to Mr. Turek, 12,875
shares that may be acquired upon the exercise of stock options and
64,500 shares that are owned by Mr. Turek's wife; with regard to Mr.
Wells, 53,375 shares that may be acquired upon the exercise of stock
options and 111,000 shares that are owned by Mr. Wells' wife; with
regard to Mr. Wingfield, 6,625 shares that may be acquired upon the
exercise of stock options; and with regard to Mr. Nichols, 3,000 shares
that may be acquired upon the exercise of stock options.
(3) The address of Messrs. Wells and Turek, who are the only persons known
by management of the Company to be the beneficial owners of more than
five percent of the Company's Common Stock, is 10830 Millington Court,
Cincinnati, Ohio 45242.
7
<PAGE> 12
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company conducts its business through
meetings of the full Board and through committees of the Board, including
standing Audit, Compensation, Directors Stock Incentive Plan and Executive
Committees. During 1997, the Board of Directors held three meetings, the Audit
Committee held one meeting and the Compensation Committee held one meeting. The
Directors Stock Incentive Plan Committee and the Executive Committee did not
meet. Each director attended at least 75% of all meetings of the full Board of
Directors and of each committee of the Board of which he or she is a member.
The Audit Committee is responsible for reviewing with the Company's
independent auditors their audit plan, the scope and results of their audit
engagement and the accompanying management letter, if any; reviewing the scope
and results of the Company's internal auditing procedures; consulting with the
independent auditors and management with regard to the Company's accounting
methods and the adequacy of its internal accounting controls; approving
professional services provided by the independent auditors; reviewing the
independence of the independent auditors; and reviewing the range of the
independent auditors' audit and non-audit fees. The Audit Committee is composed
of Gary S. Bell, H. Jean Marshall and John J. Wingfield (Chair).
The Compensation Committee is responsible for setting the compensation
of the Chairman of the Board and the President, ratifying the compensation of
all other officers and general wage and salary limits of employees, and
administering and interpreting the Company's 1994 Stock Incentive Plan. The
Compensation Committee is composed of Gary S. Bell (Chair), H. Jean Marshall and
John J. Wingfield.
The Directors Stock Incentive Plan Committee is responsible for
administering and interpreting the Company's 1994 Directors Stock Incentive
Plan. The Directors Stock Incentive Plan Committee is composed of H. Jean
Marshall (Chair), Edmund F. Turek and L. Rogers Wells, Jr.
The Executive Committee is authorized, within certain limits, to
exercise all of the authority of the Board of Directors during the interval
between Board meetings. The Executive Committee is composed of L. Rogers Wells,
Jr. (Chair), Edmund F. Turek and Gary S. Bell.
The Board of Directors as a whole functions as a nominating committee
to select management's nominees for election as directors of the Company. The
Board of Directors will consider nominees recommended by stockholders if
submitted to the Company in accordance with the procedures set forth in Section
2.3 of the Bylaws of the Company. See "Stockholders' Proposals for 1999 Annual
Meeting" below.
DIRECTOR COMPENSATION
Directors who are not employees of the Company receive a fee of $1,000
for each meeting of the Board of Directors or committee thereof attended in
person (rather than by telephone). Directors who are employees of the Company
receive no directors' fees. The Company paid a total of $10,000 in directors'
fees in 1997.
Additionally, the Company's 1994 Directors Stock Incentive Plan (the
"DSIP") provides for the issuance of up to a total of 60,000 shares of Common
Stock of the Company to the non-employee directors of the Company. Shares may be
issued upon the exercise of stock options granted under the DSIP, and
8
<PAGE> 13
restricted shares of Common Stock also may be awarded under the DSIP. Restricted
shares are shares that are subject to forfeiture unless certain conditions are
met. The exercise price of all stock options granted under the DSIP is the fair
market value of the Company's Common Stock on the date of grant of the
respective stock options. All stock options and restricted shares are granted or
awarded subject to a vesting schedule which provides for the vesting each year
for a period of four years, subject to the recipient's continued service with
the Company, of 25% of the options or shares subject to each grant or award. The
Directors Stock Incentive Plan Committee determines the recipients, the amount,
form and timing, and certain other terms of options and restricted shares
granted or awarded under the DSIP. Upon a "Change of Control" of the Company (as
such term is defined in the DSIP), all vesting and other restrictions applicable
to outstanding stock options and restricted shares granted under the DSIP will
be deemed waived or satisfied without action by the Company, the Directors Stock
Option Plan Committee or the recipients.
Each non-employee member of the Board of Directors -- Gary S. Bell,
Kazmier J. Kasper and John J. Wingfield -- was granted options in 1994 for the
purchase of 5,000 shares of Common Stock and was granted additional options in
each of 1995, 1996 and 1997 for the purchase of 1,000 shares, 1,500 shares and
2,500 shares, respectively, of Common Stock. The exercise price of each of these
options was equal to the fair market value of the Company's Common Stock on the
date of grant. All of these options expire ten years from the date of grant.
ADDITIONAL INFORMATION
For additional information that should be considered with regard to the
election of directors, see "Executive Compensation," "Certain Transactions" and
"Section 16(a) Beneficial Ownership Reporting Compliance" below.
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION
The following table summarizes by various categories, for the fiscal
years ended December 31, 1995, 1996 and 1997, the total compensation earned by
the Company's Chief Executive Officer, and by each other executive officer of
the Company who received salary and bonus in excess of $100,000 from the Company
for 1997, for services rendered by them in all capacities to the Company for
1997.
9
<PAGE> 14
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
------------
COMPENSATION
------------
ANNUAL COMPENSATION(1) AWARDS
------------------------------ ------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)
- --------------------------- ---- --------- -------- ------------
<S> <C> <C> <C> <C>
L. Rogers Wells, Jr. 1997 $150,000 $ -0- 2,500
Chairman of the Board and 1996 $150,000 $ 1,500 1,500
Chief Executive Officer 1995 132,692 -0- 71,000(2)
Edmund F. Turek(3) 1997 $120,000 $ -0- 2,500
Vice Chairman 1996 120,000 $ 1,500 1,500
1995 120,000 -0- 1,000
David F. Nichols(3) 1997 104,385 $ 4,000 2,500
President
</TABLE>
- -----------------
(1) Excludes any perquisites and other personal benefits received, the
total value of which did not exceed 10% of the total annual salary and
bonus for the respective executive officers. See also "Employment
Agreements" below.
(2) In accordance with the terms of the Company's 1994 Stock Incentive
Plan, options for the purchase of 70,000 shares of Common Stock which
were granted to Mr. Wells in April 1994 were canceled in October 1994
when he resigned as Chairman of the Board and Chief Executive Officer
of the Company. When Mr. Wells was re-elected as Chairman of the Board
and Chief Executive Officer in February 1995, the Company granted
replacement options for 70,000 shares to Mr. Wells.
(3) In May 1997, the Board of Directors appointed Mr. Nichols as President
of the Company and Mr. Turek as Vice Chairman.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with L. Rogers Wells,
Jr. effective as of February 1, 1995, the date of his re-election as Chairman of
the Board and Chief Executive Officer and with Edmond F. Turek effective as of
April 21, 1994. The employment agreement with Mr. Wells provides for his
employment as Chairman of the Board and Chief Executive Officer of the Company
for three years at an annual salary of $150,000. Mr. Wells' employment agreement
contains a noncompete provision that applies for a period of one year and a
nondisclosure provision that applies for a period of three years following
termination of employment. Mr. Turek's agreement provided for his employment as
President of the Company for three years at an annual salary of $120,000. Mr.
Turek's employment agreement expired in April 1997 and was not renewed.
10
<PAGE> 15
STOCK OPTIONS
The Company's 1994 Stock Incentive Plan (the "SIP") provides for the
issuance of up to 260,000 shares of Common Stock to officers, employees,
consultants and other supporters (such as suppliers) of the Company. Shares may
be issued upon the exercise of incentive stock options or nonqualified stock
options granted under the SIP, and restricted shares of Common Stock also may be
awarded under the SIP. Restricted shares are shares that are subject to
forfeiture unless certain conditions are met. The exercise price of all stock
options granted under the SIP is the fair market value of the Company's Common
Stock on the date of grant of the respective stock options. All stock options
and restricted shares are granted or awarded subject to a vesting schedule which
provides for the vesting each year for a period of four years, subject to the
recipient's continued employment with or service to the Company, of 25% of the
options or shares subject to each grant or award. The Compensation Committee
determines the recipients, the amount, form and timing, and certain other terms
of options and restricted shares granted or awarded under the SIP. Upon a
"Change of Control" of the Company (as such term is defined in the SIP), all
vesting and other restrictions applicable to outstanding stock options and
restricted shares granted under the SIP will be deemed waived or satisfied
without action by the Company, the committee administering the SIP or the
recipients.
The following table sets forth information regarding the number, terms
and potential realizable value of all stock options granted to Messrs. Wells,
Turek and Nichols during 1997. The amounts shown as potential realizable values
of the options identified in the table are based on assumed annualized rates of
appreciation in the price of the Common Stock of 5% and 10% over the term of the
options, as set forth in rules of the Securities and Exchange Commission. Actual
gains, if any, on stock option exercises are dependent on the future performance
of the Common Stock. There can be no assurance that the potential realizable
values reflected in the table will be achieved.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO EXERCISE PRICE APPRECIATION
UNDERLYING EMPLOYEES OR BASE FOR OPTION TERM
OPTIONS IN FISCAL PRICE EXPIRATION ---------------------
NAME GRANTED(#)(1) YEAR ($/SHARE) DATE 5%($) 10%($)
- ---- ------------ ---------- --------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
L. Rogers Wells, Jr. 2,500 15% $8.00 12/31/2007 $32,579 $51,874
Edmund F. Turek 2,500 15 8.00 12/31/2007 32,579 51,874
David F. Nichols 2,500 15 8.00 12/31/2007 32,579 51,874
</TABLE>
- -----------------
(1) In accordance with the vesting schedule set forth in the SIP, 25% of
these options will first become exercisable one year from the date of
grant (December 31, 1997) and an additional 25% of these options will
become exercisable annually for a period of three years thereafter,
with all options being vested on December 31, 2001.
No stock options were exercised by Messrs. Wells, Turek or Nichols
during 1997. The following table sets forth information regarding the number and
value of all of the unexercised stock options held by Messrs. Wells, Turek and
Nichols as of December 31, 1997.
11
<PAGE> 16
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY
UNEXERCISED OPTIONS AT FISCAL YEAR END OPTIONS AT FISCAL YEAR END(1)
-------------------------------------- --------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------- -------------------------
<S> <C> <C>
L. Rogers Wells, Jr. 53,375/76,000 $375/$1,500
Edmund F. Turek 12,875/21,000 $375/$1.500
David F. Nichols
</TABLE>
- ----------------
(1) Such value is computed by subtracting the option exercise price from
the market price of the Common Stock on December 31, 1997 and
multiplying that figure by the total number of unexercised options.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report by the Compensation Committee of the Board of Directors
(the "Committee") discusses the Committee's compensation objectives and policies
applicable to the Company's executive officers. The report reviews the
Committee's policy generally with respect to the compensation of all executive
officers as a group for 1997 and specifically reviews the compensation
established for the Company's Chief Executive Officer for 1997. Except for H.
Jean Marshall, the Committee is composed entirely of non-employee directors of
the Company.
COMPENSATION POLICY FOR EXECUTIVE OFFICERS
The Company's compensation policies for its executive officers are
intended to create a direct relationship between the level of compensation paid
to its executives and the Company's current and long-term level of performance.
The Committee believes that this relationship is best implemented by providing a
compensation package consisting of a base salary and long-term incentive
compensation in the form of stock options.
The base salaries for the Company's executive officers for 1997 were
established by the Committee and based on the recommendation of the Chief
Executive Officer of the Company. The salaries recommended by the Chief
Executive Officer were based on his subjective evaluation of each executive
officer's performance during 1996 and their anticipated value to the Company in
1997.
In anticipation of the Company's initial public offering of Common
Stock, the Board of Directors in March 1994 approved three-year employment
agreements with the Chief Executive Officer (Mr. Wells) and the then President
of the Company (Mr. Turek), approved the SIP and established the Committee. The
salaries established in the employment agreements were intended to be relatively
modest when compared to the base salaries of officers in corresponding positions
at other companies in the manufacturing and gaming industries. Effective as of
February 1, 1995, the Company entered into another three-year employment
agreement with Mr. Wells at the same relatively modest base salary.
To establish a direct link between employee performance and stockholder
value, the Committee provides incentive for extraordinary performance by the
Company's executive officers through the annual award of stock options under the
SIP to the executive officers (as well as other employees) of the Company.
12
<PAGE> 17
Through these stock options, opportunities for significant compensation by the
Company's executive officers are tied directly to increases in the price of the
Company's Common Stock. The options granted under the SIP have an exercise price
equal to the fair market value of the Company's Common Stock on the date of
grant and, to encourage a long-term perspective by the employee, have an
exercise period of ten years. The amount of options awarded to the executive
officers in 1997 was based on the Committee's subjective determination of each
executive officer's potential ability to positively impact the Company's
performance and the price of the Common Stock. In December 1997, the Committee
granted options for the purchase of a total of 11,500 shares of Common Stock to
the executive officers of the Company (including the Chief Executive Officer) as
a group. The options granted were at a price of $8.00 per share. The exercise
price of all of these options was equal to the closing price of the Company's
Common Stock on the American Stock Exchange on the date of grant. Information
regarding stock options granted to certain executive officers during 1997 and
the value of all unexercised stock options held by them as of December 31, 1997
is set forth under the captions "Executive Compensation - Stock Options - Option
Grants in Last Fiscal Year" and "Executive Compensation - Stock Options - Fiscal
Year End Option Values."
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Wells served as Chairman of the Board and Chief Executive Officer
of the Company without compensation from the date of his election in October
1993 to the date of completion of the Company's initial public offering in April
1994. In connection with the Board's approval of Mr. Wells' first employment
agreement in March 1994, the Board believed that it was appropriate,
particularly in view of the Company's future status as a publicly held
corporation, for the Company to begin paying Mr. Wells a salary as compensation
for his services. Mr. Wells' original compensation package was designed to
consist of a relatively modest salary of $150,000 per year for the three year
term of the employment agreement but, through the grant to him of a large number
of stock options (70,000), the opportunity to realize significantly increased
compensation if and to the extent that the Company's performance resulted in an
increase in the price of the Company's Common Stock. The Committee considered
these same factors when, in 1995, it again established Mr. Wells' base salary in
his second employment agreement at $150,000.
The decision regarding Mr. Wells' base salary was not based on
compensation amounts and forms paid to persons in comparable roles performing at
comparable levels at other companies in the same or related industries. Instead,
Mr. Wells' salary amount reflects the subjective discretion of the Compensation
Committee, based on its evaluation of the expected positive contribution of Mr.
Wells to the Company's future financial performance. Similarly, the number of
stock options granted by the Committee to Mr. Wells in 1997 was determined by
the Committee's subjective belief that Mr. Wells can significantly improve the
Company's financial performance in the future. Through the grant of stock
options, any compensation realized by Mr. Wells as a result of an improvement in
the Company's financial performance will be the result of an increase in the
price of the Company's Common Stock and therefore will be tied directly to an
increase in overall stockholder value.
SECTION 162(M) OF THE INTERNAL REVENUE CODE
It is the responsibility of the Committee to address the issues raised
by provisions of the tax laws which make certain non-performance-based
compensation in excess of $1,000,000 to executives of public companies
non-deductible to these companies. The Committee has reviewed the issues
applicable to the Company and has determined that it is not necessary for the
Company to take any action at this time with regard to this limit.
13
<PAGE> 18
COMPENSATION COMMITTEE
Gary S. Bell
H. Jean Marshall
John J. Wingfield
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
A principal function of the Committee is to establish the compensation
of the Chairman of the Board, the President and the other executive officers of
the Company. Until May 1997, a member of the Committee, H. Jean Marshall, served
as Vice President - Marketing of the Company. Another member of the Committee,
Gary S. Bell, served during 1997 as the Secretary and the Treasurer of the
Company (in a non-employee capacity) and also served as the Chief Financial
Officer of International Investments, Inc. ("III"), a company owned by Mr. L.
Rogers Wells, Jr. Mr. Wells is Chairman of the Board and Chief Executive Officer
of the Company. During 1997, III provided management and administrative support
services to the Company to permit the Company to focus primarily on
manufacturing machines and maintaining service, technical assistance and parts
replacement. These services were provided by salaried as well as contract
employees of III, and the Company reimbursed III for its actual out-of-pocket
costs in compensating these employees (which amounts are believed by the Company
to approximate the general market compensation levels of other similarly
qualified persons) and for out-of-pocket expenses incurred by III on behalf of
the Company. There is no written agreement between the Company and III for these
services. For 1997 the Company paid $36,000 to III for these services, all of
which related to services by Mr. Bell.
CERTAIN TRANSACTIONS
Algonquin Industries, Inc., of which Mr. Kazmier J. Kasper, a director
of the Company, is President and owner, sells to the Company certain components
of the burster mechanisms and other dispensing mechanisms used in the Company's
machines. During 1997, the Company paid $2,996,000 to Algonquin Industries for
burster and other dispensing mechanisms, and the Company currently plans to
continue purchasing all of such mechanisms from Algonquin Industries. The
Company believes that such purchases are on terms no less favorable than those
obtainable from unaffiliated third parties.
STOCK PERFORMANCE GRAPH
The Company's Common Stock began trading on the American Stock Exchange
on April 14, 1994. The following performance graph and the accompanying table
compare the cumulative total stockholders' return on the Company's Common Stock
with the American Stock Exchange (the "AMEX") Stock Market Index (U.S.
Companies) and an AMEX published index of U.S. and foreign manufacturers of
industrial and commercial machinery and computer equipment (SIC Codes 3500-3599)
whose stock traded on the AMEX (the "AMEX Machine and Computer Manufacturers
Index"), assuming that $100 was invested on April 14, 1994 in each of the
Company's Common Stock and the two AMEX indices and also assuming dividend
reinvestment.
14
<PAGE> 19
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS ON COMPANY COMMON STOCK
VS. AMEX STOCK MARKET INDEX AND AMEX MACHINE AND COMPUTER MANUFACTURERS INDEX
<TABLE>
<CAPTION>
CRSP TOTAL RETURNS INDEX FOR: 12/31/92 12/31/93 12/30/94 12/29/95 12/31/96 12/31/97
<S> <C> <C> <C> <C> <C> <C>
Interlott Technologies, Inc. 72.9 69.8 58.3 66.7
AMEX Stock Market (US Companies) 92.5 108.8 101.4 130.5 132.6 165.8
AMEX Stocks (SIC 3500-3599 US
Companies) Industrial and commerical
machinery and computer equipment 98.3 101.8 102.2 127.8 101.6 104.1
</TABLE>
15
<PAGE> 20
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, and
regulations of the Securities and Exchange Commission thereunder require the
Company's directors and executive officers and any persons who beneficially own
more than 10% of the Company's Common Stock, as well as certain affiliates of
such persons, to file initial reports of their ownership of the Company's Common
Stock and subsequent reports of changes in such ownership with the Securities
and Exchange Commission and the American Stock Exchange. Directors, executive
officers and persons beneficially owning more than 10% of the Company's Common
Stock are required by applicable regulations to furnish the Company with copies
of all Section 16(a) reports they file. Based solely on its review of the copies
of such reports received by it and written representations that no other reports
were required of those persons, the Company believes that during 1997, all of
its directors, executive officers and beneficial owners of more than 10% of its
Common Stock complied with applicable Section 16(a) filing requirements.
PROPOSAL 2 -- RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of the Company, upon the recommendation of the
Audit Committee, has appointed the firm of KPMG Peat Marwick LLP to serve as
independent auditors of the Company for the fiscal year ending December 31,
1998 and has directed that such appointment be submitted to the stockholders of
the Company for ratification at the Annual Meeting. KPMG Peat Marwick LLP has
served as independent auditors of the Company since 1993 and is considered by
management of the Company to be well qualified. If the stockholders do not
ratify the appointment of KPMG Peat Marwick LLP, the Board of Directors will
reconsider the appointment.
Representatives of KPMG Peat Marwick LLP will be present at the Annual
Meeting. They will have an opportunity to make a statement if they desire to do
so and will be available to respond to appropriate questions from stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" THE PROPOSAL TO RATIFY THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS
INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31,
1998.
STOCKHOLDERS' PROPOSALS FOR 1999 ANNUAL MEETING
Director nominations and other proposals of stockholders intended to be
presented at the 1999 Annual Meeting of Stockholders must be submitted to the
Company in accordance with the procedures set forth in Sections 2.3 and 1.1,
respectively, of the Bylaws of the Company and in accordance with applicable
rules of the Securities and Exchange Commission. The effect of these provisions
is that stockholders must submit such nominations and proposals, together with
certain related information specified in the above-referenced sections of the
Bylaws, in writing to the Company on or before December 9, 1998 in order for
such matters to be included in the Company's proxy materials for, and voted upon
at, the 1999 Annual Meeting. All such proposals, nominations and related
information should be submitted on or before such date by certified mail, return
receipt requested, to the Secretary of the Company, 10830 Millington Court,
Cincinnati, Ohio 45242. A copy of the above-referenced sections of the Bylaws
will be provided upon request in writing to the Secretary of the Company at such
address.
16
<PAGE> 21
OTHER MATTERS THAT MAY COME BEFORE THE ANNUAL MEETING
The Board of Directors of the Company knows of no matters other than
those referred to in the accompanying Notice of Annual Meeting of Stockholders
which may properly come before the Annual Meeting. However, if any other matter
should be properly presented for consideration and voting at the Annual Meeting
or any adjournments thereof, it is the intention of the persons named as proxies
on the enclosed form of proxy card to vote the shares represented by all valid
proxy cards in accordance with their judgment of what is in the best interest of
the Company.
By Order of the Board of Directors.
Gary S. Bell
Secretary
Cincinnati, Ohio
April 9, 1998
-----------------
The Company's 1997 Annual Report, which includes audited financial
statements, has been mailed to stockholders of the Company with these proxy
materials. The Annual Report does not form any part of the material for the
solicitation of proxies.
17
<PAGE> 22
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18
<PAGE> 23
APPENDIX
REVOCABLE PROXY
COMMON STOCK
INTERLOTT TECHNOLOGIES, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE 1998 ANNUAL MEETING OF
STOCKHOLDERS.
The undersigned hereby appoints Jerome J. Cain and David F. Nichols, and
each of them, proxies, with full power of substitution, to act for and in the
name of the undersigned to vote all shares of Common Stock of Interlott
Technologies, Inc. (the "Company") which the undersigned is entitled to vote at
the 1998 Annual Meeting of Stockholders of the Company, to be held at the
Holiday Inn Cincinnati North located at I-275 and Route 42 (Exit 46),
Cincinnati, Ohio, on Thursday, May 7, 1998 at 10:00 a.m., local time, and at any
and all adjournments thereof, as indicated below.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSALS.
<TABLE>
<C> <S> <C> <C> <C>
1. The election of Kazmier J. Kasper and H. Jean Marshall as directors to serve until the 2001 Annual Meeting of Stockholders
and until their successors are elected and qualified.
[ ] FOR ALL NOMINEES listed below (except as [ ] WITHHOLD AUTHORITY to vote for all
marked to the contrary below) nominees listed below
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST
BELOW.
KAZMIER J. KASPER, H. JEAN MARSHALL
2.
The ratification of the appointment of KPMG Peat Marwick LLP as independent auditors for the fiscal year ending December
31, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
In their discretion, the proxies are authorized to vote upon such other
business as properly may come before the Annual Meeting and any adjournments
thereof.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY CARD IN THE ENCLOSED PREPAID
ENVELOPE.
(Continued, and to be signed and dated, on the reverse side)
(Continued from other side)
PROXY -- SOLICITED BY THE BOARD OF DIRECTORS
THIS PROXY CARD WILL BE VOTED AS DIRECTED. IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY CARD WILL BE VOTED IN THE DISCRETION OF THE PROXIES "FOR" THE
ELECTION OF THE TWO NOMINEES NAMED IN PROPOSAL 1 AND "FOR" PROPOSAL 2. If any
other business is presented to a vote of the stockholders at the Annual Meeting,
this proxy card will be voted by the proxies in their best judgment. At the
present time, the Board of Directors knows of no other business to be presented
to a vote of the stockholders at the Annual Meeting.
If the undersigned elects to withdraw this proxy card on or before the time
of the Annual Meeting or any adjournments thereof and notifies the Secretary of
the Company at or prior to the Annual Meeting of the decision of the undersigned
to withdraw this proxy card, then the power of said proxies shall be deemed
terminated and of no further force and effect. If the undersigned withdraws this
proxy card in the manner described above and prior to the Annual Meeting does
not submit a duly executed and subsequently dated proxy card to the Company, the
undersigned may vote in person at the Annual Meeting all shares of Common Stock
of the Company owned by the undersigned as of the record date, April 2, 1998.
Please mark, date and sign
exactly as your name appears on
this proxy card. When shares are
held jointly, both holders
should sign. When signing as
attorney, executor,
administrator, trustee or
guardian, please give your full
title. If the holder is a
corporation or a partnership,
the full corporate or
partnership name should be
signed by a duly authorized
officer.
Date: , 1998
---------------------
--------------------------------
Signature
--------------------------------
Signature, if shares held
jointly
Do you plan to attend the Annual
Meeting? YES [ ] NO [ ]
