<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:
<TABLE>
<S> <C>
[ ] 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
</TABLE>
INTERLOTT TECHNOLOGIES, 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:
(4) Date Filed:
<PAGE> 2
[LETTERHEAD OF INTERLOTT TECHNOLOGIES APPEARS HERE]
April 8, 1999
Dear Stockholder:
You are cordially invited to attend the 1999 Annual Meeting of
Stockholders of Interlott Technologies, Inc. to be held at the Holiday Inn
Cincinnati North located at Interstate 275 and Route 42 (Exit 46), Cincinnati,
Ohio, on Thursday, May 6, 1999, 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,
/s/ L. Rogers Wells, Jr.
------------------------------------
L. Rogers Wells, Jr.
Chairman of the Board and
Chief Executive Officer
<PAGE> 3
INTERLOTT TECHNOLOGIES, INC.
10830 MILLINGTON COURT
CINCINNATI, OHIO 45242
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 6, 1999
NOTICE HEREBY IS GIVEN that the 1999 Annual Meeting of Stockholders of
Interlott Technologies, Inc. (the "Company") will be held at the Holiday Inn
Cincinnati North located at Interstate 275 and Route 42 (Exit 46), Cincinnati,
Ohio on Thursday, May 6, 1999 at 10:00 a.m., local time, for the purpose of:
1. Electing two directors to serve until the 2002 Annual Meeting
of Stockholders;
2. Ratifying the appointment of KPMG LLP as independent auditors
of the Company for the fiscal year ending December 31, 1999;
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 above is set forth in the
attached Proxy Statement. Stockholders of record at the close of business on
April 1, 1999 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 1, 1999 will be available for inspection
during normal business hours from April 26, 1999 through May 6, 1999 at the
headquarters of the Company, 10830 Millington Court, Cincinnati, Ohio.
By Order of the Board of Directors.
/s/ Gary S. Bell
---------------------------------------
Gary S. Bell
Secretary
Cincinnati, Ohio
April 8, 1999
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> 4
INTERLOTT TECHNOLOGIES, INC.
-----------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 6, 1999
-------------------
This Proxy Statement is furnished to the stockholders of Interlott
Technologies, Inc., a Delaware corporation (the "Company"), in connection with
the solicitation of proxies by the Board of Directors of the Company for use at
the 1999 Annual Meeting of Stockholders of the Company and at any adjournments
thereof (the "Annual Meeting"). The Annual Meeting will be held on Thursday,
May 6, 1999 at 10:00 a.m. local time at the Holiday Inn Cincinnati North
located at Interstate 275 and 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
8, 1999.
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 1, 1999. 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 at the Annual Meeting, in person or by proxy, of the
holders of a majority of the outstanding shares entitled to vote will
constitute a quorum at the Annual Meeting. In counting the shares represented
at the Annual Meeting to determine whether a quorum exists, shares which are
withheld or abstained from voting will be considered to be entitled to vote and
will count toward the quorum.
In accordance with Delaware law 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.
2
<PAGE> 5
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.
PROXIES; OTHER MATTERS THAT MAY COME BEFORE THE ANNUAL MEETING
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 each proposal on the enclosed proxy card and then sign and date the proxy
card and mail it to us in the enclosed postage paid envelope. 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' appointment of independent auditors
described in Proposal 2. If any nominee for election as a director should
become unable to serve for any reason and the Board of Directors designates a
substitute nominee, the persons named as proxies on the proxy cards will vote
all valid proxy cards for the election of such substitute nominee.
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 date
established in the Bylaws by which stockholders who desire to submit
nominations for director or other proposals to the Company for presentation to
the stockholders at the Annual Meeting has passed, and therefore no director
nominations or other matters may be proposed by stockholders for action 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. If a stockholder will not be attending the Annual Meeting, any
proxy or notice should be returned in time for receipt no later than the close
of business on the day preceding 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.
3
<PAGE> 6
STOCK OWNERSHIP
The following table sets forth certain information as of December 31,
1998 regarding the beneficial ownership of the Company's Common Stock by (a)
each person who is known by the Company to own more than 5% of any class of the
Company's voting securities, (b) each director and nominee for director, (c)
each executive officer named in the Summary Compensation Table herein and (d)
all directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY OF CLASS
NAME OF BENEFICIAL OWNER OWNED (1) OWNED (1)
- ------------------------ --------- ---------
<S> <C> <C>
L. Rogers Wells, Jr. 1,685,625 (2) 51.6%
Lloyd I. Miller III 308,050 (3) 9.6%
Edmund F. Turek 190,125 (4) 5.9%
John J. Wingfield 10,625 (5) *
Kazmier J. Kasper 9,125 (6) *
Gary S. Bell 8,625 (7) *
David F. Nichols 7,825 (8) *
H. Jean Marshall 4,625 (9) *
All directors and executive officers as a group (9 persons) (10) 1,918,763 59.7%
</TABLE>
- ------------------
* Less than one percent.
(1) Stock ownership information has been furnished by the named persons
and group. The named persons and group have sole voting and investment
power with regard to all shares shown as beneficially owned by them,
except as noted below. Pursuant to the rules of the Securities and
Exchange Commission, the number of shares of Common Stock beneficially
owned by a specified person or group includes shares issuable upon the
exercise of stock options held by such person or group which may be
exercised within 60 days after December 31, 1998. Such shares are
deemed to be outstanding for the purpose of computing the percentage
of the class beneficially owned by such person or group but are not
deemed to be outstanding for the purpose of computing the percentage
of the class beneficially owned by any other person or group.
(2) Includes 54,625 shares that may be acquired upon the exercise of stock
options. The address of Mr. Wells is 10830 Millington Court,
Cincinnati, Ohio 45242.
(3) Mr. Miller disclaims beneficial ownership of the shares shown, except
to the extent of his pecuniary interest therein. Mr. Miller's address
is 4550 Gordon Drive, Naples, Florida 34102.
(4) Includes 18,125 shares that may be acquired upon the exercise of stock
options and 64,500 shares that are owned by Mr. Turek's wife. Mr.
Turek's address is 10830 Millington Court, Cincinnati, Ohio 45242.
(5) Includes 8,625 shares that may be acquired upon the exercise of stock
options.
(6) Includes 7,125 shares that may be acquired upon the exercise of stock
options.
(7) Includes 7,125 shares that may be acquired upon the exercise of stock
options.
(8) Includes 7,625 shares that may be acquired upon the exercise of stock
options.
(9) Includes 4,625 shares that may be acquired upon the exercise of stock
options.
(10) Includes a total of 109,563 shares that may be acquired upon the
exercise of stock options and 64,500 shares owned by spouses, family
trusts and controlled business entities.
4
<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.
At the Annual Meeting, the terms of David F. Nichols and John J.
Wingfield 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 2002 Annual Meeting of Stockholders. If either of the
nominees should be unable 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 DAVID F. NICHOLS AND JOHN J. WINGFIELD AS
DIRECTORS OF THE COMPANY FOR A THREE-YEAR TERM EXPIRING AT THE 2002 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.
5
<PAGE> 8
PERSONS NOMINATED FOR ELECTION TO SERVE AS DIRECTORS
UNTIL THE 2002 ANNUAL MEETING OF STOCKHOLDERS
<TABLE>
<S> <C>
David F. Nichols.................. Mr. Nichols, age 37, has been President of the Company since May
1997 and was appointed a director in December 1997. Mr. Nichols
served as Senior Vice President of Sales and Marketing of the
Company from August 1994 to May 1997 and as Vice President -
Operations of the Company 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, Mr. 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, Mr. Nichols was
Deputy Director of the Kentucky Democratic Party.
John J. Wingfield................. Mr. Wingfield, age 52, has been Vice President - Investments of
A.G. Edwards & Sons, Inc., a stock brokerage firm, since
September 1995. Mr. Wingfield is 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>
PERSONS NOMINATED TO SERVE UNTIL THE 2001 ANNUAL MEETING OF STOCKHOLDERS
<TABLE>
<S> <C>
Kazmier J. Kasper................. Mr. Kasper, age 52, has been President and owner of 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 53, has been a director of the Company since 1993
and from May 1997 through May 1998 was 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
</TABLE>
6
<PAGE> 9
<TABLE>
<S> <C>
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.
DIRECTORS TO SERVE UNTIL THE 2000 ANNUAL MEETING OF STOCKHOLDERS
Gary S. Bell...................... Mr. Bell, age 48, has been Secretary and Treasurer of the 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., 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 and holds various business
interests in a number of small, closely-held partnerships and
corporations. These business interests are in the areas of
communications, commercial real estate development, forestry,
agriculture and automotive service. 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 72, was Vice Chairman of the Board of Directors of
the Company from May 1997 through February 1999, and has been a
director of the Company since 1990. Mr. Turek served as
Chairman of the Board, President and Chief Executive Officer of
the Company from February 1990
</TABLE>
7
<PAGE> 10
<TABLE>
<S> <C>
to September 1992 and continued to serve as President of the
Company until May 1997, when he was appointed Vice Chairman of
the Company. Mr. Turek became a consultant to the Company
in February 1999. See "Certain Transactions." 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.
L. Rogers Wells, Jr............... Mr. Wells, age 61, is Chairman of the Board and Chief Executive
Officer of the Company and has been the principal 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., 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.
</TABLE>
8
<PAGE> 11
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 1998, the Board of Directors held four meetings, the Audit
Committee held one meeting, the Compensation Committee held one meeting and the
Directors Stock Incentive Plan Committee held one meeting. 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. For a description of requirements regarding
stockholder nominations and other proposals, see "Stockholders' Proposals for
2000 Annual Meeting."
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 1998.
9
<PAGE> 12
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
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 DSIP 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 DSIP
Committee or the recipients.
Each non-employee member of the Board of Directors - Gary S. Bell,
Kazmier J. Kasper, H. Jean Marshall and John J. Wingfield - was granted options
in 1998 for the purchase of 2,500 shares 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, 1996, 1997 and 1998, 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 $100,000 from the
Company for 1998 for services rendered by them in all capacities to the Company
during each of such years.
10
<PAGE> 13
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
---------
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
----------------------- ------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)
- --------------------------- ---- --------- -------- ----------
<S> <C> <C> <C> <C>
L. Rogers Wells, Jr 1998 $150,000 $ -0- 3,500
Chairman of the Board and 1997 $150,000 $ -0- 2,500
Chief Executive Officer 1996 $150,000 $1,500 1,500
Edmund F. Turek 1998 $120,000 $ -0- 2,500
Vice Chairman 1997 $120,000 $ -0- 2,500
1996 $120,000 $1,500 1,500
David F. Nichols(1) 1998 $120,000 $7,500 3,500
President 1997 $104,385 $4,000 2,500
</TABLE>
- ----------------------------
(1) Mr. Nichols was appointed as President of the Company by the Board of
Directors in May 1997.
EMPLOYMENT AGREEMENT
The Company entered into a three year employment agreement with L.
Rogers Wells, Jr. effective as of February 1, 1995. The employment agreement
expired in February 1998 and was not renewed. The employment agreement provided
for his employment as Chairman of the Board and Chief Executive Officer of the
Company at an annual salary of $150,000. The agreement contained a noncompete
provision that would apply for a period of one year, and a nondisclosure
provision that would apply for three years, following termination of
employment.
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
11
<PAGE> 14
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 1998. 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>
% OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES
SECURITIES GRANTED TO EXERCISE OF STOCK 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. 3,500 9.64% $6.50 12/31/08 $37,057.35 $59,007.64
Edmund F. Turek 2,500 6.89% $6.50 12/31/08 $26,469.54 $42,148.31
David F. Nichols 3,500 9.64% $6.50 12/31/08 $37,057.35 $59,007.64
</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, 1998) 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, 2002.
No stock options were exercised by Messrs. Wells, Turek or Nichols
during 1998. 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, 1998.
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(L)
-------------------------------------- -----------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------------------- -------------------------
<S> <C> <C>
L. Rogers Wells, Jr. 54,625/78,500 $0/$0
Edmund F. Turek 18,125/23,500 $0/$0
David F. Nichols 7,625/22,000 $0/$0
</TABLE>
- ------------------------
(1) Such value is computed by subtracting the option exercise price from
the market price of the Common Stock on December 31, 1998 and
multiplying that figure by the total number of unexercised options.
12
<PAGE> 15
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 three
executive officers as a group for 1998 and specifically reviews the
compensation established for the Company's Chief Executive Officer for 1998.
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 1998 were
established by the Committee 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 1997 and their anticipated value to the Company in 1998.
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. Mr. Turek's employment agreement expired in April 1997 and was not
renewed, and Mr. Well's second employment agreement expired in February 1998
and was not renewed. However, the base salaries of Messrs. Wells and Turek
remain unchanged following the expiration of their employment agreements. The
Compensation Committee continues to believe that it is appropriate for the base
salaries of all three executive officers to be relatively modest when compared
to those of officers in corresponding positions at other companies in the
manufacturing and gaming industries.
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. 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 1998 was based on the
Committee's subjective determination of each executive officer's potential
ability to positively impact the Company's
13
<PAGE> 16
performance and the price of the Common Stock. In December 1998, the Committee
granted options for the purchase of a total of 9,500 shares of Common Stock to
the three executive officers of the Company (including the Chief Executive
Officer) as a group. The options granted were at a price of $6.50 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 Messrs. Wells, Turek and Nichols
during 1998 and the value of all unexercised stock options held by them as of
December 31, 1998 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
In approving the second employment agreement between the Company and
Mr. Wells in 1995, the Compensation Committee approved a relatively modest
salary of $150,000 per year for the three year term of the employment
agreement. However, through the grant to Mr. Wells of stock options under the
SIP each year during the term of the agreement, the Compensation Committee
enabled him to potentially 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, following the
expiration of the second employment agreement in February 1998, it again
established Mr. Wells' base salary for the remainder of 1998 at $150,000.
Similarly, the number of stock options granted by the Committee to Mr. Wells in
1998 was determined by the Committee's subjective belief regarding Mr. Wells'
ability to 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
Section 162(m) of the Internal Revenue Code limits the tax deduction
to $1 million for 1998 compensation paid to each of Messrs. Wells, Turek and
Nichols unless several requirements are met. The Committee has reviewed these
requirements and believes that all compensation paid to these executive
officers in 1998 is fully deductible. The Committee also believes that
compensation paid under the SIP will continue to be deductible. The Committee's
present intention is to comply with the requirements of Section 162(m) unless
and until the Committee determines that compliance would not be in the best
interests of the Company and its stockholders.
COMPENSATION COMMITTEE
Gary S. Bell
H. Jean Marshall
John J. Wingfield
14
<PAGE> 17
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
A principal function of the Compensation Committee is to establish the
compensation of the executive officers of the Company. The Chairman of the
Committee, Gary S. Bell, served during 1998 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 1998, 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 other 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 1998 the Company paid $36,000 to
III for these services, all of which related to services by Mr. Bell.
Another member of the Compensation Committee, H. Jean Marshall, served
from May 1997 through May 1998 as a paid consultant to the Company and was an
officer of the Company from 1992 until May 1997. The Company paid Ms. Marshall
$7,500 for marketing-related consulting services in 1998.
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 1998, the Company paid $1,142,172 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.
15
<PAGE> 18
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS ON COMPANY COMMON STOCK
VS. AMEX STOCK MARKET INDEX AND AMEX MACHINE AND COMPUTER MANUFACTURERS INDEX
(CHART)
<TABLE>
<CAPTION>
Symbol CRSP Total Returns Index for: 12/1993 12/1994 12/1995 12/1996 12/1997 12/1998
- ------ ----------------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Interlott Technologies, Inc. 72.9 69.8 58.3 66.7 54.2
AMEX Stock Market (US Companies) 108.8 101.5 130.5 132.6 165.8 177.1
AMEX Stocks (SIC 3500-3599 U.S. Companies) 101.8 102.2 127.8 101.6 104.0 104.8
Industrial and commercial machinery and computer equipment
</TABLE>
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on
the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
D. The index level for all series was set to $100.00 on 04/14/1994.
16
<PAGE> 19
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 1998, 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 LLP to serve as independent
auditors of the Company for the fiscal year ending December 31, 1999 and has
directed that such appointment be submitted to the stockholders of the Company
for ratification at the Annual Meeting. KPMG 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 LLP, the Board of Directors will reconsider the appointment.
Representatives of KPMG 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 LLP AS INDEPENDENT
AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999.
STOCKHOLDERS' PROPOSALS FOR 2000 ANNUAL MEETING
Director nominations and other proposals of stockholders intended to
be presented at the 2000 Annual Meeting of Stockholders, together with certain
related information specified in Rule 14a-8 of the Securities and Exchange
Commission, 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 10, 1999 in order for such matters to be included
in the Company's proxy materials for, and voted upon at, the 2000 Annual
Meeting. Nominations and other proposals of stockholders that are submitted to
the Company after such date may not be submitted for action by the Company's
stockholders at the 2000 Annual Meeting. See "Voting - Proxies; Other Matters
That May Come Before the Annual Meeting." All such proposals, nominations and
related information should be submitted on or before such date by certified
mail,
17
<PAGE> 20
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.
By Order of the Board of Directors.
/s/ Gary S. Bell
-------------------------------------
Gary S. Bell
Secretary
Cincinnati, Ohio
April 8, 1999
----------------
The Company's 1998 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.
18
<PAGE> 21
INTERLOTT TECHNOLOGIES, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR ANNUAL MEETING TO BE HELD ON MAY
6, 1999
The undersigned hereby appoints Dennis W. Blazer and L. Rogers Wells, Jr.,
jointly and severally, proxies, with full power of substitution, to vote all
shares of common stock of Interlott Technologies, Inc. which the undersigned is
entitled to vote at the 1999 Annual Meeting of Stockholders and any adjournments
thereof as indicated below as to Proposals 1 and 2. The proxies hereby are
further authorized to vote in their discretion on (i) the election of any person
as a director if a director nominee named in Proposal 1 is unable to serve or
for good cause will not serve, (ii) matters which the Board of Directors did not
know would be presented at the Annual Meeting a reasonable time before the proxy
solicitation was made and (iii) matters incident to the conduct of the Annual
Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED. IF NO
INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED "FOR ALL" NOMINEES NAMED IN
PROPOSAL 1 AND "FOR" PROPOSAL 2. 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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR ALL" DIRECTOR NOMINEES.
1. Election of Directors:
Nominees to serve until the 2002 Annual Meeting of Stockholders: David F.
Nichols and John W. Wingfield
[ ] FOR ALL [ ] WITHHOLD ALL
For, except vote withheld from the following nominee(s):
---------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF INDEPENDENT AUDITORS.
2. Ratification of Appointment of KPMG LLP as Independent Auditors
[ ] FOR [ ] AGAINST [ ] ABSTAIN
[ ] I plan to attend the Annual Meeting [ ] Change of
Address on Reverse Side
SIGNATURE(S)
--------------------------------
DATE
--------------------------------
Change of Address:
--------------------------------
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--------------------------------
--------------------------------
(If you have written in the
above space, please mark the
corresponding box on the reverse
side of this card.)
