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
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
POWERHOUSE 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:
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(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):
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[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 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:
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(3) Filing Party:
(4) Date Filed:
<PAGE>
Powerhouse Technologies, Inc.
2311 South 7th Avenue
Bozeman, MT 59715
(406) 585-6601
---------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
June 4, 1998
---------------------
GENERAL INFORMATION
Solicitation of Proxies. This Proxy Statement (the "Proxy Statement") and
the accompanying form of proxy are being furnished to stockholders of Powerhouse
Technologies, Inc. ("Powerhouse" or the "Company") in connection with the
solicitation of proxies by the Board of Directors (the "Board of Directors") of
the Company from holders of its outstanding common stock, $.01 par value per
share (the "Common Stock"), for use at the 1998 Annual Meeting of Stockholders
(together with any adjournments or postponements thereof, the "Meeting") for the
purposes set forth in the accompanying Notice of Annual Meeting of Stockholders.
The Meeting will be held on Thursday, June 4, 1998, at the Swissotel, Conference
Level, Fourth Floor, Ballroom E, 3391 Peachtree Road, NE, Atlanta, Georgia,
30326 at 10:00 a.m. EDT. This Proxy Statement and the form of proxy are being
mailed to stockholders commencing on or about May 4, 1998.
Expenses in connection with the solicitation of proxies will be paid by the
Company. Proxies are being solicited primarily by mail, but, in addition,
officers and regular employees of the Company who will receive no extra
compensation for their services may solicit proxies by telephone, facsimile or
in person. Brokerage houses and other nominees, fiduciaries and custodians who
are holders of record of shares of Common Stock will be requested to forward
proxy soliciting material to the beneficial owners of such shares and will be
reimbursed by the Company for their charges and expenses in connection therewith
at customary and reasonable rates.
Proxies. A stockholder giving the enclosed proxy may revoke it at any time
before the vote is cast at the Meeting by giving written notice to the secretary
of the Company, by filing with the secretary another proxy bearing a later date,
or by voting in person at the Meeting. Shares represented by a properly signed
and returned proxy card, unless revoked, will be voted in the manner directed by
the stockholder on the card. If no direction is made on the card, the proxy will
be voted for the election of each nominee for director named in this Proxy
Statement and for each of the other proposals identified herein.
Record Date. Only holders of record of shares of Common Stock as of the
close of business on April 13, 1998 (the "Record Date") are entitled to notice
of, and to vote at, the Meeting. Each share of Common Stock entitles the holder
to one vote upon each matter to be voted upon. As of the Record Date, there were
10,802,821 shares of Common Stock outstanding and entitled to vote. The only
outstanding voting securities of the Company are shares of its Common Stock.
Quorum and Required Vote. The presence, in person or by proxy, of a
majority of the shares entitled to vote will constitute a quorum for the Meeting
(a "Quorum"). In the event that a Quorum is not present at the Meeting, the
persons named as proxies may propose one or more adjournments of the Meeting to
permit further solicitation of proxies, without notice other than announcement
at the Meeting.
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<PAGE>
Any such adjournment will require the affirmative vote of a majority of those
shares that are represented at the Meeting in person or by proxy.
An automated system administered by the Company's transfer agent tabulates
the proxy votes in combination with a manual update and confirmation by
employees of the Company. The accuracy and final tabulation will be verified by
the inspector of elections. Although there is no definitive statutory or case
law authority in Delaware as to the proper treatment of abstentions, the Company
believes that abstentions should be counted for purposes of determining the
presence of a Quorum at the Meeting and the total number of votes cast with
respect to a particular matter. In the absence of controlling authority to the
contrary, the Company will treat abstentions in this manner. Based on relevant
authority, broker non-votes will be counted for the purpose of determining the
presence of a Quorum at the Meeting, but will not be counted for the purpose of
determining the number of votes cast with respect to the particular proposal on
which the broker has expressly not voted and, therefore, will not affect the
determination as to whether the requisite majority of votes cast has been
obtained with respect to a particular matter. Consequently, broker non-votes
will have the effect of reducing the number of affirmative votes required to
achieve a majority of the votes cast.
In order to be elected, a nominee for director must receive an affirmative
vote of a plurality (abstentions are not counted as shares voted) of the shares
of Common Stock voted, in person or by proxy, at the Meeting. Amendment to the
Company's stock plan requires the affirmative vote of a majority of the shares
of Common Stock present, in person or by proxy, at the Meeting.
PROPOSAL 1 -- ELECTION OF DIRECTORS
The Company has a classified Board of Directors consisting of three Class 1
directors (Ms. Becker and Messrs. Burt and Haddrill), two Class 2 directors (Mr.
Davey and, until his resignation on February 13, 1998, Mr. Spier), and two Class
3 directors (Mr. Hardesty and, until his resignation on July 30, 1997, Mr.
Lyons.) The Class 1, Class 2 and Class 3 directors currently serve until the
annual meetings of stockholders to be held in 1998, 1999 and 2000, respectively,
and after the Meeting, until 2001, 1999 and 2000, respectively, and until their
respective successors are elected and qualified. At each annual meeting of
stockholders, directors are elected for a full term of three years to succeed
those whose terms are expiring. Vacancies on the Board of Directors and newly
created directorships can generally be filled by vote of a majority of the
directors then in office. Executive officers are elected annually by the Board
of Directors and serve at the discretion of the Board of Directors.
At the Meeting, stockholders are being asked to elect three directors to
serve as a Class 1 directors until the annual meeting of stockholders in 2001
and until their successors are duly elected and qualified. After the Meeting
there will exist two vacancies on the Board of Directors, one in Class 2 and one
in Class 3.
In order to be elected, a nominee for director must receive an affirmative
vote of a plurality of the shares of Common Stock voted, in person or by proxy,
at the Meeting.
Unless otherwise directed, the persons named in the enclosed form of proxy
intend to vote for the election of the nominees listed below as directors for
the ensuing term and until their successors are elected and qualified. In the
event any of the nominees for any reason should not be available as a candidate
for director, votes will be cast pursuant to authority granted by the enclosed
proxy for such other candidate or candidates as may be nominated by management.
The Board of Directors knows of no reason to anticipate that the nominees will
not be candidates. Except as set forth below, each of the nominees has been
engaged in his or her principal occupation for at least the past five years.
There is no family relationship between any of the directors and executive
officers of the Company.
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<PAGE>
The following sets forth certain information as of April 13, 1998,
concerning the nominees for election as directors of the Company and the other
directors whose terms of office will continue after the Meeting.
Name Age Position
Richard R. Burt (2)(3) 51 Chairman and Director
James J. Davey (1)(2) 56 Vice Chairman and Director
Patricia W. Becker (1)(2)(3) 46 Director
John R. Hardesty 58 Director
Richard M. Haddrill(3) 44 Director, President, Chief
Executive Officer and Treasurer
- ----------
(1)Member of the Audit Committee.
(2)Member of the Compensation Committee.
(3)Member of the Executive Committee.
Nominees for Election as Class 1 Directors with Terms Expiring in 2001
Richard R. Burt became a director and chairman of the Company on December
15, 1994. Mr. Burt is a founder and the chairman of IEP Advisors, Inc. in
Washington D.C., a consulting and merchant banking firm. From 1991 to 1994, Mr.
Burt was a partner in McKinsey & Co., a world-wide management consulting firm.
During the period from 1989 to 1991, Mr. Burt served as the Chief Negotiator in
the Strategic Arms Reduction Talks (START) with the former Soviet Union. He was
the U.S. Ambassador to the Federal Republic of Germany from 1985 to 1989. Mr.
Burt was the Assistant Secretary of State for European and Canadian Affairs from
1983 to 1985, and served as Director of Politico-Military Affairs from 1981 to
1983. Mr. Burt also serves as the Chairman of the Board of Weirton Steel, Inc.,
a tin-plate manufacturer, and serves on the Board of Directors of the Paine
Webber Mutual Funds, Hollinger International, a company owning newspapers in
Europe, Canada, Australia and the United States, and Archer Daniels Midland, an
agri-business company. In addition, Mr. Burt is a member of the Textron
Corporation's International Advisory Council and the Bank of Montreal's
International Advisory Board. (See "Compensation Committee Interlocks and
Insider Participation".)
Patricia W. Becker was appointed to the Board of Directors effective
January 18, 1995 to fill a newly created position thereon. Ms. Becker is the
owner of Patricia Becker & Associates, a consulting firm. She is a consultant to
the Company and serves as chair of its Compliance Committee. Ms. Becker served
as the chief of staff to Bob Miller, Governor of Nevada, from October 1993 to
January 1995. Prior to that, she was senior vice president, general counsel and
secretary of Harrah's Casino Hotels from June 1989 to July 1993 and vice
president, general counsel and secretary from 1984 to 1989. Ms. Becker was
deputy and chief deputy attorney general assigned to the Nevada Gaming Division
from 1979 until she was appointed to the State Gaming Control Board, where she
served until September 1984. Ms. Becker is a vice chair for the Gaming Law
Section of the American Bar Association, a past president of the Nevada Trial
Lawyers Association and treasurer and a trustee of the International Association
of Gaming Attorneys. Ms. Becker currently serves on the Board of Directors of
Fitzgeralds Gaming Company, a Nevada based company which owns casinos. (See
"Compensation Committee Interlocks and Insider Participation".)
Richard M. Haddrill was appointed as chief executive officer of the Company
on June 18, 1997 and as president of the Company and to its Board of Directors
on August 21, 1996. In addition, on June 18, 1997 he was appointed chief
executive officer of the Company's Automated Wagering International, Inc.
("AWI") subsidiary, and has served as president of AWI since December 1996. Mr.
Haddrill joined the Company in December 1994 as the Company's executive vice
president of operations and chief financial officer. He served as chief
financial officer until May 15, 1997. In December 1994, Mr. Haddrill was also
appointed treasurer of the Company. In August 1995, Mr. Haddrill was appointed
to the Board of Directors of the Company's United Wagering Systems, Inc. ("UWS")
subsidiary, and assumed
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<PAGE>
the position of chief executive officer of UWS in February 1996. From July 1992
until November 1994, Mr. Haddrill served as executive vice president --
corporate and president of international subsidiaries for Knowledgeware, Inc., a
provider of application development software and services worldwide. Prior to
joining Knowledgeware, Inc. in 1991 as an executive vice president and chief
financial officer, Mr. Haddrill was the managing partner of the Colorado and New
Mexico offices of the accounting firm of Ernst & Young from August 1989 to
October 1991 and held various positions as a partner or employee with Ernst &
Young from January 1975 to September 1989.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES
Director with Term Expiring in 1999
James J. Davey was elected as a director of the Company effective February
25, 1993, and was elected as vice chairman on May 31, 1994. He first joined the
Company as chief operating officer in October 1992. Mr. Davey served as chief
executive officer from February 25, 1993 until May 31, 1994, and from February
24, 1994 until May 31, 1994, he also served as president. From October 1992
until February 1993, Mr. Davey served as president of the Company's on-line
lottery services subsidiary, AWI. From 1986 to October 1992, Mr. Davey was the
director for the Oregon State Lottery. From 1985 to 1986, Mr. Davey was deputy
director and assistant director of administration for the Oregon State Lottery.
From 1980 through 1984, Mr. Davey served as administrator for the Oregon
Department of Revenue.
Director with Term Expiring in 2000
John R. Hardesty was appointed to the Board of Directors effective December
18, 1996. Mr. Hardesty is chairman of Electro Dynamics Crystal Corporation, a
manufacturer of electronic components for the communication industry. Mr.
Hardesty also owns 100% of Thermo Dynamics, Inc., a manufacturer of synthetic
quartz for the electronics industry and investments, J.G. Inmobiliaria SA De.CV
and Inmobiliaria San Pancho, Mexican corporations which hold real estate
investments; and Zona Virtual SA De.CV, a Mexican corporation which is an
internet provider and computer sales and service company in Puerto Vallerta,
Mexico. Mr. Hardesty serves as a director of LeTeko, Inc., a gold exploration
company. From 1988 until its sale in 1995, Mr. Hardesty was the owner and
chairman of Dixson Inc., a manufacturer of electronic instruments for the heavy
duty truck market and process control market.
Committees of the Board of Directors
The Board of Directors has established a compensation committee (the
"Compensation Committee"), an audit committee (the "Audit Committee"), a special
committee (the "Special Committee") and an executive committee (the "Executive
Committee"). In January 1997, the Board of Directors abolished the strategic
planning committee (the "Strategic Planning Committee"). The members of these
committees serve at the pleasure of the Board of Directors, and such committees
provide such support and assistance to the Board of Directors as it so directs.
The Board of Directors does not have a nominating committee.
The Compensation Committee is currently comprised of Ms. Becker and Messrs.
Burt and Davey with Mr. Burt serving as chairperson. Mr. Spier served on the
Compensation Committee until his resignation February 13, 1998. As requested by
the Board of Directors, the Compensation Committee considers and recommends to
the Board of Directors the compensation to be paid to executive officers, makes
decisions regarding grants under the Company's stock incentive plan, makes
recommendations to the Board of Directors with respect to the Company's
compensation policies, and performs such other duties as the Board of Directors
may from time to time request. The Compensation Committee met four times during
1997.
The Audit Committee is currently comprised of Ms. Becker and Mr. Davey with
Ms. Becker serving as chairperson. Mr. Spier served on the Audit Committee until
his resignation February 13, 1998. The Audit
4
<PAGE>
Committee reviews the Company's financial and accounting controls, practices and
procedures, evaluates and recommends an independent public accounting firm to
audit the financial statements of the Company and evaluates its performance. The
Audit Committee also determines the duties and responsibilities of the internal
accounting and auditing staff of the Company. The Audit Committee met four times
during 1997.
The Strategic Planning Committee was created to consider the various
strategic and financial alternatives and opportunities available to the Company
and to formulate an overall long-term strategic plan for the Company designed to
enhance stockholder value. The Strategic Planning Committee was comprised of Ms.
Becker and Messrs. Burt, Davey, Lyons and Spier with Mr. Burt serving as the
chairperson. The Strategic Planning Committee met once during 1997. The
Strategic Planning Committee was abolished effective January 31, 1997.
The Board of Directors established the Special Committee to consider a
proposal made by Mr. Spier and otherwise to discharge the duties of the
Strategic Planning Committee, of which Messrs. Spier and Lyons were members at
the time the proposal was made by Mr. Spier. Although that offer by Mr. Spier
was subsequently withdrawn, the Special Committee continued to consider
strategic and financial alternatives and opportunities available to the Company.
The Special Committee is currently comprised of Ms. Becker and Messrs. Burt,
Davey and Hardesty, with Mr. Burt serving as the chairperson. The Special
Committee met 15 times during 1997. The Committee has not been active since June
1997.
On September 18, 1997, the Board of Directors established the Executive
Committee to exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the Company, except power or
authority in reference to approving or adopting, or recommending to
stockholders, any action or matter expressly required by the Delaware General
Corporation Law to be submitted to stockholders for approval or adopting,
amending or repealing any By-law of the Company. The Executive Committee is
comprised of Ms. Becker and Messrs. Burt and Haddrill, with Mr. Burt serving as
chairperson. The Executive Committee met three times during 1997.
Certain Additional Information Concerning the Board of Directors
The Board of Directors held 13 meetings during 1997. During fiscal 1997
each director attended at least 75% of the aggregate number of meetings of the
Board of Directors and respective committees on which he or she served while a
member thereof.
During 1997, directors who were not employees of the Company received
$15,000 annually for serving on the Board of Directors, plus $1,000 for each
Board or committee meeting attended. Additionally, each non-employee director
who is required to travel to appear before licensing authorities on behalf of
the Company's licensing initiatives is entitled to receive $1,000 for each day
they are required to appear and reimbursement for out-of-pocket expenses
incurred by reason of such appearance. A non-employee director serving as
chairperson of the Company's Board of Directors receives $30,000 annually for
serving in such capacity. Each non-employee director who serves as the
chairperson of any active committee of the Board of Directors receives a further
fee of $7,500 per annum for his or her services in such capacity. In
consideration of the extensive work and time required of the members of the
Strategic Planning Committee, effective August 1, 1995, and through January 31,
1997, the chairperson of the Strategic Planning Committee received $5,000 per
month, and Committee members $2,500 per month. Directors are also reimbursed for
out-of-pocket expenses incurred in attending Board of Directors and committee
meetings or in otherwise discharging their Board duties. Directors who are
employees of the Company receive no additional compensation for serving as a
director, except that all directors and certain executive officers receive up to
$10,000 in reimbursement of their expenses in connection with the initial
preparation of financial information required in answer to various regulatory
disclosure requirements and up to $1,500 per quarter thereafter to keep such
financial information current.
As non-employee directors, Mr. Spier was granted an option under the
Company's 1991 Stock Option Plan to purchase 10,000 shares of Common Stock at an
exercise price of $14.00 per share, which
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<PAGE>
option, unless exercised, will expire May 13, 1998; Mr. Lyons was granted an
option to purchase 10,000 shares of Common Stock at an exercise price of $14.50
per share pursuant to the Company's 1992 Stock Incentive Plan, and an option to
purchase 20,000 shares at an exercise price of $11.25 per share pursuant to the
Company's 1993 Stock Incentive Plan for Non-Employee Directors, which options
expired 3 months after his resignation; Mr. Burt was granted an option to
purchase 10,000 shares of Common Stock pursuant to the Company's 1994 Stock
Incentive Plan, and an option to purchase 20,000 shares pursuant to the
Company's 1993 Stock Incentive Plan for Non-Employee Directors, with both
options having an exercise price of $8.25 per share; Ms. Becker was granted an
option to purchase 10,000 shares of Common Stock pursuant to the Company's 1994
Stock Incentive Plan and an option to purchase 20,000 shares pursuant to the
Company's 1993 Stock Incentive Plan for Non-Employee Directors, with both
options having an exercise price of $9.28 per share; Mr. Davey received an
option to purchase 10,000 shares of Common Stock pursuant to the Company's 1994
Stock Incentive Plan and an option to purchase 20,000 shares pursuant to the
Company's 1993 Stock Incentive Plan for Non-Employee Directors, with both
options having an exercise price of $3.41 per share; and Mr. Hardesty received
an option to purchase 10,000 shares of Common Stock pursuant to the Company's
1994 Stock Incentive Plan and an option to purchase 20,000 shares pursuant to
the Company's 1993 Stock Incentive Plan for Non-Employee Directors, with both
options having an exercise price of $4.13 per share.
Executive Officers of the Company
The executive officers of the Company and positions held in the Company and
certain other information are as follows:
Name Age Position
---- --- --------
Richard M. Haddrill 44 President, Chief Executive Officer,
Treasurer and Director
Michael L. Eide 48 President, Video Lottery Consultants, Inc.
Dennis V. Gallagher 45 General Counsel and Secretary
Susan J. Carstensen 36 Chief Financial Officer
-------------
Mr. Haddrill's background is summarized above.
Michael L. Eide has served as president and a director of the Company's
wholly-owned subsidiary, Video Lottery Consultants, Inc. ("VLC"), since December
1, 1994. Prior to that time he served as treasurer and chief financial officer
of the Company from May 1991 until December 1994 and assistant secretary from
October 1992 through December 1994. He has also held the positions of secretary,
treasurer and assistant secretary with VLC during the period November 1990
through December 1994. From 1977 to December 1988, Mr. Eide was a principal in
the accounting firm of Neil, Williamson, Eide and Staker in Bozeman, Montana.
Dennis V. Gallagher was appointed secretary of the Company on May 15, 1997
and as general counsel to the Company on February 10, 1997. From July 1993 until
February 1997, Mr. Gallagher was vice president and general counsel of Harrah's
Riverboat Casino Entertainment Division located in Memphis, Tennessee. From
November 1984 until July 1993, he served as associate general counsel and
assistant secretary of Harrah's Hotels and Casinos in Reno, Nevada. Mr.
Gallagher was the Chief of the Investigations Division of the Nevada State
Gaming Control Board from November 1983 until November 1984.
Susan J. Carstensen was appointed chief financial officer on May 15, 1997.
Ms. Carstensen was vice president, finance of the Company from November 7, 1996
to May 15, 1997. From June 1995 to November 1996 she was corporate controller
for the Company. From February 1995 to June 1995 she was the director of
internal audit for the Company. Ms. Carstensen managed the cost and financial
accounting for Martin Marietta Astronautics Group in Denver, Colorado from May
1991 through February
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<PAGE>
1995. From August 1985 through May 1991 Ms. Carstensen was with the accounting
firm of Ernst & Young in Denver, Colorado.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain information for the year ended
December 31, 1997 and for the years ended December 31, 1996 and 1995 concerning
the compensation of the individual serving as chief executive officer as of
December 31, 1997 and the three most highly compensated executive officers of
the Company (other than the chief executive officer) who were serving as
executive officers as of December 31, 1997.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Other Awards
------------------- Annual ------ All Other
Name and Compen- Restricted Stock Option Compen-
Principal Position Year Salary $ Bonus $ sation $ Stock $ (1) (Shares) sation $
- ------------------ ---- -------- ------- --------- -------- ---------------- ------
<S> <C> <C> <C> <C> <C> <C>
Richard M. Haddrill 1997 260,523 430,000 154,189(2) --- --- ---
President, Chief 1996 202,133 150,000 --- 133,200 140,000 ---
Executive Officer and 1995 200,000 150,000 --- --- --- ---
Treasurer
Michael L. Eide 1997 203,256 126,000 --- --- 8,000 ---
President - VLC 1996 203,256 40,000 --- --- 20,000 ---
1995 207,620 --- --- --- --- ---
Dennis V. Gallagher 1997 155,770 61,000 53,956(2) --- 20,000 ---
General Counsel and Secretary
Susan J. Carstensen 1997 100,031 48,000 --- --- 18,000 ---
Chief Financial Officer 1996 69,276 15,000 --- --- --- ---
1995 55,308 5,000 4,405(2) --- --- ---
</TABLE>
- ----------
(1) With respect to Mr. Haddrill's restricted stock holdings, of the initial
grant in 1994 of 70,000 shares, 17,500, with a market value of
approximately $203,438, remained restricted as of December 31, 1997; such
restrictions will lapse in November 1998. Mr. Haddrill was also awarded
30,000 shares of restricted Common Stock in 1996, 20,000 of which, with a
market value of approximately $232,500, remained restricted as of December
31, 1997; such restrictions will lapse with respect to 10,000 such shares
in each of September 1998 and 1999. (See "Employment and Other Contracts.")
All dividends declared and paid by the Company, if any, on the restricted
stock, shall be held by the Company until such restrictions thereon lapse,
at which time the dividends, without interest thereon, shall be paid.
(2) Relocation expense reimbursement and allowance.
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<PAGE>
Option Grants in Year Ended December 31, 1997
The following table sets forth information with respect to options granted
under the Company's 1994 Stock Incentive Plan to each of the executive officers
and directors named in the Summary Compensation Table above during 1997.
<TABLE>
OPTION GRANTS DURING 1997
<CAPTION>
Individual Grants
----------------------------------------------------- Potential Realizable Value
Number of Percent of at Assumed Annual Rates of
Securities Total Options Stock Price Appreciation
Underlying Granted to Exercise for Option Term(3)
Options Employees Price Expiration ------------------
Name Granted(1) in 1997 (per Share)(2) Date 5% 10%
- --------------- ---------- ---------- -------------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Michael L. Eide 8,000 3.4% $3.81 02/27/07 19,181 48,609
Dennis V. Gallagher 20,000 8.6% $3.81 02/27/07 47,953 121,523
Susan J. Carstensen 10,000 4.3% $3.81 02/27/07 23,977 60,761
8,000 3.4% $9.91 09/18/07 49,840 126,305
</TABLE>
- ----------
(1) These options vest over a period of three years.
(2) All options were granted at an exercise price equal to the fair market
value of the Common Stock on the date of grant. Such options may not be
exercised later than 10 years, or earlier than one year, after the date of
grant.
(3) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises are dependent on the future
performance of the Common Stock and overall market conditions. The amounts
reflected in this table may not necessarily be achieved.
The following table provides certain information with respect to the number and
value of unexercised options outstanding as of December 31, 1997. No options
were exercised by the named executives during the year ended December 31, 1997.
<TABLE>
Aggregated 1997 Option Exercises
and December 31, 1997 Option Values
<CAPTION>
Number of Unexercised Options
(in Common Shares) Value of Unexercised In-the-Money
at December 31, 1997 Options at December 31, 1997(1)
---------------------------- ------------------------------
Exercisable/Unexercisable Exercisable/Unexercisable
- --------------------------- ----------------------------
<S> <C> <C>
Richard M. Haddrill 202,800/70,000 $832,893/$251,475
Michael L. Eide 58,666/21,334 $203,396/$144,304
Dennis V. Gallagher ---/20,000 ---/$156,250
Susan J. Carstensen ---/18,000 ---/$ 91,875
</TABLE>
- ----------
(1) Options are in the money if the fair market value of the underlying
securities exceeds the exercise or base price of the option. Fair market
value of the Common Stock underlying the options on December 31, 1997 was
$11.625, the average of the high and low reported sales price on the Nasdaq
National Market System on that date.
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<PAGE>
DEFINED BENEFIT AND LONG-TERM COMPENSATION PLAN
The Company does not have any defined benefit, actuarial or long-term
incentive plans.
EMPLOYMENT AND CERTAIN OTHER CONTRACTS
Employment Agreement with Richard M. Haddrill: Pursuant to the terms of an
employment agreement with Mr. Haddrill approved by the Board of Directors on
February 26, 1998, Mr. Haddrill serves the Company as its president and chief
executive officer. Unless sooner terminated pursuant to its terms, the
employment agreement terminates on January 1, 2002 and is subject to one-year
extensions thereafter. The employment agreement provides for a base salary of
$380,000. Mr. Haddrill is eligible to receive annual bonuses up to twice the
base salary if certain performance criteria are satisfied for such year. In
addition, Mr. Haddrill was awarded 100,000 shares of restricted Common Stock
that vest at the rate of one-fourth annually over the next four years beginning
on January 1, 1999 and options to purchase 50,000 shares of Common Stock at an
exercise price of $11.4876 per share, the average of the closing value of the
Common Stock for the 20 trading days immediately preceding the date of grant.
These grants were contingent on stockholder approval of an amendment to the 1994
Stock incentive Plan increasing the maximum number of shares that any eligible
employee may receive pursuant to the plan, which amendment is being submitted
for stockholder approval at the Meeting. Should the stockholders fail to approve
such amendment, Mr. Haddrill and the Company will agree to comparable
consideration to be substituted for the restricted stock award and the option
grant. The employment agreement further provides that if Mr. Haddrill's
employment is terminated for any reason, then all unvested restricted shares
shall revert to the Company. In addition, the employment agreement provides that
if Mr. Haddrill's employment is terminated for "cause" (as defined in the
employment agreement) or by him other than for "good reason" (as defined in the
employment agreement), then all unvested options shall be forfeited. If Mr.
Haddrill's employment is terminated for any other reason, then certain of the
options become exercisable. All such options become immediately exercisable, and
all restrictions on restricted stock held by Mr. Haddrill immediately lapse,
upon a "change in control" (as defined in the employment agreement) of the
Company. In addition, if Mr. Haddrill's employment is terminated for any reason
other than "cause" or if he terminates his employment for "good reason"
(including termination in certain circumstances following a change in control),
then he is entitled to receive all accrued but unpaid salary and bonus and to
receive a lump sum equal to two times the sum of the total base salary plus
annual bonus, as well as payment of certain benefits through the remaining term
of the employment agreement. Mr. Haddrill is entitled to the reimbursement of
certain relocation expenses and other business expenses. Finally, the employment
agreement provides that Mr. Haddrill will not compete with the Company for a
period of 18 months following his termination.
Agreement with Dennis V. Gallagher: On January 24, 1997, the Company
entered into an agreement with Mr. Gallagher to provide legal services to the
Company as its general counsel. The agreement provides Mr. Gallagher with a base
salary of $180,000 and a cash bonus potential of $100,000 based upon the
Company's executive incentive compensation plan. In addition, under the
agreement, Mr. Gallagher was awarded options to purchase 20,000 shares of Common
Stock within sixty days of his date of employment and an additional option to
purchase 10,000 shares no later than February 8, 1998, both grants at fair
market value as of the date of grant and to vest over a three-year period from
the date of grant. Mr. Gallagher is entitled to reimbursement of his relocation
expenses. In the event termination is without cause after February 8, 1998, he
will continue to be paid his then current salary for a period of six months
following termination. In the event there is a change in control of the Company
and Mr. Gallagher's employment is terminated by the Company without good cause,
or by Mr. Gallagher for certain reasons set forth in the agreement, within one
year then Mr. Gallagher is entitled to an amount equal to one-half his base
salary in effect at the date of termination. Mr. Gallagher also agreed to
certain confidentiality, non-competition and similar provisions.
9
<PAGE>
Agreement with Michael L. Eide: On January 17, 1995, the Company entered
into an agreement with Mr. Eide to provide for the continuance of his position
as president of VLC. If Mr. Eide is removed from his position with the Company
without cause, he will receive his then-current salary for a period of six
months following termination. In the event there is a change in control of the
Company and Mr. Eide's employment is terminated by the Company without good
cause, or by Mr. Eide for certain reasons set forth in the agreement, then Mr.
Eide is entitled to an amount equal to twice his annual salary. Mr. Eide also
agreed to certain confidentiality, non-competition and similar provisions.
Agreement with Susan J. Carstensen: On December 5, 1996, the Company
entered into an agreement with Ms. Carstensen. If Ms. Carstensen is removed from
her position with the Company without cause, she will receive her then current
salary for a period of six months following termination. In the event there is a
change of control of the Company and Ms. Carstensen's employment is terminated
by the Company without good cause, or by Ms. Carstensen for certain reasons set
forth in the agreement, then Ms. Carstensen is entitled to an amount equal to
one-half of her annual salary. Ms. Carstensen also agreed to certain
confidentiality, non-competition and similar provisions.
Compensation Committee Interlocks and Insider Participation
Richard R. Burt, who became the chairman of the Board of Directors in
December 1994, is the chairman and a founder of IEP Advisors, Inc. (IEP), which
has been retained by the Company to provide consulting services and to assist
the Company in connection with its international activities since October 1994
at a rate of $15,000 per month plus expenses. The Company paid IEP an aggregate
of approximately $180,000 for 1997. The current contract with IEP Advisors
terminates in October 1998 unless terminated upon 30 days notice by the Company
or IEP.
In addition, Mr. Burt and the Company entered into a consulting agreement
in November 1994, under which Mr. Burt is to provide advice and assistance
relating to the promotion of the Company's business and to assist in the
development of business opportunities for the Company. The agreement provides
for a per-day rate of $1,000 for each day such services are performed and
reimbursement of out-of-pocket expenses. The agreement is separate and distinct
from Mr. Burt's duties and responsibilities as a director of the Company. The
agreement further provides for termination of the agreement by Mr. Burt or the
Company, without penalty, upon 90 days' prior written notice. During 1997 an
aggregate of approximately $2,000 was paid pursuant to the agreement.
In December 1995 the Company entered into a consulting agreement with
Patricia W. Becker, a director of the Company, for the period of two years
commencing January 16, 1995. In September 1997 the Board renewed the agreement
for an additional period of one year. The agreement provides that Ms. Becker
shall serve as the chairperson of the Compliance Committee of the Company, and
otherwise provide advice and assistance to the Company on matters of regulatory
compliance and such other matters as requested by the Company. The agreement
provides for an annual retainer fee of $75,000 plus a per day rate of $1,000 for
each day such services are performed and reimbursement of out-of-pocket
expenses. The agreement is separate and distinct from Ms. Becker's duties and
responsibilities as a director of the Company. The agreement further provides
for termination of the agreement by Ms. Becker or the Company, without penalty,
upon 90 days' prior written notice. The Company paid Ms. Becker an aggregate
amount of approximately $133,000 during the fiscal year ended December 31, 1997
pursuant to the agreement.
None of the executive officers of the Company has served on the board of
directors of any other entity that has had any of such entity's officers serve
either on the Board of Directors or the Company's Compensation Committee.
10
<PAGE>
Compensation Committee Report on Executive Compensation
General. The basic compensation philosophy of the Compensation Committee is
to formulate policies and programs intended to attract, retain and motivate
qualified employees, including executive officers. In this regard, the
Compensation Committee believes that it is important to pay reasonable and
competitive salaries and base compensation to executive officers that reflect
their levels of experience and responsibility. In light of the Company's efforts
to maintain its reputation for integrity among its customers, regulatory
authorities and licensing agencies, a significant factor in the review of
executive officer performance is such officer's strict adherence to the
Company's code of conduct and such officer's avoidance of even the appearance of
questionable conduct.
The Compensation Committee also believes that officers of the Company
should view their interests and those of the Company's stockholders to be
closely aligned. Accordingly, the Compensation Committee carefully considers the
Company's performance, the individual's performance and that of the Common Stock
in reviewing executive compensation and may employ grants of options and awards
of restricted stock under the Company's stock incentive plan as an important
part of incentive compensation. In addition, the Compensation Committee believes
that grants under the Company's stock incentive plan are an important means of
attracting and retaining qualified employees to the Company while at the same
time instilling a commitment to the long-term growth and success of the Company.
In 1997 The Compensation Committee granted options to purchase an aggregate
of 212,000 shares of Common Stock to 32 employees. The exercise price of options
was the average between the high and low sales price of a share of Common Stock
on the date of grant and vesting of the options is typically over a period of
three years. By seeking to motivate employees through a stock incentive plan,
the Compensation Committee has sought to focus employee attention on managing
the Company as an owner with an equity position with interests similar to those
of stockholders.
Chief Executive Officer Compensation. On September 9, 1996, the Board of
Directors approved the terms of an employment agreement for Mr. Haddrill
pursuant to which he became the Company's president. Mr. Haddrill's compensation
for 1996 and 1997 was paid pursuant to that agreement.
On February 26, 1998 the Board of Directors approved an employment
agreement with Mr. Haddrill, which agreement supersedes Mr. Haddrill's previous
employment agreement, which was to expire December 31, 1998. In developing this
agreement the Compensation Committee engaged an independent consulting firm to
research relevant market and industry compensation practices and otherwise to
advise with respect to the chief executive officer compensation package. In
arriving at the new agreement, the Compensation Committee considered the
Company's improved performance under Mr. Haddrill's leadership and Mr.
Haddrill's performance of the additional duties associated with the chief
executive position. The Compensation Committee heavily weighed comparable market
compensation, the complexities of the Company's operating segments, and
retention objectives. The Compensation Committee believes that cash incentive
awards and long-term stock incentive awards serve to motivate consistent
achievement of high levels of performance in support of the Company's strategic
and annual business plans. The new employment agreement terminates on January 1,
2002 and is subject to one-year extensions thereafter. See "Compensation of
Executive Officers -- Employment and Certain Other Contracts."
Executive Officer Compensation. Generally, base salaries are reviewed
annually and adjusted as appropriate to reward performance and maintain the
Company's competitive position.
For 1997, cash bonuses were awarded after evaluating the performance of
each individual, the performance of such individual's business unit as well as
overall Company performance. In addition to the bonus paid to Mr. Haddrill (see
"Compensation of Executive Officers -- Employment and Certain Other Contracts"),
cash bonuses aggregating $656,000 were paid to 11 executive officers. Executive
officers also participate in benefit plans available to employees generally,
including a qualified profit-sharing 401(k) plan and employee stock purchase
plan.
11
<PAGE>
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the
Internal Revenue Code of 1986, as amended, generally disallows a federal tax
deduction to publicly held corporations for compensation paid in excess of $1
million in any taxable year to the chief executive officer and certain other
officers unless it is qualified "performance-based compensation," the material
terms of which are disclosed to and approved by stockholders. The Board of
Directors does not believe that this provision currently impacts the Company,
but will continue to consider the tax deductibility of compensation in the
future.
MEMBERS OF THE COMPENSATION COMMITTEE
Patricia Becker
Richard R. Burt
James J. Davey
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1997 the Company and its subsidiaries have had no transactions in
which any director of the Company, or any member of the immediate family of any
such director, had a material direct or indirect interest reportable under the
applicable rules of the Securities and Exchange Commission (the "SEC") except as
described under the caption "Compensation Committee Interlocks and Insider
Participation."
During 1997 the Company and its subsidiaries have had no transactions in
which any executive officer of the Company, or any member of the immediate
family of any such executive officer, had a material direct or indirect interest
reportable under the applicable rules of the SEC.
12
<PAGE>
Comparative Stock Price Performance Graph
The following graph compares the cumulative total stockholder return from
December 31, 1992 to December 31, 1997 on the Common Stock with the Standard and
Poor's 500 Stock Index and industry peer group. The peer group used in the graph
below is comprised of GTECH Holdings Corporation, Alliance Gaming Corporation,
Casino Data Systems, Inc., Autotote Corporation, International Game Technology,
Inc. and WMS Industries, Inc. The return assumes reinvestment of dividends. The
graph assumes an investment of $100 on December 31, 1992 in the common stock of
each of the subject companies.
<TABLE>
TOTAL RETURN ANALYSIS
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Company 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>
Powerhouse Technologies, Inc. $ 100.00 $ 121.44 $ 67.87 $ 33.93 $ 25.00 $ 84.82
Peer Group $ 100.00 $ 105.43 $ 60.63 $ 52.00 $ 73.02 $ 94.65
S&P 500 $ 100.00 $ 110.09 $ 111.54 $ 153.46 $ 188.69 $ 251.63
- ----------------------------------------------------------------------------------------------------------------
Source: Carl Thompson Associates www.ctaonline.com (303) 494-5472. Data from Bloomberg Financial Markets
</TABLE>
The stock price performance graph shall not be deemed incorporated by reference
by any general statement incorporating by reference this Proxy Statement into
any filing under the Securities Act of 1933, as amended, or under the Securities
Exchange Act of 1934, as amended (together, the "Acts"), except to the extent
that the Company specifically incorporates this information by reference, and
shall not otherwise be deemed filed under such Acts.
13
<PAGE>
SUMMARY OF CERTAIN AMENDMENTS TO COMPANY INCENTIVE
PLAN AND RELATED PROPOSAL
The following discussion summarizes an amendment to the Company's 1994
Stock Incentive Plan that is being submitted for stockholder approval and is
described more fully below. The following summary is qualified in its entirety
by the more complete discussion of the amendment and proposal that follows. In
addition to Proposal 2, the amendment being submitted for stockholder approval,
on February 13, 1998, the Board of Directors approved amendments to the Stock
Incentive Plan (1) changing the definition of fair-market value from the average
of the high and low sales price of the shares on any date to the average of the
closing price of the shares on the 20 trading days preceding the date of grant
and (2) changing the exercise price for shares under each Director Option to
100% of the Fair Market Value of such shares on the date of grant, from 100% of
the Fair Market Value of such shares on the date preceding the date of grant.
Such amendments do not require stockholder approval.
The Board of Directors proposes to amend the Stock Incentive Plan to
increase the maximum number of shares that any Eligible Employee may receive
pursuant to the plan in respect of Options and Awards from 400,000 to 600,000.
As more fully described below, the Board is submitting this amendment to the
Stock Incentive Plan for stockholder approval as Proposal 2.
INTRODUCTION TO PROPOSAL 2
The 1994 Stock Incentive Plan--General
On May 16, 1994, the Board of Directors adopted the Stock Incentive Plan,
and at the 1994 annual meeting of the Company's stockholders, the stockholders
approved the Stock Incentive Plan. The Stock Incentive Plan was subsequently
amended and such amendment was approved by the stockholders at the 1997 annual
meeting. The Stock Incentive Plan provides for the grant of options and stock
appreciation rights and the award of restricted stock, Performance Units and
Performance Shares to the Company's employees and non-employee directors.
A more complete description of the Stock Incentive Plan is provided below.
This description, however, does not purport to be complete and is qualified in
its entirety by the terms of the Stock Incentive Plan. All defined terms used
herein shall have the meaning set forth in the Stock Incentive Plan, unless
otherwise indicated.
Reasons for the Stock Incentive Plan. The purpose of the Stock Incentive
--------------------------------------
Plan is to advance the interests of the Company and promote continuity of
management by encouraging and providing for the acquisition of an equity
interest in the Company by key employees and directors, thereby encouraging them
to further align their interests with those of the Company and its stockholders.
The Stock Incentive Plan is intended to provide financial incentives and rewards
to individuals. Specifically, the Board of Directors believes that Option grants
and Awards are important to (1) provide additional incentives and rewards to
individuals ("Participants") whose contributions are important for the growth
and success of the Company's business and to strengthen the long-term commitment
of the Participants to the Company and its Subsidiaries and (2) attract and
retain competent and dedicated individuals whose efforts are important in the
Company's efforts to achieve long-term growth and profitability.
Administration. The Stock Incentive Plan is administered by a committee of
--------------
at least two persons (the "Committee") who are Non-Employee Directors within the
meaning of Rule 16b-3 promulgated under Section 16(b) of the Exchange Act and
outside directors within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder.
Description of the Stock Incentive Plan. Other than with respect to Options
---------------------------------------
granted to non-employee directors of the Company, the terms of which are fixed
by the Stock Incentive Plan, the Committee (1) selects
14
<PAGE>
those Participants to whom Awards are granted, and (2) determines the type, size
and the terms and conditions of Awards, including the per Share purchase price
and the vesting provisions of Employee Options and the restrictions or
performance criteria relating to Restricted Stock, Performance Units and
Performance Shares. The Committee also administers, construes and interprets the
Stock Incentive Plan. The granting of Options or Awards under the Stock
Incentive Plan does not confer upon the recipient any right to continue in the
employ of the Company or affect any right of the Company to terminate the
recipient's employment at any time.
Stock Subject to the Stock Incentive Plan. The Stock Incentive Plan (as
-------------------------------------------
most recently amended) currently provides that a maximum of 1,500,000 Shares of
Common Stock, in the aggregate, may be issued or transferred pursuant to the
Stock Incentive Plan. The maximum number of Shares of Common Stock that any
Eligible Employee may receive pursuant to the Stock Incentive Plan in respect of
Options and Awards may not exceed 400,000 Shares. In the event of any Change in
Capitalization, the Committee may adjust the maximum number and class of Shares
with respect to which Options and Awards may be granted under the Stock
Incentive Plan, the number and class of Shares which are subject to outstanding
Options and Awards granted under the Stock Incentive Plan, and the purchase
price therefor, if applicable. In addition, if any Option or Award under the
Stock Incentive Plan expires or terminates without having been exercised, the
Shares subject to that Option or Award again become available for grant of
future Options or Awards under the Stock Incentive Plan.
Amendments. The Board of Directors may amend, modify or suspend the Stock
----------
Incentive Plan at any time or from time to time; provided, however, that (i) no
such amendment, modification, suspension or termination shall impair or
adversely alter any Options or Awards theretofore granted under the Stock
Incentive Plan, except with the consent of the optionee or grantee, nor shall
any amendment, modification, suspension or termination deprive any optionee or
grantee of any Shares of Common Stock which he or she may have acquired through
or as a result of the Stock Incentive Plan; (ii) to the extent necessary under
Section 16(b) of the Exchange Act, and the rules and regulations promulgated
thereunder or other applicable law, no amendment shall be effective unless
approved by the stockholders of the Company in accordance with applicable law
and regulations; and (iii) the provisions with respect to non-employee director
stock options shall not be amended more often than once every six (6) months,
other than to comport with changes in the Code, the Employee Retirement Income
Security Act of 1974, as amended, or the rules and regulations promulgated
thereunder.
Options
Non-Employee Director Options. The Stock Incentive Plan currently provides
------------------------------
that upon election or appointment to the Board of Directors, each director who
is not an employee of the Company and is first elected or appointed to serve as
a director of the Company after June 1, 1994 shall receive a one-time grant of
an option to purchase 10,000 Shares of Common Stock (adjusted appropriately in
the event of a Change In Capitalization) at an exercise price equal to the Fair
Market Value (as defined in the plan) of those Shares on the date immediately
preceding the date the option is granted (a "Director Option"). Each Director
Option shall become exercisable with respect to 50% of the Shares effective
immediately upon grant and shall become exercisable with respect to an
additional 25% of the Shares as of each of the first and second anniversaries of
the date of grant, subject to acceleration upon a Change in Control (as
described below). Director Options will remain exercisable for a period of ten
years, but will terminate earlier if the optionee's service as a director of the
Company terminates. If the optionee's service as a director terminates for
Cause, his or her Director Option will terminate immediately. However, if the
optionee's service as a director terminates for other reasons, the optionee will
be given a period of three months to exercise the vested portion of his or her
option, unless the optionee's service as a director is terminated due to death
or disability, in which case the optionee (or his or her representatives or
heirs) will have up to twelve months to exercise his or her Director Option. The
optionee will have no right with respect to the unvested portion of his or her
Director Option if the optionee ceases to serve as a director for any reason.
Employee Options. The Committee may grant to Eligible Employees options to
----------------
purchase Shares of Common Stock (each an "Employee Option"). The term Eligible
Employee includes officers and other employees of the Company and its
subsidiaries (approximately 1,429 persons currently) and consultants and
15
<PAGE>
advisors of the Company and its subsidiaries. Subject to the provisions of the
Code, Employee Options may be either Incentive Stock Options (within the meaning
of Section 422 of the Code) ("ISOs") or Nonqualified Stock Options ("NQSOs").
The per Share purchase price (i.e., exercise price) under each Employee Option
shall be established by the Committee at the time the Employee Option is
granted, provided that the per Share exercise price shall in no event be less
than 100% of the Fair Market Value of a Share on the date the Option is granted
(110% in the case of an ISO granted to an optionee who is a Ten-Percent
Stockholder). Employee Options will be exercisable at such times and in such
installments as determined by the Committee. All outstanding Employee Options
shall become fully exercisable upon a Change in Control (as described below) and
the Committee may otherwise accelerate the exercisability of an Employee Option
at any time. Each Employee Option terminates pursuant to such conditions and at
such times as the Committee may determine, except that the term of each Employee
Option may not exceed ten years from the date of grant (five years in the case
of an ISO granted to a Ten-Percent Stockholder).
Terms Applicable to All Options. Director Options and Employee Options
---------------------------------
(collectively referred to hereinafter as "Options") are not transferable by the
optionee other than by will or the laws of descent and distribution and may be
exercised during the optionee's lifetime only by the optionee or the optionee's
guardian or legal representative. The purchase price for Shares acquired
pursuant to the exercise of an Option must be paid (i) in cash, (ii) by
transferring Shares of Common Stock to the Company or (iii) in any combination
of the foregoing. No amendment or adjustment of the exercise price of an Option
(or other means of repricing the Option) having an exercise price greater then
the Fair Market Value of a Share at the time of repricing shall be authorized
unless stockholder approval of such repricing is obtained (however, the
Committee retains the discretion to reprice Options and Awards of SARs
representing up to three percent of the total number of Shares subject to the
Stock Incentive Plan). Upon a Change in Control, all Options outstanding under
the Stock Incentive Plan will become immediately and fully exercisable and the
optionee may, during the 60-day period following the Change in Control,
surrender for cancellation any Option (or portion thereof) for a cash payment in
respect of each Share covered by the Option, or portion thereof surrendered,
equal to the excess of (1)(a) in the case of an ISO, the per Share Fair Market
Value on the date preceding the date of surrender or (b) in the case of an NQSO,
the greater of (x) the highest per Share price at which Shares traded during the
90-day period preceding the date of the Change of Control or (y) the price per
Share paid in any transaction (or series of transactions) constituting or
resulting in a Change in Control over (2) the purchase (i.e., exercise) price of
each Share. In the case of an Option granted within six months prior to a Change
in Control to any optionee who may be subject to liability under Section 16(b)
of the Exchange Act, such optionee shall be entitled to surrender for
cancellation his or her Option during the 60-day period commencing upon the
expiration of six months after the date of grant of any such Option. If the
Change in Control also constitutes an acquisition of or by the Company which is
intended to be treated as a "pooling of interests" under generally accepted
accounting principles, the acceleration of Options and the right of the optionee
to surrender the option for a cash payment, as described above, may be deferred,
the period during which the Option may thereafter be exercised may be extended,
and the payment upon surrender of the Option may be made in cash, Shares of
Common Stock or securities of a successor or acquiring corporation, if
reasonably necessary in order to assure pooling of interests accounting
treatment for the transaction.
Other Awards
Stock Appreciation Rights. Stock Appreciation Rights ("SARs") may be
---------------------------
granted under the Stock Incentive Plan, in conjunction with the grant of an
Employee Option at the time of grant of the Employee Option or at any time
thereafter during the term of the Employee Option. A SAR would permit the
grantee to receive, upon exercise of the SAR, cash and/or Shares, at the
discretion of the Committee, equal in value to the excess, if any, of the then
per Share Fair Market Value over the per Share purchase price of the Employee
Option to which it relates multiplied by the number of Shares as to which such
SAR is being exercised. SARs will be exercisable at the same time or times as
the Employee Option is exercisable, except that no SAR may be exercised before
the date six months after the date it is granted. Upon the exercise of the SAR,
the related Employee Option shall be cancelled to the extent of the number of
Shares as to which the SAR is exercised; and upon the exercise of an Employee
Option or the surrender of the Employee Option to the Company for a payment in
connection with a Change in Control, as described above, the SAR relating to
that Employee Option shall be cancelled to the extent of the number of Shares as
to which the Employee
16
<PAGE>
Option is so exercised or surrendered. No amendment, adjustment or other
repricing of a SAR having an exercise price greater than the Fair Market Value
of a Share at the time of repricing shall be authorized unless stockholder
approval of such repricing is obtained (however, the Committee retains the
discretion to reprice Options and Awards of SARs representing up to three
percent of the total number of Shares subject to the Stock Incentive Plan).
Restricted Stock. The terms of a Restricted Stock Award, including the
-----------------
restrictions placed on such Shares and the time or times at which such
restrictions will lapse, shall be determined by the Committee at the time the
Award is made. In general, stockholder approval shall be required for any lapse
or waiver of restrictions on Shares of Restricted Stock not expressly specified
in the agreement evidencing the Award. An Award of Shares of Restricted Stock
shall provide for the lapse of restrictions in no less than three years after
the date of the Award in respect of at least 50% of the Shares covered by the
Award (however, the Committee retains discretion in respect of lapse or waiver
of restrictions with respect to Shares of Restricted Stock representing no more
than three percent of the Shares subject to the Stock Incentive Plan less the
number of Options and Awards repriced by the Committee). The Committee may
determine at the time an Award of Restricted Stock is granted that dividends
paid on such Restricted Stock may be paid to the grantee or deferred and, if
deferred, whether such dividends will be reinvested in Shares of Common Stock or
held in cash. Deferred dividends (together with any interest accrued thereon)
will be paid upon the lapsing of restrictions on Shares of Restricted Stock or
forfeited upon the forfeiture of Shares of Restricted Stock. Unless otherwise
provided in the Award, the grantee shall have the right to vote the Shares of
Restricted Stock covered by an Award prior to the lapse of restrictions. Prior
to the lapse of restrictions, Shares of Restricted Stock may not be transferred,
sold or pledged by the grantee. The agreements evidencing Awards of Restricted
Stock shall set forth the terms and conditions of such Awards upon a grantee's
termination of employment. Upon a Change in Control, unless otherwise provided
in the Award, all restrictions on outstanding Shares of Restricted Stock
immediately will lapse.
Performance Units and Performance Shares. Performance Units and Performance
----------------------------------------
Shares are awarded at such times as the Committee may determine and the vesting
of Performance Units and Performance Shares is based upon the Company's
attainment of specified performance objectives within the specified performance
period (the "Performance Cycle"). Each Performance Unit represents one Share of
Common Stock and payments in respect of vested Performance Units are made in
cash, Shares or Shares of Restricted Stock or any combination of the foregoing,
as determined by the Committee. Performance Shares are awarded in the form of
Shares of Common Stock. Performance objectives and the length of the Performance
Cycle for Performance Units and Performance Shares are determined by the
Committee at the time the Award is made. Prior to the end of the Performance
Cycle, the Committee, in its discretion, may adjust the performance objectives
to reflect a Change in Capitalization. The agreements evidencing Awards of
Performance Units and Performance Shares will set forth the terms and conditions
of such Awards, including those applicable in the event of the grantee's
termination of employment. The Committee determines the total number of
Performance Shares subject to an Award and the time or times at which the
Performance Shares will be issued to the grantee at the time the Award is made.
In addition, the Committee determines (a) the time or times at which the awarded
but not issued Performance Shares shall be issued to the grantee and (b) the
time or times at which awarded and issued Performance Shares shall become vested
in or forfeited by the grantee, in either case based upon the Company's
attainment of specified performance objectives within the Performance Cycle. At
the time the Award of Performance Shares is made, the Committee may determine
that dividends be paid or deferred on the Performance Shares issued. Deferred
dividends (together with any interest accrued thereon) are paid upon the lapsing
of restrictions on Performance Shares or forfeited upon the forfeiture of
Performance Shares. Upon a Change in Control, (x) a percentage of Performance
Units, as determined by the Committee at the time an Award of Performance Units
is made, will become vested, and the grantee will be entitled to receive a cash
payment equal to the per Share Adjusted Fair Market Value multiplied by the
number of Performance Units which become vested, and (y) with respect to
Performance Shares, all restrictions shall lapse on a percentage of the
Performance Shares, as determined by the Committee at the time the Award of
Performance Shares is made. In addition, the agreements evidencing the grant of
Performance Shares and Performance Units shall contain provisions for the
treatment of such Awards (or portions thereof) which do not become vested as a
result of a Change in Control, including, without limitation, provisions for the
adjustment of applicable performance objectives.
17
<PAGE>
Options Received or to be Received
The following table sets forth information with respect to Options and
Awards of Restricted Stock under the Company's 1994 Stock Incentive Plan and
previous plans to executive officers, directors and director nominees (if
different) of the Company as of April 13, 1998.
<TABLE>
EXECUTIVE OFFICER AND DIRECTOR TOTAL OUTSTANDING OPTIONS AND AWARDS OF
RESTRICTED STOCK UNDER ALL COMPANY STOCK INCENTIVE PLANS
<CAPTION>
Total
-----
Total Shares of Shares
--------------- ------
Options Options Restricted Stock Currently
------- ------- ---------------- ---------
Name Outstanding(1) Exercisable Awards Restricted
- ---- -------------- ----------- ------ ----------
<S> <C> <C> <C> <C>
Richard M. Haddrill, Chief
Executive Officer, President
And Treasurer 322,800(2) 252,800 200,000(3) 137,500
Michael L. Eide,
President - VLC 80,000 68,000 3,000 3,000
Dennis V. Gallagher, General
Counsel and Secretary 30,000 6,666 -- --
Susan J. Carstensen, Chief
Financial Officer 25,000 3,333 -- --
Patricia Becker, Director 30,000 30,000 -- --
Richard R. Burt, Director 30,000 30,000 -- --
James J. Davey, Director 30,000 22,500 -- --
John R. Hardesty, Director 30,000 22,500 -- --
William Spier, Director
(resigned 2/13/98) 10,000 10,000(4) -- --
</TABLE>
- ----------
(1) Options outstanding have exercise prices ranging from $3.41 to $15.34 per
Share.
(2) Includes grant of options for 50,000 Shares subject to stockholder approval
of the amendment to increase the maximum number of Shares that may be
awarded to an Eligible Employee.
(3) Includes an award of restricted stock for 100,000 Shares subject to
stockholder approval of the amendment to increase the maximum number of
Shares that may be awarded to an Eligible Employee.
(4) Unless exercised, the Options will automatically terminate in full on
May 13, 1998.
18
<PAGE>
Certain Federal Income Tax Consequences of the Stock Incentive Plan
Options. An employee, officer, director or consultant who has been granted
-------
an option under the Stock Incentive Plan which is not an ISO will not realize
income tax and the Company will not be entitled to a deduction at the time of
grant. Upon exercise of such an option, the optionee will generally realize
ordinary income in an amount measured by the excess, if any, of the Fair Market
Value of the Shares on the date of exercise over the Option price, and the
Company will be entitled to a corresponding compensation deduction.
Upon exercise, the Company generally will be required to withhold from the
employee's wages a tax on such income. Upon a subsequent disposition of such
Shares, the employee will realize short-term or long-term capital gain or loss,
depending on whether the Common Stock is held for more than one year after the
date of exercise, with the basis for computing such gain or loss equal to the
Option price plus the amount of ordinary income realized upon exercise. Under
current law, long-term capital gains are taxed at a maximum rate of 28%.
An employee who has been granted an Option which is an ISO will not realize
income tax at the time of grant. Upon exercise of an ISO, an employee will not
ordinarily recognize income. However, the amount by which the Fair Market Value
of the Option Shares on the date of exercise exceeds the purchase price is an
item of tax preference for alternative minimum tax purposes in the year of
exercise. In the year of sale or other taxable disposition of the Shares
acquired upon exercise of an ISO, an employee will recognize ordinary income or
a capital gain to the extent that the sale price exceeds the exercise price.
However, the transaction will only qualify for treatment as a capital gain if
the sale or disposition is later than (i) two years after the Option is granted
and (ii) one year after the Option is exercised. The Company receives no
deduction at any time for ISOs.
Stock Appreciation Rights. Upon exercise of a Stock Appreciation Right, the
-------------------------
grantee will recognize ordinary compensation income in an amount equal to the
cash and/or Fair Market Value of the Shares received on the exercise or payment
date. In general, if the Company complies with applicable withholding and
reporting requirements, it will be entitled to a compensation expense deduction
in the same amount and at the same time as the grantee of a Stock Appreciation
Right recognizes ordinary income.
Restricted Stock. In the absence of an election under Section 83(b) of the
-----------------
Internal Revenue Code (as described below), a grantee who receives Restricted
Stock will recognize no income at the time of grant. When the restrictions
expire, a grantee will recognize ordinary compensation income equal to the
excess of the Fair Market Value of the Shares on the date that the restrictions
expire over the amount paid for the Restricted Stock (if any). If the
restrictions applicable to a grant of Restricted Stock lapse over time (for
example, if the restrictions on 20% of a grant lapse on specified anniversaries
of the date of grant), the grantee will include the Fair Market Value of an
appropriate portion of the Shares as ordinary compensation income as the
restrictions lapse. The grantee's basis in the Restricted Stock will be equal to
the sum of the amount included in income on the lapse of the restrictions plus
the amount paid for the Shares (if any), and the holding period will begin when
the restrictions lapse. Any disposition of the Restricted Stock will result in a
long- or short-term capital gain or loss (depending on the length of time the
Restricted Stock is held after the restrictions lapse). Prior to the lapse of
the restrictions with respect to any particular Shares, any dividends received
by the grantee with respect to such Shares will constitute compensation income
in the year received. In general, if the Company complies with the applicable
withholding and reporting requirements, it will be entitled to a compensation
expense deduction equal to the Fair Market Value of the Restricted Stock when it
is included in the grantee's income, and will also be entitled to a compensation
expense deduction (in the year paid) for dividends paid to, or deferred for, the
grantee in respect of Restricted Stock which remains subject to restrictions.
If a Section 83(b) election is made within 30 days of the initial grant of
Restricted Stock, the grantee must report the Fair Market Value of the
Restricted Stock on the date of the grant as ordinary compensation income as of
the date of grant, and the holding period will begin at the time the Restricted
Stock is granted. In general, if the Company complies with the applicable
withholding and reporting
19
<PAGE>
requirements, it will be entitled to a corresponding compensation expense
deduction for the grant, but dividends on the Restricted Stock would not be
deductible (even if paid prior to the lapse of the restrictions). Any subsequent
disposition of the Restricted Stock by the grantee, other than by forfeiture,
would result in a capital gain or loss, which would be long- or short-term
depending on the holding period. No deduction or loss is permitted to a grantee
who has made the Section 83(b) election and who subsequently forfeits the
Restricted Stock, other than a loss for the amount (if any) a grantee paid for
the Restricted Stock, which is treated as a long- or short-term capital loss
depending on the holding period. In the event of any forfeiture, the Company
would be required to include as ordinary income the amount of the deduction
claimed with respect to the forfeited Restricted Stock.
Performance Units and Performance Shares. Generally, in the case of
--------------------------------------------
Performance Units and Performance Shares, the grantee will recognize ordinary
compensation income at the end of the Performance Cycle when they are no longer
subject to a substantial risk of forfeiture (subject to the special rules
applicable if the Performance Units are paid in Restricted Stock) in an amount
equal to the amount of cash and/or Fair Market Value of property received. In
general, if the Company complies with the applicable withholding and reporting
requirements, it will be entitled to a compensation expense deduction in the
same amount and at the same time as the grantee recognizes ordinary income.
Parachute Payments; Potential Excise Tax and Nondeductibility. Under
-------------------------------------------------------------------
certain circumstances, the accelerated vesting or exercise of Options or Stock
Appreciation Rights, or the accelerated lapse of restrictions on other Awards,
in connection with a Change in Control might be deemed an "excess parachute
payment" for purposes of the golden parachute tax provisions of Section 280G of
the Internal Revenue Code. To the extent it is so considered, the grantee may be
subject to a 20% excise tax and the Company may be denied a tax deduction.
Limitation on Deduction. Section 162(m) of the Code and the regulations
------------------------
thereunder generally would disallow the Company a federal income tax deduction
for compensation paid to the chief executive officer and the four other most
highly compensated executive officers to the extent such compensation paid to
any such individual exceeds $1 million in any year. However, Section 162(m)
generally allows a deduction for payments of qualified "performance-based
compensation" the material terms of which have been disclosed to and approved by
stockholders. The Company intends that compensation attributable to or resulting
from Options and Awards (other than in respect of Restricted Stock) granted
under the Plan qualify as "performance-based compensation."
The foregoing summary is not intended to be a complete statement of the
current federal income tax consequences of the grant and exercise of Options, or
of the disposition of Shares acquired upon exercise of such Options, or the
award of SARs, Restricted Stock, Performance Units and Performance Shares
pursuant to the Stock Incentive Plan. Because of the complexities of the tax
law, optionees are advised to consult their own tax advisers for further
information regarding such consequences.
Description of the Proposed Amendments
The amendment to the Stock Incentive Plan described in Proposal 2 is set
forth in Appendix A to this Proxy Statement in substantially the form in which
it will take effect if such amendment is approved by the stockholders. The
following description of the amendment to the Stock Incentive Plan is qualified
in its entirety by reference to Appendix A.
PROPOSAL 2 -- PROPOSAL TO INCREASE THE NUMBER OF SHARES ISSUABLE TO ANY ELIGIBLE
EMPLOYEE UNDER THE STOCK INCENTIVE PLAN
The Board of Directors proposes to fix the maximum number of Shares of the
Common Stock issuable to any eligible Employee pursuant to the plan in respect
of Options and Awards at 40% of the maximum number of Shares authorized under
the Plan. Currently the maximum number of Shares that any Eligible Employee may
receive pursuant to the plan in respect of Options and Awards is 400,000 Shares.
In 1997 the Company increased the total number of Shares in the Plan by 50% to
1,500,000 Shares but did not adjust the limit to any one employee. This proposal
would fix the percentage at 40%,
20
<PAGE>
consistent with the previous maximum of 400,000 Shares and provide a mechanism
for future adjustment.
The ability to offer the Company's employees and directors an opportunity
to acquire Shares of the Company's Common Stock provides a means by which the
Company may compensate and motivate those individuals. By providing competitive
compensation levels, the Company can attract and retain highly qualified
employees. The Board of Directors believes that granting Options to its
employees provides an incentive to such persons to continue their service with
the Company and promotes the best interests of the Company because employees
have an opportunity to acquire a proprietary interest in the Company and
ultimately benefit from the future success of the Company's operations through
appreciation in the value of the Company's Common Stock. The Board of Directors
believes the amendment to increase the maximum number of Shares to any Eligible
Employee will allow the Company to offer incentive and long-term awards on a
more competitive basis. See "Employment and Certain Other Contracts - Employment
Agreement with Richard M. Haddrill."
For the reasons stated above, the Board of Directors believes that Proposal
2 is in the best interests of the Company and therefore recommends a vote in
favor of Proposal 2. Approval of this Proposal 2 requires the affirmative vote
of the holders of a majority of the Shares of the Common Stock present in person
or represented by proxy and entitled to vote at the Meeting.
THE BOARD OF RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2
AUDITORS
As a matter of corporate governance, it is customary for the Company to
request the stockholders' ratification of the appointment of independent
auditors for the ensuing year. The Company has not yet negotiated the engagement
of its independent auditors for the fiscal year ending December 31, 1998 and is
therefore unable to request ratification of such appointment by the
stockholders. The Company intends to retain a national accounting firm with no
relationship with the Company other than that arising from its appointment as
independent auditors.
KPMG Peat Marwick LLP served as the Company's auditors for the year ended
December 31, 1997. Representatives of KPMG Peat Marwick LLP are expected to be
present at the Meeting and 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.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of April 13, 1998 by (i) each person owning
beneficially more than five percent of the outstanding shares of the Common
Stock, (ii) each director and director nominee of the Company, (iii) each person
named in the Summary Compensation Table appearing elsewhere herein and (iv) all
executive officers and directors of the Company as a group. The information
under this caption is based on representations made to the Company by individual
directors or nominees and/or filings made with the SEC. Each person has sole
investment and voting power with respect to the shares indicated except as
otherwise shown.
21
<PAGE>
<TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<CAPTION>
Number of Shares Percent of Class
---------------- ----------------
Beneficially Owned(1) April 13, 1998(1)
------------------- ---------------
<S> <C> <C>
R. B. Haave Associates, Inc............................................ 1,017,700 (2) 9.42%
36 Grove St., New Canaan, CT 06840
Fir Tree Partners (Fir Tree, Inc. d/b/a Fir Tree Partners)............. 781,900 (3) 7.24%
1211 Ave of the Americas, 29th Floor
New York, NY 10036
Richard M. Haddrill+, ++............................................... 466,646 (4)(5) 4.32%
Michael L. Eide++...................................................... 205,473 (6)(7) 1.90%
John R. Hardesty+...................................................... 93,945 (8) *
Patricia W. Becker+.................................................... 30,000 (9) *
Richard R. Burt+....................................................... 30,000 (9) *
James Davey+........................................................... 26,243 (8) *
Dennis V. Gallagher++.................................................. 6,666 (10) *
Susan J. Carstensen ++................................................. 5,758 (11) *
All directors and executive officers as a group........................ 864,731 (4)(5)(6)(7)(8) 8.00%
(9)(10)(11)
</TABLE>
- ----------
+ Director of the Company
++ Executive Officer of the Company
* Denotes less than 1%
(1) Based on 10,802,821 shares of Common Stock outstanding as of the close of
business on April 13,1998, which excludes 545,454 shares of Common Stock
that are deemed authorized but unissued. The share holdings in this table
do not include rights to receive stock or options granted under various
Company plans to directors and executive officers that do not vest or
become exercisable within 60 days of April 13,1998.
(2) R. B. Haave Associates, Inc. is an Investment Advisor registered under
Section 203 of the Investment Advisors Act of 1940, with sole power to vote
or to direct the vote and sole power to dispose or to direct the
disposition of the shares. R. B. Haave Associates, Inc.'s holdings are
reported pursuant to amendment to Schedule 13G dated January 27, 1998, as
an amendment to the initial Schedule 13D, as filed on March 22, 1996.
(3) Fir Tree, Inc. is a New York corporation doing business as Fir Tree
Partners ("Fir Tree Partners"), of which Mr. Jeffrey Tannenbaum is the sole
shareholder, executive officer, director and principal. Mr. Tannenbaum
acquired the shares through his position as principal of Fir Tree Partners
for an institutional account for which Fir Tree Partners serves as trading
advisor and for the account of the Fir Tree Value Fund, L.P. ("Fir Tree
Value Fund") of which Mr. Tannenbaum is the general partner. Fir Tree
Partner's holdings are reported pursuant to amendment to Form 13D dated
August 4, 1995, as an amendment to the initial Form 13D, as filed on
October 12, 1994. Fir Tree Partners is the beneficial owner of 781,900
shares of Common Stock of which 498,930 shares are beneficially owned by
Fir Tree Partners in its capacity as investment advisor to Fir Tree LDC, a
Cayman Islands limited duration company ("Fir Tree LDC"). Jeffrey
Tannenbaum is the investment advisor of Fir Tree LDC and, as such, retains
voting and dispositive power over the shares, and 282,970 shares are
beneficially owned by Fir Tree Partners for the account of the Fir Tree
Value Fund.
(4) Includes 100,000 shares of restricted stock of the Company vesting in equal
installments on each of January 1, 1999, 2000, 2001 and 2002 and 70,000
shares of restricted stock of the Company vesting in equal installments on
each of November 1,1995, 1996, 1997 and 1998 and 30,000 shares of
restricted stock of the Company vesting in equal installments on each of
September 9, 1997, 1998 and 1999. The 100,000 shares of restricted stock
vesting through 2002 are subject to approval by stockholders.
22
<PAGE>
(5) Includes options to purchase 252,800 shares of Common Stock, currently
exercisable or which will be exercisable within 60 days, granted pursuant
to the Company's 1994 Stock Incentive Plan, The grant of options to
purchase 50,000 shares of Common Stock are contingent on stockholder
approval of an amendment to the 1994 Stock incentive Plan increasing the
maximum number of shares that any eligible employee may receive pursuant to
the plan, which amendment is being submitted for stockholder approval at
the Meeting.
(6) Includes options to purchase 2,000 shares of Common Stock currently
exercisable granted pursuant to the Company's 1991 Stock Option Plan and
options to purchase 65,999 currently exercisable and 3,000 shares of
restricted stock which vest in equal installments on each of February 13,
1999, 2000 and 2001 under the Company's 1994 Stock Option Plan.
(7) Includes 12,318 shares held by Mr. Eide's son as to which Mr. Eide
disclaims beneficial ownership.
(8) Includes options to purchase 7,500 shares of Common Stock currently
exercisable granted pursuant to the Company's 1994 Stock Incentive Plan and
options to purchase 15,000 shares of Common Stock currently exercisable
pursuant to the Company's 1993 Stock Incentive Plan for Non-Employee
Directors.
(9) Includes options to purchase 10,000 shares of Common Stock currently
exercisable or which will be exercisable within 60 days, granted pursuant
to the Company's 1994 Stock Incentive Plan and options to purchase 20,000
shares of Common Stock currently exercisable or which will be exercisable
within 60 days, pursuant to the Company's 1993 Stock Incentive Plan for
Non-Employee Directors.
(10) Includes options to purchase 6,666 shares of Common Stock granted under the
Company's 1994 Incentive Stock Plan currently exercisable or which will be
exercisable within 60 days.
(11) Includes options to purchase 3,333 shares of Common Stock granted under the
Company's 1994 Incentive Stock Plan currently exercisable or which will be
exercisable within 60 days.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who own more than ten percent of a registered class of the Company's
equity securities, to file by specific dates with the SEC initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company on Forms 3, 4 and 5. Officers, directors and greater
than ten-percent stockholders are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file. The Company is
required to report any failure to file by the relevant due date any of these
reports based solely on the Company's review of copies of such reports furnished
to it and written representations received by the Company that the filing of a
Form 5 was not required. Based upon this review, the Company is not aware of any
person who at any time during 1997, was a director, officer or a beneficial
owner of ten percent or more of any class of equity securities of the Company
registered pursuant to the Exchange Act who failed to file on a timely basis
reports required by Section 16(a) of the Exchange Act during 1997, except that
Michael L. Eide, president of VLC, filed a Form 4 with respect to an option to
purchase stock under the Company's stock incentive plan, and a Form 5 with
respect to a purchase of stock under the Company's Employee Stock Purchase Plan
by Mr. Eide's wife, who is an employee of one of the Company's subsidiaries,
after the respective due dates for filing such forms.
OTHER MATTERS
The Board of Directors knows of no other matters to come before the Meeting
other than those described in this Proxy Statement. However, if any matters
should properly come before the Meeting calling for a vote of the stockholders,
it is the intention of the persons named in the enclosed proxy to vote such
proxy with respect to those other matters in accordance with their best
judgment.
23
<PAGE>
ANNUAL REPORT AND FORM 10-K
A copy of the Company's 1997 Annual Report to Stockholders, which includes
the Company's Form 10-K for the year ended December 31, 1997, as filed with the
SEC (including financial statements and schedules but without exhibits), is
being mailed with this Proxy Statement. It is not intended for consideration as
proxy solicitation material. Copies of exhibits to the Form 10-K will be
furnished to record and beneficial holders of the Common Stock upon request for
a nominal charge. All requests should be directed to: Powerhouse Technologies,
Inc., 2311 South 7th Avenue, Bozeman, Montana 59715, Attention: Shareholder
Relations.
PROPOSALS FOR THE NEXT ANNUAL MEETING
Any proposal by a stockholder to be included in the Company's proxy
statement for its 1999 Annual Meeting must be received at the Company's
principal executive offices, 2311 South 7th Avenue, Bozeman, MT 59715, not later
than the close of business on the date which is 120 calendar days in advance of
the first anniversary of the date of this Proxy Statement (i.e., by the close of
business on January 1, 1999), unless the date of the 1999 Annual Meeting changes
by more than 30 days from the date of the 1998 Annual Meeting, in which case
proposals must be received by the Company a reasonable time before the release
of the proxy statement.
BY ORDER OF THE BOARD OF DIRECTORS
/S/ RICHARD BURT
Chairman of the Board
May 4, 1998
24
<PAGE>
Appendix A
AMENDMENT NO. 2 TO THE
POWERHOUSE TECHNOLOGIES, INC.
1994 STOCK INCENTIVE PLAN
WHEREAS, POWERHOUSE TECHNOLOGIES, INC., a Delaware corporation ( the
"Corporation"), maintains the Powerhouse Technologies, Inc. 1994 Stock Incentive
Plan (the "Plan"); and
WHEREAS, pursuant to Section 15 of the Plan, the Corporation's Board of
Directors may at any time or from time to time amend, modify or suspend the
Plan.
NOW, THEREFORE, effective as of the date hereof, but subject to stockholder
approval, the Plan is hereby amended as follows:
1. Section 5.1 of the Plan is hereby amended by deleting Section 5.1 of the
Plan in its entirety and substituting the following in lieu thereof:
"5.1 The maximum number of Shares that may be made the subject of
Options and Awards granted under the Plan is 1,500,000, which may be
treasury Shares, authorized but unissued Shares or Shares purchased in the
market for issuance upon the exercise of outstanding Options or the grant
of Awards under the Plan; provided, however, that such maximum number shall
be increased to the extent that any such shares granted under the Plan are
purchased in the market; and provided further that the maximum number of
Shares that any Eligible Employee may receive pursuant to the plan in
respect of Options and Awards may not exceed 40% of the maximum number of
Shares that may be made the subject of Options and Awards granted under the
Plan. Upon a Change in Capitalization the maximum number of Shares (both in
the aggregate under the Plan and with respect to each Eligible Employee)
shall be adjusted in number and kind pursuant to Section 13. The Company
shall reserve for the purposes of the Plan, out of its authorized but
unissued Shares or out of Shares held in the Company's treasury, or partly
out of each, such number of Shares as shall be determined by the Board."
Except as specifically amended hereby, all other terms and provisions of
the Plan shall remain in full force and effect. If not otherwise defined herein,
all capitalized terms contained in this Amendment shall have the meanings
ascribed to them in the Plan.
IN WITNESS WHEREOF, pursuant to the authority granted to the undersigned by
the Board of Directors of the Corporation, the Plan is hereby amended, effective
as of this 26th day of February, 1998.
POWERHOUSE TECHNOLOGIES, INC.
-----------------------------
RICHARD M. HADDRILL, President,
Chief Executive Officer and Treasure
A-1
<PAGE>
[THIS IS A REPLICATION OF THE PROXY CARD]
PROXY POWERHOUSE TECHNOLOGIES, INC. COMMON STOCK
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE CORPORATION
FOR THE ANNUAL MEETING OF STOCKHOLDERS JUNE 4, 1998
The undersigned hereby appoints James J. Davey and John Hardesty, and each of
them, proxies with power of substitution, to act as attorneys and proxies for
the undersigned to vote all shares of the capital stock of Powerhouse
Technologies, Inc. which the undersigned is entitled to vote at the Annual
Meeting of Stockholders of Powerhouse Technologies, Inc., to be held at the
Swissotel, Conference Level, Fourth Floor, Ballroom E, 3391 Peachtree Road, NE,
Atlanta, Georgia, 30326 on June 4, 1998 and at any and all adjournments thereof,
with all powers the undersigned would possess if personally present, as follows:
1. Election of Directors - Nominees RICHARD R. BURT, PATRICIA BECKER and
RICHARD M. HADDRILL
[_] VOTE FOR nominees listed above, except vote withheld
from following nominee (if any)
________________________________________________________________________________
or [_] VOTE WITHHELD from all nominees listed above
2. Amendment to the Company's 1994 Stock Incentive Plan to fix the maximum
number of shares that any eligible employee may receive pursuant to the
Plan at 40% of the maximum number of shares authorized for issuance under
the plan.
[_] FOR [_] AGAINST [_] ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
(continued, and to be signed, on other side)
<PAGE>
This Proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder. If no direction is made, the Proxy will be voted
"FOR" items 1 and 2.
Please sign, exactly as name appears below. When shares are held by joint
tenants, tenants in common or as community property, both should sign. When
signing as attorney, executor, administrator, trustee, guardian or custodian,
please give full title as such. If a corporation, please sign corporate name by
president or other authorized officer. If a partnership, please sign in
partnership name by authorized person. Receipt is hereby acknowledged of notice
of annual meeting and the proxy statement attached thereto, and the 1997 Annual
Report of the Company sent under the same cover.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. This proxy may be revoked at
any time prior to the voting thereof.
Dated:______________________________________________________
____________________________________________________________
____________________________________________________________
Signature(s) of Stockholder
Signature(s) should correspond to name or names shown
above.
