<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 ss. 240.14a-11(c) or ss. 240.14a-12
SCIENTIFIC GAMES HOLDINGS CORP.
- --------------------------------------------------------------------------------
(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)(4) and 0-11
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[SCIENTIFIC GAMES, INC. LOGO]
To our Stockholders:
On behalf of the Board of Directors, it is our pleasure to invite you to
attend the 1998 Annual Meeting of Stockholders of Scientific Games Holdings
Corp. (the "Company").
As shown in the formal notice enclosed, the meeting will be held at the
Holiday Inn, 1075 Holcomb Bridge Road, Roswell, Georgia 30076 on Friday, May 22,
1998, at 9:00 a.m., E.D.S.T.
The subjects proposed for action at the meeting are: (1) the election of
two Class II Directors; (2) approval of the Scientific Games Holdings Corp. 1998
Employee Stock Purchase Plan; (3) ratification of the selection of the Company's
auditors; and (4) the conducting of such other business as may properly come
before the meeting.
To help us plan for the meeting, please mark the appropriate box on your
proxy card telling us if you will be attending in person.
It is important that your shares be represented at the meeting in order
that the presence of a quorum may be assured. WHETHER OR NOT YOU PLAN TO ATTEND
THE MEETING, YOU ARE URGED TO DATE, SIGN AND MAIL THE ENCLOSED PROXY CARD IN THE
ENVELOPE PROVIDED.
Sincerely yours,
William G. Malloy
Chairman of the Board,
Chief Executive Officer
and President
<PAGE> 3
SCIENTIFIC GAMES HOLDINGS CORP.
NOTICE OF MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 22, 1998
To the Stockholders of
Scientific Games Holdings Corp.
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders (the
"Meeting") of Scientific Games Holdings Corp., a Delaware corporation (the
"Company"), will be held on Friday, May 22, 1998 at 9:00 a.m., E.D.S.T., at the
Holiday Inn, 1075 Holcomb Bridge Road, Roswell, Georgia 30076, for the purposes
of considering and acting upon the following:
(1) the election of two Class II Directors of the Company for terms
ending with the 2001 Annual Meeting of Stockholders and until their
successors are elected and qualified;
(2) approval of the Scientific Games Holdings Corp. 1998 Employee
Stock Purchase Plan;
(3) ratification of the selection by the Company's Board of Directors
of Ernst & Young LLP, independent auditors, to audit the accounts of the
Company and its subsidiaries for 1998; and
(4) the transaction of such other business as may properly come before
the Meeting or any adjournment thereof.
Only stockholders of record at the close of business on March 23, 1998 will
be entitled to notice of and to vote at the Meeting or any adjournment thereof.
The Meeting may be adjourned from time to time without notice other than by
announcement. A list of stockholders entitled to vote at the Meeting will be
available for inspection by any stockholder, for any purpose germane to the
meeting, during ordinary business hours, during the ten days prior to the
Meeting, at the offices of the Company, 1500 Bluegrass Lakes Parkway,
Alpharetta, Georgia 30004.
By Order of the Board of Directors
/s/ C. Gray Bethea, Jr.
C. Gray Bethea, Jr.
Secretary
Alpharetta, Georgia
April 9, 1998
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING, REGARDLESS
OF THE NUMBER OF SHARES YOU HOLD, IN ORDER THAT A QUORUM MAY BE ASSURED.
WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE MEETING IN PERSON, PLEASE
COMPLETE, SIGN, DATE AND MAIL THE ENCLOSED PROXY IN THE ACCOMPANYING
RETURN ENVELOPE TO WHICH NO POSTAGE NEED BE AFFIXED BY THE SENDER
IF MAILED WITHIN THE UNITED STATES. IF YOU RECEIVE MORE THAN ONE
PROXY BECAUSE YOUR SHARES ARE REGISTERED IN DIFFERENT NAMES
OR ADDRESSES, EACH SUCH PROXY SHOULD BE SIGNED AND
RETURNED TO ASSURE THAT ALL OF YOUR SHARES WILL
BE VOTED. THE PROXY SHOULD BE SIGNED BY ALL
REGISTERED HOLDERS EXACTLY AS THE
STOCK IS REGISTERED.
<PAGE> 4
SCIENTIFIC GAMES HOLDINGS CORP.
1500 BLUEGRASS LAKES PARKWAY
ALPHARETTA, GEORGIA 30004
----------------------
PROXY STATEMENT, DATED APRIL 9, 1998,
FOR MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 22, 1998
----------------------
INTRODUCTION
VOTE BY PROXY
This Proxy Statement is being furnished in connection with the solicitation
of proxies by the Board of Directors (the "Board of Directors" or the "Board")
of Scientific Games Holdings Corp., a Delaware corporation (the "Company"), from
the holders of the common stock, par value $.001 per share, of the Company (the
"Common Stock"), for use at the 1998 Annual Meeting of Stockholders to be held
on Friday, May 22, 1998, at 9:00 a.m., E.D.S.T., and any adjournment thereof
(the "Meeting"), for the purposes set forth in the accompanying Notice of
Meeting and described in detail herein. This Proxy Statement, together with a
form of proxy, is first being mailed to stockholders on or about April 9, 1998.
All properly executed proxies in the form enclosed received in time for the
Meeting will be voted according to their voting rights in accordance with the
instructions contained thereon, and, if no choice is specified, proxies will be
voted FOR the election of the two Class II Directors named herein; FOR approval
of the Scientific Games Holdings Corp. 1998 Employee Stock Purchase Plan (the
"ESPP"); and FOR ratification of the selection of Ernst & Young LLP as
independent auditors for 1998.
Any person giving a proxy pursuant to this Proxy Statement may revoke it at
any time before it is exercised at the Meeting by filing with the Secretary of
the Company, at the address of the Company stated above, a written notice of
such revocation or a duly executed proxy bearing a later date. In addition, if a
person executing a proxy is present at the Meeting, he or she may, but need not,
revoke his or her proxy, by notice of such revocation to the Secretary of the
Meeting, and vote his or her shares in person. Proxies, if in the form enclosed,
duly signed and received in time for voting, and not revoked before they are
voted, will be voted at the Meeting in accordance with the instructions
specified therein.
COST OF PROXY SOLICITATION
The cost of soliciting proxies will be borne by the Company.
Proxies may be solicited by members of the Company's Board of Directors
("Directors"), officers and regular employees, without separate remuneration, in
person or by telephone, facsimile transmission, telegram or mail. It is
anticipated that banks, brokerage houses and other custodians, nominees and
fiduciaries will forward soliciting material to beneficial owners of stock
entitled to vote at the Meeting, and such persons will be reimbursed for
out-of-pocket expenses incurred by them in connection therewith in accordance
with the regulations of the Securities
<PAGE> 5
and Exchange Commission (the "SEC") and The New York Stock Exchange (the "NYSE")
for sending proxies and proxy materials to the beneficial owners of shares of
the Common Stock.
In connection with the Meeting, the Company has retained Corporate Investor
Communications, Inc. ("CIC"), 111 Commercial Road, Carlstadt, New Jersey 07072,
to assist the Company in the distribution and solicitation of proxies. CIC's
services may include the delivery of proxy materials to brokers, nominees,
fiduciaries and other custodians of the Common Stock for distribution to the
beneficial owners of such stock as well as the solicitation of proxies from such
beneficial owners. The Company has agreed to pay CIC a solicitation fee in the
approximate amount of $4,000 and to reimburse CIC for all printing, postage,
freight and other delivery charges incurred by it in connection with its
activities on behalf of the Company.
The Annual Report of the Company for the year ended December 31, 1997,
including financial statements (the "Annual Report"), is being mailed prior to
or concurrently with this Proxy Statement to all stockholders of record as of
March 23, 1998 (the "Record Date"), except for accounts where the stockholder
has filed a written request to eliminate duplicate reports. In addition, the
Company has provided brokers, dealers, banks, voting trustees and their
nominees, at Company expense, with additional copies of the Annual Report so
that such record holders could supply such material to beneficial owners as of
the Record Date. Proxies furnished to employees who participate in the Company's
employee stock ownership plans which are returned will be considered to be
voting instructions to the trustee for each plan with respect to the shares
credited to such accounts.
OUTSTANDING SHARES AND VOTING RIGHTS
The Common Stock is the Company's only class of securities with general
voting rights. Each share of issued and outstanding Common Stock (excluding
shares held in treasury) is entitled to one vote on each matter properly coming
before the Meeting. Only stockholders of record as of the close of business on
the Record Date will be entitled to vote at the Meeting, and cumulation of votes
is not permitted. Unless otherwise indicated, all information in this Proxy
Statement, including information as of a specific historical date, gives
retroactive effect to a 2 for 1 stock split effected March 13, 1995 in the form
of a stock dividend payable to holders of record as of February 16, 1995. As of
the Record Date, the Company had a total of 12,105,814 shares of Common Stock
issued and outstanding. The Common Stock is listed for trading on the NYSE.
Holders of a majority of the outstanding shares entitled to vote, if
present in person or represented by proxy, will constitute a quorum at the
Meeting. Under applicable Delaware law, abstentions and "broker-non-votes" (as
described below) are counted for purposes of determining the existence of a
quorum for the transaction of business. However, while the NYSE takes the
position that abstentions are counted for purposes of determining the existence
of a quorum, "broker non-votes" are not so counted under the rules of the NYSE.
Under the rules of the NYSE, brokers who hold shares in street name have
the authority to vote on certain routine matters on which they have not received
instructions from beneficial owners. Brokers holding shares of Common Stock in
street name who do not receive instructions are entitled to vote on the election
of Directors and the ratification of the selection of auditors. However, brokers
may not vote shares held for customers on approval of the ESPP without specific
instructions from such customers. Under applicable Delaware law, "broker
non-votes" on any such proposal (where a broker submits a proxy but does not
have authority to vote a customer's shares on such proposal) will not be
included in the vote totals on that proposal.
The two Class II Directors to be elected at the Meeting will be elected by
a plurality of the votes of the shares present in person or represented by proxy
at the Meeting and casting votes for the position on the Board which that
nominee represents. With regard to the election of Directors, votes may be cast
for or withheld from each nominee. Accordingly, under applicable Delaware law,
abstentions and "broker non-votes" will have no effect on the outcome of the
election of Directors. Under NYSE rules, assuming the presence of a quorum in
accordance with the NYSE rules, abstentions and "broker non-votes" will likewise
have no effect on the outcome of the election of Directors.
-2-
<PAGE> 6
In all matters other than the election of Directors, only the affirmative
vote of the majority of those shares which are present in person or represented
by proxy at the Meeting and entitled to vote thereon which are cast are required
to approve a proposal for purposes of Delaware law. For such purpose, under
applicable Delaware law, abstentions are counted for purposes of calculating
shares entitled to vote but are not counted as shares voting and have no effect,
and "broker non-votes" are not counted as shares eligible to vote and also have
no effect. Accordingly, under applicable Delaware law, abstentions and "broker
non-votes" will have no effect on approval of the ESPP or ratification of the
selection of auditors. However, the NYSE has taken the position that affirmative
votes must constitute at least a majority of the quorum (as determined under the
NYSE rules) in order to approve matters other than the election of Directors.
Accordingly, under NYSE rules, abstentions and "broker non-votes" will be
treated as votes against the ESPP and ratification of the selection of auditors.
The Company's Second Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") does not contemplate cumulative voting.
Accordingly, the holders of a majority of the shares of Common Stock voting in
an election of Directors can, if they choose to do so, elect one hundred percent
(100%) of the class of Directors with respect to which such shares are entitled
to vote.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 23, 1998, certain information
concerning ownership of Common Stock by: (i) each person who is known by the
Company to own beneficially more than 5% of the Common Stock, (ii) each Director
individually, (iii) the Company's Chief Executive Officer and each other Named
Executive Officer (as defined) listed in the Summary Compensation Table and, for
purposes of the following table, serving in such capacity as of March 23, 1998
and (iv) all Directors and executive officers of the Company as a group. The
determinations of "beneficial ownership" of Common Stock are based upon Rule
13d-3 under the Exchange Act of 1934, as amended (the "Exchange Act"). Such rule
provides that shares will be deemed "beneficially owned" where a person has,
either solely or in conjunction with others, the power to vote or to direct the
voting of shares and/or the power to dispose, or to direct the disposition of,
shares or where a person has the right to acquire any such power within 60 days
after the date such "beneficial ownership" is determined. Except as disclosed in
the notes to the table, each person has sole voting and investment power with
respect to the whole number of shares shown as beneficially owned by such
person.
<TABLE>
<CAPTION>
AMOUNT OF PERCENT
BENEFICIAL OF OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER OR IDENTITY OF GROUP OWNERSHIP(1) SHARES(1)
- --------------------------------------------------------- ------------ --------------
<S> <C> <C>
Paul F. Balser(2)...................................................... 43,400 *
Mark E. Jennings(2).................................................... 18,400 *
Frank S. Jones(3)...................................................... 7,400 *
Edith K. Manns(4)...................................................... 8,400 *
Dennis L. Whipple(5)................................................... 5,400 *
William G. Malloy(6)................................................... 576,441 4.76%
William F. Behm(7)..................................................... 188,018 *
Thomas F. Little(8).................................................... 105,360 *
All Executive Officers and Directors as a group (22 persons)(9)........ 1,402,235 11.58%
Franklin Resources, Inc. (10).......................................... 885,000 7.31%
Merrill Lynch & Co Inc(11) ............................................ 1,286,100 10.62%
Private Capital Management, Inc (12)................................... 757,600 6.26%
State of Wisconsin Investment Board(13)................................ 1,120,000 9.25%
</TABLE>
- ----------------------
* Less than 1%.
-3-
<PAGE> 7
(1) Includes indicated shares issuable pursuant to options exercisable within
60 days.
(2) Includes 8,400 shares issuable pursuant to options exercisable within 60
days.
(3) Includes 5,400 shares issuable pursuant to options exercisable within 60
days.
(4) Includes 7,600 shares issuable pursuant to options exercisable within 60
days.
(5) Comprised of options exercisable within 60 days.
(6) Includes 179,449 shares issuable pursuant to options exercisable within 60
days and 232 shares in the Company's 401(K) Plan allocated to the named
officer.
(7) Includes 107,488 shares issuable pursuant to options exercisable within 60
days and 238 shares in the Company's 401(K) Plan allocated to the named
officer.
(8) Includes 47,499 shares issuable pursuant to options exercisable within 60
days and 238 shares in the Company's 401(K) Plan allocated to the named
officer.
(9) Includes 736,433 shares issuable pursuant to options exercisable within 60
days and 3,902 shares in the Company's 401(K) Plan allocated to the 22
executive officers.
(10) The following information is based on a Schedule 13G dated January 30,
1998. Franklin Resources, Inc. ("Franklin") reports its address as 777
Mariners Island Boulevard, San Mateo, California 94404. Franklin reports
that it, along with Franklin Mutual Advisors, Inc. ("FMMA"), Charles B.
Johnson, and Rupert H. Johnson, Jr., may be deemed to be, for purposes of
Rule 13d-3 under the Exchange Act, the beneficial owner of all 885,000
shares. Franklin, FMMA, and Messrs. Charles and Rupert Johnson all disclaim
beneficial ownership of the shares reported hereby. Franklin reports that
FMMA has sole voting and dispositive power with respect to all 885,000
shares.
(11) The following information is based on a Schedule 13G/A dated January 29,
1998. Merrill Lynch & Co Inc ("Merrill") reports its address as World
Financial Center, North Tower, 250 Vesey Street, World Financial Center
North Tower, New York, New York 10281-1334. Merrill reports that voting and
dispositive power with respect to all 1,286,100 shares is shared by
Princeton Services, Inc. ("PSI") and Merrill Lynch Asset Management, L.P.
("MLAM"), and that Merrill Lynch Global Allocation Fund, Inc. (the "Fund")
has shared voting and dispositive power with respect to 1,235,000 shares.
PSI is a parent holding company of Merrill, and PSI is the general partner
of MLAM, and the Fund is advised by MLAM. PSI disclaims beneficial
ownership of all 1,286,100 shares. MLAM reports that it is an investment
advisor registered under Section 203 of the Investment Advisors Act of
1940. The Fund reports that it is an investment company registered under
Section 8 of the Investment Company Act of 1940.
(12) The following information is based on a Schedule 13G dated February 11,
1998. Private Capital Management, Inc. ("Private Capital") reports its
address as 3003 Tamiami Trail N., Naples, Florida 34103. Private Capital
reports beneficial ownership of all 757,600 shares and voting power with
respect to none of the shares. Private Capital reports that it shares
dispositive power with respect to all 757,600 shares with Bruce S. Sherman,
as president of Private Capital, and that it exercises shared dispositive
power with respect to the shares held by it on behalf of its clients.
Private Capital reports that it is an Investment Adviser registered under
Section 203 of the Investment Advisers Act of 1940. Mr. Sherman reports
beneficial ownership of a total of 766,100 shares and shared dispositive
power with respect to all 757,600 shares beneficially held by Private
Capital. Mr. Sherman reports that he has sole power to vote or to direct
the vote 8,500 of such shares. Mr. Sherman disclaims the existence of a
group.
(13) The following information is based on a Schedule 13G dated January 26,
1998. The State of Wisconsin Investment Board (the "Wisconsin Investment
Board") reports its address as 121 East Wilson Street, Madison, Wisconsin
53707. The Wisconsin Investment Board reports that it has sole voting and
dispositive power with respect to all 1,120,000 shares. The Wisconsin
Investment Board reports that it is a Wisconsin state agency that manages
public pension funds subject to provisions comparable to the federal
Employee Retirement Income Security Act of 1974, as amended, ("ERISA").
-4-
<PAGE> 8
AGENDA ITEM ONE
ELECTION OF CLASS II DIRECTORS
INFORMATION REGARDING DIRECTORS
Directors serve until the Annual Meeting of Stockholders at which their
term of office expires. In the case of a vacancy, the Board of Directors may
elect another Director as a replacement or leave the vacancy unfilled. Decisions
regarding the election of new Directors during the year are based upon such
considerations as the size of the Board and the need to obtain fresh
perspectives or to replace the particular skills or experience of former
Directors. Recommendations for nominations to the Board are made by the Board's
Nominating Committee, which is composed of William G. Malloy, the Company's
President, Chief Executive Officer and Chairman of the Board of Directors, and
Frank S. Jones, Paul F. Balser, Mark E. Jennings and Dennis L. Whipple, four of
the Company's five independent, outside Directors. Although the Company's
By-laws, as amended and restated (the "By-laws"), require advance notice be
given to the Company and require that certain information be furnished for
stockholder nominations for Directors, there is no formal procedure for
stockholders' recommendations.
Proxies received from holders of Common Stock will be voted for the
election of the nominees named below as Class II Directors for a term expiring
at the 2001 Annual Meeting of Stockholders, unless authority to do so is
withheld. In the event either nominee is unable or declines to serve as a
Director at the time of the Meeting, the persons named as proxies therein will
have discretionary authority to vote the proxies for the election of such person
or persons as may be nominated in substitution therefor by the present Board of
Directors. Management knows of no current circumstances which would render any
nominee named herein unable to accept nomination or election. The only seats on
the Board expiring this year are the two Class II directorships. Mr. Jennings is
an independent, outside Director of the Company, while Mr. Behm serves as one of
the Company's senior officers, with the title of Executive Vice President. If
both nominees are elected, two of the seven Directors will be executive officers
of the Company and five will be independent, outside Directors.
GENERAL
Article VI of the Certificate of Incorporation provides that the number of
Directors shall be fixed from time to time by or pursuant to the By-laws,
provided that the number of Directors may not be less than one. The Bylaws
currently fix the number of Directors at not less than one or more than eight as
determined from time to time by resolution of the Board of Directors. Current
resolutions of the Board have fixed the number of Directors at seven. Such
resolutions may be changed by the Board to increase or decrease the number of
Directors, subject to compliance with procedures required for the removal of
Directors. The Board of Directors is divided into three classes, with each class
to be as nearly equal in number as possible, and the terms of members of such
classes are staggered so that members of only one class are elected each year.
At each Annual Meeting of Stockholders of the Company, the successors of the
class of Directors whose terms expire at such Annual Meeting of Stockholders are
to be elected for a term expiring at the Annual Meeting of Stockholders held in
the third year following the year of their election.
Biographical information concerning the Directors is set forth below:
NOMINEES FOR REELECTION AS CLASS II DIRECTORS
William F. Behm, age 52, joined the predecessor to the Company in 1978 and
was promoted to Executive Vice President in 1988 and was elected a Director in
1992. Mr. Behm has overall management responsibility for the Company's research
and business development projects. In addition, he is responsible for all of the
Company's product security issues. Prior to joining the Company, Mr. Behm was an
aerospace engineer with McDonnell Douglas Corporation. Mr. Behm was instrumental
in the development of the Company's former on-line lottery
-5-
<PAGE> 9
system, the invention of instant lottery bar codes, the development of the
Company's Terra 2000(R) environmental instant ticket, and its new SciScan
Technology(R). He is co-named as the inventor in several issued patents and
pending patent applications and is a regular speaker at trade shows and
conferences on the subject of technology in the lottery industry.
Mark E. Jennings, age 35, has been a Director since 1991, and has been a
Managing Partner of Generation Partners L.P. since August 1995. Generation
Partners L.P. is the managing general partner of Generation Capital Partners
L.P., an investment partnership. Prior to August 1995, he was a Partner of
Centre Partners L.P., where he had been employed since 1987. Centre Partners
L.P. is the managing general partner of Centre Capital Investors, L.P. ("CCI"),
an investment firm that was a principal stockholder of the Company until a
distribution by CCI to its general and limited partners of the Common Stock held
by it in March 1994 in connection with a secondary offering of the Common Stock.
From 1986 to 1987, Mr. Jennings was employed at Goldman, Sachs & Co. in its
Corporate Finance Department. Mr. Jennings currently serves on the Boards of
Directors of The Johnny Rockets Group, Inc., Jeepers!, Inc., Snyder
Communications, Inc. and Muzak Limited Partnership.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE REELECTION OF
MESSRS. BEHM AND JENNINGS AS CLASS II DIRECTORS.
CONTINUING DIRECTORS OF THE COMPANY
Paul F. Balser, age 56, has been a Director since 1991, and has been a
Managing Partner of Generation Partners L.P. since August 1995. Prior to August
1995, he was a Partner of Centre Partners L.P. from September 1986 to August
1995. From April 1982 to September 1986, Mr. Balser was a Managing Director and
a member of the Board of Directors of J. Henry Schroder Corp., an investment
banking firm. Mr. Balser currently serves on the Boards of Directors of Kansas
City Southern Industries, Inc., The Carbide/Graphite Group, Inc., Jeepers!,
Inc., Muzak Limited Partnership, New Wave Communications and LVI Environmental
Services Inc. Mr. Balser's term of office as a director expires with the 1999
Annual Meeting of Stockholders.
Dennis L. Whipple, age 54, has been a Director since December 1994. Mr.
Whipple is President of ALLTEL Communications, Inc., a position he has held
since June 1995. Prior to such time, he was President and Chief Executive
Officer of Contel Cellular, Inc., a position he held from 1991 to 1995. Mr.
Whipple served in various operational and staff capacities with GTE Corp.
("GTE") for nineteen years, ending his service with GTE as Corporate Vice
President--Marketing and Business Development for GTE Mobile Communications. Mr.
Whipple's term of office as a director expires with the 1999 Annual Meeting of
Stockholders.
William G. Malloy, age 51, has been President and Chief Executive Officer
of the Company since 1991 and has held such positions with the Company's
predecessor since 1990. Prior to becoming President and Chief Executive Officer,
Mr. Malloy served as the Company's Vice President, Treasurer and Chief Financial
Officer. Mr. Malloy was elected a Director and Chairman of the Board in 1991.
Mr. Malloy has over twenty-three years of experience in the coin-operated
amusement and gaming industry. Mr. Malloy's term of office as a director expires
with the 1999 Annual Meeting of Stockholders.
Frank S. Jones, age 69, has been a Director since September 1993. Mr. Jones
served as the Ford Professor of Urban Affairs at the Massachusetts Institute of
Technology from 1968 through 1992, when he became Ford Professor Emeritus. He is
currently a director of Polaroid Corporation and Firearms Training Systems, Inc.
Mr. Jones is also a member of the executive committees of The Partnership of
Boston Massachusetts and currently is serving as Distinguished Leadership
Professor at Morehouse College, Atlanta, Georgia. Mr. Jones's term of office as
a director expires with the 2000 Annual Meeting of Stockholders.
Edith K. Manns, age 61, has been a Director since November 1993 and
currently is Associate Professor of Public Administration, School of Public
Administration and Urban Studies, College of Public and Urban Affairs at Georgia
State University. Dr. Manns has served over fifteen years on the faculty of
Georgia State University,
-6-
<PAGE> 10
including a tenure from 1981 to 1991 as Associate Dean and Associate Professor
of Public Administration, College of Public and Urban Affairs. Dr. Manns also
serves on the Board of Directors of the Atlanta Audubon Society and as a member
of the Advisory Committee of the Georgia Environmental Organization. Dr. Manns's
term of office as a director expires with the 2000 Annual Meeting of
Stockholders.
DIRECTORS' FEES AND COMPENSATION
All Directors are reimbursed for expenses incurred in attending Board and
committee meetings. Effective January 1, 1996 and subsequent to a study of its
previous compensation arrangements for non-employee Directors, compensation for
non-employee Directors is comprised of (i) an annual cash retainer of $20,000
payable in equal quarterly installments, (ii) options issued pursuant to the
Company's Directors Stock Option Plan, as amended and restated ("DSOP") and
(iii) the option to tax-defer cash compensation pursuant to the Company's
Directors Deferred Compensation Plan ("DDCP"). The DSOP provides for the grant
to an eligible non-employee Director of options to purchase 6,000 shares of
Common Stock (the "Initial Grant") generally upon the initial election of such
non-employee Director to the Board and the grant of options to purchase an
additional 3,000 shares annually thereafter to such Director subject to the
provisions of the DSOP. Options are issuable under the DSOP at an exercise price
equal to the fair market value of the Common Stock as of the option grant date
and vest at a rate of twenty percent per year beginning with the first year's
anniversary of the Initial Grant, and expire on the tenth anniversary of the
grant date. Options are immediately exercisable upon vesting, subject to certain
limitations imposed by the DSOP. The DDCP, which became effective in July 1996,
allows all non-employee directors to make an annual election to defer all or any
portion of their retainer, which amounts are to be held by a so-called "rabbi
trust" and accounted for as assets of the Company.
MEETINGS AND COMMITTEES OF THE BOARD
During 1997, the Board of Directors held six (6) regular meetings and no
special meetings. All Directors attended at least seventy-five percent (75%) of
the total number of meetings of the Board of Directors and any committee of the
Board on which they served.
GOVERNANCE OF THE COMPANY
In accordance with applicable Delaware state law, the business of the
Company is managed under the direction of its Board of Directors.
There are currently four standing committees of the Board of Directors.
Committee memberships, the number of committee meetings held during 1997 and the
functions of those committees are described below.
AUDIT COMMITTEE
The current members of the Audit Committee are Dr. Edith K. Manns
(Chairman), Frank S. Jones, Mark E. Jennings and Dennis L. Whipple.
The Audit Committee consists of four Directors and represents the Board in
discharging its responsibilities relating to the accounting, reporting and
financial control practices of the Company and its subsidiaries. Such committee
has general responsibility for reviewing with management the financial controls,
accounting, and audit and reporting activities of the Company and its
subsidiaries. The Audit Committee annually reviews the qualifications and
objectivity of the Company's independent auditors, makes recommendations to the
Board as to their selection, reviews the scope, fees and results of their audit,
reviews their non-audit services and related fees, reviews their management
comment letters and annually reviews the status of significant current and
potential legal
-7-
<PAGE> 11
matters. Such committee is also empowered to conduct its own investigations into
issues related to the aforementioned responsibilities and to retain independent
counsel or outside experts for such purposes. During 1997, the Audit Committee
held four (4) meetings.
COMPENSATION COMMITTEE
The current members of the Compensation Committee are Paul F. Balser
(Chairman), Mark E. Jennings, William G. Malloy and Dr. Edith K. Manns.
The Compensation Committee consists of four Directors and oversees
incentive compensation plans for officers and key employees, approves standards
for setting compensation levels for Company executives and grants the specific
awards made under the Company's executive incentive compensation plan. Such
committee also approves the compensation of certain employees whose salaries are
above specified levels set by the entire Board and makes recommendations to the
Board as required. It also reviews senior management development programs and
evaluates senior management's performance against the Company's business plans
and budgets. Such committee is authorized to hire and regularly consult with
independent compensation advisors.
The Compensation Committee also represents the Board in discharging its
responsibilities with respect to any employee pension, savings and benefit plans
of the Company. It may appoint members of management, which need not be
Directors, to serve on an employee benefits administration committee and a
benefit plans investment committee, which are to be responsible, respectively,
for the administration of the employee benefit plans of the Company and for the
custody and management of assets of those plans that are funded. During 1997,
the Compensation Committee held one (1) meeting.
STOCK OPTION COMMITTEE
The current members of the Stock Option Committee are Frank S. Jones
(Chairman), Paul F. Balser, Dr. Edith K. Manns and Dennis L. Whipple.
The Stock Option Committee consists of four Directors. Such Committee or a
subcommittee thereof is responsible for administering all of the Company's stock
option plans. During 1997, the Stock Option Committee held two (2) meetings.
NOMINATING COMMITTEE
The current members of the Nominating Committee are William G. Malloy
(Chairman), Mark E. Jennings, Paul F. Balser, Frank S. Jones and Dennis L.
Whipple.
The Nominating Committee consists of five Directors and identifies and
recommends candidates for election to the Board. It advises the Board on terms
of tenure, retirement policy, compensation of Directors and issues involving
potential conflicts of interest. Such committee also considers candidates
recommended by stockholders. Any stockholder who wishes to recommend a candidate
for election to the Board should submit such recommendation to the Secretary of
the Company. The submission should include a statement of the candidate's
business experience and other business affiliations and confirmation of the
candidate's willingness to be considered as a nominee. During 1997, the
Nominating Committee held one (1) meeting.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Balser, Jennings, and Malloy and Dr. Manns served on the
Compensation Committee for the year ended December 31, 1997. Mr. Malloy is the
Company's Chief Executive Officer and President.
-8-
<PAGE> 12
In October 1991, CCI and certain executive officers of the Company
purchased substantially all of the assets of the instant lottery ticket sales
business, the instant ticket cooperative services business and the video lottery
business of the predecessor to the Company in a leveraged buy-out transaction
(the "Acquisition"). In connection with the Acquisition, the Company made loans
totaling $446,000 to certain officers of the Company, including all of its
original executive officers (such officers hereinafter the "Initial Management
Stockholders"), that were used for the purchase of stock of the Company. Loans
to finance stock purchases were made available because the Board of Directors
believed these arrangements were necessary to obtain and retain the services of
the Initial Management Stockholders. All such loans have since been repaid. Mr.
Malloy's loan in the original principal amount of $141,000 was repaid as of
January 31, 1998 together with accrued interest at the rate of 6 1/4% per annum.
During 1997 and as of the date Mr. Malloy's loan was repaid, the outstanding
principal amount of such loan was $70,500.
COMPENSATION COMMITTEE REPORT
The Company's policy regarding compensation for its executive officers
historically has been based on consideration of a variety of factors and the
exercise of the collective judgment of the Board of Directors and, more
recently, the Compensation Committee. The Company's Chief Executive Officer
("CEO"), William G. Malloy, has typically proposed to the Board the amount and
type of compensation for such officers. Factors considered by the CEO and the
Compensation Committee in making recommendations and decisions with regard to
compensation may include their subjective perception of an individual officer's
performance, revenue growth, pre-tax margins, earnings before interest, taxes,
depreciation and amortization ("EBITDA"), earnings per share, return on average
net assets, asset turnover, the nature of an officer's duties and
responsibilities, the compensation paid to officers of companies competing with
the Company (to the extent known) and a subjective assessment of the
compensation the Company's officers could obtain in the market. While various
components of the Company's performance may be considered in setting
compensation, base salary has not been formally tied to pre-established, fixed
objective measures of Company performance, nor has any objective ranking or
weighting been attributed to specific measures of performance in setting base
salary.
The Company retained the services of compensation consultants in 1994 and
1995 to evaluate the Company's compensation policies and to advise the
Compensation Committee with respect to revisions to the Company's compensation
policies. In February 1996, the Compensation Committee completed its two-year
review of the Company's compensation policies for senior management and made
recommendations to the full Board concerning the long-term programs and policies
necessary to attract and retain persons of stature and competence as executive
officers of the Company. Based on the compensation studies, the Compensation
Committee concluded that the Company's executive officers (including its Named
Executive Officers) generally were somewhat under-compensated in terms of base
salary and incentive cash compensation, and the percentage of compensation
attributable to stock options was somewhat overweighted due to the rapid
appreciation in the value of the underlying Common Stock. This assessment was
somewhat subjective given the limited number of similar companies, including the
Company's competitors, which are public companies. The group of executive
officers identified in such study included the Company's current senior
executive officers. As a result of such studies and review of the Company's
compensation policies, the Compensation Committee and the Board revised the
Company's compensation policies. The elements of the current compensation
program were finalized in the latter portion of 1996. Such current compensation
program includes (i) the Company's Key Employee Stock Option Plan (the "KESOP");
and (ii) an intermediate incentive compensation plan (the "IICP"). The KESOP was
approved by the Company's stockholders at the 1996 Annual Meeting of
Stockholders; stockholder approval was not required to implement the IICP or any
other element of the current compensation program.
The Board of Directors adopted the IICP in order to address the relative
under-compensation of the Company's senior executive officers in terms of
incentive cash compensation. Under the IICP, such executives are eligible for,
and annual cash bonuses are earned based on, the Company's achievement of a
specified financial performance goal based upon the compounded growth in the
Company's earnings per share over rolling three-year periods beginning with the
three-year period ending December 31, 1998. If the Company's actual results fall
short of the performance
-9-
<PAGE> 13
goal specified during any three-year period, no amounts will be payable under
the IICP for such three-year period; however, if the target is met or exceeded,
executives will be eligible to receive a cash bonus payable over the following
three years. To receive any payment under the IICP, an eligible executive must
be an employee of the Company on the first business day of any year in which
payments become payable. The total amount payable to executives will vary within
a range, with a minimum amount specified for meeting the target and a maximum
amount specified for exceeding the target by a specified percentage or more.
To illustrate, for the three-year period ending December 31, 1998, if the
Company's actual results fall short of its performance goal, no amounts will be
payable under the IICP for the period ending December 31, 1998. If, however, the
target is met, there will be a total payout to executives (which amount will be
upwardly adjusted for the CEO's participation in the IICP) ranging from $800,000
to $1,600,000, depending upon the Company's actual earnings per share for the
period. Amounts payable, if any, with respect to the period will be distributed
to eligible executives in equal and consecutive installments over the ensuing
three-year period, commencing in January 1999, with the remaining two payments
payable in January 2000 and January 2001, respectively.
In 1997, the Company generally compensated its executive officers for their
services through a combination of base salary, incentive cash compensation and
options to purchase Common Stock. As compared with previous years, the relative
percentage of compensation paid in base salary and incentive cash compensation
increased, while the relative percentage of compensation paid in the form of
stock options decreased. In 1997, the Compensation Committee considered the same
factors with respect to the compensation of the CEO as it considered with
respect to senior executive officers as well as any other executive officers
hired or promoted in 1997 or 1998. While there was no pre-established formula or
other objective link between the level of Mr. Malloy's compensation and the
performance of the Company, the Compensation Committee believes its judgment
with respect to the level of payments made to Mr. Malloy for his services has
been clearly appropriate in light of the Company's performance and achievement
of its strategic goals under Mr. Malloy's leadership since the Acquisition.
Although the Compensation Committee believes that the value of option-based
compensation as a percent of total compensation historically has been somewhat
overweighted as a component of total pay, the Compensation Committee also
believes that directly linking the financial interests of management with that
of the Company's stockholders is a vital element of any total compensation
package. Accordingly, in 1996 the Compensation Committee recommended that the
Stock Option Committee make annual awards of stock options to the Company's
executive officers. Although the terms of the KESOP provide the Stock Option
Committee with broad discretion in making awards, the Compensation Committee
recommended that the Stock Option Committee make annual option awards to
purchase Common Stock to the CEO at the level of 20,000 shares per year, and to
the Company's other senior executive officers at the level of 10,000 shares per
year. In 1997, based on the recommendation of the Company's management, the
Compensation and Stock Option Committees approved the grant of options under the
KESOP, with the CEO awarded options to purchase 20,000 shares of Common Stock
and each of the Company's other senior executive officers awarded options to
purchase 10,000 shares. In February 1998, based on the recommendation of the
Company's management, the Compensation and Stock Option Committees approved the
grant of options under the KESOP for 1998, with the CEO awarded options to
purchase 20,000 shares of Common Stock and each of the Company's other senior
executive officers awarded options to purchase 10,000 shares. Such options vest
ratably over three years beginning with the first anniversary of the date of
grant and have an exercise price equal to the Common Stock's fair market value
on the option grant date. Executive officers hired or promoted in 1997 or 1998
participate in the KESOP as determined on an individual basis by the
Compensation Committee.
As one of the factors in its review of compensation matters, the
Compensation Committee considers the anticipated tax treatment to the Company
and to the executives of various payments and benefits. Some types of
compensation payments and their deductibility depend upon the timing of an
executive's vesting or exercise of previously granted rights. Further,
interpretations and changes in the tax laws and other factors beyond the
Compensation Committee's control also could affect the deductibility of
compensation. Based on current compensation levels, the Company does not expect
its ability to deduct executive compensation to be limited by operation of
Section 162(m) ("Section 162(m)") of the Internal Revenue Code of 1986, as
amended (the "Code"),
-10-
<PAGE> 14
in the foreseeable future. The KESOP was structured with the goal of complying
with the requirements of Section 162(m), and the Compensation Committee believes
stock options awarded thereunder should qualify as "performance-based"
compensation exempt from limitations on deductibility under Section 162(m).
The foregoing report has been furnished by members of the following
committees:
<TABLE>
<CAPTION>
COMPENSATION COMMITTEE STOCK OPTION COMMITTEE
<S> <C>
Paul F. Balser Frank S. Jones
Mark E. Jennings Paul F. Balser
William G. Malloy Dr. Edith K. Manns
Dr. Edith K. Manns Dennis L. Whipple
</TABLE>
-11-
<PAGE> 15
PERFORMANCE GRAPH
The following graph compares the percentage change in the Company's
cumulative total stockholder return on Common Stock with the cumulative total
return, assuming reinvestment of dividends, of (i) the Standard & Poor's 500
Stock Index (the "S&P 500 Index") and (ii) a peer group index constructed by the
Company (the "Peer Group Index").
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
COMPANY, S&P 500 INDEX AND PEER GROUP INDEX
<TABLE>
<CAPTION>
8/23/93 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Company (1).................................. $ 100.00 $ 162.50 $ 357.14 $ 539.29 $382.14 $289.29
S&P 500 Index ............................... $ 100.00 $ 103.86 $ 105.23 $ 144.78 $178.02 $233.41
Peer Group Index (2) ........................ $ 100.00 $ 107.97 $ 66.31 $ 76.36 $ 94.43 $100.76
</TABLE>
- ---------------
(1) The initial value of the Common Stock was calculated based on the IPO
offering price of $7.00 per share (adjusted for the March 13, 1995 stock
split).
(2) For all periods through December 31, 1995, the Company's self-constructed
peer group is composed of Bally Gaming International, Inc. ("Bally"), GTECH
Holdings Corp., and Powerhouse Technologies, Inc. (formerly known as Video
Lottery Technologies, Inc. ("Powerhouse"). For December 31, 1996 and
December 31, 1997, the Company's self-constructed peer group is composed of
Alliance Gaming Corp. ("Alliance"), GTECH Holdings Corp., and Powerhouse.
In June 1996, Alliance completed the acquisition of Bally, which is now a
wholly-owned subsidiary of Alliance. The Peer Group Index has been weighted
to account for the respective market capitalization of the subject
companies.
-12-
<PAGE> 16
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table sets forth the compensation paid by the Company for the
periods indicated to any individual serving as the Company's CEO during 1997 and
to the four most highly compensated executive officers (other than the Chief
Executive Officer) who earned more than $100,000 during 1997 ("Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1) LONG TERM COMPENSATION
------------------------------ --------------------------
AWARDS
SECURITIES
UNDERLYING ALL OTHER
NAME AND SALARY BONUS OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) (1) ($) (2) (#) ($) (3)
------------------ ---- ------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C>
William G. Malloy.......................... 1997 188,160 461,840 20,000 3,166
President and Chief Executive Officer 1996 181,268 438,822 20,000 3,000
1995 172,636 400,000 60,000 3,000
WILLIAM F. BEHM............................ 1997 185,769 46,165 10,000 3,166
EXECUTIVE VICE PRESIDENT 1996 183,401 48,504 10,000 3,000
1995 151,919 150,000 30,000 3,000
JOHN KRIZ (4) ............................. 1997 183,400 44,741 10,000 3,166
VICE PRESIDENT - MANUFACTURING 1996 174,891 45,663 10,000 3,000
1995 148,445 100,000 30,000 3,000
JAMES CULVER (5).......................... 1997 208,190 59,333 10,000 3,166
VICE PRESIDENT - SALES AND MARKETING 1996 168,550 45,457 10,000 3,000
1995 143,063 120,000 30,000 2,978
THOMAS F. LITTLE .......................... 1997 203,554 59,480 10,000 3,166
SENIOR VICE PRESIDENT 1996 167,997 45,893 10,000 3,000
1995 139,159 120,000 30,000 3,000
</TABLE>
- --------------------
(1) The amounts shown do not include indirect compensation, the value of which
for each executive officer did not exceed the lesser of $50,000 or 10% of
the aggregate compensation for such officer.
(2) Yearly bonus amounts exclude amounts paid as a bonus in the applicable year
for services rendered in a prior year which may have been deferred at the
election of the named officer and include amounts earned in such year which
may have been deferred at the election of the named officer to a later
year.
(3) These amounts constitute matching contributions to the Company's 401(k)
plan, which in 1997 were at 33 1/3% of the maximum deductible contribution
permitted to employees.
(4) Mr. Kriz resigned from the Company effective February 20, 1998. (5) Mr.
Culver retired from the Company effective February 2, 1998.
DEFERRED COMPENSATION ARRANGEMENTS
In October 1996, the Board of Directors established the Company's
Management Deferred Compensation Plan ("MDCP") to provide deferred compensation
for certain members of senior management, who are permitted to elect to defer up
to 50% of their salary and up to 100% of their annual cash incentive bonus.
Assets of the MDCP are to be held by a rabbi trust and are accounted for as
assets of the Company.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Effective January 1996, the Company established the Scientific Games Inc.
Supplemental Executive Retirement Plan ("SERP"), and nine Company executives
identified in the SERP became SERP participants. Under the SERP, the
Compensation Committee is granted the authority to name additional participants
to the SERP. All current
-13-
<PAGE> 17
SERP participants are 100% vested in their benefits. SERP participants who
retire at age 65 will generally receive benefits for 15 years following
retirement in an amount equaling 53% of the participant's compensation during
his or her final three calendar years of employment, subject to length of
service. Benefit amounts may be reduced under the SERP in certain circumstances,
based upon length of service for all participants and subject to vesting
schedules for participants entering the SERP after January 1, 1996. To provide a
funding source for the payment of SERP benefits, the Company owns whole-life
insurance contracts on the SERP participants. These policies are to be placed in
a rabbi trust that will hold the policies and death benefits as they are
received.
EMPLOYMENT AGREEMENTS
The Company has employment agreements, dated October 1, 1991, as amended to
date, with two of its executive officers, Messrs. Behm and Little. Such
employment agreements had original expiration dates of September 30, 1997, but
have been extended to September 30, 2000. Under the employment agreements,
annual base salaries for Messrs. Behm and Little initially were $132,000 and
$121,000, respectively, subject to upward adjustment for inflation of not less
than 5% per annum. Under the extension agreements, Mr. Little's annual base
salary was increased to $212,500 effective as of March 31, 1997, and Mr. Behm's
annual base salary was adjusted upward for inflation. Each of such agreements
provides for the establishment of an executive automobile plan and an incentive
compensation plan. The employment agreements also provide for payment of
benefits in the event of death or permanent disability equal to six months of
salary and contain a three year post-term prohibition on solicitation of the
Company's customers and employees, a one year post-term non-compete covenant and
confidentiality covenants unlimited as to term. The one year non-compete
covenant may be extended for an additional year at the Company's option upon the
making of payments to the affected executive equal to the prior year's salary.
In the event of a termination by the Company other than for cause or other than
in connection with a change in control, an affected executive would be entitled
to a severance payment under such employment agreements of not less than the sum
of one year's base salary plus the prior year's bonus and to his Company car and
the continuance for one year thereafter of certain employee benefits. Mr. Malloy
serves as the Company's CEO and President at the pleasure of the Board of
Directors.
The Company has entered into severance benefits agreements (the "Severance
Benefits Agreements") with nine of its executive officers, including Mr. Malloy,
pursuant to which the Company has agreed to pay severance benefits to such
officers in the event of certain defined terminations of employment, including
in the case of any severance (other than "for cause") after a change in control,
which change in control is not approved by a majority of the Management
Directors (defined as those directors of the Company who are also Initial
Management Stockholders). A "change in control" is deemed to have occurred if
any "person" or "group" of persons (as determined pursuant to Sections 13(d) and
14(d) of the Exchange Act and the rules and regulations promulgated thereunder),
other than the Initial Management Stockholders, (i) becomes the beneficial
owner, directly or indirectly, of voting securities of the Company, or
securities convertible into, or exchangeable for, voting securities,
representing more than 50% of the combined voting power of the Company's then
outstanding securities or (ii) acquires the right or power to nominate and/or
control, directly or indirectly, a majority of the members of the Board of
Directors, without having first received the prior written consent of at least
two-thirds (including the favorable vote of at least one Director who is an
Initial Management Stockholder) of the members of the entire Board of Directors
in office prior to any such person or group of persons acquiring such right or
power. Such severance benefits would be paid in an amount, in addition to base
salary owing and bonus prorated through the date of termination, equal to three
years of the highest rate of base salary and highest bonus paid during the
three-year period immediately preceding the date of termination or change in
control, whichever was higher. In addition, upon any such change in control, all
stock options of the affected officer would become vested and immediately
exercisable and (i) the Company, in such event, would be obligated to lend to
the officer for a three-year period at the then prevailing prime interest rate
an amount equal to the exercise price of the options plus any taxes payable by
such officer in respect of the exercise of such options and (ii) in the event of
a termination (other than for defined cause) within two years after such change
in control, the Company would be required to maintain for up to three years all
life, medical and other insurance benefit plans (to the extent, after the COBRA
period of 18 months, that the employee is insurable) in which the officer was
entitled to participate prior to termination and to have assigned to him, to the
extent
-14-
<PAGE> 18
assignable, any such policies at the end of such three-year period. Such
agreements also require the Company to pay the reasonable legal fees and
expenses, if any, incurred by the executive in the successful enforcement of any
right or benefit provided under the Severance Benefits Agreement. In such
agreements, each executive has committed to remain an employee of the Company
notwithstanding any commencement of an exchange offer, proxy contest or other
steps to effect a change in control of the Company until any such tender offer,
proxy contest or other steps are abandoned or terminated or until a change in
control is actually effected.
The Company estimates the value of the compensation and benefits payable
under the change in control provisions of the Severance Benefits Agreements, as
of December 31, 1997, if such provisions were triggered by a change in control
and termination of such officers, would have been $3,828,208 to Mr. Malloy,
$2,588,513 to Mr. Behm, $1,292,988 to Mr. Culver, $2,045,324 to Mr. Kriz and
$1,791,855 to Mr. Little. Such change in control estimates are not reduced to
present value and do not include any amount for the value of life, disability
and medical insurance benefits or company car.
STOCK OPTION PLANS
At the time of the Acquisition, the Company granted options to the Initial
Management Stockholders pursuant to two separate option plans (such plans as
amended and restated to date)--the First 1991 Management Stock Option Plan and
the Second 1991 Management Stock Option Plan. Options to purchase an aggregate
of 350,986 shares of Common Stock were issued pursuant to the First 1991
Management Stock Option Plan, and an aggregate of 702,084 options to purchase
shares of Common Stock were issued pursuant to the Second 1991 Management Stock
Option Plan. The exercise price for each share subject to the First 1991
Management Stock Option Plan and the Second 1991 Management Stock Option Plan is
$1.46. In the third quarter of 1993, 108,950 options that had been granted to a
former officer under the two plans were reallocated to two executive officers
and to certain other employees at an exercise price of $1.46 per share.
In July 1993, the Board of Directors adopted the Company's 1993 Management
Stock Option Plan pursuant to which options to purchase up to 136,982 shares of
Common Stock may be granted to officers and key employees of the Company.
Options granted under such plan are at option prices established by the Stock
Option Committee at not less than fair market value on the date of grant.
Options for 136,982 shares were issued in August 1993 at an exercise price of
$7.00 per share.
In March 1994, the Board of Directors adopted the Company's 1994 Management
Stock Option Plan pursuant to which options to purchase up to 300,000 shares of
Common Stock may be granted to the Company's executive officers. Options granted
under such plan are at option prices established by the Stock Option Committee
at not less than the fair market value on the date of grant. Options for 300,000
shares were issued to nine executive officers in March 1994 at an exercise price
of $12.00 per share.
In March 1995, the Board of Directors adopted the Company's 1995/1996
Management Stock Option Plan pursuant to which options to purchase up to 300,000
shares of Common Stock may be granted to the Company's executive officers.
Options granted under such plan are at option prices established by the Stock
Option Committee at not less than the fair market value on the date of grant.
Options for 300,000 shares were issued to nine executive officers in March 1995
at an exercise price of $19.75 per share.
Effective May 1996, the Company adopted the 1996 Key Employee Stock Option
Plan (the "KESOP") pursuant to which options to purchase up to 600,000 shares of
Common Stock may be granted to the Company's executive officers, senior
management and other key employees. Options granted under the KESOP are at
option prices established by the Stock Option Committee at not less than the
fair market value on the date of grant. Options for 100,000 shares were issued
under the KESOP in May 1996 at an exercise price of $31.50 per share. Options
for 110,000 shares were issued under the KESOP in 1997 at an exercise price of
$20.375 per share, and options for 120,000 shares have been issued under the
KESOP in 1998 at an exercise price of $21.875 per share.
-15-
<PAGE> 19
The exercise of the options granted pursuant to each option plan is subject
to certain vesting requirements set forth in each option plan.
The following table sets forth certain information concerning options, all
of which are exercisable unless otherwise noted, which were granted in 1997 to
the executive officers listed in the Summary Compensation Table.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL VALUE AT
--------------------------------------------------- ASSUMED ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM
OPTIONS EMPLOYEES EXERCISE -----------------------
GRANTED IN FISCAL PRICE EXPIRATION 0% 5%(3) 10%(3)
NAME (#) YEAR ($/SH) DATE(1)(2) $ $ $
---- ----------- ----------- --------- ---------- --- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
William G. Malloy............ 20,000 18.2% $20.375 04/17/07 $0 $162,376 $381,926
William F. Behm.............. 10,000 9.1% $20.375 04/17/07 $0 81,188 190,963
John J. Kriz................. 10,000 9.1% $20.375 04/17/07 $0 81,188 190,963
James R. Culver.............. 10,000 9.1% $20.375 04/17/07 $0 81,188 190,963
Thomas F. Little............. 10,000 9.1% $20.375 04/17/07 $0 81,188 190,963
</TABLE>
(1) All listed options were granted under the KESOP with a ten year term and
vest ratably over a three year period beginning with the first annual
anniversary of the date of grant.
(2) Each option granted under the KESOP also becomes exercisable upon the
occurrence of a defined recapitalization or change in control or upon the
death or permanent disability of such officer. None of the options
described above are "Incentive Stock Options" as defined in the Code.
(3) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises are dependent on the future
performance of the Common Stock and overall market conditions. There can be
no assurance that the amounts reflected in these columns will be achieved
or if achieved will exist at the time of any option exercise.
The following table sets forth certain information concerning unexercised
options held at December 31, 1997 by the executive officers listed in the
Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING OPTIONS THE-MONEY OPTIONS AT
SHARES AT FY-END(#) FY-END(1)($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
William G. Malloy. . . . . . . . . . 0 N/A 131,116/87,806 $1,401,971/852,037
WILLIAM F. BEHM. . . . . . . . . . . 0 N/A 125,956/43,540 1,654,399/231,295
JOHN J. KRIZ. .. . . . . . . . . . . . 0 N/A 93,306/39,438 1,040,928/154,196
JAMES R. CULVER. . . . . . . . . . . 0 N/A 26,103/39,437 154,222/154,196
THOMAS F. LITTLE. . . . . . . . . . . 0 N/A 79,956/43,540 812,219/231,295
- ---------------
</TABLE>
(1) Based on the closing price of the Common Stock as reported on the NYSE on
December 31, 1997 of $20.25 per share.
-16-
<PAGE> 20
AGENDA ITEM TWO
APPROVAL OF SCIENTIFIC GAMES HOLDINGS CORP.
1998 EMPLOYEE STOCK PURCHASE PLAN
The Company's stockholders are being asked to approve the adoption of the
Scientific Games Holdings Corp. Employee Stock Purchase Plan, as amended and
restated (the "ESPP"). The ESPP was initially adopted by the Board of Directors
on November 20, 1997, and the amended and restated ESPP was adopted by the Board
of Directors on February 5, 1998. The Board's approval of the ESPP was subject
to stockholder approval at the Meeting.
The Board of Directors believes that it is in the best interests of the
Company's stockholders to adopt the ESPP to provide eligible employees of the
Company and those eligible subsidiaries designated by the Board with an
opportunity to purchase shares of Common Stock at a discount through voluntary,
systematic payroll deductions, thereby acquiring an interest in the Company's
future. The ESPP is intended to qualify as an "employee stock purchase plan"
under Section 423 of the Internal Revenue Code of 1986, as amended (the "Code").
An aggregate of 200,000 shares of Common Stock has been reserved for issuance
under the ESPP.
The terms and provisions of the ESPP are summarized below. This summary,
however, does not purport to be a complete description of the ESPP. Copies of
the actual plan document may be obtained by any stockholder upon written request
to the Company's Secretary at the Company's principal offices in Alpharetta,
Georgia. The ESPP is also an exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997.
Administration
The Compensation Committee of the Board administers the ESPP and has full
authority to adopt administrative rules and procedures and to interpret the
provisions of the ESPP. All costs and expenses incurred in plan administration
are paid by the Company without charge to participants.
Securities Subject to the ESPP
A total of 200,000 shares of Common Stock has been reserved for issuance to
Eligible Employees (as defined below) under the ESPP. Shares of Common Stock to
be delivered upon exercise of Options (as defined below) under the ESPP may be
either shares of authorized but unissued Common Stock or shares of reacquired
Common Stock, as the Board of Directors may determine.
If the outstanding stock of the Company changes because of a stock
dividend, split-up, recapitalization, merger, consolidation, reorganization or
other capital change, the aggregate number of shares available under the ESPP
and other pertinent factors will be appropriately adjusted.
Option Periods
During the term of the ESPP, offerings under the ESPP will begin on each
July 1 and January 1 and extend for six months thereafter (an "Option Period"),
except that the first Option Period will begin on the date specified by the
Committee administering the ESPP and will extend through June 30, 1998. Eligible
Employees may elect to participate in the ESPP during subscription periods
designated by the Compensation Committee.
Eligibility and Participation
Only employees who qualify as "Eligible Employees" on the first day of an
Option Period may participate in that Option Period. In order to qualify as an
Eligible Employee, an employee must have been employed by the
-17-
<PAGE> 21
Company (or designated subsidiary of the Company) for at least one year, and his
or her customary work schedule must be at least 20 hours per week. In addition,
if an employee's participation in the ESPP would increase his or her ownership
of Common Stock (as determined according to Code Section 424(d)) to 5% or more
of the Company's combined voting stock, that employee will not be eligible to
participate in the ESPP. Finally, the Board of Directors has the right in its
discretion to exclude certain highly compensated employees from participation
during any Option Period.
February 6, 1998 was the first day of the initial Option Period under the
ESPP. As of such date, a total of 558 employees, including 16 of the Company's
executive officers, were Eligible Employees, and a total of 28 employees,
including 3 of the Company's executive officers, had elected to participate in
the ESPP for the initial Option Period, which will end on June 30, 1998.
An Eligible Employee may elect to participate during any Option Period by
executing and delivering a payroll deduction authorization, during the month
preceding the beginning of such Option Period, to withhold automatically a
percentage of such Eligible Employee's Compensation (as defined below) during
the Option Period. The selected percentage must be at least 1%, and cannot
exceed 15%, of the Eligible Employee's Compensation during such Option Period,
but in no event may the Eligible Employee purchase shares of Common Stock under
the ESPP in any calendar year with a value exceeding $25,000. Once an Eligible
Employee becomes a participant for an Option Period, he or she will
automatically remain a participant for succeeding Option Periods until he or she
changes or revokes his or her payroll deduction authorization in writing or
becomes ineligible to participate in the ESPP.
During any Option Period in which an Eligible Employee has chosen to
participate, the percentage he or she has elected will be deducted from his or
her pay in installments beginning with the first day of the Option Period and
ending on the last day of the Option Period, unless he or she sooner terminates
participation in the ESPP or his employment is otherwise terminated. All amounts
withheld according to a participant's payroll deduction authorization will be
credited to an individual non-interest bearing withholding account reflecting
the participant's payroll deductions during the Option Period.
Under the ESPP, "Compensation" means a participant's total base wages,
salary, bonuses and commission. In addition, if the Company receives, prior to
the first day of any Option Period, an administrative ruling from the Internal
Revenue Service to the effect that such amounts may be included without
adversely affecting the treatment of the ESPP for federal income tax purposes,
Compensation also will include, for such Option Period and succeeding Option
Periods, and all calculations based upon the participant's compensation will
take into account, any amount that would be included in the participant's
taxable income but for the fact that it was contributed to a qualified plan
pursuant to an elective deferral under Code Section 401(k) or contributed under
a salary reduction agreement pursuant to Code Section 125 or deferred pursuant
to a non-qualified deferred compensation plan, in each case, to the full extent
permitted by law and applicable regulations, if any, for the period.
Purchase Price
On the first day of any Option Period, each participant will as of that day
be granted an option (an "Option") for that Option Period. The Option will be
for the number of whole and fractional shares of Common Stock determined by
dividing (i) an amount equal to 15% of the participant's Compensation for the
two calendar quarters immediately preceding the first day of the Option Period
by (ii) 90% of the fair market value of a share of Common Stock as of the first
day of the Option Period. On the last day of an Option Period, all Eligible
Employees who have participated in the ESPP for such Option Period will be
deemed to have exercised, to the extent of their withholding during the Option
Period and up to the amount of the Option granted for that Option Period, the
Option granted to them for that Option Period. The purchase price of the Common
Stock purchased will equal 90% of the lower of the fair market value per share
of Common Stock on (i) the last business day of the Option Period or (ii) the
first business day of the Option Period.
-18-
<PAGE> 22
Unless the Board of Directors determines otherwise in good faith, the
Common Stock's fair market value on any given day will mean the last sale price
of the Common Stock on that date as reported on the principal market on which
the Common Stock is then traded. On March 23, 1998, the fair market value per
share of Common Stock was $20.3125, the closing selling price per share on such
date on the NYSE.
Payroll Deductions and Stock Purchases
During each Option Period, each participant may authorize periodic payroll
deductions in any multiple of 1% (up to a maximum of 15%) of his or her
Compensation to be applied to purchase shares of Common Stock on the last day of
such Option Period. Accordingly, on the last day of each Option Period (June 30
and December 31), the accumulated payroll deductions of each participant will
automatically be applied to purchase whole and fractional shares of Common Stock
at the purchase price then in effect.
Special Limitations
The ESPP imposes certain limitations upon a participant's rights to acquire
Common Stock, including the following limitations:
- Purchase rights granted to a participant may not permit such individual to
purchase more than $25,000 worth of Common Stock in any calendar year (valued on
the first day of each Option Period).
- With respect to each Option Period, no participant may purchase more than the
number of shares of Common Stock calculable by dividing (i) an amount equal to
15% of the participant's Compensation for the two calendar quarters immediately
preceding the first day of the Option Period by (ii) 90% of the fair market
value of a share of Common Stock as of the first day of the Option Period.
Termination of Purchase Rights
Any participant may withdraw from the ESPP at any time during any Option
Period by delivering a written notice of his or her election to withdraw. The
participant will cease to be a participant under the ESPP as of such date, and
any and all payroll deductions that have accumulated for the participant during
that Option Period will immediately be canceled and such payroll deductions will
be returned to the participant in cash and without interest. Participants who
terminate their participation under the ESPP during any Option Period may
thereafter elect to participate in future Option Periods by providing the
required notice but may not reelect to participate during any Option Period in
which they have previously elected not to participate or to terminate their
participation. If an Eligible Employee terminates his or her participation, then
later elects to participate in a future Option Period by making a new election
during the proper time period and is subject to Section 16 of the Exchange Act,
that Eligible Employee may not again become a participant until at least six
months have elapsed after the date he or she ceased to be a participant, unless
the Committee deems otherwise.
The participant's purchase right will immediately terminate upon his or her
cessation of employment or loss of Eligible Employee status. Any payroll
deductions which the participant may have made for the Option Period in which
such cessation of employment or loss of eligibility occurs will be refunded, in
cash and without interest, and will not be applied to the purchase of Common
Stock. If an Eligible Employee dies while a participant in the ESPP, any
outstanding Options will be canceled, and all payroll deductions credited to the
participant's withholding account, along with shares of Common Stock held in his
or her brokerage account under the ESPP, will be delivered to such deceased
participant's estate as soon as practicable after the end of the current Option
Period.
-19-
<PAGE> 23
Stockholder Rights
No participant will have any stockholder rights with respect to the shares
covered by his or her purchase rights until the shares are actually purchased on
the participant's behalf. No adjustment will be made for dividends,
distributions or other rights for which the record date is prior to the date of
such purchase.
Assignability
No right to purchase shares under the ESPP may be sold, pledged, assigned
or otherwise transferred. In addition, no participant may sell, pledge, assign
or transfer any payroll deductions or cash payments credited to his or her
account in any manner other than by will or by the laws of descent and
distribution, and during each participant's lifetime, only he or she may
exercise his or her Options. If any participant violates this rule, the Company
will have the right to terminate his or her participation under the ESPP, and
after the balance of his or her withholding account has been returned to him or
her, all of his or her rights under the ESPP will terminate.
Pro-Ration of Shares
If at any time during the term of the ESPP, the number of shares of Common
Stock available under the ESPP is less than the number of shares desired to be
purchased by participants, the Company will apportion the remaining shares among
participants in whatever manner the Company determines, but generally pro rata.
The Company will grant options only for the reduced number of shares, and
payroll deductions for participants will be reduced accordingly without regard
to otherwise applicable rules relating to minimum contributions under the ESPP.
The Company will notify each participant of the reduction in writing.
Amendment and Termination
The Company, acting through the Board of Directors, has the power to amend
the ESPP at any time and for any reason. However, if any such amendment relates
to either (i) an increase in the aggregate number of shares of Common Stock that
may be issued under the ESPP (except for an increase necessitated by a stock
dividend, split-up, recapitalization, merger, consolidation, reorganization, or
other capital change) or (ii) the employees or class of employees eligible to
participate in the ESPP, then the amendment will be ineffective unless the
Company's stockholders approve the amendment within 12 months of its adoption.
The ESPP will terminate automatically (i) when all of the stock reserved
for purposes of the ESPP has been purchased or (ii) as of the conclusion of any
Option Period, as specified by the Board of Directors.
Federal Tax Consequences
The ESPP is intended to be an "employee stock purchase plan" within the
meaning of Section 423 of the Code. Under a plan which so qualifies, no taxable
income will be recognized by a participant, and no deductions will be allowable
to the Company, upon either the grant or the exercise of the purchase rights.
Taxable income will not be recognized until there is a sale or other disposition
of the shares acquired under the ESPP or in the event the participant should die
while still owning the purchased shares.
If the participant sells or otherwise disposes of shares of Common Stock
acquired under the ESPP within two (2) years after the first day of the Option
Period in which such shares were acquired or less than one (1) year from the
date the shares were transferred to the participant, then the participant will
recognize ordinary income in the year of sale or disposition equal to the amount
by which the fair market value of the shares on the purchase date exceeded the
purchase price paid for those shares, and the Company will be entitled to an
income tax deduction, for the taxable year in which such disposition occurs, in
an amount equal to the ordinary income recognized by such participant. If the
amount realized on the sale or disposition exceeds the value of the Common Stock
as of the date
-20-
<PAGE> 24
of purchase, the participant will also recognize short-term or long-term capital
gain in an amount equal to such excess, depending on how long the Common Stock
was held.
If the participant sells or disposes of the purchased shares more than two
(2) years after the first day of the Option Period in which the shares were
acquired and one (1) year from the date the shares were transferred to the
participant, then the participant will generally recognize long-term capital
gain (or loss) equal to the difference between the amount realized on the sale
or disposition and the participant's tax basis in the shares. However, if the
Common Stock's fair market value on the first day of the Option Period exceeds
the amount paid for such Common Stock, this gain will be treated as ordinary
income to the extent of the lesser of (x) the excess of the Common Stock's fair
market value on the first day of the applicable Option Period over its purchase
price or (y) the excess of the fair market value of the Common Stock on its
disposition date (or, if applicable, the date of the holder's death) over the
Common Stock's purchase price. The Company will not be entitled to an income tax
deduction with respect to any income recognized by the participant on such
disposition.
If the participant still owns the purchased shares at the time of death,
the lesser of (i) the amount by which the fair market value of the shares on the
date of death exceeds the purchase price or (ii) 10% of the fair market value of
the shares on his or her entry date into the offering period in which those
shares were acquired will constitute ordinary income in the year of death.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" AGENDA ITEM TWO.
-21-
<PAGE> 25
AGENDA ITEM THREE
SELECTION OF AUDITORS
Ernst & Young LLP, independent auditors, were the auditors of the Company
during the year ended December 31, 1997 and also have been selected by the Board
of Directors to serve as auditors for the year ended December 31, 1998. The
Board of Directors recommends to the stockholders their ratification of its
selection of Ernst & Young LLP to audit the accounts of the Company and its
subsidiaries for 1998. Accordingly, the following resolution will be offered at
the stockholders' meeting:
RESOLVED, that the appointment by the Board of Directors of Ernst &
Young LLP, independent auditors, to audit the accounts of the Company
and its subsidiaries for 1998 be, and hereby is, ratified and approved.
In the event the stockholders fail to ratify the appointment, the Board of
Directors will consider it a direction to select other auditors for the
subsequent year. Even if the selection is ratified, the Board of Directors, in
its discretion, may direct the appointment of a new independent accounting firm
at any time during the year, if the Board feels that such change would be in the
best interests of the Company and its stockholders.
Ernst & Young LLP has served as the Company's independent auditors since
1991.
A representative of Ernst & Young LLP is expected to be present at the
Meeting, will have an opportunity to make a statement if he or she so desires to
do so, and is expected to be available to respond to appropriate questions which
stockholders might have.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" AGENDA ITEM THREE.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the Acquisition, the Company made loans totaling
$446,000 to certain officers of the Company, including all of the Initial
Management Stockholders, that were used for the purchase of stock of the
Company. Loans to finance stock purchases were made available because the Board
of Directors believed these arrangements were necessary to obtain and retain the
services of the Initial Management Stockholders. All such loans have since been
repaid. Mr. Malloy's loan in the original principal amount of $141,000 was
repaid as of January 31, 1998 together with accrued interest at the rate of 6
1/4% per annum. During 1997 and as of the date Mr. Malloy's loan was repaid, the
outstanding principal amount of such loan was $70,500.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who beneficially own more than ten percent of the
Common Stock, to file initial reports of ownership and reports of changes in
ownership with the SEC. Persons subject to these reporting requirements are also
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file. Based solely on a review of copies of the SEC reporting
forms furnished to the Company and representations from the Company's executive
officers and directors, the Company believes that during 1997 all required
Section 16(a) reports were timely filed.
-22-
<PAGE> 26
AVAILABILITY OF
ANNUAL REPORT TO STOCKHOLDERS AND REPORT ON FORM 10-K
Copies of the Company's Annual Report for the year ended December 31, 1997,
which includes certain financial information about the Company, are currently
being mailed, together with this Proxy Statement, to the Company's stockholders.
Additional copies of such Annual Report along with copies of the Company's
Annual Report on Form 10-K for the year ended December 31, 1997 (the "Form
10-K"), as filed with the SEC (exclusive of exhibits and documents incorporated
by reference), are available to stockholders who make written request therefor
addressed to: The Company Secretary, Scientific Games Holdings Corp., 1500
Bluegrass Lakes Parkway, Alpharetta, Georgia 30004. Copies of the Form 10-K are
available without charge. Copies of exhibits and basic documents filed with the
Form 10-K or referenced therein will be furnished to stockholders upon written
request and payment of the Company's expenses in furnishing such documents.
Copies of the Form 10-K and other documents filed by the Company with the SEC
may also be reviewed at the SEC's internet web site at www.sec.gov.
OTHER MATTERS
Management does not intend to present to the Meeting any business other
than the items stated in the "Notice of Meeting of Stockholders" and does not
know of any matters to be brought before the Meeting other than those referred
to above. If, however, any other matters properly come before the Meeting, the
persons designated as proxies will vote on each such matter in accordance with
their best judgment.
Whether or not you expect to be at the Meeting in person, please sign, date
and return promptly the enclosed proxy. No postage is necessary if the proxy is
mailed in the United States.
STOCKHOLDER PROPOSALS
If the Proxy Statement relating to next year's annual meeting is released
to the Company's security holders on the anniversary of the date on which this
Proxy Statement and Form of Proxy are so released, any proposal to be presented
at next year's annual meeting must be received at the principal executive
offices of the Company not later than December 10, 1998. Any such proposals
should be directed to the attention of the Secretary for consideration or
inclusion in the Company's Proxy Statement and Form of Proxy relating to the
next annual meeting. Any such proposals must comply in all respects with
applicable SEC rules and regulations, and it is suggested that proponents of any
proposals submit such proposals to the Company sufficiently in advance of the
deadline by certified mail return receipt requested.
-23-
<PAGE> 27
APPENDIX
SCIENTIFIC GAMES HOLDINGS CORP.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF SCIENTIFIC GAMES HOLDINGS CORP. (THE "COMPANY")
IN CONNECTION WITH THE ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD ON MAY 22, 1998
The undersigned hereby appoints William G. Malloy and C. Gray Bethea, Jr. and
each of them, with full power of substitution as proxies and attorneys-in-fact
on behalf and in the name of the undersigned, to represent the undersigned at
the 1998 Annual Meeting of Stockholders of Scientific Games Holdings Corp. to be
held on May 22, 1998 at 9:00 a.m., E.D.S.T. at the Holiday Inn, 1075 Holcomb
Bridge Road, Roswell, Georgia 30076 and at any adjournment thereof with respect
to such business as may properly come before the meeting or any and all
adjournments thereof and to vote all shares of stock which the undersigned would
be entitled to vote if then and there personally present.
The proxies appointed hereby are instructed to vote as indicated herein on
the following proposals as more fully described in the Company's Notice of
Meeting of Stockholders and Proxy Statement, each dated April 9, 1998, receipt
of which is hereby acknowledged, and in their discretion on any other business
which may properly come before the meeting or any adjournment thereof.
The Company's Board of Directors recommends voting FOR the nominees specified
in Agenda Item No. 1, FOR the proposal specified in Agenda Item 2, and FOR the
proposal specified in Agenda Item No. 3, and the Proxy will be so voted unless
otherwise specified.
Please vote by filling in the boxes below.
<TABLE>
<S> <C>
1. To elect William F. Behm and Mark E. Jennings as Class II
Directors of the Company for terms ending with the 2001
Annual Meeting of Stockholders and until their successors
are elected and qualified;
[ ] FOR the two nominees (except as marked to the contrary [ ] WITHHOLD authority to vote for the two nominees
below)
Instructions: To withhold authority to vote for either individual nominee, write that nominee's name in the space provided
below:
- -------------------------------------------------------------------------------------------------------------------------------
(Continued and to be signed on the reverse)
(Continued from other side)
2. To approve the Scientific Games Holdings Corp. 1998 Employee Stock Purchase Plan;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To ratify the selection by the Company's Board of Directors of Ernst & Young LLP, independent auditors, to audit the
accounts of the Company and its subsidiaries for 1998;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
all as set forth in the Proxy Statement.
Please mark, then date and sign this proxy, exactly as your name(s) appear
hereon, and return this entire proxy card in the enclosed postage paid envelope.
When shares are held by joint tenants, both should sign. When signing as
attorney, as executor, administrator, trustee, guardian or in any other
fiduciary capacity, please give full title as such. If a corporation, please
sign in full corporate name by the president or other authorized officer. If a
partnership, please sign in full partnership name by authorized person.
Dated: , 1998
-------------------
Signed:
-----------------------
-------------------------------
If you also expect to attend
the meeting, the Board of
Directors requests you check
the box below.
[ ] I/we plan to attend the
meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS INDICATED OR IT WILL BE VOTED IN ACCORDANCE WITH THE
RECOMMENDATIONS OF THE BOARD OF DIRECTORS FOR THE NOMINEES SPECIFIED IN AGENDA
ITEM NO. 1, FOR THE PROPOSAL SPECIFIED IN AGENDA ITEM NO. 2, AND FOR THE
PROPOSAL SPECIFIED IN AGENDA ITEM 3.
