<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 Section 240.14a-11(c) or Section 240.14a-12
SCIENTIFIC GAMES HOLDINGS CORP.
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing party:
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(4) Date Filed:
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<PAGE> 2
[LOGO]
To our Stockholders:
On behalf of the Board of Directors, it is our pleasure to invite you to
attend the 1999 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 21,
1999, at 9:00 a.m., E.D.S.T.
The subjects proposed for action at the meeting are:
(1) the election of three Class III Directors;
(2) approval of the Scientific Games Holdings Corp. 1999 Key Employee
Stock Option 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,
/s/ William G. Malloy
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 21, 1999
To the Stockholders of
Scientific Games Holdings Corp.
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Stockholders (the
"Meeting") of Scientific Games Holdings Corp., a Delaware corporation (the
"Company"), will be held on Friday, May 21, 1999 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 three Class III Directors of the Company for
terms ending with the 2002 Annual Meeting of Stockholders and until their
successors are elected and qualified;
(2) approval of the Scientific Games Holdings Corp. 1999 Key
Employee Stock Option 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 1999; 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 22, 1999
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 21, 1999
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 21, 1999,
FOR MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 21, 1999
-----------------
INTRODUCTION
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 1999 Annual Meeting of
Stockholders to be held on Friday, May 21, 1999, 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 21, 1999.
The Annual Report of the Company for the year ended December 31, 1998,
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 22, 1999 (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.
VOTING PROCEDURES
Who Can Vote?
Shareholders as of the closing of business on the Record Date are entitled
to Vote.
How Do I Vote?
You may vote by mail by using the proxy card or by attending the Meeting
and voting in person. To vote by mail, simply mark, sign and date the enclosed
proxy card and return it in the postage-paid envelope which has been provided.
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 three Class III Directors named herein; FOR
approval of the Scientific
<PAGE> 5
Games Holdings Corp. 1999 Key Employee Stock Option Plan (the "KESOP"); and FOR
ratification of the selection of Ernst & Young LLP as independent auditors for
1999.
How Can I Change My Vote?
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.
SOLICITATION OF PROXIES
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 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 $3,500 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.
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 As of the Record Date, the Company had a total of 11,883,962
shares of Common Stock issued and outstanding. The Common Stock is listed for
trading on the NYSE.
What Are The Requirements For a Quorum?
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.
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<PAGE> 6
What Are "Broker Non-Votes"?
Under the rules of the NYSE, nominees, such as banks and brokers
(hereinafter referred to as "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. Brokers also
may vote shares held for customers on approval of the KESOP 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.
What Vote Is Required To Elect Directors?
The three Class III 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.
What Vote Is Required To Pass The Other Matters?
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 KESOP 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 KESOP and ratification of the selection of
auditors.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 22, 1999, 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
(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 Securities 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 entire number of shares shown as
beneficially owned by such person.
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<PAGE> 7
<TABLE>
<CAPTION>
AMOUNT OF PERCENT
BENEFICIAL OF OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER OR IDENTITY OF GROUP WNERSHIP(1) SHARES(1)
- --------------------------------------------------------- ----------- --------------
<S> <C> <C>
Paul F. Balser(2)........................................................ 47,000 *
Mark E. Jennings(2)...................................................... 22,000 *
Frank S. Jones(3)........................................................ 11,300 *
Edith K. Manns(4)........................................................ 12,600 *
Dennis L. Whipple(5)..................................................... 9,000 *
William G. Malloy(6)..................................................... 617,541 5.1%
.........................................................................
William F. Behm(7)....................................................... 207,046 *
Thomas F. Little(8)...................................................... 67,911 *
Cliff O. Bickell (9)..................................................... 57,664 *
Bruce H. Longhurst (10).................................................. 6,111 *
All Executive Officers and Directors as a group (21 persons)(11)......... 1,181,717 9.5%
Merrill Lynch & Co., Inc.(12) ........................................... 1,285,000 10.8%
Private Capital Management, Inc. (13).................................... 1,544,748 13.0%
State of Wisconsin Investment Board (14)................................. 1,120,000 9.4%
Kestrel Investment Management Corporation (15)........................... 744,800 6.3%
</TABLE>
* Less than 1%.
(1) Includes indicated shares issuable pursuant to options exercisable within
60 days.
(2) Includes 12,000 shares issuable pursuant to options exercisable
within 60 days.
(3) Includes 9,600 shares issuable pursuant to options exercisable within 60
days.
(4) Includes 11,800 shares issuable pursuant to options exercisable within 60
days.
(5) Comprised of options exercisable within 60 days.
(6) Includes 188,414 shares issuable pursuant to options exercisable within 60
days, 389 shares in the Company's 401(K) Plan and 1,471 shares under the
employee stock purchase plan ("ESPP") allocated to the named officer.
(7) Includes 126,861 shares issuable pursuant to options exercisable within 60
days and 393 shares in the Company's 401(K) Plan allocated to the named
officer.
(8) Includes 66,872 shares issuable pursuant to options exercisable within 60
days, 392 shares in the Company's 401(K) Plan and 647 shares under the
ESPP allocated to the named officer.
(9) Includes 49,999 shares issuable pursuant to options exercisable within 60
days, 394 shares in the Company's 401(K) Plan and 1,106 shares under the
ESPP allocated to the named officer.
(10) Includes 3,733 shares issuable pursuant to options exercisable within 60
days and 378 shares in the Company's 401(K) Plan allocated to the named
officer.
(11) Includes 594,212 shares issuable pursuant to options exercisable within 60
days and 8,014 shares in the Company's 401(K) Plan allocated to 12 of the
Company's 16 executive officers, and 4,732 shares allocated to 9 of the
Company's 16 executive officers under the ESPP.
(12) The following information is based on a Schedule 13G/A dated January 28,
1999. 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 1,285,000 shares is shared by
Merrill Lynch Global Allocation Fund, Inc. (the "Fund") and the Merrill
Lynch Asset Management Group ("MLAMG"), which includes Merrill Lynch Asset
Management, L.P. ("MLAM"). Merrill reports the Fund is advised by MLAM.
The Fund reports that it is an investment company registered under Section
8 of the Investment Company Act of 1940. MLAMG reports that it is an
investment advisor registered under Section 203 of the Investment Advisors
Act of 1940.
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<PAGE> 8
(13) The following information is based on a Schedule 13G/A dated February
16, 1999. Private Capital Management, Inc. ("Private Capital") reports
its address as 3003 Tamiami Trail N., Naples, Florida 34103. Private
Capital reports beneficial ownership of 1,533,748 shares and voting
power with respect to none of the shares. Private Capital reports that
it shares dispositive power with respect to all 1,533,748 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. Private Capital also reports that Mr. Sherman is
the managing general partner of SPS Partners, L.P. ("SPS") which acts
as the investment advisor to the Entrepreneurial Value Fund, L.P.
("EVF") and exercises shared dispositive power with respect to 200,000
shares owned by EVF. Mr. Sherman reports that he has sole voting and
dispositive power with respect to 11,000 shares. Mr. Sherman thus
reports beneficial ownership of a total of 1,544,748 shares and shared
dispositive power with respect to all 1,533,748 shares beneficially
held by Private Capital. Mr. Sherman disclaims the existence of a
group.
(14) The following information is based on a Schedule 13G/A, dated January
16, 1999. 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.
(5) The following information is based on a Schedule 13G dated February 10,
1999. Kestrel Investment Management Corporation ("Kestrel") reports its
address as 411 Borel Avenue, Suite 403, San Mateo, California 94407.
Kestrel reports that it has sole voting power with respect to 607,400
shares and sole dispositive power with respect to 744,800 shares.
Kestrel reports that it is an investment advisor registered under
Section 203 of the Investment Advisors Act and that David J. Steirman
and Abbott J. Keller are the sole shareholders of Kestrel and
beneficial owners of the shares held by Kestrel.
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<PAGE> 9
AGENDA ITEM ONE
ELECTION OF CLASS III 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 III Directors for a term expiring
at the 2002 Annual Meeting of Stockholders, unless authority to do so is
withheld. In the event any 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 three Class III directorships. Mr. Balser
and Mr. Whipple are independent, outside Directors of the Company, while Mr.
Malloy is the Company's Chief Executive Officer. If all three 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 By-laws
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.
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<PAGE> 10
Biographical information concerning all of the Directors is set forth
below:
NOMINEES FOR REELECTION AS CLASS III DIRECTORS
Paul F. Balser, age 57, 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. 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 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., MetroLabel Corp., Jeepers!, Inc., Music Holding Corp., New Wave
Communications, L.P. and LVI Environmental Services Inc. If reelected, Mr.
Balser's term of office as a director will expire with the 2002 Annual Meeting
of Stockholders.
Dennis L. Whipple, age 55, has been a Director since December 1994. Mr.
Whipple is Chairman and CEO of EverCom, Inc., a telecommunication and billing
services company, a position he had held since September 1998. Prior to such
time, he was President of Alltel Communications, Inc. from June 1995 through
August 1998 and President and CEO of Contel Cellular, Inc. from 1991 to 1995.
Mr. Whipple also 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. If
reelected, Mr. Whipple's term of office as a director will expire with the 2002
Annual Meeting of Stockholders.
William G. Malloy, age 52, 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-four years of experience in the coin-operated
amusement and gaming industry. If reelected, Mr. Malloy's term of office as a
director expires with the 2002 Annual Meeting of Stockholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE REELECTION OF
MESSRS. BALSER, WHIPPLE AND MALLOY AS CLASS III DIRECTORS.
CONTINUING DIRECTORS OF THE COMPANY
Frank S. Jones, age 70, 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 Firearms Training Systems, Inc. Mr.
Jones's term of office as a director expires with the 2000 Annual Meeting of
Stockholders.
Edith K. Manns, age 62, 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 for twenty-two years on the faculty of
Georgia State University, where she was Associate Dean, both in the College of
Allied Health Sciences and subsequently in the College of Public and Urban
Affairs. Dr. Manns has served on the board of directors for a number of
non-profit environmental groups and is currently a member of the Board of
Directors of the Atlanta Audubon Society and a member of the Georgia
Environmental Organization. Dr. Manns's term of office as a director expires
with the 2000 Annual Meeting of Stockholders.
William F. Behm, age 53, 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
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<PAGE> 11
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 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 various 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. Mr. Behm's
term of office as a director expires with the 2001 Annual Meeting of
Shareholders.
Mark E. Jennings, age 36, 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. 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 Snyder
Communications, Inc., The Johnny Rockets Group, Inc., LVI Services, Inc., Enso
Audio Imaging, Inc., High End Systems, Inc., MetroLabel Corp., Jeepers!, Inc.,
and Music Holding Corp. Mr. Jennings' term of office as a director expires with
the 2001 Annual Meeting of Shareholders.
DIRECTORS' FEES AND COMPENSATION
All Directors are reimbursed for expenses incurred in attending Board and
committee meetings. Compensation for non-employee Directors is comprised of:
(1) an annual cash retainer of $20,000 payable in equal quarterly
installments,
(2) options issued pursuant to the Company's Directors Stock Option Plan,
as amended and restated ("DSOP") and
(3) 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
allows all non-employee directors to make an annual election to defer all or any
portion of their retainer, which amounts may be held by a so-called "rabbi
trust" and are accounted for as assets of the Company.
MEETINGS AND COMMITTEES OF THE BOARD
During 1998, the Board of Directors held five (5) 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.
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<PAGE> 12
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 1998 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 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 1998,
the Audit Committee held two (2) 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 1998,
the Compensation Committee held two (2) meetings including continuations
thereof.
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.
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<PAGE> 13
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 1998, 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 1998, 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, 1998. Mr. Malloy is the
Company's Chief Executive Officer and President.
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 63% 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 evaluation of the Company's revenue
growth, pre-tax margins, earnings before interest, taxes, depreciation and
amortization ("EBITDA"), earnings per share, return on average net assets, asset
turnover, as well as the nature of an individual officer's duties and
responsibilities, such individual officer's performance, 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.
In 1998, 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. The current compensation
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<PAGE> 14
program continues to include three elements: (1) base salary, (2) the Company's
key employee stock option plans; and (3) annual and intermediate term cash-based
incentive compensation plans.
The Compensation Committee believes that directly linking a portion of
management's compensation to specified financial performance goals is an
important element of any total compensation package. 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 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.
Because the Company's actual results fell short of its performance goal
for the three-year period ending December 31, 1998, no amounts were payable
under the IICP for such period.
If the IICP target is met for the rolling three-year period ending
December 31, 1999, 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. Conversely, if the Company's results fall short of its
performance goal for the three-year period ending December 31, 1999, no amounts
will be paid for such rolling three-year period. Amounts payable under the IICP,
if any, with respect to the period will be distributed to eligible executives in
equal and consecutive installments over the ensuing three-year period.
The Compensation Committee also believes that directly linking the
financial interests of management with that of the Company's stockholders is
another important element of the 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 Company's stock option plans 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 1998,
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 1998, 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. There was no pre-established formula or other objective link
between the level of Mr. Malloy's compensation and the performance of the
Company, except for a portion of the targets under the IICP.
In November 1998, based on the Compensation and Stock Option Committees'
recommendations, the Company entered into a new employment and severance
benefits agreement, effective as of January 1, 1998, with Mr. Malloy, the
significant terms of which are described in this Proxy Statement in the
Executive Compensation and Other Information section under the heading
"Employment and/or Severance Benefits Agreements". The Compensation Committee
believed a new employment and severance benefits agreement would secure Mr.
Malloy's continued services and centralize in one document information with
respect to his employment and severance benefits. Pursuant to such employment
and severance benefits agreement, Mr. Malloy was granted options to acquire
200,000 shares of the Company's Common Stock. Such options vest 50,000 options
per year beginning January 1, 2000 and the Compensation Committee currently
believes that such option grant provides an
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<PAGE> 15
appropriate level of equity based incentive compensation for Mr. Malloy for the
three year period beginning in 1998 and ending in 2000.
In February, 1999, the Compensation and Stock Option Committees has
approved the grant of options under one or more of the Company's stock option
plans, pursuant to which each of the Company's other senior executive officers
(other than the CEO) were awarded options to purchase in the aggregate 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
participate in the Company's stock option plans 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"), in the foreseeable future. Although the Company's stock
option plans generally have been 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 deductibility
of any compensation was not a condition to any compensation decision.
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>
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<PAGE> 16
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 (1) the Standard & Poor's 500
Stock Index (the "S&P 500 Index") and (2) 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>
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Company (1)............................. $ 100.00 $ 219.78 $ 331.87 $ 235.16 $ 178.02 $ 165.93
S&P 500 Index .......................... $ 100.00 $ 101.32 $ 139.40 $ 171.40 $ 228.59 $ 293.91
Peer Group Index (2) ................... $ 100.00 $ 61.41 $ 70.73 $ 87.46 $ 93.32 $ 74.63
</TABLE>
- ---------------
(1) All Common Stock values have been 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"). In June 1996, Alliance
Gaming Corp., ("Alliance"), completed the acquisition of Bally, which is
now a wholly-owned subsidiary of Alliance. Accordingly, for each of the
years ended for December 31, 1996, December 31, 1997 and December 31,
1998, the Company's self-constructed peer group is composed of Alliance,
GTECH Holdings Corp., and Powerhouse. The Peer Group Index has been
weighted to account for the respective market capitalization of the
subject companies.
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<PAGE> 17
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 1998
and to the four most highly compensated executive officers (other than the Chief
Executive Officer) who earned more than $100,000 during 1998 (collectively,
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1) LONG TERM COMPENSATION
-------------------------------------- ----------------------
AWARDS
------
SECURITIES
UNDERLYING IICP ALL OTHER
NAME AND SALARY BONUS OPTIONS PAYOUT COMPENSATION
PRINCIPAL POSITION YEAR ($) (1) ($) (2) (#) ($) ($) (3)
------------------ ------ ------------ ------------ ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
1998 456,923 164,812 220,000 -0- 3,200
William G. Malloy............................... 1997 188,160 461,840 20,000 N/A 3,166
President and Chief Executive Officer 1996 181,268 438,822 20,000 N/A 3,000
1998 207,216 65,202 10,000 -0-
William F. Behm................................. 1997 185,769 46,165 10,000 N/A 3,166
Executive Vice President 1996 183,401 48,504 10,000 N/A 3,000
1998 234,582 78,615 10,000 -0- 3,200
Thomas F. Little ............................... 1997 203,554 59,480 10,000 N/A 3,166
Senior Vice President 1996 167,997 45,893 10,000 N/A 3,000
Cliff O. Bickell................................ 1998 200,631 69,829 10,000 -0- 3,200
Vice President, Treasurer and 1997 171,742 29,454 10,000 N/A 3,166
Chief Financial Officer 1996 158,760 50,000 10,000 N/A 3,000
Bruce H. Longhurst (4) 1998 195,524 87,111 10,000 -0- 13,500
Vice President, International 1997 29,366 -0- -0- N/A -0-
Sales and Marketing 1996 N/A N/A N/A N/A N/A
</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"% of the maximum deductible contribution
permitted to employees.
(4) Mr. Longhurst became an executive officer of the Company on November 20,
1997.
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 may be held by a rabbi trust and are accounted for as assets
of the Company.
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<PAGE> 18
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Effective January 1996, the Company established the Scientific Games Inc.
Supplemental Executive Retirement Plan ("SERP"), and nine of the Company's then
executive officers identified in the SERP became SERP participants. Currently,
seven of the Company's 16 executive officers participate in the SERP. Under the
SERP, the Compensation Committee is granted the authority to name additional
participants to the SERP. SERP participants with five years of credited service
are 100% vested in their benefits. All of the named executive officers are fully
vested, except for Mr. Longhurst, a Canadian national, who is not a participant
under the SERP. 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 may be placed in a rabbi trust that would hold the
policies and death benefits as they are received.
So long as he is an employee at year end, in lieu of his participation in
the SERP, the Company provides a matching contribution for up to 5% of Mr.
Longhurst's annual compensation into a retirement program in Canada. The
Company's obligation to make such contribution also is subject to Mr. Longhurst
contributing 5% of his annual salary to such retirement plan and the Company may
make its contribution in cash, common stock, or a combination thereof.
EMPLOYMENT AND/OR SEVERANCE BENEFIT AGREEMENTS
The Company has employment agreements, with three of its executive
officers, Messrs. Malloy, Behm and Little. The employment agreement for Mr. Behm
and Mr. Little expire September 30, 2000. Under such employment agreements,
annual base salaries for Messrs. Behm and Little were $207,216 and $234,592,
respectively, for 1998. Their annual salaries are subject to upward adjustment
at a rate equal to the greater of the inflation rate or 5% per annum. Pursuant
to such employment agreements, Mr. Behm and Mr. Little participate in an
executive automobile plan and incentive compensation plans. Such 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.
The Company entered into a new employment and severance benefits agreement
with Mr. Malloy effective as of January 1, 1998. Such agreement replaced Mr.
Malloy's former employment agreement, which, as amended, had expired on
September 30, 1997 and also replaced a severance benefits agreement between the
Company and Mr. Malloy. Mr. Malloy's current agreement is for a five-year term,
subject to automatic renewal for additional five year terms unless either Mr.
Malloy or the Company give notice of their intent not to renew within the time
period specified in the agreement. Under the agreement, Mr. Malloy will receive
an annual base salary of $440,000 subject to increase for inflation and other
factors. Other benefits include Company paid term life insurance in the amount
of $4,000,000, the grant of options to acquire 200,000 shares of Common Stock
and the right to borrow up to $650,000 from the Company subject to Mr. Malloy
adequately collateralizing any such loan. The agreement also
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<PAGE> 19
provides, among other things, for Mr. Malloy's continued participation in the
Company's deferred compensation and supplemental retirement plans, annual and
intermediate term incentive compensation plans, reimbursement of certain
expenses, and continued participation in an executive automobile plan. In the
event Mr. Malloy's employment were to be terminated by the Company, other than
for "cause" (as defined), the Company would be obligated to make a lump sum
payment to him equal to three times Mr. Malloy's average annual compensation for
the preceding 24 months. Such termination also would result in the immediate
vesting of all options and restricted stock granted to him. Such amounts
generally would not include the cash value of non-cash benefits. Mr. Malloy or
his family also would be entitled to the continuation of certain life, medical
and other insurance benefits for up to three years and title to any Company
provided motor vehicle. The amount of such severance payment would be subject to
downward adjustment for disability payments and upward for the amount of any
additional tax on Mr. Malloy's severance benefits if he were terminated in
connection with a change in control of the Company. Additional benefits payable
only in the event of a termination in connection with a change in control
include the obligation to make an unsecured loan equal to Mr. Malloy to fund the
aggregate option exercise price of his options and related tax payments. A
"change in control" (as defined in the agreements) under Mr. Malloy's agreement
will be deemed to have occurred if (i) the Board or the stockholders of the
Company shall approve (x) any consolidation or merger of the Company pursuant to
which the holders of voting securities of the Company immediately prior to such
merger or consolidation do not have more than fifty percent (50%) of the
combined voting power of the voting securities of the Company or such surviving
or parent entity immediately after the consolidation or merger, (y) any sale,
lease, exchange or other transfer of all or substantially all of the assets of
the Company (determined on a consolidated basis) in one transaction or a series
of related transactions other than a transfer to a wholly-owned subsidiary of
the Company, (ii) the Board or stockholders of the Company shall adopt any plan
or proposal for the liquidation or dissolution of the Company; (iii) any
"person" or "group" of persons (as such terms are determined pursuant to
Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and the rules and regulations promulgated
thereunder), other than the management stockholders, either alone or in
conjunction with their Affiliates (as that term is defined in Rule 405
promulgated under the Exchange Act), becomes the beneficial owner, directly or
indirectly, of voting securities of the Company representing, or securities
convertible into, or exchangeable for, securities representing, more than fifty
percent (50%) of the combined voting power of the Company's then outstanding
voting securities; or (iv) any "person" or "group" of persons (as such terms are
determined pursuant to Sections 13(d)(3) and 14(d)(2) of the Exchange Act and
the rules and regulations promulgated thereunder), other than the management
stockholders (as defined in the agreement), either alone or in conjunction with
their Affiliates (as that term is defined in Rule 405), acquires the right or
power to nominate and/or control, directly or indirectly, whether through the
ownership of voting securities of the Company, by contract or otherwise, a
majority of the members of the Company's Board.
The Company's agreement with Mr. Malloy also contains confidentiality, non
competition and non-solicitation provisions with regard to employment and
customers of the Company. Such provisions are binding on Mr. Malloy generally
for at least three years.
The Company has existing severance benefits agreements (the"Severance
Benefits Agreements") with thirteen of its other executive officers, 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,
also as defined in the agreements). A "change in control" for purposes of such
severance benefit agreements 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
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<PAGE> 20
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 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, 1998, if such provisions were triggered by a change in control
and termination of such officers, would have been $1,798,886 to Mr. Behm,
$1,160,771 to Mr. Little, $888,581 to Mr. Bickell and $903,745 to Mr. Longhurst.
In all cases, 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. The Company further estimates the value of
the compensation and benefits payable under the change in control provisions of
Mr. Malloy's Employment and Severance Benefits Agreement, as of December 31,
1998 if such provisions were triggered by a change in control and termination of
Mr. Malloy, would have been $3,214,969.
STOCK OPTION PLANS
The Company previously has granted options to certain of its current
executive officers under one or more of six separate plans. Such plans as
currently in effect are described below.
The first two such plans, the First 1991 Management Stock Option Plan and
the Second 1991 Management Stock Option Plan, were established prior to the
Company's initial public offering. Options to purchase an aggregate of 350,986
shares of Common Stock have been issued pursuant to the First 1991 Management
Stock Option Plan, and an aggregate of 702,084 options to purchase shares of
Common Stock have been 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 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
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<PAGE> 21
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 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 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.
The following options had been issued through December 31, 1998 under the
1996 Key Employee Stock Option Plan: options for 100,000 shares were issued in
May 1996 at an exercise price of $31.50 per share; options for 110,000 shares
were issued in 1997 at an exercise price of $20.375 per share; options for
120,000 shares were issued in 1998 at an exercise price of $21.875; and options
for 200,000 shares also were issued in 1998 at an exercise price of $18.3125 per
share.
At February 26, 1999, the aggregate number of options currently available
for grant under all of the employee stock option plans described above was only
132,524.
To provide a source of options for its compensation plans, in February
1999, the Company adopted the 1999 Key Employee Stock Option Plan which is being
presented to shareholders for approval at this Meeting. No options have been
issued under such plan.
The exercise of the options granted pursuant to each option plan is
subject to certain vesting requirements set forth in each option plan.
The following table sets forth certain information concerning options, all
of which are exercisable unless otherwise noted, which were granted in 1998 to
the executive officers listed in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL VALUE AT
---------------------------------------------------------- ASSUMED ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM
OPTIONS EMPLOYEES EXERCISE ------------------------------
GRANTED IN FISCAL PRICE EXPIRATION 0% 5%(3) 10%(3)
NAME (#) YEAR ($/SHARE) DATE(1)(2) $ $ $
---- --------------- ------------ ------------ ----------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
William G. Malloy............. 200,000 57.97% $18.3125 01/01/08 0 2,303,327 5,837,082
...... 20,000 5.80% $21.8750 02/05/08 0 275,141 697,262
William F. Behm............... 10,000 2.90% $21.8750 05/05/08 0 137,571 348,631
Thomas F. Little.............. 10,000 2.90% $21.8750 02/05/08 0 137,571 348,631
Cliff O. Bickell.............. 10,000 2.90% $21.8750 02/05/08 0 137,571 348,631
Bruce H. Longhurst............ 10,000 2.90% $21.8750 02/05/08 0 137,571 348,631
</TABLE>
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<PAGE> 22
(1) All listed options were granted with a ten year term and vest ratably over
a three year period beginning with the first annual anniversary of the
date of grant, except 200,000 of Mr. Malloy's options which vest in equal
annual installments of 50,000 shares per year beginning January 1, 2000.
Mr. Malloy's options are transferable, as specified in his option
agreement, to immediate family members and related entities.
(2) Each option granted also becomes exercisable upon the occurrence of a
defined recapitalization or change in control or upon the death or
permanent disability of such officer and as otherwise provided in
applicable benefits agreements, severance or employment and severance
benefits agreements. None of the options described above are "Incentive
Stock Options" as defined in the Code.
(3) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises are dependent on the future
performance of the Common Stock and overall market conditions. There can
be no assurance that the amounts reflected in these columns will be
achieved or if achieved will exist at the time of any option exercise.
The following table sets forth certain information concerning options
exercised in 1998 and unexercised options held at December 31, 1998 by the
executive officers listed in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING OPTIONS THE-MONEY OPTIONS AT
SHARES AT FY-END(#) FY-END(1)($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
William G. Malloy. . . . . . . . . 30,507 $548,439.59 168,414/240,001 1,152,969/111,500
William F. Behm. . . . . . . . . . 42,634 $870,373.11 125,956/43,540 963,532/0
Thomas F. Little. . . . . . . . . 56,623 $855,293.72 56,872/20,001 203,020/0
Cliff O. Bickell. . . . . . . . . -0- N/A 39,999/20,001 0/0
Bruce H. Longhurst. . . . . . . . -0- N/A 0/10,000 0/0
</TABLE>
- -------------
(1) Based on the closing price of the Common Stock as reported on the NYSE on
December 31, 1998 of $18.875 per share.
-19-
<PAGE> 23
AGENDA ITEM TWO
APPROVAL OF SCIENTIFIC GAMES HOLDINGS CORP.
1999 KEY EMPLOYEE STOCK OPTION PLAN
The Company's stockholders are being asked to approve the adoption of the
Scientific Games Holdings Corp. 1999 Key Employee Stock Option Plan (the "1999
KESOP"). The Board of Directors, on the recommendation of the Compensation
Committee and the Stock Option Committee, unanimously adopted the 1999 KESOP to
provide additional incentive to, and a means of further encouraging Common Stock
ownership by, the Company's executive officers, senior management and other key
employees. The Board's approval of the 1999 KESOP was made subject to
stockholder approval of the 1999 KESOP at this Meeting.
The Board of Directors believes that it is in the best interests of the
Company's stockholders to adopt the 1999 KESOP to provide eligible employees of
the Company and those eligible subsidiaries designated by the Board with an
opportunity to purchase shares of Common Stock with the opportunity to benefit
from future appreciation in the price of the Common Stock.
The terms and provisions of the 1999 KESOP are summarized below. This
summary description of the 1999 KESOP does not purport to be complete and is
qualified in its entirety by reference to the full text of the 1999 KESOP set
forth in Exhibit A hereto. The 1999 KESOP also is also an exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
GENERAL
The 1999 KESOP has a ten year term and authorizes the grant of options to
purchase up to 550,000 shares of Common Stock. The 1999 KESOP permits the award
of non-qualified stock options. The maximum aggregate number of shares for which
options may be granted over any five fiscal year period or that may vest over
any five fiscal year period of the Company pursuant to any option held by a
Named Executive Officer is 100,000 shares. The 1999 KESOP will be administered
by the Stock Option Committee, which shall have the full power to select
qualified employees who will participate in the 1999 KESOP, determine the size
of awards, determine the terms and conditions of awards in a manner consistent
with the 1999 KESOP, construe and interpret the 1999 KESOP and any agreement or
instrument entered into under the 1999 KESOP, establish, amend or waive rules
and regulations for the 1999 KESOP's administration and, subject to certain
conditions, the terms and conditions of any outstanding award to the extent such
terms and conditions are within the discretion of the Stock Option Committee.
The option price for each grant of an option under the 1999 KESOP will be equal
to one hundred percent (100%) of the Fair Market Value of a share of Common
Stock on the date the option is granted. Options granted under the 1999 KESOP
generally vest ratably over three years beginning with the first anniversary of
the date of grant and become fully exercisable upon the occurrence of a defined
recapitalization or change in control of the Company or upon the death or
permanent disability of such officer. The 1999 KESOP may be amended without
stockholder approval, except that the Board may not amend, alter or revise the
1999 KESOP if such amendment, alteration or revision would (A) materially
increase the benefits accruing to participants under the 1999 KESOP, (B)
materially increase the number of securities which may be issued under the 1999
KESOP, or (C) materially modify the requirements as to eligibility for
participation in the 1999 KESOP, provided that the foregoing limitation shall
apply only as to participants in the KESOP who are subject to the provisions of
Section 16 of the Exchange Act.
In 1999, to date, the Stock Option Committee has granted options to
purchase 10,000 shares to each of eight of the Company's executive officers.
Such executive officers comprise the Company's senior management, exclusive of
Mr. Malloy, who is not currently expected to receive further grants of stock
options prior to 2001. Such grants were made under the Company's existing stock
options plan. No further grants are anticipated to be made to such eight
officers for 1999 under either the Company's existing plans or the 1999 KESOP.
Other members of
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<PAGE> 24
management and other key employees are also eligible to participate in, and may
receive awards under, the Company's existing plans or the 1999 KESOP. No awards
have been made under the 1999 KESOP as of the date of the Proxy Statement. Any
awards made under the 1999 KESOP prior to approval of the 1999 KESOP by
stockholders are subject to forfeiture in the event the 1999 KESOP is not
approved by the stockholders. As potential participants in the 1999 KESOP, the
Company's executive officers have an interest in its adoption. For a discussion
of the Company's compensation policies in general and as they relate to the 1999
KESOP in particular, see also the Compensation Committee Report set forth
elsewhere in this Proxy Statement. As of March 22, 1999, the closing price of
the Common Stock on the NYSE was $17.4375 per share.
FEDERAL INCOME TAX CONSEQUENCES OF THE 1999 KESOP
All options awardable under the 1999 KESOP are "non-qualified" stock
options under the Code and the award of such options will not result in taxable
income to the optionee or a deduction to the Company. The optionees will,
however, recognize income after the exercise of such options when the shares of
Common Stock issuable upon such exercise are transferrable or are not subject to
a substantial risk of forfeiture. At such time as the optionee recognizes
taxable income, the excess of the fair market value of such shares over the
option exercise price will be taxable to the optionee as ordinary income, and
the Company concurrently may claim a corresponding deduction for compensation
paid to such optionee, provided the Company makes a proper tax withholding with
respect to such option's exercise. Upon a subsequent disposition of such shares,
any difference between the fair market value of such shares at the time such
option was exercised and the amount realized upon the disposition of such shares
would be eligible for treatment as long-term or short-term capital gain or loss
if the minimum holding period is met, depending on the length of time such
shares were held prior to their disposition.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" AGENDA ITEM TWO.
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<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, 1998 and also have been selected by the Board
of Directors to serve as auditors for the year ended December 31, 1999. 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 1999. 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 1999 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 63%
per annum. During 1998, until 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 1998 all
required Section 16(a) reports were timely filed, except that two directors of
the Company, Dennis L. Whipple and Frank S. Jones, inadvertently failed to
timely file a Form 4 report, which was one day late due to travel away from
their homes; C. Gray Bethea, Jr., Vice President and General Counsel of the
Company, inadvertently failed to timely file a single Form 4 report to report a
charitable
-22-
<PAGE> 26
gift; and Thomas F. Little inadvertently failed to timely report one out of 13
transactions which were otherwise timely reported on Form 4 for the applicable
month.
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,
1998, 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, 1998 (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 23, 1999. 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.
If a stockholder wishes to submit a proposal at the annual meeting, but
has not sought to have such proposal included in the proxy statement and form of
proxy for such meeting, applicable SEC rules allow the Company to use its
discretionary authority granted under the form of proxy to vote on such proposal
unless the proponent of such proposal notifies the Company that he will seek to
offer such proposal at the annual meeting and such notice is given to the
Company no later than forty-five (45) days prior to the anniversary of the prior
year's proxy statement, i.e., by March 7, 1999 with respect to the Company's
next annual meeting; provided, however, if the Company changes the date of next
year's annual meeting by more than thirty (30) days from the anniversary of the
date of this year's meeting, then notice of the stockholder proposal must be
received a "reasonable" time before the Company mails its proxy materials for
next year's annual meeting.
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<PAGE> 27
With respect to nomination of directors, the Company's By-Laws require
shareholders to provide the Company with advance notice of any intent to
nominate anyone for election to the Board whose name is not listed in the
Company's proxy materials and generally require that such notice be given not
less than sixty (60) days in advance of the meeting date. The requirements for
giving proper notice are set forth in the Company's By-Laws.
-24-
<PAGE> 28
EXHIBIT A
SCIENTIFIC GAMES HOLDINGS CORP.
1999 KEY EMPLOYEE STOCK OPTION PLAN
1. Purpose. The purpose of the Plan is to further the best interests of
Scientific Games Holdings Corp. (the "Corporation") by encouraging certain key
employees of the Corporation and its present and future subsidiary corporations
(each, a "Subsidiary"), as defined in Section 425(f) of the Internal Revenue
Code of 1986, as amended (the "Code"), to continue association with the
Corporation and by providing additional incentive for unusual industry and
efficiency through offering such employees an opportunity to acquire on
reasonable terms a proprietary stake in the Corporation and its future growth.
The Corporation believes that this goal may best be achieved by granting stock
options (the "Options") to employees of the Corporation and its Subsidiaries
(the "Optionees") entitling the holder to purchase shares of the common stock of
the Corporation, par value $.001 per share (the "Common Stock").
The Options to be granted pursuant to the Plan shall not be Incentive
Stock Options (as defined in Section 422(b) of the Code).
2. Option Shares. The maximum aggregate number of shares (the "Shares") of
Common Stock as to which awards may be granted pursuant to the Plan is five
hundred fifty thousand (550,000) shares. The maximum aggregate number of shares
for which options may be granted over any five fiscal year period or that may
vest over any five fiscal year period of the Company pursuant to any option held
by a Named Executive Officer is 100,000 shares. Such Shares may be, in whole or
in part, authorized but unissued shares of Common Stock or shares of Common
Stock reacquired by the Corporation as the Board of Directors of the Corporation
(or such committee as it may designate) shall from time to time determine. If
any Options expire or terminate for any reason without having been exercised in
full, the unpurchased Shares subject thereto shall again be available for the
purposes of the Plan. Any Shares reserved for issuance upon the exercise of
outstanding Options at the termination of the Plan shall cease to be reserved
for the purpose of the Plan, but until the exercise or termination of all
Options outstanding under the Plan, the Corporation shall at all times reserve a
sufficient number of Shares to meet the requirements of the Plan.
3. Effective Date of Plan. The effective date of the Plan shall mean the
date that the Plan is adopted by the Board of Directors or the date the Plan is
approved by the stockholders of the Company, whichever is earlier. The Plan must
be approved by the affirmative vote of not less than a majority of the votes of
the Company's stockholders entitled to be cast thereon which are actually voted,
or such greater number of votes as may be necessary to qualify the Plan under
Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended;
such shareholder vote must be taken within twelve (12) months after the date the
Plan is adopted by the Board of Directors. Such shareholder vote shall not alter
the effective date of any element of the Plan. In the event stockholder approval
of the Plan is not obtained within the aforesaid twelve (12) month period, then
any Options granted in the intervening period shall be cancelled.
4. Administration of the Plan. The Plan shall be administered by the Board
of Directors or by the stock option committee or such other committee of the
Board of Directors as shall be constituted for such purpose (hereinafter, the
"Committee") in compliance with Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"); provided, however, such
Committee members also shall be persons who are considered outside directors for
the purpose of the performance-based exceptions from the deductibility
limitations of Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Performance-Based Exemption" and the "Code," respectively). The Board may
exercise any power or right granted to the Committee. The interpretation and
construction by the Committee of any provisions of the Plan or of any Options
A-1
<PAGE> 29
granted hereunder shall be final, binding and conclusive. No member of the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Options granted hereunder.
5. Eligibility. The persons eligible to participate in the Plan as
recipients of Options shall include only the employees of the Corporation or of
any Subsidiary who hold executive or other responsible positions in the
management of the affairs of the Corporation and of its Subsidiaries. A director
of the Corporation or a Subsidiary who is not an employee of the Corporation or
a Subsidiary will not be eligible to receive an Option.
6. Grant of Options. In the event any Options granted hereunder shall
expire or terminate prior to the termination of the Plan for any reason without
having been exercised in full, the Committee may grant new Options with respect
to the Shares covered by such expired or terminated Options to such eligible
persons as may be selected by the Committee and subject to the provisions of the
Plan. Each grant of an Option pursuant to the Plan shall be made in writing and
upon such terms and conditions as may be determined by the Committee at the time
of grant, subject to the provisions and limitations set forth in the Plan. The
grant of such Option shall be evidenced by a written agreement or certificate
executed by the President of the Corporation, except that, in the event that the
President of the Corporation is the recipient of the Option, the agreement or
certificate evidencing such grant shall be executed by the Secretary of the
Corporation.
7. Option Price. The purchase price (the "Option Exercise Price") for each
Share placed under Option pursuant to the Plan shall be determined by the
Committee and shall be equal to the "Fair Market Value" (as hereinafter defined)
on the date of grant of such Option.
For all purposes of the Plan, the term "Fair Market Value" of a Share on
any day shall mean (i) the last sale price on such day on the principal stock
exchange, or the National Association of Securities Dealers' Automated Quotation
("NASDAQ") National Market System, as the case may be, on which the Common Stock
is then listed or admitted to trading, (ii) if no sale takes place on such day
on such exchange or the NASDAQ National Market System, as the case may be, the
average of the last reported closing bid and asked prices on such day as
officially quoted on such exchange or the NASDAQ National Market System, as the
case may be, (iii) if the Common Stock is not then listed or admitted to trading
on any stock exchange or the NASDAQ National Market System, as the case may be,
the average of the last reported closing bid and asked prices on such day in the
over-the-counter market, as furnished by the NASDAQ system or the National
Quotation Bureau, Inc, (iv) if neither such corporation at the time is engaged
in the business of reporting such prices, as furnished by any similar firm then
engaged in such business, or (v) if there is no such firm, as furnished by any
member of the National Association of Securities Dealers ("NASD") selected
mutually by the Optionee and the Corporation or, if they cannot agree upon such
selection, as selected by two such members of the NASD, one of which shall be
selected by the Optionee and one of which shall be selected by the Corporation.
8. Duration of Options. The period for which each Option granted hereunder
shall be effective (the "Option Period") shall commence upon the date of the
grant of such Option and shall continue until such Option shall be terminated
according to its terms or as hereinafter provided, but in no event shall such
period exceed eleven (11) years from the date of grant. In addition to and in
limitation of the above (but subject always to accelerated vesting under Section
9, limits on the exercise period under Section 14, and the terms of any
employment or severance benefits agreement to which the Optionee and the
Corporation may be a party), the Option Period of any unvested Option shall
terminate on the date upon which the Optionee ceases to be a full-time employee
of the Corporation or its Subsidiaries (the "Termination Date") for any reason
other than death or permanent disability and such unvested Option shall no
longer be exercisable. The Option Period for all Vested Options, whether vesting
pursuant to the standard vesting schedule, or upon death, permanent disability
or otherwise (but always subject to the terms of any employment or severance
benefits agreement to which the Optionee and the Corporation may be a party),
shall terminate on the earlier of (i) ten (10) years from the date of grant or
(ii) sixty (60) days after the Termination Date; provided, however, that if the
Termination Date shall have occurred as a
A-2
<PAGE> 30
result of an Optionee's death or permanent disability, the Option Period for all
of such Optionee's Vested Options shall terminate one year after such Optionee's
death or permanent disability.
Neither the existence of the Plan nor the grant of any Option shall limit
whatever right the Corporation or its Subsidiaries might otherwise have to
terminate the employment of any Optionee.
9. Vesting. (a) The Vested Percentage of each Option held by any Optionee
who shall be employed full-time by the Corporation or a Subsidiary on the third
anniversary of the date of grant of such Option shall be one hundred percent
(100%). Subject always to the terms of any employment or severance benefits
agreement to which an Optionee and the Corporation may be party, the Vested
Percentage of each Option held by any Optionee whose full-time employment by the
Corporation and the Subsidiaries shall terminate prior to such date for any
reason whatsoever (other than for "Cause" (as defined in Section 9(b) hereof))
shall be as follows:
(i) Zero percent (0%), if such termination of employment shall occur
prior to the first anniversary of the date of grant of such Option;
(ii) Thirty-three and one-third percent (33.33%), if such
termination of employment shall occur on or subsequent to the first
anniversary of the date of grant of such Option and prior to the second
anniversary of the date of grant of such Option;
(iii) Sixty-six and two-thirds percent (66.66%), if such termination
of employment shall occur on or subsequent to the second anniversary of
the date of grant of such Option and prior to the third anniversary of the
date of grant of such Option; and
provided, however, that the Vested Percentage of each Option granted to an
Optionee shall, upon the death or permanent disability (as hereinafter defined)
of such Optionee, be one hundred percent (100%) vested unless such Optionee's
employment shall have been terminated for "Cause" as defined below.
(b) The term "Cause" used in connection with a termination of employment
of an Optionee shall mean, except as otherwise provided in any employment or
severance benefits agreement between such Optionee and the Corporation (in which
case the term "Cause" as used herein with respect to such Optionee shall have
the meaning ascribed to it therein), (i) the willful and continued failure by
such Optionee to perform substantially his or her duties to the Corporation or
any of its Subsidiaries within a reasonable period of time after a written
demand for substantial performance is delivered to such Optionee by the
Committee, (ii) the willful misconduct by such Optionee in the performance of
his or her duties to the Corporation or any of its Subsidiaries (including,
without limitation, the conviction by a court of competent jurisdiction of such
Optionee of any offense, regardless of classification, related to such
Optionee's duties and responsibilities to the Corporation or any of its
Subsidiaries), (iii) the negligent performance by such Optionee of his or her
duties to the Corporation or any of its Subsidiaries if such negligent
performance is determined by the Committee to have had or to be reasonably
likely to have a material adverse effect on the business, assets, prospects or
financial condition of the Corporation or any of its Subsidiaries, or (iv) the
conviction of such Optionee by a court of competent jurisdiction of a felony.
(c) For purposes of this Plan, "permanent disability" shall be defined as
(i) first, as defined in any employment or severance benefits agreement between
the Company and the Optionee, (ii) second, as such term is defined in the
disability insurance policy then maintained by the Corporation for the benefit
of Optionees of the Corporation, and (iii) if not subject to clauses (i) or
(ii), then as any physical or mental disability or incapacity which the
Committee determines would render an Optionee incapable of performing the
services required of such Optionee for a period of 180 consecutive days or for
other periods aggregating 180 days during any 52-week period.
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10. Non-Transferability. Options granted pursuant to the Plan shall not be
transferred by the Optionee except to an Optionee's legal guardian, a deceased
Optionee's executors, legal heirs, administrators, testamentary trustees and
beneficiaries, or distributees, whichever is applicable at any time
(individually and collectively, a "Legal Representative"), and, further, during
the lifetime of the Optionee, the Options may be exercised only by the Optionee
or his or her legal guardian.
11. Termination of the Plan. The Plan shall terminate upon the close of
business on the tenth (10th) anniversary of the first date of grant of Options
hereunder (the "Date of Grant") unless it shall have sooner terminated by there
having been granted and fully exercised Options covering all of the Shares
subject to the Plan. Any Option outstanding under the Plan at the time of the
termination of the Plan shall remain in effect until such Option shall have been
exercised or shall have expired in accordance with its terms.
12. Termination of Employment. Nothing in the Plan shall interfere with or
limit in any way the right of the Company to terminate any Optionee's employment
at any time, nor confer upon any Optionee any right to continue in the employ of
the Company. The employment of an Optionee shall not be deemed to have
terminated if the Optionee is an employee of the Corporation or one of its
Subsidiaries who is absent upon a bona fide leave of absence or who is
transferred to and becomes an employee of a Subsidiary or, if he is an employee
of a Subsidiary, who is transferred to and becomes an employee of the
Corporation or another Subsidiary of the Corporation; provided, however, that,
if a Subsidiary of the Corporation shall cease to be a Subsidiary, all employees
of such Subsidiary not theretofore transferred to and becoming employees of the
Corporation or of another Subsidiary of the Corporation shall be deemed to have
ceased to be employees within the meaning of the Plan on the date such
Subsidiary ceases to be a Subsidiary of the Corporation.
13. Exercisability of Options. (a) Each Option granted under the Plan
shall become immediately exercisable with respect to and to the extent of the
Vested Percentage of the Shares covered thereby.
(b) All outstanding Options, whether vested or not, shall also vest and be
exercisable on the date of the consummation of a "Transfer Event" (as defined
below) subject to such restrictions, if any, as are necessary to comply with
Section 16 of the Exchange Act and the rules and regulations promulgated
thereunder. A Transfer Event shall mean (i) any transaction or series of similar
transactions (including, without limitation, a merger or consolidation) in which
the issued and outstanding Common Stock will be changed into or exchanged for
common stock or other securities of another corporation or interests in a
noncorporate entity or other property (including cash) or any combination of the
foregoing, (ii) the sale of all or substantially all of the Corporation's assets
in one transaction or a series of related transactions or (iii) a "Change in
Control" of the Corporation, which for this purpose shall mean if any Person, or
"group" of Persons (as determined pursuant to Section 13(d) and/or Section 14(d)
of the Exchange Act and the rules and regulations promulgated thereunder), in
each case other than the "Management Stockholders" or any of them, shall, (x)
become the beneficial owner, directly or indirectly, of voting securities (or
securities convertible into, or exchangeable for, voting securities) of the
Corporation representing more than fifty percent (50%) of the combined voting
power of the Corporation's then outstanding securities or (y) acquire the right
or power to nominate and/or control, directly or indirectly, whether through the
ownership of voting securities of the Corporation, by contract, or otherwise, a
majority of the members of the Corporation's entire Board of Directors without
having first received prior to any such Person or group of Persons acquiring
such right or power the prior written consent of at least two-thirds (including
a majority of the "Management Directors") of the members of the entire Board of
Directors of the Corporation then in office. "Management Stockholders" means
William G. Malloy, William F. Behm, Thomas F. Little, Cliff O. Bickell, C. Gray
Bethea, Jr., Bruce H. Longhurst, Howard H. Roath, William C. Christie, James H.
Edwards, Donald N. MacLean, Kenneth W. Taylor, John J. Walsh and such other
persons as may be designed by the Committee or William G. Malloy, unless
objected by the non-designating party. "Management Directors" means those
Directors of the Company who are Management Stockholders.
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<PAGE> 32
14. Procedure for Exercise and Payment for Shares. (a) Exercise of an
Option shall be made by the giving of written notice to the Corporation by the
Optionee; provided, however, if an Optionee shall die or suffer a "permanent
disability" while employed by the Corporation, such Option may be exercised, to
the extent that the Optionee was entitled to do so at the termination of
employment (including by reason of death or permanent disability), as set forth
herein (subject to the restrictions with respect to persons subject to Section
16(b) of the Exchange Act) by the Optionee, or the Legal Representative of the
Optionee, whichever is applicable, at any time (but in no case later than the
later of the date on which the Option terminates or one year after the
Optionee's death or permanent disability).
(b) Written notice of exercise shall be deemed sufficient for the purpose
of this Section 14 only if delivered to the Corporation at its principal offices
and only if such written notice states the number of Shares with respect to
which the Option is being exercised and, further, states the date, not more than
ninety (90) days after the date of such notice, upon which the Shares shall be
purchased and payment therefor shall be made which date may, in no case, be
later than the later of the date on which the Option terminates or one year
after the Optionee's death or permanent disability.
(c) The payments for Shares purchased pursuant to exercise of an Option
shall be made at the principal offices of the Corporation. Payments shall be
made in the form of all cash, all shares of Common Stock (whether issuable in
connection with the exercise of the Option if permitted by the Committee in its
sole discretion following written request by the Optionee or previously acquired
by the Optionee if acquired more than six months prior to the date of exercise
of the Option), or a combination thereof, as elected by the Optionee subject to
the limitations stated above; provided, however, that the Optionee shall be
required to sell to the Corporation and the Corporation may, but need not,
simultaneously purchase, to the fullest extent permitted by law, that number of
Shares issuable upon exercise of an Option as are sufficient to pay minimum
required federal, state or local taxes, including, without limitation, FICA and
FUTA taxes (collectively, "Withholding Taxes") with respect to such Option
exercise. The Committee's decision to allow payments to be made in the form of
Shares issuable in connection with the exercise of the Option shall be made by
giving written notice to the Optionee (or other person exercising the Option).
(d) Upon the exercise of any Option, in compliance with the provisions of
this Section 14 and upon receipt by the Corporation of the payment for the
Shares so purchased together with the payment of the Withholding Taxes, the
Corporation shall deliver or cause to be delivered to the Optionee so exercising
an Option a certificate or certificates for the net number of Shares with
respect to which the Option is so exercised and payment is so made; provided,
however, that the Committee, in its sole discretion, may elect, in lieu of
delivering all or a portion of the Shares of Common Stock as to which an Option
has been exercised, if the Fair Market Value of the Common Stock exceeds the
Option Exercise Price, to pay the Optionee in cash or in Shares of Common Stock,
or a combination of cash and Shares of Common Stock, an amount equal to the
excess of the Fair Market Value of the Common Stock issuable pursuant to such
Option exercise on the exercise date over the Option Exercise Price. The
Committee's election pursuant to this subsection shall be made by giving written
notice to the Optionee (or other person exercising the Option). Upon issuance,
Shares shall be registered in the name of the exercising Optionee or his or her
Legal Representatives in the case of exercises following the death or permanent
disability of the Optionee; provided, however, that, in no event shall any
Shares be issued pursuant to exercise of an Option until full payment therefor
shall have been made, and the exercising Optionee shall not have any of the
rights of a stockholder of the Corporation.
For purposes of this Section 14, the date of issuance shall be the date
upon which payment in full has been received by the Corporation as provided
herein.
(e) If, at the time of exercise of an Option, the Optionee shall be
employed full-time by the Corporation and shall be able to demonstrate a need
for financial assistance in order to exercise such Option, then, at the request
of the Optionee, the Corporation agrees to loan (an "Exercise Loan") to the
Optionee the amount of Withholding
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<PAGE> 33
Taxes payable in connection therewith if and to the extent the Board of
Directors reasonably determines that the making of any such Exercise Loan would
not (a) adversely affect the Corporation's liquidity or capital requirements or
(b) cause or constitute a breach or default (immediately or with notice or lapse
of time or both) of any agreement or instrument in existence to which the
Corporation is a party, subject, however, to any other rights to borrow money to
exercise Options which may have been granted to the Optionee under any
employment or severance benefit agreement to which the Optionee and the
Corporation may be party, in which event such rights will control in lieu of the
provisions hereof. Any Exercise Loan shall be on such terms and conditions as
the Corporation shall reasonably determine. In the event of the death of an
Optionee, a condition of exercising any Option shall be the delivery to the
Corporation of such tax waivers and other documents as the Committee shall
determine.
15. Deferrals. The Committee may permit an Optionee to defer such
Optionee's receipt of the delivery of Shares that would otherwise be due to such
Optionee by virtue of the exercise of an Option. If any such deferral election
is required or permitted, the Committee shall, in its sole discretion, establish
rules and procedures for such payment deferrals.
16. Requirements of Law and of Certain Agreements. If any law or any
regulation of any commission or agency of competent jurisdiction shall require
the Corporation or the exercising Optionee to take any action with respect to
the Shares acquired by the exercise of an Option, then the date upon which the
Corporation shall issue or cause to be issued the certificate or certificates
for the Shares shall be postponed until full compliance has been made with all
such requirements of law or regulation; provided, that the Corporation shall use
its best efforts to take all necessary action to comply with such requirements
of law or regulation. Further, if requested by the Corporation, at or before the
time of the issuance of the Shares with respect to which exercise of an Option
has been made, the exercising Optionee shall deliver to the Corporation his
written statements satisfactory in form and content to the Corporation, that he
intends to hold the Shares so acquired by him on exercise of his Option for
investment and not with a view to resale or other distribution thereof to the
public in violation of the Securities Act, as amended (the "Securities Act").
Moreover, in the event that the Corporation shall determine that, in compliance
with the Securities Act or other applicable statutes or regulations, it is
necessary or advisable to register any of the Shares with respect to which an
exercise of an Option has been made, or to qualify any such Shares for exemption
from any of the requirements of the Securities Act of 1933 or any other
applicable statute or regulation, no Options may be exercised and no Shares
shall be issued to the exercising Optionee until the required action has been
completed; provided, that the Corporation shall use its best efforts to take all
necessary action to comply with such requirements of law or regulation.
17. Adjustments. In the event that a dividend shall be declared on Common
Stock payable in shares of Common Stock, the number of Shares then subject to
any Option shall be adjusted by adding the number of shares of Common Stock
which would be distributable thereon if such Shares had been outstanding on the
date fixed for determining the stockholders entitled to receive such stock
dividend. In the event of a split-up of the Common Stock there shall be
substituted for each Share then subject to any Option the number of shares of
Common Stock into which each outstanding share of Common Stock shall be so
changed. In the event that there shall be any change, other than as specified in
this Section 16, or if any stock or other securities into which the Common Stock
shall have been changed, or for which it shall have been exchanged, then, if the
Committee shall, in its sole discretion, determine that such change equitably
requires an adjustment in the number or kind of Shares then subject to any
Option, such adjustment shall be made by the Committee and shall be conclusive,
effective and binding for all purposes of the Plan.
18. Amendment or Discontinuance of the Plan. The Committee may, insofar as
permitted by law, amend, suspend, or discontinue the Plan at any time without
restriction; provided, however, that (i) the Corporation may not discontinue or
revoke or otherwise alter or amend the Plan so as to impair any outstanding
Options which have been granted pursuant to the Plan and which remain
unexercised, except as contemplated by Section 16 above, or except in the event
that there is secured the written consent of the holder of the outstanding
Option proposed to be
A-6
<PAGE> 34
so altered or amended, and (ii) without approval of the stockholders, the Board
may not amend, alter or revise the Plan if such amendment, alteration or
revision would (A) materially increase the benefits accruing to participants
under the Plan; (B) materially increase the number of securities which may be
issued under the Plan; or (C) materially modify the requirements as to
eligibility for participation in the Plan provided that the foregoing limitation
shall apply only as to participants in the Plan who are subject to the
provisions of Section 16 of the Exchange Act. Nothing contained in this Section,
however, shall in any way condition or limit the termination of an Option as
hereinabove provided where reference is made to termination of employment of an
Optionee. The Option Period of any outstanding Option shall not be extended by
any amendment or suspension or discontinuance of the Plan without the written
consent of the holder of the outstanding Option proposed to be so extended.
19. Liquidation of the Corporation. In the event of the complete
liquidation or dissolution of the Corporation, any Options granted pursuant to
the Plan and remaining unexercised shall be deemed cancelled without regard to
or limitation by any other provision of the Plan.
20. Tax Withholding. The Corporation shall have the right to deduct a
sufficient number of Shares and/or cash or require the Optionee or his or her
Legal Representative to tender sufficient cash or Shares to the Corporation to
pay any Withholding Taxes required upon exercise of an Option or to take such
other action as may be necessary to satisfy any such Withholding Tax
obligations. Shares withheld shall be valued at their Fair Market Value on the
date the tax withholding is effective.
21. Legal Construction.
(a) Gender and Number. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.
(b) Severability. In the event any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
(c) Requirements of Law. The granting of Options and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchange as may be required.
(d) Securities Law Compliance. With respect to Optionees subject to
Section 16(b) or the rules promulgated thereunder, transactions under this Plan
are intended to comply with all applicable conditions or Rule 16b-3 or its
successors under the 1934 Act. To the extent any provision of the plan or action
by the Committee fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Committee.
(e) Governing Law. To the extent not preempted by United States
Federal law, the Plan, and all agreements hereunder, shall be construed in
accordance with and governed by the laws of the State of Georgia.
A-7
<PAGE> 35
FOLD AND DETACH HERE
- --------------------------------------------------------------------------------
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 21, 1999
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 1999 Annual Meeting of Stockholders of Scientific Games
Holdings Corp. to be held on May 21, 1999 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 21, 1999, 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 No.
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.
1. To elect Paul F. Balser, Dennis L. Whipple and William G. Malloy as Class III
Directors of the Company for terms ending with the 2002 Annual Meeting of
Stockholders and until their successors are elected and qualified;
[ ] FOR the three nominees [ ] WITHHOLD authority to vote
(except as marked to the contrary below) for the three nominees
Instructions: To withhold authority to vote for either individual nominee,
write that nominee's name in the space provided below:
________________________________________________________________________________
<PAGE> 36
-- FOLD AND DETACH HERE --
- --------------------------------------------------------------------------------
2. To approve the Scientific Games Holdings Corp. 1999 Key Employee Stock
Option 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 1999;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
all as set forth in the Proxy Statement.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATION 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 NO. 3.
SIGNED:
----------------------------------
SIGNED:
----------------------------------
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: 1999
------------------------------
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.
