<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Scientific Games Holdings Corp.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
----------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
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<PAGE> 2
(SCIENTIFIC GAMES INTERNATIONAL LOGO)
SCIENTIFIC GAMES HOLDINGS CORP.
To our Stockholders:
On behalf of the board of directors, it is our pleasure to invite you to
attend the 2000 annual meeting of stockholders of Scientific Games Holdings
Corp.
As shown in the formal notice enclosed, the meeting will be held at the
Atlanta Windward Hilton Garden Inn, 4025 Windward Concourse, Alpharetta, Georgia
30005 on Friday, May 19, 2000, at 9:00 a.m., E.D.S.T.
The subjects proposed for action at the meeting are:
(1) the election of two Class I directors;
(2) ratification of the selection of the company's auditors; and
(3) 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 19, 2000
To the Stockholders of
Scientific Games Holdings Corp.
NOTICE IS HEREBY GIVEN that the 2000 annual meeting of stockholders of
Scientific Games Holdings Corp., a Delaware corporation will be held on Friday,
May 19, 2000 at 9:00 a.m., E.D.S.T., at the Atlanta Windward Hilton Garden Inn,
4025 Windward Concourse, Alpharetta, Georgia 30005, for the purposes of
considering and acting upon the following:
(1) the election of two Class I directors of the company for terms
ending with the 2003 annual meeting of stockholders and until their
successors are elected and qualified;
(2) 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 2000; and
(3) 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 20, 2000 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 19, 2000
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 19, 2000,
FOR MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 19, 2000
---------------------
INTRODUCTION
This proxy statement is being furnished in connection with the solicitation
of proxies by the board of directors of Scientific Games Holdings Corp., a
Delaware corporation, from the holders of the common stock, par value $.001 per
share, of the company for use at the 2000 annual meeting of stockholders to be
held on Friday, May 19, 2000, at 9:00 a.m., E.D.S.T., and any adjournment
thereof 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 19, 2000.
The annual report of the company for the year ended December 31, 1999,
including financial statements, is being mailed prior to or concurrently with
this proxy statement to all stockholders of record as of March 20, 2000 (the
"Record Date"), except for accounts where the stockholder has filed a written
request to eliminate duplicate reports. In addition, we have 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 our 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 two Class I directors named herein; and FOR
ratification of the selection of Ernst & Young LLP as independent auditors for
2000.
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
<PAGE> 5
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
Who pays for this proxy solicitation?
We do. In addition to sending you these materials, some of our directors,
officers and regular employees may contact you by telephone, facsimile
transmission, mail or in person. They will not receive any extra compensation
for doing this. We anticipate that banks, brokerage houses and other custodians,
nominees and fiduciaries will forward soliciting material to beneficial owners
of our stock entitled to vote at the meeting. Such holders 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, we have retained Corporate Investor
Communications, Inc. ("CIC"), 111 Commercial Road, Carlstadt, New Jersey 07072,
to assist us 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. We have agreed to pay CIC $4,000 plus reasonable out-of-pocket expenses.
OUTSTANDING SHARES AND VOTING RIGHTS
Our common stock is our 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, we had a total of 11,414,199 shares of common
stock issued and outstanding. Our 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.
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. However, Brokers
may not vote shares held for customers on approval of certain other matters
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
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<PAGE> 6
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 two Class I 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 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
ratification of the selection of auditors.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 20, 2000, certain information
concerning ownership of common stock by:
- each person who we know owns beneficially more than 5% of our common
stock
- each director individually
- our chief executive officer and each other named executive officer (as
defined) listed in the Summary Compensation Table
- all of our directors and executive officers as a group.
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<TABLE>
<CAPTION>
AMOUNT OF PERCENT
BENEFICIAL OF OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER OR IDENTITY OF GROUP OWNERSHIP(1) SHARES(1)
- --------------------------------------------------------- ------------ --------------
<S> <C> <C>
Paul F. Balser(2)........................................... 13,800 *
Mark E. Jennings(3)......................................... 23,800 *
Frank S. Jones(4)........................................... 13,700 *
Edith K. Manns(5)........................................... 15,000 *
Dennis L. Whipple(2)........................................ 12,000 *
William G. Malloy(6)........................................ 682,625 5.6%
William F. Behm(7).......................................... 177,326 *
Thomas F. Little(8)......................................... 62,843 *
Cliff O. Bickell(9)......................................... 69,873 *
Bruce H. Longhurst(10)...................................... 13,699 *
All Executive Officers and Directors as a group (21
persons)(11).............................................. 1,252,784 9.9%
Merrill Lynch & Co., Inc.(12)............................... 1,285,900 10.8%
Private Capital Management, Inc.(13)........................ 2,273,583 19.1%
Sanford C. Bernstein & Co., Inc.(14)........................ 924,450 7.8%
</TABLE>
- ---------------
* Less than 1%.
(1) 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 other
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.
(2) Comprised of options exercisable within 60 days.
(3) Includes 13,800 shares issuable pursuant to options exercisable within 60
days.
(4) Includes 12,000 shares issuable pursuant to options exercisable within 60
days.
(5) Includes 14,200 shares issuable pursuant to options exercisable within 60
days.
(6) Includes 251,748 shares issuable pursuant to options exercisable within 60
days, 667 shares in the company's 401(K) Plan and 2,943 shares under the
employee stock purchase plan ("ESPP") allocated to the named officer.
(7) Includes 136,861 shares issuable pursuant to options exercisable within 60
days and 673 shares in the company's 401(K) Plan allocated to the named
officer.
(8) Includes 59,999 shares issuable pursuant to options exercisable within 60
days, 674 shares in the company's 401(K) Plan and 2,170 shares under the
ESPP allocated to the named officer.
(9) Includes 61,565 shares issuable pursuant to options exercisable within 60
days, 674 shares in the company's 401(K) Plan and 1,469 shares under the
ESPP allocated to the named officer.
(10) Includes 10,799 shares issuable pursuant to options exercisable within 60
days and 1,598 shares under the ESPP allocated to the named officer.
(11) Includes 729,473 shares issuable pursuant to options exercisable within 60
days and 11,596 shares in the company's 401(K) Plan allocated to 14 of the
company's 16 executive officers, and 12,097 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 February 4,
2000. Merrill Lynch & Co Inc ("Merrill") reports its address as 250 Vesey
Street, World Financial Center North Tower, New York, New York 10381-1334.
Merrill reports that voting and dispositive power with respect to all
1,285,900 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
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<PAGE> 8
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.
(13) The following information is based on a Schedule 13G/A dated February 15,
2000. Private Capital Management, Inc. ("Private Capital") reports its
address as 3003 Tamiami Trail N., Naples, Florida 34103. Private Capital
reports beneficial ownership of 1,893,883 shares and voting power with
respect to none of the shares. Private Capital reports that it shares
dispositive power with respect to all 1,893,883 shares with Bruce S.
Sherman, Chairman 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 368,700 shares owned by EVF. Mr. Sherman
reports that he has sole voting and dispositive power with respect to
11,000 shares. Mr. Gregg J. Powers, President of Private Capital, reports
that he has sole voting and dispositive power with respect to 5,000 shares.
SPS reports it has shared dispositive power with respect to 368,700 shares.
Mr. Sherman thus reports beneficial ownership of a total of 2,273,583
shares and shared dispositive power with respect to all 1,893,883 shares
beneficially held by Private Capital. Mr. Sherman and Mr. Powers disclaim
the existence of a group.
(14) The following information is based on a Schedule 13G dated February 8,
2000. Sanford C. Bernstein & Co., Inc. ("Sanford") reports its address as
767 Fifth Avenue, New York, New York 10153. Sanford reports that it is a
registered investment advisor. Sanford reports that it beneficially owns
924,450 shares, has sole voting power with respect to 755,590 shares,
shared voting power with respect to 13,200 shares with an independent
voting agent who is required to vote the shares in the same manner as
Sanford, and sole dispositive power with respect to all of the 924,450
shares it holds.
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<PAGE> 9
AGENDA ITEM ONE
ELECTION OF CLASS I DIRECTORS
GENERAL
Article VI of our Certificate of Incorporation provides that the number of
directors shall be fixed from time to time by or pursuant to our By-laws,
provided that the number of directors may not be less than one. Our 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. Frank Jones, a current Class I director, is retiring from the board
and, accordingly, is not standing for re-election. Mr. Malloy, a current Class
III director, is standing for election to the Class I seat being vacated by Mr.
Jones. The board will continue to evaluate whether to fill the vacancy for the
Class III position or reduce the number of directorships. 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.
INFORMATION REGARDING DIRECTORS
Each of our directors serves until the annual meeting of stockholders at
which his or her term of office expires. At each annual meeting, the successors
of the class of directors whose terms expire at such annual meeting are elected
for a term expiring at the annual meeting held in the third year following the
year of their election. 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
nominating committee, which currently 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 current independent, outside directors. Although
our 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 I directors for a term expiring at
the 2003 annual meeting, 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. Although we do not know
of any reason why any of the nominees might not be able to serve, the board of
directors will propose a substitute nominee if any nominee is not available for
election. The only seats on the board expiring this year are the two Class I
directorships. Dr. Manns is an independent, outside director of the company. If
both nominees are elected, two of our six directors will be executive officers
of the company and four will be independent, outside directors.
Biographical information concerning all of the directors is set forth
below:
NOMINEES FOR ELECTION OR RE-ELECTION AS CLASS I DIRECTORS
William G. Malloy, age 53, 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
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<PAGE> 10
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-five years of
experience in the coin-operated amusement and gaming industry. Mr. Malloy
currently serves on the board of directors of MDI Entertainment, Inc. If
elected, Mr. Malloy's term of office as a director will expire with the 2003
annual meeting.
Edith K. Manns, age 63, has been a director since November 1993. Dr. Manns
retired from Georgia State University's School of Public Policy Studies in
August, 1999. Formerly an Associate Professor of Public Administration, Dr.
Manns is an emeritus faculty member. Dr. Manns served for twenty-three 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 Georgia Environmental Organization. If re-elected, Dr. Manns'
term of office as a director will expire with the 2003 annual meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF MR.
MALLOY AND DR. MANNS AS CLASS I DIRECTORS.
OUR CONTINUING DIRECTORS
Paul F. Balser, age 58, 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., New Wave Communications, L.P. and LVI Environmental
Services Inc. Mr. Balser's term of office as a director expires with the 2002
annual meeting.
Dennis L. Whipple, age 56, 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. Mr.
Whipple's term of office as a director expires with the 2002 annual meeting.
William F. Behm, age 54, joined the predecessor to the company in 1978 and
was promoted to Executive Vice President in 1988 and was elected a director in
1992. Mr. Behm has overall management responsibility for the company's research
and business development projects. In addition, he is responsible for all of the
company's product security issues. Prior to joining the company, Mr. Behm was an
aerospace engineer with McDonnell Douglas Corporation. Mr. Behm was instrumental
in the development of the company's former on-line lottery system, the invention
of instant lottery bar codes, the development of the company's Terra 2000(R)
environmental instant ticket, and its 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.
Mark E. Jennings, age 37, 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 a $165 million investment
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<PAGE> 11
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. Mr. Jennings currently serves on the Boards of
Directors of Snyder Communications, Inc., The Johnny Rockets Group, Inc., LVI
Services, Inc., High End Systems, Inc., MetroLabel Corp., and National
Transportation Exchange, Inc. Mr. Jennings' term of office as a director expires
with the 2001 annual meeting.
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 our Directors Stock Option Plan, as amended
and restated ("DSOP") and
(3) the option to tax-defer cash compensation pursuant to our 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 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 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 1999, 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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GOVERNANCE OF THE COMPANY
In accordance with applicable Delaware state law, the business of the
company is managed under the direction of our board of directors.
There are currently four standing committees of the board of directors.
Committee memberships, the number of committee meetings held during 1999 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 currently 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 our independent auditors, makes recommendations to the board as
to the selection of auditors, 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 1999, 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 currently 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 our
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 our employee benefit plans and for the custody and
management of assets of those plans that are funded. During 1999, the
compensation committee held one (1) meeting.
STOCK OPTION COMMITTEE
The current members of the stock option committee are Frank S. Jones
(Chairman), Paul F. Balser, Dr. Edith K. Manns and Dennis L. Whipple.
The stock option committee consists of four directors. Such committee or a
subcommittee thereof is responsible for administering all of our stock option
plans. During 1999, the stock option committee held one (1) meeting.
-9-
<PAGE> 13
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 currently 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 1999, 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, 1999. Mr. Malloy is the
company's chief executive officer and president.
COMPENSATION COMMITTEE REPORT
The following report and the performance graph which follows such report do
not constitute soliciting materials and are not considered filed or incorporated
by reference into any other company filing under the Securities Act of 1993 or
the Securities Exchange Act of 1034, unless we state otherwise.
The compensation committee's goals are to:
- provide our executives with compensation competitive with other similar
companies;
- reward our executives consistent with the performance of the company;
- recognize individual performance;
- retain and attract qualified executives; and
- encourage our executives to increase shareholder value.
To achieve these goals, the compensation committee has put into place an
executive compensation program with three basic elements: (1) base salary, (2)
stock options, and (3) annual and multi-year performance-based cash bonuses.
Mr. Malloy typically proposes to the compensation committee the amount and
type of compensation for our executives. Factors considered by Mr. Malloy in
making recommendations, and by the compensation committee in making decisions
with regard to compensation, may include their subjective evaluation of our
revenue growth, pre-tax margins, earnings before interest, taxes, depreciation
and amortization, 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 our competitors (to the extent known), a subjective assessment of
the compensation our officers could obtain in the market and the officer's
length of service. While various components of the company's performance may be
considered in setting compensation, base salary has not been formally tied to
pre-established, fixed objective measures of company performance, nor has any
objective ranking or weighting been attributed to specific measures of
performance in setting base salary.
The 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 our Intermediate-Term
Incentive Compensation Plan (the "IICP"), participating members of manage-
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<PAGE> 14
ment, including all Named Executive Officers, are eligible for, and annual cash
bonuses currently are earned based on, our achievement of a specified compound
growth in our earnings per share over a series of rolling three-year periods
which began with the three-year period ending December 31, 1998. If our actual
results fall short of the performance goal specified during such three-year
period, no amounts will be payable under the IICP for such three-year period;
however, if the target is met or exceeded, participants will be eligible to
receive a cash bonus payable over the following three years. To receive any
payment under the IICP, a participant 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 participants 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 our actual results fell short of our performance goal for the
three-year period ending December 31, 1999, no amounts were payable under the
IICP for such period.
If our IICP target is met for the rolling three-year period ending December
31, 2000, there will be a total payout from the IICP to the participants,
including the Named Executive Officers, (which amount will be upwardly adjusted
for any participation by Mr. Malloy in the IICP) ranging from $800,000 to
$1,600,000, depending upon our 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, 2000, 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 participants 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 our stockholders is another
important element of the total compensation package. Accordingly, since 1996 the
compensation committee has recommended that the stock option committee make
annual awards of stock options to the company's senior management. The terms of
our stock option plans provide the stock option committee with broad discretion
in making awards to our senior management.
In 1999, each member of the company's senior management, except for Mr.
Malloy, who received a long-term grant of options in 1998 under his employment
and severance benefits agreement, was granted options to purchase either 5,000
or 10,000 shares of our common stock. Each of the Named Executive Officers was
granted options to purchase 10,000 shares of common stock. Such options vest
ratably over three years, beginning with the first anniversary of their date of
grant and have an exercise price equal to the common stock's fair market value
on the option grant date.
In 1998, we entered into an employment and severance benefits agreement
with Mr. Malloy to secure his continued services and centralize in one document
information with respect to his employment and severance benefits, 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". Pursuant to his employment
and severance benefits agreement, Mr. Malloy was granted options to acquire
200,000 shares of the company's common stock. Such options began vesting January
1, 2000 at the rate of 50,000 options per year and the compensation committee
currently believes that such option grant provides an appropriate level of
equity based incentive compensation for Mr. Malloy through 2000.
In 1999, the compensation committee considered the same factors with
respect to those elements of Mr. Malloy's compensation which are not fixed by
his employment contract as it considered with respect to the other members of
our senior management. 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.
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.
-11-
<PAGE> 15
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, we do not expect our ability
to deduct executive compensation to be limited by operation of Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code"), in the foreseeable
future.
Although our 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 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>
-12-
<PAGE> 16
PERFORMANCE GRAPH
The following graph compares the percentage change in our 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, and (2)
a peer group index constructed by the company.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
COMPANY, S&P 500 INDEX AND PEER GROUP INDEX
<TABLE>
<CAPTION>
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Company (1)............................... $151.00 $107.00 $ 81.00 $ 75.50 $ 66.25
S&P 500 Index............................. $137.58 $169.17 $225.60 $290.08 $351.12
Peer Group Index.......................... $112.27 $136.58 $145.74 $116.54 $ 96.50
</TABLE>
- ----------
(1) For the year ending December 31, 1995, the company's self-constructed peer
group was 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 December 31, 1996 through December 31, 1998, the company's
self-constructed peer group is composed of Alliance, GTECH Holdings Corp.,
and Powerhouse. The year ended December 31, 1999 includes Anchor Gaming,
which acquired Powerhouse on June 29, 1999. The peer group index has been
weighted to account for the respective market capitalization of the subject
companies.
-13-
<PAGE> 17
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table sets forth the compensation we paid for the periods
indicated to the individual serving as our chief executive officer during 1999
and to our four most highly compensated executive officers (other than the chief
executive officer) who earned more than $100,000 during 1999 (collectively,
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
-------------------
ANNUAL COMPENSATION(1) SECURITIES
------------------------ UNDERLYING IICP ALL OTHER
SALARY BONUS OPTIONS PAYOUT COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($)(2) (#) ($) ($)(3)
- --------------------------- ---- ------- ------- ---------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
William G. Malloy........................ 1999 462,000 259,313 -0- 4,800
President and Chief Executive Officer 1998 456,923 164,812 220,000 -0- 3,200
1997 188,160 461,840 20,000 N/A 3,166
William F. Behm.......................... 1999 207,173 108,131 -0- 4,800
Executive Vice President 1998 207,216 65,202 10,000 -0- 3,166
1997 185,769 46,165 10,000 N/A 3,000
Thomas F. Little......................... 1999 236,987 118,526 -0- 4,800
Senior Vice President 1998 234,582 78,615 10,000 -0- 3,200
1997 203,554 59,480 10,000 N/A 3,166
Cliff O. Bickell......................... 1999 202,860 102,001 -0- 4,800
Vice President, Treasurer and Chief 1998 200,631 69,829 10,000 -0- 3,200
Financial Officer 1997 171,742 29,454 10,000 N/A 3,166
Bruce H. Longhurst(4).................... 1999 194,355 86,844 -0- 9,718
Vice President, International Sales 1998 195,524 87,111 10,000 -0- 13,500
and Marketing 1997 29,366 -0- N/A -0-
</TABLE>
- ----------
(1) The amounts shown do not include indirect compensation, the value of which
for each Named 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 Executive Officer and include amounts earned in such
year which may have been deferred at the election of the Named Executive
Officer to a later year.
(3) These amounts constitute matching contributions to our 401(k) plan, which
were at 50% of the first 6% of the employee's annual contribution.
(4) Mr. Longhurst became an executive officer of the company on November 20,
1997.
DEFERRED COMPENSATION ARRANGEMENTS
The company has a Management Deferred Compensation Plan ("MDCP") under
which certain members of senior management 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
The company has a Supplemental Executive Retirement Plan ("SERP").
Currently, seven (7) of sixteen (16) members of our senior management, including
all Named Executive Officers, participate in the SERP. The compensation
committee is authorized to add 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 certain of 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 Mr. Longhurst is an employee at year end, in lieu of his
participation in the SERP, we provide a matching contribution for up to 5% of
his annual compensation into a retirement program in Canada. Our obligation to
make such contribution also is subject to Mr. Longhurst contributing 5% of his
annual salary to such retirement plan and we may make our contribution in cash,
common stock, or a combination thereof.
EMPLOYMENT AND/OR SEVERANCE BENEFIT AGREEMENTS
We have employment agreements, with three (3) of our executive officers,
Messrs. Malloy, Behm and Little. The employment agreements for Mr. Behm and Mr.
Little expire September 30, 2000. Under such employment agreements, annual base
salaries for Messrs. Behm and Little were $207,173 and $236,987, respectively,
for 1999. 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 our option upon the making of payments to the affected executive equal to the
prior year's salary. In the event we terminate Mr. Behm or Mr. Little other than
for cause or other than in connection with a change in control, the applicable
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 provided car and the continuance for one year
thereafter of certain employee benefits.
We entered into a new employment and severance benefits agreement with Mr.
Malloy effective as of January 1, 1998. Mr. Malloy's agreement is for a
five-year term, subject to automatic renewal for additional five year terms
unless either Mr. Malloy or the company gives notice of an intent not to renew
within the time period specified in the agreement. Under the agreement, Mr.
Malloy receives 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 in 1998 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 provides, among other things, for Mr. Malloy's continued
participation in our 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 we terminate Mr. Malloy's employment, other than for "cause" (as
defined in the agreement), we would be obligated to make a lump
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<PAGE> 19
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" under Mr. Malloy's agreement will be deemed to have occurred
if (i) the board or the stockholders of the company approves (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 adopts 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.
Fourteen (14) other members of senior management, including all Named
Executive Officers, also have severance benefits agreements, pursuant to which
we have agreed to pay certain benefits to such individuals in the event of
certain defined terminations of employment, including in the case of any
severance (other than for "cause" as defined in such agreements) 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 specified 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
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<PAGE> 20
director who is a management stockholder) of the members of the entire board of
directors in office prior to any such person or group of persons acquiring such
right or power.
Such severance benefits would be paid in an amount, in addition to base
salary owing and bonus prorated through the date of termination, equal to three
years of the highest rate of base salary and highest bonus paid during the
three-year period immediately preceding the date of termination or change in
control, whichever was higher. In addition, upon any such change in control, all
stock options of the affected individual would become vested and immediately
exercisable and (i) the company, in such event, would be obligated to lend to
the individual 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 employee 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 employee 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 employee in the
successful enforcement of any right or benefit provided under such severance
benefits agreements. In such agreements, each employee 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.
We estimate the value of the compensation and benefits payable under the
change in control provisions of the severance benefits agreements, as of
December 31, 1999, if such provisions were triggered by a change in control and
termination of such Named Executive Officers, would have been $945,912 to Mr.
Behm, $1,066,539 to Mr. Little, $914,583 to Mr. Bickell and $843,597 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. We estimate 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, 1999 if
such provisions were triggered by a change in control and termination of Mr.
Malloy, would have been $2,163,939.
STOCK OPTION PLANS
We previously have granted options to certain of our current executive
officers and other key employees 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 our
initial public offering. Options to purchase an aggregate of 360,986 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 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 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
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<PAGE> 21
executive officers. Options granted under such plan are at option prices
established by the stock option committee at not less than the fair market value
on the date of grant. Options for 300,000 shares were issued to nine executive
officers in March 1994 at an exercise price of $12.00 per share.
In March 1995, the board of directors adopted the 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 board of directors 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 our 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,
1999 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;
options for 200,000 shares also were issued in 1998 at an exercise price of
$18.3125 per share; and options for 80,000 shares were issued in 1999 at an
exercise price of $17.06 per share.
In February 1999, the company adopted the 1999 Key Employee Stock Option
Plan. No options had been issued through December 31, 1999 under the 1999 Key
Employee Stock Option Plan.
At March 20, 2000, the aggregate number of shares currently available for
grant under all of the employee stock option plans was 835,714, including
181,472 shares which were subject to previously issued options which expired or
were cancelled and, as a result, became available for re-grant pursuant to the
terms of the applicable plan.
The exercise of the options granted pursuant to each option plan is subject
to certain vesting requirements set forth in each option plan.
The following table sets forth certain information concerning options, all
of which are exercisable unless otherwise noted, which were granted in 1999 to
the executive officers listed in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------ POTENTIAL VALUE AT
ASSUMED ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM
OPTIONS EMPLOYEES EXERCISE -----------------------
GRANTED IN FISCAL PRICE EXPIRATION 0% 5%(3) 10%(3)
NAME (#) YEAR ($/SHARE) DATE(1)(2) $ $ $
---- ---------- ---------- --------- ---------- --- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
William F. Behm................. 10,000 8% $17.0600 02/04/09 0 107,289 271,892
Thomas F. Little................ 10,000 8% $17.0600 02/04/09 0 107,289 271,892
Cliff O. Bickell................ 10,000 8% $17.0600 02/04/09 0 107,289 271,892
Bruce H. Longhurst.............. 10,000 8% $17.0600 02/04/09 0 107,289 271,892
</TABLE>
- ----------
(1) All listed options were granted with a ten year term and vest ratably over a
three year period beginning with the first annual anniversary of the date of
grant.
(2) Each option granted also becomes exercisable upon the occurrence of a
defined recapitalization or change in control or upon the death or permanent
disability of such officer and as otherwise provided
-18-
<PAGE> 22
in applicable benefits agreements, severance or employment and severance
benefits agreements. None of the options described above are "incentive
stock options" as defined in the Code.
(3) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises are dependent on the future
performance of the common stock and overall market conditions. There can be
no assurance that the amounts reflected in these columns will be achieved or
if achieved will exist at the time of any option exercise.
The following table sets forth certain information concerning options
exercised in 1999 and unexercised options held at December 31, 1999 by the Named
Executive Officers listed in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING OPTIONS THE-MONEY OPTIONS AT
SHARES AT FY-END(#) FY-END(1)($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- ----------- ----------- -------------------- ------------------------
<S> <C> <C> <C> <C>
William G. Malloy.................. -0- N/A 238,414/170,001 948,951/0
William F. Behm.................... -0- N/A 126,861/20,001 786,172/0
Thomas F. Little................... 16,873 $230,522 49,999/20,001 0/0
Cliff O. Bickell................... -0- N/A 49,999/20,001 0/0
Bruce H. Longhurst................. -0- N/A 3,333/16,667 0/0
</TABLE>
- ----------
(1) Based on the closing price of the common stock as reported on the NYSE on
December 31, 1999 of $16.5625 per share.
-19-
<PAGE> 23
AGENDA ITEM TWO
SELECTION OF AUDITORS
We have appointed the accounting firm of Ernst & Young LLP as our
independent auditors to review and audit our financial statements for the year
ending December 31, 2000. A resolution to ratify the appointment will be
presented at the annual meeting. A majority of the votes cast must vote in favor
to ratify the appointment. If the shareholders do not ratify the appointment, we
may reconsider our selection of Ernst & Young, LLP.
Even if such selection of Ernst & Young, LLP 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 TWO.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our executive officers and
directors, and persons who beneficially own more than ten percent of our common
stock, to file reports of ownership and reports of changes in ownership with the
SEC. Copies of all Section 16(a) forms must be provided to us. Based solely on
our review of the reports furnished to us and representations from our executive
officers and directors, we believe that each of our directors and executive
officers filed during 1999 all required Section 16(a) reports and that such
reports were filed on a timely basis, except that Bruce H. Longhurst, Vice
President of International Sales and Marketing, inadvertently failed to timely
file a single Form 4 reporting shares acquired under a supplemental executive
retirement plan.
AVAILABILITY OF
ANNUAL REPORT TO STOCKHOLDERS AND REPORT ON FORM 10-K
Copies of our annual report for the year ended December 31, 1999, which
includes certain financial information about the company, are currently being
mailed, together with this proxy statement, to our stockholders. Additional
copies of such annual report along with copies of our annual report on Form 10-K
for the year ended December 31, 1999 (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: Scientific Games
Holdings Corp., 1500 Bluegrass Lakes Parkway, Alpharetta, Georgia 30004,
Attention Corporate Secretary. 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
-20-
<PAGE> 24
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 we send the proxy statement relating to next year's annual meeting to
our stockholders on the anniversary of the date of this proxy statement, any
proposal to be presented at next year's annual meeting must be received at our
principal executive offices not later than December 21, 2000. Any such proposals
should be directed to the attention of the Secretary for consideration or
inclusion in the proxy materials 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 us
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 us to use our discretionary
authority granted under the form of proxy to vote on such proposal unless the
proponent of such proposal notifies us that he will seek to offer such proposal
at the annual meeting and such notice is given to us no later than forty-five
(45) days prior to the anniversary of the prior year's proxy statement, i.e., by
March 5, 2000 with respect to our next annual meeting; provided, however, if we
change 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 we mail our
proxy materials for next year's annual meeting.
With respect to nomination of directors, our By-Laws require shareholders
to provide us with advance notice of any intent to nominate anyone for election
to the board whose name is not listed in our 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 our
By-Laws.
-21-
<PAGE> 25
* 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 19, 2000
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 2000 Annual Meeting of Stockholders of Scientific Games
Holdings Corp. to be held on Friday, May 19, 2000 at 9:00 a.m., E.D.S.T at the
Atlanta Windward Hilton Garden Inn, 4025 Windward Concourse, Alpharetta, Georgia
30005 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 19, 2000, 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, and FOR the proposal specified in Agenda Item
No. 2, and the Proxy will be so voted unless otherwise specified.
Please vote by filling in the boxes below.
1. To elect William G. Malloy and Edith K. Manns as Class I Directors of the
Company for terms ending with the 2003 Annual Meeting of Stockholders and until
their successors are elected and qualified;
[ ] FOR the two nominees [ ] WITHHOLD authority to vote
(except as marked to the contrary below) for the two nominees
Instructions: To withhold authority to vote for either individual nominee, write
that nominee's name in the space provided below:
- -------------------------------------------------------------------------------
<PAGE> 26
* FOLD AND DETACH HERE *
- -------------------------------------------------------------------------------
2. 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 2000;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
all as set forth in the Proxy Statement.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS INDICATED OR IT WILL BE VOTED IN ACCORDANCE WITH THE
RECOMMENDATIONS OF THE BOARD OF DIRECTORS FOR THE NOMINEES SPECIFIED IN AGENDA
ITEM NO. 1, AND FOR THE PROPOSAL SPECIFIED IN AGENDA ITEM NO. 2.
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:_________________________________2000
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.
