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:
[ ] Preliminary Proxy Statement [ ] Confidential, for use of the
Commission only
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
WMS INDUSTRIES INC.
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(Name of Registrant as Specified in Its Charter)
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WMS LOGO
WMS INDUSTRIES INC.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 15, 2002
------------------------
To the Stockholders of
WMS Industries Inc.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of WMS
Industries Inc. ("WMS") will be held on Tuesday, January 15, 2002 at 1:30 p.m.
Central Standard Time at the Drake Hotel, 140 East Walton Place, Chicago,
Illinois 60611, in The Drake Room, to consider and act upon the following
matters:
1. Electing a board of ten (10) directors;
2. Ratifying the appointment of Ernst & Young LLP as independent
auditors for our fiscal year ending June 30, 2002; and
3. Transacting such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
The close of business on November 26, 2001 has been fixed as the record
date for the determination of stockholders entitled to notice of and to vote at
the meeting and any adjournments thereof. A list of the stockholders entitled to
vote at the annual meeting will be open to the examination of any stockholder of
WMS for any purpose germane to the annual meeting during regular business hours
at the offices of WMS for the ten-day period prior to the annual meeting.
YOU ARE REQUESTED, WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE ANNUAL
MEETING, TO MARK, DATE, SIGN AND RETURN PROMPTLY THE ACCOMPANYING PROXY IN THE
ENCLOSED ENVELOPE. NO POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED STATES.
By Order of the Board of Directors,
ORRIN J. EDIDIN
Executive Vice President, Chief
Operating Officer,
Secretary and General Counsel
Chicago, Illinois
December 3, 2001
ANNUAL MEETING OF STOCKHOLDERS
OF
WMS INDUSTRIES INC.
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PROXY STATEMENT
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INTRODUCTION
WMS Industries Inc. ("we," "us" or "WMS") is furnishing this proxy
statement to you in connection with the solicitation by our board of directors
("Board of Directors" or "Board") of proxies to be voted at our Annual Meeting
of Stockholders. The meeting is scheduled to be held at the Drake Hotel, 140
East Walton Place, Chicago, Illinois 60611, in The Drake Room, on Tuesday,
January 15, 2002 at 1:30 p.m. Central Standard Time, or at any proper
adjournments.
If you properly execute and return your proxy form, it will be voted in
accordance with your instructions. If you return your signed proxy but give us
no instructions as to one or more matters, the proxy will be voted on those
matters in accordance with the recommendations of the Board as indicated in this
proxy statement. You may revoke your proxy, at any time prior to its exercise,
by written notice to us, by submission of another proxy bearing a later date or
by voting in person at the meeting. Your revocation will not affect a vote on
any matters already taken. Your mere presence at the meeting will not revoke
your proxy.
The mailing address of our principal executive offices is 800 South
Northpoint Boulevard, Waukegan, Illinois 60085. We are mailing this proxy
statement and the accompanying form of proxy to our stockholders on or about
December 3, 2001.
Only holders of our common stock, $.50 par value per share, of record at
the close of business on November 26, 2001 (the "Record Date") will be entitled
to vote at our annual meeting or any adjournments. There were 32,189,807 shares
of our common stock outstanding on the Record Date (excluding 77,312 treasury
shares). Each share of our common stock entitles the holder to one vote on each
matter at the meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of the Record Date, except as
otherwise footnoted, about persons that, to our knowledge, beneficially own more
than 5% of the outstanding shares of our common stock:
NUMBER OF SHARES PERCENTAGE OF
OF COMMON STOCK OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) COMMON STOCK(1)
------------------------------------ --------------------- ---------------
Sumner M. Redstone and National Amusements, Inc. ......... 9,654,500(2) 30.0%
200 Elm Street
Dedham, MA 02026
FMR Corp. ................................................ 4,538,455(3) 14.1%
82 Devonshire St.
Boston, MA 02109
Wellington Management Company, LLP........................ 2,086,200(4) 6.6%
75 State Street
Boston, MA 02109
Ariel Capital Management, Inc. ........................... 1,828,475(5) 5.7%
307 N. Michigan Avenue, Suite 500
Chicago, IL 60601
Louis J. Nicastro(6)...................................... 9,659,132(7) 30.0%
Neil D. Nicastro(6)....................................... 9,659,514(8) 30.0%
-------------------------
(1) Under Rule 13d-3(d)(1) of the Securities Exchange Act of 1934, shares
underlying options are deemed to be beneficially owned if the holder of the
option has the right to acquire beneficial ownership of the underlying
shares within 60 days. Percentage calculations are based on 32,189,807
shares outstanding on November 19, 2001.
(2) Based upon Amendment No. 25, dated October 18, 2001, to Schedule 13D filed
by Sumner M. Redstone and National Amusements, Inc. and a Form 4 for October
2001 filed by Mr. Redstone. In those filings, Redstone and National
Amusements reported sole dispositive power over 6,170,600 and 3,483,900
shares, respectively, and shared voting power over those shares under a
Proxy Agreement entered into with WMS and Messrs. Louis J. and Neil D.
Nicastro. See "Voting Proxy Agreement." As a result of his stock ownership
in National Amusements, Redstone is considered the beneficial owner of the
shares owned by National Amusements.
(3) Based upon Amendment No. 8 to Schedule 13G filed February 14, 2001 with the
SEC by Fidelity International Limited and FMR Corp., the sole stockholder of
Fidelity Management & Research Company and Fidelity Management Trust
Company. FMR reported that it has sole voting power over 800,490 of the
shares and sole dispositive power over 4,538,455 of the shares as a result
of Fidelity Management's acting as investment adviser to various investment
companies holding 3,737,965 of the shares and Fidelity Management Trust and
Research's holding 575,790 of the shares. FMR Corp. also reported that
Fidelity Advisors Value Strategies Fund, one of the investment companies,
was a beneficial owner of 1,930,000 of these shares. In addition, Fidelity
International reported that it has sole voting and investment power over
224,700 of the shares as a result of its acting as investment adviser to
various investment companies. Fidelity International was spun off from FMR
Corp. in 1980. Fidelity International and FMR also reported that they each
may be deemed to be controlled by members of the Edward C. Johnson 3d
family.
(4) Based upon Form 13F Holdings Report for the quarter ended September 30, 2001
filed with the SEC by Wellington Management Company, LLP. Wellington
reported that it has sole investment discretion and voting power over
1,928,050 of the shares, defined investment discretion and shared voting
power with
2
Wellington Trust Company, NA over 156,300 of the shares, and sole investment
discretion and no voting power over 1,850 of the shares.
(5) Based upon Schedule 13G filed November 6, 2001 with the SEC by Ariel Capital
Management, Inc. Ariel reported that it has sole voting power over 1,738,375
shares and sole dispositive power over 1,828,475 shares.
(6) This person's address is c/o WMS Industries Inc., 800 South Northpoint
Boulevard, Waukegan, Illinois 60085.
(7) Includes 9,654,500 shares owned by Sumner M. Redstone and National
Amusements, Inc. for which the reporting person has shared voting power but
no dispositive power. See note 2 above. For a discussion concerning the
shared voting power over the 9,654,500 shares referred to above, see "Voting
Proxy Agreement."
(8) Includes 9,654,500 shares owned by Sumner M. Redstone and National
Amusements, Inc. for which the reporting person has shared voting power but
no dispositive power. Also includes 5,000 shares underlying stock options.
See note 2 above. For a discussion concerning the shared voting power over
the 9,654,500 shares referred to above, see "Voting Proxy Agreement."
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of the Record Date, information about
the beneficial ownership of our common stock by each of our directors and the
executive officers named in the Summary Compensation Table below and by all of
our directors and executive officers as a group:
NUMBER OF SHARES PERCENTAGE OF
OF COMMON STOCK OUTSTANDING
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) COMMON STOCK(2)
------------------------ ---------------------- ---------------
William C. Bartholomay*................. 54,531(3) **
Orrin J. Edidin......................... 75,000(4) **
Brian R. Gamache*....................... 130,000(5) **
Seamus McGill........................... 50,000(6) **
William E. McKenna*..................... 101,280(7) **
Norman J. Menell*....................... 32,947(3) **
Donna B. More*.......................... 50,000(6) **
Louis J. Nicastro*...................... 9,659,132(8) 30.0%
Neil D. Nicastro*....................... 9,659,514(9) 30.0%
Harvey Reich*........................... 3,421 **
Robert R. Rogowski...................... 2,500(10) **
David M. Satz, Jr.*..................... 38,500(11) **
Scott D. Schweinfurth................... 76,000(4) **
Ira S. Sheinfeld*....................... 143,930(12) **
Directors and Executive Officers as a
group (14 persons).................... 10,422,255(13) 31.7%
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* Nominee for Director
** Less than 1%
(1) Under Rule 13d-3(d)(1) of the Securities Exchange Act of 1934, shares
underlying options are deemed to be beneficially owned if the holder of the
option has the right to acquire beneficial ownership of the underlying
shares within 60 days.
(2) Percentages are calculated based on 32,189,807 shares outstanding on
November 19, 2001.
(3) Includes 25,000 shares underlying stock options.
(4) Includes 75,000 shares underlying stock options.
(5) Includes 125,000 shares underlying stock options.
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(6) Represents 50,000 shares underlying stock options.
(7) Includes 87,955 shares underlying stock options.
(8) Includes 9,654,500 shares owned by Sumner M. Redstone and National
Amusements, Inc. for which the reporting person has shared voting power but
no dispositive power. For a discussion concerning the shared voting power
with respect to the 9,654,500 shares referred to above, see "Voting Proxy
Agreement."
(9) Includes 9,654,500 shares owned by Sumner M. Redstone and National
Amusements, Inc. for which the reporting person has shared voting power but
no dispositive power. Also includes 5,000 shares underlying stock options.
For a discussion concerning the shared voting power with respect to the
9,654,500 shares referred to above, see "Voting Proxy Agreement."
(10) Represents 2,500 shares underlying stock options.
(11) Includes 37,500 shares underlying stock options.
(12) Includes 125,728 shares underlying stock options.
(13) Includes 683,683 shares underlying stock options. Additionally, includes
9,654,500 shares of common stock owned by Sumner M. Redstone and National
Amusements, Inc. with respect to which Louis J. Nicastro and Neil D.
Nicastro both have shared voting power but no dispositive power. See
"Voting Proxy Agreement."
VOTING PROXY AGREEMENT
In order for us to manufacture and sell gaming machines in Nevada, our
officers are required to be, and have been, registered, licensed or found
suitable by the Nevada gaming authorities. In addition, under applicable Nevada
law and administrative procedure, as a greater than 10% stockholder of WMS,
Sumner M. Redstone was required to apply, and has an application pending with
the Nevada gaming authorities, for a finding of suitability as a stockholder of
WMS. Mr. Redstone and National Amusements, Inc. ("NAI"), a company that he
controls, collectively own 9,654,500 shares of our common stock. Pending
completion of the processing of this application, Mr. Redstone and NAI, on
September 21, 1995, voluntarily granted a voting proxy under a voting agreement
to Louis J. Nicastro and, if he is unable to perform his duties under the voting
agreement, to Neil D. Nicastro, individually, to vote all of Mr. Redstone's and
NAI's shares of our common stock. The voting agreement is intended to ensure
that the passive investment position of Mr. Redstone and NAI relative to WMS
will not change without prior notification to the Nevada gaming authorities.
Under the voting agreement, Mr. Nicastro votes each share of our common
stock owned by Mr. Redstone and NAI at his discretion at meetings of our
stockholders or acts as proxy in connection with any written consent of our
stockholders. The term of the voting agreement ends August 24, 2004 unless Mr.
Redstone terminates it upon 30 days' written notice. It may also be terminated
upon a finding by the Nevada gaming authorities that Mr. Redstone and NAI are
suitable as stockholders of WMS or are no longer subject to the applicable
provisions of Nevada gaming laws.
Louis J. Nicastro and Neil D. Nicastro have advised us that they plan to
use the voting proxy to vote all 9,654,500 shares of our common stock
beneficially owned by Mr. Redstone and NAI (approximately 30.0% of our common
stock) in favor of the nominees for election as director and FOR proposal 2.
4
PROPOSAL 1 -- ELECTION OF DIRECTORS
Upon the recommendation of the Nominating Committee, the following ten (10)
directors, constituting the entire Board, are nominated for election to serve
until the next Annual Meeting of Stockholders and until their respective
successors are elected and shall qualify. All of the nominees are presently
directors. Neil D. Nicastro is the son of Louis J. Nicastro. If any of the
nominees are unable to serve or refuse to serve as directors, an event which the
Board does not anticipate, the proxies will be voted in favor of those nominees
who do remain as candidates, except as you otherwise specify, and may be voted
for substituted nominees.
POSITION WITH COMPANY AND DIRECTOR
NAME OF NOMINEE (AGE) PRINCIPAL OCCUPATION SINCE
--------------------- ------------------------- --------
William C. Bartholomay (73)............ Director; President of Near North 1981
National Group
Brian R. Gamache (43).................. Director; President & Chief Executive 2001
Officer of WMS
William E. McKenna (82)................ Director; General Partner of MCK 1981
Investment Company
Norman J. Menell (70).................. Vice Chairman of the Board 1980
Donna B. More (43)..................... Director; Attorney, More Law Group 2000
Louis J. Nicastro (73)................. Chairman of the Board of WMS 1974
Neil D. Nicastro (45).................. Director; Chairman of the Board, 1986
President, Chief Executive Officer and
Chief Operating Officer of Midway Games
Inc.
Harvey Reich (72)...................... Director; Attorney 1983
David M. Satz, Jr. (75)................ Director; Attorney, Saiber Schlesinger 1998
Satz & Goldstein
Ira S. Sheinfeld (63).................. Director; Attorney, Squadron, Ellenoff, 1993
Plesent & Sheinfeld LLP
WILLIAM C. BARTHOLOMAY has served as President of Near North National
Group, insurance brokers in Chicago, Illinois and Chairman of the Board of the
Atlanta Braves for more than five years. He has also served as Vice Chairman of
Turner Broadcasting System, Inc., a division of AOL-Time Warner, Inc., for more
than five years. Mr. Bartholomay was elected a director of WMS in 1981 and is
Chairman of our Compensation Committee. Mr. Bartholomay is also a director of
Midway Games Inc. ("Midway").
BRIAN R. GAMACHE served as our President and Chief Operating Officer from
April 2000 until June 14, 2001, when he was appointed President and Chief
Executive Officer and joined our Board of Directors. Mr. Gamache served as
President of the Luxury and Resort Division of Wyndham International from
January 1998 until April 2000. He was President and Chief Operating Officer of
WHG Resorts & Casinos Inc. ("WHG") from April 1997 until January 1998. From 1990
until April 1997, Mr. Gamache served in various capacities for WMS's former
hotel and resort subsidiaries, rising to the position of President and Chief
Operating Officer. At the time of WMS' April 1997 spinoff of WHG, Mr. Gamache
left WMS to devote his full time to WHG.
WILLIAM E. MCKENNA has served as a General Partner of MCK Investment
Company, Beverly Hills, California for more than five years. He also is a
director of Midway and Drexler Technology Corporation. Mr. McKenna has served as
a director of WMS since 1981 and is the Chairman of our Audit and Ethics
Committee.
NORMAN J. MENELL has been Vice Chairman of the Board since 1990 and a
director since 1980. He has also served as our President (1988-1990), Chief
Operating Officer (1986-1990) and Executive Vice President (1981-1988). Mr.
Menell is also a director of Midway.
DONNA B. MORE became a director of WMS in May 2000. She is the principal
partner in the More Law Group, which she founded on June 1, 2000. She was a
partner in the law firm of Freeborn and Peters from 1994 until May, 2000. Ms.
More served for four years as the first Chief Legal Counsel to the Illinois
Gaming
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Board and was formerly an Assistant U.S. Attorney for the Northern District of
Illinois. She serves on the Board of Directors of Mandalay Resort Group and is a
member of the Board of Trustees of the International Association of Gaming
Attorneys.
LOUIS J. NICASTRO has served as our Chairman of the Board since our
incorporation in 1974. He was our Chief Executive Officer from April 1998 until
June 14, 2001 and was also President from April 1998 to April 2000. Mr. Nicastro
also served as our Chief Executive Officer or Co-Chief Executive Officer from
1974 to 1996 and President (1985-1988 and 1990-1991), among other positions. Mr.
Nicastro is a director of Midway, and he held executive positions for Midway
from 1988 until 1996. Mr. Nicastro is Neil D. Nicastro's father.
NEIL D. NICASTRO has been Midway's Chairman of the Board, Chief Executive
Officer, President and Chief Operating Officer for more than five years. Mr.
Nicastro was also our President, Chief Executive Officer and Chief Operating
Officer for more than five years before his resignation from those positions in
April 1998. Mr. Nicastro became a director of WMS in 1986, and he remains a
director and a consultant to us. He is Chairman of our Nominating Committee. Mr.
Nicastro is Louis J. Nicastro's son.
HARVEY REICH was a member of the law firm of Robinson Brog Leinwand Greene
Genovese & Gluck, P.C., New York, New York and its predecessor firms for more
than five years until his retirement in July 1998. Mr. Reich was elected a
director of WMS in 1983 and is Chairman of our Stock Option Committee. Mr. Reich
is also a director of Midway.
DAVID M. SATZ, JR. has been a member of the law firm Saiber Schlesinger
Satz & Goldstein, Newark, New Jersey, for more than five years. Mr. Satz is also
a director of the Atlantic City Racing Association. Mr. Satz has also served as
First Assistant Attorney General for the State of New Jersey and is the former
U.S. Attorney for the District of New Jersey. He serves as a Counselor to the
International Association of Gaming Attorneys and had formerly served as its
President and on its Board of Trustees. Mr. Satz was elected a director of WMS
in 1998 and serves as Chairman of both our Compliance Committee and our
Negotiating Committee.
IRA S. SHEINFELD became a director of WMS in 1993. He has been a member of
the law firm of Squadron, Ellenoff, Plesent & Sheinfeld LLP, New York, New York,
for more than five years. Mr. Sheinfeld is also a director of Midway.
REQUIRED VOTE
The affirmative vote of a plurality of the shares of our common stock
present in person or by proxy at the annual meeting is required to elect
directors.
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THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE NOMINEES FOR ELECTION AS
DIRECTORS.
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THE BOARD OF DIRECTORS
The Board of Directors is responsible for managing our overall affairs. To
assist it in carrying out its duties, the Board has delegated specific authority
to several committees. Nine of our ten directors are neither officers nor
employees of WMS.
During fiscal 2001, the Board held six meetings. Each director attended at
least 75% of the aggregate number of meetings of the Board and all committees on
which he or she served during the fiscal year.
DIRECTOR COMPENSATION
We pay a fee of $30,000 per year to each director who is not also an
employee of WMS or our subsidiaries. Each non-employee director who serves as
the chairman of any committee of our Board of Directors receives a further fee
of $5,000 per year for services in that capacity, and each non-employee member
of our Audit and Ethics Committee receives an additional fee of $5,000 per year.
David M. Satz, Jr.
6
will receive a fee of $5,000 per year for serving as the non-employee director
of some of our subsidiaries. Donna B. More will receive a fee of $5,000 per year
for serving as a member of our Compliance Committee; such fee shall include any
legal fees which may be incurred in the performance of her duties on this
committee.
Five of our stock option plans permit the issuance of shares of our common
stock under non-qualified stock options which may be granted to non-employee
directors of WMS, generally at not less than 100% of the fair market value of
the shares on the date of grant. In fiscal 2001, no options to purchase our
common stock were granted to non-employee directors.
Directors are also entitled to participate, at our expense, in a medical
reimbursement plan which is supplementary to their primary medical insurance.
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit and Ethics Committee is currently composed of three independent
directors (as independence is defined in Section 303.01(B) of the NYSE listing
standards): Messrs. McKenna (Chairman), Bartholomay and Sheinfeld. This
Committee meets periodically with the independent auditors and internal
personnel to consider the adequacy of internal accounting controls, to receive
and review the recommendations of the independent auditors, to recommend the
appointment of auditors, to review the scope of the audit and the compensation
of the independent auditors, to review our consolidated financial statements
and, generally, to review our accounting policies and to resolve potential
conflicts of interest. The Board has adopted a written charter for this
committee, and a copy of the charter was included as an appendix to our proxy
statement last year. The report of this committee is set forth later in this
proxy statement. During fiscal 2001, this committee held five meetings.
The Compensation Committee is currently composed of Messrs. Bartholomay
(Chairman) and McKenna. This committee makes recommendations regarding the
compensation of senior management personnel. The joint report of this committee
and the Stock Option Committee is set forth later in this proxy statement.
During fiscal 2001, this committee did not hold any meetings, taking all actions
by the unanimous written consent of its members.
The Compliance Committee is currently composed of Messrs. Satz (Chairman)
and Gamache and Ms. More. This Committee identifies and evaluates potential
unsuitable situations, among other things, arising in the course of the
Company's business that may cause regulatory concern to gaming authorities.
Prior to July 9, 2001, this Committee was previously named the Regulatory
Compliance Committee and had previously delegated all such compliance duties to
the Gaming Compliance Committee of the Company's wholly-owned subsidiary, WMS
Gaming Inc. During fiscal 2001, this committee held three meetings, including
all meetings of the Regulatory Compliance Committee and the Gaming Compliance
Committee.
The Nominating Committee is currently composed of Messrs. N. D. Nicastro
(Chairman) and Bartholomay. This Committee makes recommendations about the
nomination of candidates for election to the Board and does not consider
recommendations from stockholders. During fiscal 2001, this committee did not
hold any meetings, taking all actions by the unanimous written consent of its
members.
The Stock Option Committee is currently composed of Messrs. Reich
(Chairman) and McKenna. This Committee determines the timing, pricing and the
amount of option grants to be made under the provisions of our stock option
plans. See "Stock Option Plans" below. The joint report of this committee and
the Compensation Committee is set forth later in this proxy statement. During
fiscal 2001, this committee held nine meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
No member of our Compensation Committee or Stock Option Committee is an
employee or officer of WMS, and no officer, director or other person had any
interlock relationship required to be disclosed in this proxy statement, except
that Mr. Bartholomay is President of Near North National Group, insurance
brokers, which we retained to provide insurance services during the last fiscal
year and propose to retain for insurance services during the current fiscal
year.
7
EXECUTIVE OFFICERS
The following individuals were elected to serve in the capacities set forth
below until the 2002 Annual Meeting of the Board of Directors or until their
respective successors are elected and shall qualify.
NAME AGE POSITION
---- --- --------
Brian R. Gamache.......................... 43 President and Chief Executive Officer
Scott D. Schweinfurth..................... 47 Executive Vice President, Chief Financial Officer
and Treasurer
Orrin J. Edidin........................... 40 Executive Vice President, Chief Operating Officer,
and General Counsel
Robert R. Rogowski........................ 43 Vice President of Finance and Controller
Seamus M. McGill.......................... 50 Executive Vice President, Sales and Marketing of
WMS Gaming Inc.
The principal occupation and employment experience of Brian R. Gamache
during the last five years is described on page 5 above.
SCOTT D. SCHWEINFURTH, 47, joined us in April 2000, assuming the offices of
Executive Vice President, Chief Financial Officer and Treasurer. He is a
certified public accountant and was, from 1996 until March 2000, Senior Vice
President, Chief Financial Officer and Treasurer of Alliance Gaming Corporation,
a diversified gaming company. Mr. Schweinfurth also acted as Managing Director
of Alliance's Germany-based Bally Wulff subsidiary from November 1999 to March
2000. Alliance acquired Bally Gaming International in 1996, where Mr.
Schweinfurth had served as Senior Vice President, Chief Financial Officer and
Treasurer since 1995. Prior to that time, he was employed by Ernst & Young for
18 years, the last six as a partner.
ORRIN J. EDIDIN, 40, joined us in May 1997. He served as our Vice
President, Secretary and General Counsel from June 1997 until September 14,
2001, when he became our Executive Vice President, Chief Operating Officer,
Secretary and General Counsel. Mr. Edidin also served as Vice President,
Secretary and General Counsel of Midway from June 1997 to May 2000. He served as
Associate General Counsel of Fruit of the Loom, Inc. from 1992 until May 1997.
Mr. Edidin is a member of the International Association of Gaming Attorneys and
the Association of Gaming Equipment Manufacturers.
ROBERT R. ROGOWSKI, 43, joined us in 1992 as Director of Internal Audit,
becoming Vice President of Finance of WMS Gaming in 1996 and our Vice President
of Finance and Controller in April 2000. He is a certified public accountant.
From 1982 to 1991, he served in the finance department at Sara Lee.
SEAMUS M. MCGILL, 50, joined us in August 1998 as the Vice President of
Worldwide Sales of our wholly-owned subsidiary, WMS Gaming Inc. On September 14,
2001, he became the Executive Vice President of Sales and Marketing of WMS
Gaming Inc. He served as Executive Vice President of Mikohn Gaming Corporation
from 1995 until August 1997. Mr. McGill also served as Chief Operating Officer
for Genasys II Inc. from 1993 until 1995 and as Senior Vice President, U.S.
Sales and International Operations for Spectradyne, Inc. from 1989 until 1993.
EXECUTIVE COMPENSATION
To provide stockholders with an understanding of our executive compensation
program, the following are presented below: (i) the Summary Compensation Table;
(ii) the stock option tables and other stock option information; (iii) the joint
report by the Compensation and Stock Option Committees on fiscal 2001 executive
compensation; (iv) the corporate performance graph; and (v) a description of
employment agreements.
The Summary Compensation Table below sets forth the compensation earned
during the fiscal years ended June 30, 2001, 2001 and 1999 by our Chief
Executive Officer, our four next most highly compensated executive officers
whose fiscal 2001 salary and bonus exceeded $100,000. Mr. Edidin served as an
employee of
8
both WMS and Midway until May 2000, and the table sets forth the aggregate
employment compensation paid to him by WMS and Midway through such date.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION AWARDS
---------------------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
-------------------------------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OTHER ($) OPTIONS (#) ($)
--------------------------- ---- ---------- --------- --------- ----------- ------------
Louis J. Nicastro.............. 2001 649,025 1,023,280 -- 500,000 20,000,000(2)
Chairman of the Board 2000 562,500 1,139,680 -- -- --
and Chief Executive 1999 450,000 500,000 -- -- --
Officer(1)
Brian R. Gamache............... 2001 375,000 520,000 43,737(4) 175,000 --
Chief Executive Officer 2000 86,538 144,932(5) 250,000 --
and President(3)
Scott D. Schweinfurth.......... 2001 275,000 218,750 41,538(4) 75,000 --
Executive Vice President, 2000 52,661 49,796(5) -- 100,000 --
Chief
Financial Officer and
Treasurer(6)
Orrin J. Edidin................ 2001 250,000 260,000 -- 75,000 238,995(7)
Executive Vice President, 2000 217,305 75,000 -- 100,000(8) 147,112(7)
Chief Operating Officer, 1999 200,000 75,000 -- 25,000(8) 105,748(7)
Secretary and General Counsel
Robert R. Rogowski............. 2001 160,000 70,000 -- 10,000 --
Vice President -- Finance 2000 124,192 48,000 -- 30,000 54,502(7)
and Controller
-------------------------
(1) Mr. Nicastro resigned from the office of Chief Executive Officer effective
on June 14, 2001.
(2) Represents amounts paid in conjunction with Mr. Nicastro's executive buyout
agreement. See "Employment Agreements."
(3) Mr. Gamache joined WMS on April 10, 2000 as President and Chief Operating
Officer. On June 14, 2001, he became President and Chief Executive Officer.
(4) Represents reimbursement for the payment of taxes related to relocation
expenses paid during fiscal 2001.
(5) Includes signing bonuses of $100,000 for Mr. Gamache and $25,000 for Mr.
Schweinfurth.
(6) Mr. Schweinfurth joined WMS on April 19, 2000.
(7) Represents cash payments relating to adjustments to WMS stock options due
to our 1998 spinoff of Midway. The adjustment is based on a valuation of
our common stock at the average of the high and low sale prices on the NYSE
on April 3, 1998, the last day of trading prior to the 1998 spinoff of
Midway.
(8) Does not include Midway stock options, all of which were granted at an
exercise price equal to market value on the date of grant. In fiscal 2000,
Mr. Edidin received options to purchase 65,000 shares of Midway common
stock. In fiscal 1999, Mr. Edidin received options to purchase 41,304
shares of Midway common stock.
9
The following table sets forth information with respect to options to
purchase common stock granted in fiscal 2001 under our stock option plans to
persons named in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS (#) VALUE AT ASSUMED
----------------------------- ANNUAL RATES OF STOCK
% OF TOTAL PRICE APPRECIATION FOR
OPTIONS GRANTED OPTION TERM(1)
OPTIONS TO EMPLOYEES IN EXERCISE PRICE EXPIRATION ----------------------
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
---- ----------- --------------- -------------- ---------- ------ -------
Louis J. Nicastro......... 500,000(2) 30.75 17.5625 08/24/10 5,525,000 13,995,000
Brian R. Gamache.......... 100,000(3) 6.15 17.313 11/15/10 1,089,000 2,759,000
75,000(3) 4.61 22.50 05/14/11 1,061,250 2,689,500
Scott D. Schweinfurth..... 75,000(3) 4.61 17.313 11/15/10 816,750 2,069,250
Orrin J. Edidin........... 75,000(3) 4.61 17.313 11/15/10 816,750 2,069,250
Robert R. Rogowski........ 10,000(4) .62 17.5625 08/22/10 110,500 279,900
-------------------------
(1) The assumed appreciation rates are set under the rules and regulations
promulgated under the Securities Exchange Act of 1934 and are not derived
from the historical or projected prices of our common stock.
(2) This option was repurchased by WMS in conjunction with Mr. Nicastro's
executive buyout agreement on June 14, 2001 for an amount equal to the
number of option shares multiplied by spread between market price on June
14, 2001 and the exercise price. See "Employment Agreements."
(3) This option becomes exercisable for 100% of the option grant upon the first
anniversary of the date of grant.
(4) This option becomes exercisable for up to 25%, 50%, 75% and 100% of the
option grant upon the first, second, third and fourth anniversaries,
respectively, of the date of grant.
The following table sets forth certain information about the exercise of
options to purchase our common stock during fiscal 2001 and the number and value
of outstanding options owned by persons named in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL-YEAR-END OPTION VALUES
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES 6/30/01 (#) 6/30/01 ($)(1)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- ------------ ------------ -------------- -----------------
Louis J. Nicastro.................. 500,000 5,843,750 --/-- --/--
Brian R. Gamache................... 75,000 887,438 25,000/325,000 580,813/5,695,825
Scott D. Schweinfurth.............. 25,000 348,523 --/150,000 --/2,917,650
Orrin J. Edidin.................... 65,000 1,093,465 --/160,000 --/3,194,975
Robert R. Rogowski................. 14,019 239,319 --/ 38,400 --/ 821,553
-------------------------
(1) Based on the closing price of our common stock on the NYSE on November 19,
2001, which was $20.00.
STOCK OPTION PLANS
We currently have the following stock option plans in effect: the 1991,
1993, 1994 and 2000 Stock Option Plans, the 1998 Non-Qualified Stock Option
Plan, and the 2000 Non-Qualified Stock Option Plan
10
(collectively, the "Plans"). The Plans permit us to grant options to purchase
shares of our common stock. These options may be incentive stock options, which
meet the requirements of Section 422 of the Internal Revenue Code, except in the
case of the 1998 and 2000 Non-Qualified Stock Option Plans, or may not meet the
requirements of that section.
The purpose of each of the Plans is to encourage our employees and, under
some of the Plans, non-employee directors, consultants and advisors to acquire a
proprietary interest in our common stock and to enable these individuals to
realize benefits from an increase in the value of our common stock. We believe
that this benefit provides these individuals with greater incentive and
encourages their continued provision of services to us and, generally, promotes
our interests and those of our stockholders. The Stock Option Committee
determines which of the eligible directors, officers, employees, consultants and
advisors receive Stock Options, the terms, including applicable vesting periods,
of the options, and the number of shares for which options are granted. The
option price per share with respect to each option is determined by the Stock
Option Committee and generally is not less than the fair market value of our
common stock of the date that the option is granted. The Plans each have a term
of ten years, unless terminated earlier.
As of November 27, 2001, under the 1991 Plan, 51,218 options were
outstanding, and no further options were available for grant. Under the 1993
Plan, 165,161 options were outstanding, and 1,260 further options were available
for grant. Under the 1994 Plan, 282,099 options were outstanding, and no further
options were available for grant. Under the 1998 Plan, 553,100 options were
outstanding, and 136,300 further options were available for grant. Under the
2000 Non-Qualified Plan, 1,359,764 options were outstanding, and 353,986 further
options were available for grant. Under the qualified 2000 Plan, 250,000 options
were outstanding, and 750,000 further options were available for grant. The
average exercise price of outstanding options, at November 27, 2001, was
approximately $14.07 per share. Of the 2,661,342 options outstanding on November
27, 2001, 1,358,833 were held by our officers and directors.
JOINT REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEES
ON FISCAL 2001 EXECUTIVE COMPENSATION
The Compensation Committee is responsible for making recommendations to the
Board of Directors regarding the compensation of senior management personnel. To
the extent that stock options form a portion of a compensation package, the
Compensation Committee works together with the Stock Option Committee, which is
responsible for determining stock option grants and awards.
It is the policy of the Compensation and Stock Option Committees to provide
attractive compensation packages to senior management so as to motivate them to
devote their full energies to our success, to reward them for their services and
to align the interests of senior management with the interests of stockholders.
Our executive compensation packages are comprised primarily of base salaries,
annual contractual and discretionary cash bonuses, stock options and retirement
and other benefits. It is the philosophy of the Compensation Committee that WMS
be staffed with a small number of well-compensated senior management personnel.
In general, the level of base salary is intended to provide appropriate
basic pay to senior management taking into account their historical
contributions to our success, each person's unique value and the recommendation
of the Chief Executive Officer. The amount of any discretionary bonus is
subjective but is generally based on our actual financial performance in the
preceding fiscal year, the special contribution of the executive to this
performance and the overall level of the executive's compensation including
other elements of the compensation package. We also have used stock options,
which increase in value only if our common stock increases in value, and which
terminate a short time after an executive leaves, as a means of long-term
incentive compensation. The Stock Option Committee determines the size of stock
option grants to our executive officers and other employees on an individual,
discretionary basis in consideration of financial corporate results and each
recipient's performance, contributions and responsibilities without assigning
specific weight to any of these factors.
Until June 14, 2001, Louis J. Nicastro was our CEO and received
compensation under his employment agreement with us. That employment agreement
reflected the same compensation philosophy described
11
above. On June 14, 2001, upon his retirement, we entered into a agreement with
Mr. Nicastro terminating his employment agreement. See "Employment Agreements."
Our President and CEO, Brian R. Gamache receives a salary, a bonus of a
percentage of our pre-tax income and various retirement and other benefits,
under a negotiated formula set forth in his employment agreement. Mr. Gamache's
employment agreement reflects the same compensation philosophy described above.
The Omnibus Budget Reconciliation Act of 1993 (the "Budget Act") generally
provides that publicly-held corporations will only be able to deduct, for income
tax purposes, compensation paid to the chief executive officer or any of the
four most highly paid senior executive officers in excess of one million dollars
per year if it is paid under qualifying performance-based compensation plans
approved by stockholders. Compensation as defined by the Budget Act includes,
among other things, base salary, incentive compensation and gains on stock
option transactions. Total compensation of some of our officers may be paid
under plans or agreements that have not been approved by stockholders and may
exceed one million dollars in a particular fiscal year. We will not be able to
deduct these excess payments for income tax purposes. The Compensation Committee
intends to consider, on a case by case basis, how the Budget Act will affect our
compensation plans and contractual and discretionary cash compensation.
The Compensation Committee: The Stock Option Committee:
William C. Bartholomay, Chairman Harvey Reich, Chairman
William E. McKenna William E. McKenna
12
CORPORATE PERFORMANCE GRAPH
The following graph compares, for the five fiscal years ended June 30,
2001, the yearly percentage change in cumulative total stockholder return on our
common stock with the cumulative total return of (1) the Standard and Poor's 500
Stock Index ("S&P 500") and (2) an index of selected issuers in our industry
("Peer Group"), composed of Alliance Gaming Corp., Anchor Gaming, International
Game Technology, Mikohn Gaming Corp., and Shuffle Master Inc.(1) The graph
assumes an investment of $100 at the market close on June 30, 1996 in our common
stock and $100 invested at that time in each of the indexes and the reinvestment
of dividends where applicable. The 1997 spinoff of WHG Resorts & Casinos
resulted in an adjustment to total stockholder return as a reinvested dividend
of $2.25. The 1998 Midway spinoff resulted in an adjustment to total stockholder
return as a reinvested dividend of $27.10.
[PERFORMANCE GRAPH]
-----------------------------------------------------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001
-----------------------------------------------------------------------------------------------------------------------------
---
M WMS $100.00 $114.41 $120.19 $487.94 $443.09 $923.35
-----------------------------------------------------------------------------------------------------------------------------
---
O S&P 500 $100.00 $134.70 $175.33 $215.22 $230.83 $196.59
-----------------------------------------------------------------------------------------------------------------------------
---
-- Peer Group $100.00 $95.44 $134.33 $96.00 $128.80 $329.01
-----------------------------------------------------------------------------------------------------------------------------
-------------------------
(1) Casino Data Systems, included in our Peer Group in WMS' Proxy Statement for
its 2001 Annual Meeting filed with the Commission on December 8, 2000, was
purchased by Aristocrat Leisure in calendar 2001.
13
EMPLOYMENT AGREEMENTS
We employ Brian R. Gamache under the terms of an Employment Agreement dated
June 15, 2001. He receives salary at the rate of $550,000 per year, or a greater
amount if determined by the Board of Directors. Under the agreement, Mr. Gamache
is also entitled to a bonus in an amount equal to the lesser of $1 million or
one percent of our pre-tax income. Mr. Gamache may request that we make
quarterly advances against the bonus in amounts as mutually agreed upon by Mr.
Gamache and WMS. Since the beginning of fiscal 2001, Mr. Gamache has taken an
aggregate of $200,000 of advances, $100,000 of which is currently outstanding.
Mr. Gamache may participate in all benefit plans and perquisites generally
available to our senior executives. Additionally, Mr. Gamache is entitled to
receive any special bonuses that may be determined by the Board of Directors.
Under the agreement, on August 9, 2001, Mr. Gamache was granted options to
purchase 175,000 shares of our common stock. Such options have an exercise price
of $19.51 and become exercisable for one-third of the grant on each anniversary
of the date of grant. In addition, beginning June 30, 2002, and at the end of
each fiscal year thereafter during the term of his employment, Mr. Gamache shall
be entitled to receive additional grants of 100,000 options, subject to the same
vesting schedule, if WMS achieves or exceeds diluted earnings per share of 1.15
times those of the previous fiscal year. The agreement expires on June 30, 2004,
subject to automatic extensions so that the term of Mr. Gamache's employment
shall at no time be less than three years.
In addition, Mr. Gamache or his estate is entitled to receive death,
retirement and disability benefits. In the event of Mr. Gamache's death, his
designated beneficiaries will continue to receive salary payments for a period
of six months after the date of death. In addition, Mr. Gamache will receive
death and retirement benefits equal to one-half of Mr. Gamache's salary at the
time of death or retirement, but not less than $275,000 per annum. The death or
retirement benefits are payable in installments over the lesser of 10 years or
the number of years Mr. Gamache is employed by WMS, beginning March 21, 2000.
The employment agreement terminates upon Mr. Gamache's death. If Mr. Gamache is
disabled for more than ninety consecutive days or six months in any 12-month
period during the term of the agreement, and Mr. Gamache is not able to resume
his duties within 30 days of notice of disability, Mr. Gamache's employment
terminates, and he is entitled to receive retirement benefits under the
agreement.
We may terminate the agreement "for cause," which means:
- conviction of a felony or any other crime involving fraud, larceny or
dishonesty;
- failure to follow a reasonable direction of our Board of Directors;
- commission of any dishonest, willful or grossly negligent act, which may
adversely affect us or our business relationships; and
- failure or refusal to provide accurate information to and cooperate with
any governmental agencies regulating our business.
The employment agreement may be terminated at the election of Mr. Gamache,
upon the occurrence without his prior written consent of any one or more of the
following events:
- the material breach by WMS of any material provision of the agreement,
after Mr. Gamache has provided us with notice thereof and a reasonable
opportunity to cure such breach;
- the placement of Mr. Gamache in a position of lesser status, the
assignment to Mr. Gamache of duties inconsistent with his current
positions with us or his duties, or the requirement that Mr. Gamache
report to anyone other than the Board;
- the discontinuance or reduction (from the highest level in effect during
the term of the employment agreement) of base salary payable to Mr.
Gamache;
- Mr. Gamache is removed from or not re-elected as a member of the Board of
Directors of WMS; or
- we move our headquarters to a location other than the present location or
our 3401 North California Avenue, Chicago, Illinois facility without Mr.
Gamache's consent so that such headquarters are
14
located more than 40 miles farther from his current place of residence
than our headquarters are presently located.
If any of these events occurs or if we are considered to have wrongfully
terminated Mr. Gamache's employment agreement, then we would be obligated to pay
Mr. Gamache (a) a lump sum payment equal in amount to Mr. Gamache's base salary
through the date of termination, less any payments previously made; (b) the pro
rata bonus which would have been payable during the current year (c) an amount
equal to three times the sum of one year's base salary and one year's bonus; and
(d) the retirement benefits which would have been payable in the event of
retirement on the date of termination.
The employment agreement may also be terminated at the election of Mr.
Gamache if the individuals who presently constitute the Board of Directors, or
successors approved by these Board members, cease for any reason to constitute
at least a majority of the Board. If such a change of control occurs, and Mr.
Gamache gives us notice of termination within 60 days, then in lieu of any other
rights under the agreement, (a) all of Mr. Gamache's unvested stock options will
immediately vest; (b) we will be required to pay him a lump sum of three times
his base salary and one year's bonus; (c) all of his retirement benefits would
be payable as if he had retired on such date of change of control; and (d) all
health benefits provided to Mr. Gamache under the agreement shall continue for
18 months thereafter. In the event of (a) Mr. Gamache's death; (b) Mr. Gamache's
termination by reason of permanent disability; (c) any change of control; or (d)
any person or entity or group of affiliated persons or entities who were not the
owners of at least 15% of the outstanding shares of our voting securities on
July 16, 2001, acquiring more than 25% of our outstanding shares, all of Mr.
Gamache's unexpired unvested options immediately vest.
If payments made to Mr. Gamache under the employment agreement after a
change of control are considered "excess parachute payments" under Section 280G
of the Internal Revenue Code of 1986 (the "Code"), additional compensation is
required to be paid to Mr. Gamache to the extent necessary to eliminate the
economic effect on him of the resulting excise tax. Under Section 4999 of the
Code, in addition to income taxes, the recipient of "excess parachute payments"
is subject to a 20% nondeductible excise tax on these payments. An excess
parachute payment is a payment in the nature of compensation which is contingent
on a change of ownership or effective control and which exceeds the portion of
the base amount (i.e., the average compensation for the five-year period prior
to the change of control) allocable to the payment. These rules apply only if
the present value of all payments of compensation contingent on the change of
control (including non-taxable fringe benefits) is at least equal to three times
the base amount. Excess parachute payments are not tax deductible by us.
We employ Scott D. Schweinfurth under the terms of an Employment Agreement,
dated as of May 19, 2000, and amended on June 4, 2001. The employment agreement,
as amended, provides for salary at the rate of $275,000 per year, or a greater
amount as may be determined by us. Mr. Schweinfurth may receive annual
discretionary bonuses of up to 75% of his base salary, depending on performance
criteria, and he received a signing bonus of $25,000 and relocation expenses.
Additionally, Mr. Schweinfurth may participate in all benefit plans generally
available to executive employees and is provided with life insurance coverage in
the amount of $400,000 or whatever lesser amount is available at an annual
premium not to exceed $3,000. The agreement is subject to automatic extensions
so that the term of Mr. Schweinfurth's employment shall at no time be less than
three years. We may terminate the agreement upon 30 days written notice for
cause. The employment agreement may also be terminated at the election of Mr.
Schweinfurth upon 30 days written notice for material breach. It may also be
terminated by Mr. Schweinfurth if the individuals who presently constitute the
Board of Directors, or successors approved by these Board members, cease for any
reason to constitute at least a majority of the Board. If such a change of
control occurs, and Mr. Schweinfurth gives us notice of termination within 60
days, then in lieu of any other rights under the agreement, all of Mr.
Schweinfurth's unvested stock options will immediately vest, and we will be
required to pay him a lump sum of three times his base salary. In the event of
(a) Mr. Schweinfurth's death; (b) Mr. Schweinfurth's termination by reason of
permanent disability; (c) any change of control; or (d) any person or entity or
group of affiliated persons or entities who were not the owners of at least 15%
of the outstanding shares of our voting securities as of November 15, 2001,
acquiring more than 25% of our outstanding shares, all of Mr. Schweinfurth's
unexpired unvested options immediately vest. If the agreement terminates by
reason of
15
death, disability or material breach by us, or if we terminate the agreement
other than for cause, we are required to pay Mr. Schweinfurth or his legal
representatives an amount equal to all cash compensation that would otherwise be
payable to him until the expiration of the extended term of the agreement. If
any portion of the amount paid to Mr. Schweinfurth is subject to the excise tax
imposed by Section 4999 of the Code, then additional compensation is required to
be paid to him to the extent necessary to eliminate the economic effect on him
of the resulting excise tax.
We employ Orrin J. Edidin under the terms of an Employment Agreement dated
as of May 8, 2000, and amended on June 4, 2001. The employment agreement, as
amended, provides for salary at the rate of $250,000 per year, or a greater
amount as may be determined by us. Mr. Edidin may receive annual discretionary
bonuses of up to 75% of his base salary, depending on performance criteria. Mr.
Edidin also received a bonus of $125,000 for serving us through October 30,
2000. Additionally, Mr. Edidin may participate in all benefit plans generally
available to executive employees and is provided with life insurance coverage in
the amount of $400,000 or whatever lesser amount is available at an annual
premium not to exceed $3,000. The agreement is subject to automatic extensions
so that the term of Mr. Edidin's employment shall at no time be less than three
years. We may terminate the agreement upon 30 days written notice for cause. The
employment agreement may also be terminated at the election of Mr. Edidin upon
30 days written notice for material breach. It may also be terminated by Mr.
Edidin if the individuals who presently constitute the Board of Directors, or
successors approved by these Board members, cease for any reason to constitute
at least a majority of the Board. If such a change of control occurs, and Mr.
Edidin gives us notice of termination within 60 days, then in lieu of any other
rights under the agreement, all of Mr. Edidin's unvested stock options will
immediately vest, and we will be required to pay him a lump sum of three times
his base salary. In the event of (a) Mr. Edidin's death; (b) Mr. Edidin's
termination by reason of permanent disability; (c) any change of control; or (d)
any person or entity or group of affiliated persons or entities who were not the
owners of at least 15% of the outstanding shares of our voting securities as of
November 15, 2001, acquiring more than 25% of our outstanding shares, all of Mr.
Edidin's unexpired unvested options immediately vest. If the agreement
terminates by reason of death, disability or material breach by us, or if we
terminate the agreement other than for cause, we are required to pay Mr. Edidin
or his legal representatives an amount equal to all cash compensation that would
otherwise be payable to him until the expiration of the extended term of the
agreement. If any portion of the amount paid to Mr. Edidin is subject to the
excise tax imposed by Section 4999 of the Code, then additional compensation is
required to be paid to him to the extent necessary to eliminate the economic
effect on him of the resulting excise tax.
We employ Robert R. Rogowski under the terms of an Employment Agreement
dated May 1, 2000. The employment agreement provides for salary at the rate of
$160,000 per year, or a greater amount as may be determined by us. Mr. Rogowski
may receive annual discretionary bonuses of up to 50% of his base salary,
depending on performance criteria. Additionally, Mr. Rogowski may participate in
all benefit plans generally available to executive employees. The agreement is
subject to automatic extensions so that the term of Mr. Rogowski's employment
shall at no time be less than one year. We may terminate the agreement,
effective upon the occurrence of any of the following events: (a) Mr. Rogowski's
material failure to perform his obligations under the agreement; (b) Mr.
Rogowski's death or disability for a period of three consecutive months; (c) Mr.
Rogowski's failure to follow our Ethics and Conflicts of Interest Policy, as
amended from time to time; and (d) in the event that Mr. Rogowski shall act in a
manner which is (i) in violation of the criminal laws of the United States or
any state therein, or (ii) likely to result in the loss of one of our gaming
licenses or the inability to become so licensed. The employment agreement may
also be terminated by Mr. Rogowski if the individuals who presently constitute
the Board of Directors, or successors approved by these Board members, cease for
any reason to constitute at least a majority of the Board. If such a change of
control occurs, and Mr. Rogowski gives us notice of termination within 60 days,
then in lieu of any other rights under the agreement, all of Mr. Rogowski's
unexpired options would immediately vest, and we will be required to pay him the
lesser amount of (i) a lump sum of his base salary; or (ii) the maximum amount
which could be payable to Mr. Rogowski without any portion of such amount being
subject to the excise tax imposed by Section 4999 of the Code.
16
We employ Seamus M. McGill through our wholly-owned subsidiary, WMS Gaming
Inc., under the terms of an Amended and Restated Employment Agreement dated
February 1, 2001. The employment agreement provides for salary at the rate of
$250,000 per year, or a greater amount as may be determined by us. Mr. McGill
may receive annual discretionary bonuses of up to 50% of his base salary,
depending on performance criteria. Additionally, Mr. McGill may participate in
all benefit plans generally available to executive employees. The agreement is
subject to automatic extensions so that the term of Mr. McGill's employment
shall at no time be less than two years. We may terminate the agreement,
effective upon the occurrence of any of the following events: (a) Mr. McGill's
material failure to perform his obligations under the agreement; (b) Mr.
McGill's death or disability for a period of three consecutive months; (c) Mr.
McGill's failure to follow our Ethics and Conflicts of Interest Policy, as
amended from time to time; and (d) in the event that Mr. McGill shall act in a
manner which is (i) in violation of the criminal laws of the United States or
any state therein, or (ii) likely to result in the loss of one of our gaming
licenses or the inability to become so licensed. The employment agreement may
also be terminated by Mr. McGill if the individuals who presently constitute the
Board of Directors, or successors approved by these Board members, cease for any
reason to constitute at least a majority of the Board. If such a change of
control occurs, and Mr. McGill gives us notice of termination within 60 days,
then in lieu of any other rights under the agreement, all of Mr. McGill's
unexpired options would immediately vest, and we will be required to pay him the
lesser amount of (i) a lump sum equal to his base salary; or (ii) the maximum
amount which could be payable to Mr. McGill without any portion of such amount
being subject to the excise tax imposed by Section 4999 of the Code. In the
event of (a) Mr. McGill's death; (b) Mr. McGill's termination by reason of
permanent disability; (c) any change on control; or (d) any person or entity or
group of affiliated persons or entities who were not the owners of at least 15%
of the outstanding shares of our voting securities as of November 15, 2001,
acquiring more than 25% of our outstanding shares, all of Mr. McGill's unexpired
unvested options immediately vest.
Our employment agreement with Louis J. Nicastro has terminated under the
terms of a letter agreement dated June 12, 2001 to facilitate our Chief
Executive Officer succession plans. Under this letter agreement, Mr. Nicastro
resigned as our Chief Executive Officer and as an officer and director of all of
our subsidiaries, effective June 14, 2001. Mr. Nicastro will continue to serve
as our nonexecutive Chairman of the Board, entitled to remuneration similar to
other outside directors and will continue to act as voting proxy for Sumner
Redstone and National Amusements, Inc. pursuant to the voting agreement dated
September 21, 1995. Mr. Nicastro has agreed to provide such management
transition assistance as we reasonably request. As full consideration for, and
in lieu of the payments that would otherwise be made to him under the employment
agreement with respect to, base salary, bonus, retirement and death benefits, we
have paid Mr. Nicastro a lump sum of $6.0 million. In addition, as a special
bonus for his extraordinary service, we have paid Mr. Nicastro an additional
$6.7 million. The employment agreement provided that, in the event that WMS
breached the employment agreement, Mr. Nicastro would have the right to require
us to purchase all of his WMS stock options. In settlement of this right, we
have purchased Mr. Nicastro's 500,000 fully-vested options, which had an
exercise price of $17.5625, with a lump sum payment of $7.3 million. All such
payments have been made less withholding of income and other taxes as may be
required by law to be paid or withheld by WMS.
Under the terms of the letter agreement, Mr. Nicastro's benefits under the
employment agreement, relating to medical, dental and other expenses, will
remain in full force and effect, and we will continue to maintain an office and
secretary in Palm Beach, Florida for Mr. Nicastro's use until at least December
31, 2002. This letter agreement was not entered into in connection with any
contemplated change of control of WMS, and no payments made thereunder should be
deemed "parachute payments" or "excess parachute payments" as defined in section
280G of the Code.
17
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH MIDWAY
Midway Games Inc. ("Midway") was formerly a wholly-owned subsidiary of
ours. Since we distributed all of our Midway stock to our stockholders in April
1998, we do not own any Midway common stock. Seven of Midway's directors are
also directors of ours, including Louis J. Nicastro and Neil D. Nicastro, the
Chief Executive Officer of Midway. See "Proposal 1 -- Election of Directors."
We have leased to Midway our facility at 2704 W. Roscoe Street, Chicago,
Illinois. Currently, and until such time as the renovation of our technology
campus at 3401 N. California Avenue, Chicago, Illinois is completed in early
calendar 2002, we will be sharing the Roscoe Street facility with Midway. The
term of the lease is five years commencing August 1, 2001, with two 3-year
options for renewal.
In connection with our spinoff of Midway, we entered into a number of
agreements with Midway, each dated as of April 6, 1998. Under a Settlement and
Temporary Services Agreement, dated as of August 31, 2001, we have amended some
of these agreements. The remaining material agreements between Midway and us
dated as of April 6, 1998, as so amended, are described below:
Information Systems Service Agreement. We provide Midway with access to
our AS-400 computer system and related services and computer systems for some of
their computing needs, including order entry, financial and manufacturing
modules, marketing and sales and engineering (including engineering
documentation and blueprint systems) as well as support for these computer
systems. Midway pays us at a fixed rate for monthly services. The term of the
agreement expires December 31, 2001, with an option for a three-month extension.
Confidentiality and Non-Competition Agreement. Under this agreement,
Midway or we may designate business information as confidential, and the other
party must use its best efforts to keep this information confidential. The
agreement also includes a five-year non-competition clause, which expires in
April 2003.
Right of First Refusal Agreement. We have granted Midway a right of first
refusal with respect to any offer to us to purchase our South parking lot behind
the building located at 3325 North California Avenue, Chicago, Illinois as long
as the offer is not made in connection with the sale of our stock or assets and
business as a going concern. The term of the agreement expires April 5, 2008.
Third Parties Agreement. This agreement governs the treatment of the
numerous arrangements with third parties with respect to game development,
licensing and other matters. Under the agreement, Midway and we allocate the
rights and obligations under third party arrangements so that the party
receiving the benefits will bear the burdens of those agreements. The agreement
will remain in effect as long as any prior third party arrangements remain
outstanding.
Tax Separation Agreement. Until the Midway spinoff, Midway had been a
member of the consolidated group of corporations of which WMS was the common
parent for federal income tax purposes (the "WMS Group") since 1988. Therefore,
Midway is jointly and severally liable for any federal tax liability of the WMS
Group for the period that it was part of the WMS Group. The agreement sets forth
the parties' respective liabilities for federal, state and local taxes as well
as their agreements as a result of Midway and its subsidiaries ceasing to be
members of the WMS Group. The agreement governs, among other things, (i) the
filing of tax returns with federal, state and local authorities, (ii) the
carryover of any tax benefits of Midway, (iii) the treatment of the deduction
attributable to the exercise of stock options to purchase our common stock which
are held by employees or former employees of Midway and any other similar
compensation related tax deductions, (iv) the treatment of certain net operating
loss carrybacks, (v) the treatment of audit adjustments, (vi) procedures with
respect to any proposed audit adjustment or other claim made by any taxing
authority with respect to a tax liability of Midway or any of its subsidiaries.
In fiscal 2001, WMS paid to Midway an amount equal to demonstrated tax benefits
lost to Midway relating to the exercise or adjustment of WMS options held by
Midway employees. If Midway is able to receive the tax benefits from these
options or if there is a change of control of Midway, Midway will pay to WMS
some or all of this amount.
18
Tax Indemnification Agreement. This agreement provides for indemnification
if the Midway spinoff fails to qualify under Section 355 of the Code. The
parties agreed, among other things, that for a period of two years after the
spinoff, each would continue active conduct of its historic trade or business as
conducted by it during the five-year period prior to the spinoff. Midway will
indemnify WMS if any action that it takes causes the spinoff to fail to qualify
under Section 355 of the Code, against any taxes, interest, penalties and
additions to tax imposed upon or incurred by the WMS Group or any member. WMS
will indemnify Midway and its subsidiaries against taxes, interest, penalties
and additions to tax resulting from the spinoff, other than any of these
liabilities for which Midway is required to indemnify WMS.
We also have the following agreements with Midway:
Tax Sharing Agreement. This agreement is dated July 1, 1996 and remains in
effect, except to the extent described in the Tax Separation Agreement referred
to above. Under this agreement, WMS and Midway have agreed upon a method for:
(i) determining the amount which Midway must pay to WMS in respect of federal
income taxes; (ii) compensating any member of the WMS Group for use of its net
operating losses, tax credits and other tax benefits in arriving at the WMS
Group tax liability as determined under the federal consolidated return
regulations; and (iii) providing for the receipt of any refund arising from a
carryback of net operating losses or tax credits from subsequent taxable years
and for payments upon subsequent adjustments. Because the IRS or other taxing
authorities can be expected to seek payment from WMS prior to seeking payment
from the individual group members, it is likely that Midway would seek to
enforce any rights it may have against WMS for sharing at a time when WMS is
unable to pay its proportionate share of taxes.
Patent License Agreement. We entered into a patent license agreement dated
July 1, 1996 with Midway under which each party licensed to the other, on a
perpetual, royalty-free basis, some patents used in the development and
manufacture of both coin-operated video games and video lottery terminals and
other gaming machines.
OTHER RELATED PARTY TRANSACTIONS
Under a consulting agreement with Neil D. Nicastro, Mr. Nicastro renders
services to us that the Board of Directors, the Chairman of the Board or Chief
Executive Officer of WMS may reasonably request. The term of the consulting
agreement expires April 6, 2003, and is automatically renewable for successive
one-year terms unless either party shall give notice of termination not less
than six months prior to the end of the term then in effect. We pay Mr. Nicastro
$1,000 per month for his services under the consulting agreement.
Ira S. Sheinfeld, one of our directors, is a member of the law firm of
Squadron, Ellenoff, Plesent & Sheinfeld LLP, which we retained to provide tax
services during the last fiscal year and retain for tax services during the
current fiscal year.
Donna B. More, one of our directors, is a member of the More Law Group law
firm, which we retained to provide legal services during the last fiscal year
and retain for legal services during the current fiscal year. See also "Director
Compensation." Payments by WMS accounted for greater than 5% of the gross
revenues of this law firm during its last fiscal year.
William C. Bartholomay, one of our directors, is President of Near North
National Group, insurance brokers, which we retained to provide insurance
services during the last fiscal year and propose to retain for insurance
services during the current fiscal year.
19
PROPOSAL 2 -- APPOINTMENT OF INDEPENDENT AUDITORS
We propose that the stockholders ratify the appointment by the Board of
Directors of Ernst & Young LLP as our independent auditors for fiscal 2002. We
expect that representatives of Ernst & Young will be present at the annual
meeting and that they will be available to respond to appropriate questions
submitted by stockholders at the meeting. Ernst & Young will have the
opportunity to make a statement if they desire to do so.
The following table presents fees billed for professional services rendered
for the audit of our annual financial statements for fiscal 2001 and review of
our Form 10-Q's and fees billed for other services rendered by Ernst & Young LLP
for fiscal 2001:
Audit Fees:................................................. $181,000
--------
Financial Information Systems Design and Implementation
Fees:..................................................... $ --
========
All Other Fees:
Audit-related fees:......................................... $ 61,000
Primarily accounting consultations, pension and
statutory audits and SEC registration statements
Non-audit fees:............................................. $155,000
Primarily tax consulting and due diligence
--------
Total of all other fees:.................................... $216,000
========
The Audit Committee has considered whether the independent accountant's
provision of non-audit services is compatible with maintaining the independent
accountant's independence.
Approval by the stockholders of the appointment of independent auditors is
not required, but the Board believes that it is desirable to submit this matter
to the stockholders. If holders of a majority of our common stock present and
entitled to vote on the matter do not approve the selection of Ernst & Young at
the meeting, the selection of independent auditors will be reconsidered by the
Board.
------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE RATIFICATION OF
THE APPOINTMENT OF ERNST & YOUNG LLP AS OUR INDEPENDENT AUDITORS.
------------------------------------
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors of WMS ("Audit Committee") is
composed of three independent directors and operates under a written charter
adopted by the Board of Directors. WMS' management is responsible for its
internal accounting controls and the financial reporting process. WMS'
independent accountants, Ernst & Young LLP, are responsible for performing an
independent audit of WMS' consolidated financial statements in accordance with
auditing standards generally accepted in the United States and to issue a report
thereon. The Audit Committee's responsibility is to monitor and oversee these
processes.
In keeping with that responsibility, the Audit Committee has reviewed and
discussed WMS' audited consolidated financial statements with management. In
addition, the Audit Committee has discussed with WMS' independent accountants
the matters required to be discussed by Statement on Auditing Standards No. 61,
"Communications with Audit Committees," as amended.
The Audit Committee has received the written disclosures and the letter
from the independent accountants required by Independence Standards Board
Standard No. 1, "Independence Discussions with Audit Committees," and has
discussed with the independent accountants their independence.
20
Based on the Audit Committee's discussions with management and the
independent accountants and the Audit Committee's review of the representations
of management and the report of the independent accountants, the Audit Committee
recommended to the Board of Directors that the audited consolidated financial
statements be included in WMS' Annual Report on Form 10-K for the year ended
June 30, 2001 for filing with the Securities and Exchange Commission.
This report is respectfully submitted by the Audit Committee of the Board
of Directors.
William E. McKenna (Chairman)
William C. Bartholomay
Ira S. Sheinfeld
OTHER MATTERS
STOCKHOLDER PROPOSALS
As of the date of this proxy statement, the Board has not received notice
of, and does not intend to propose, any other matters for stockholder action.
However, if any other matters are properly brought before the meeting, it is
intended that the persons voting the accompanying proxy will vote the shares
represented by the proxy in accordance with their best judgment.
We must receive any stockholder proposals to be acted upon at our 2003
Annual Meeting of Stockholders on or before August 5, 2002 in order to consider
including them in our proxy materials for that meeting. If we do not receive
notice of a stockholder proposal to be acted upon at our 2002 Annual Meeting of
Stockholders on or before October 19, 2002, our proxy for that meeting may
confer discretionary authority to vote on any such proposal.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our officers,
directors and persons who beneficially own greater than 10% of a registered
class of our equity securities to file reports of ownership and changes in
ownership with the SEC. These persons are required by regulation to furnish us
with copies of all Section 16(a) reports that they file. Based solely on our
review of copies of these reports that we have received and on representations
from some reporting persons that no Form 5 report was required to be filed by
them, we believe that during fiscal 2001 our officers, directors and 10%
beneficial owners complied with all of their Section 16(a) filing requirements,
except that Mr. Terence C. Dunleavy, our former Vice President, Assistant
General Counsel and Chief Compliance Officer, filed one late report concerning
two transactions, and Mr. Rogowski filed one late report concerning one
transaction.
MANNER AND EXPENSES OF SOLICITATION
This solicitation of proxies is made by the Board, and we will bear all
solicitation costs. In addition to the solicitation of proxies by use of the
mails, some of our officers, directors and other employees may also solicit
proxies personally or by mail, telephone or telegraph, but they will not receive
additional compensation for those services. We will request that brokerage
firms, custodians, banks, trustees, nominees or other fiduciaries holding shares
of our common stock in their names forward proxy material to their principals
and will reimburse them for their reasonable out of pocket expenses.
VOTING PROCEDURES
We will appoint inspectors of election to tabulate the number of shares of
common stock represented at the meeting in person or by proxy, to determine
whether or not a quorum is present and to count all votes cast at the meeting.
The inspectors of election will treat abstentions and broker non-votes as shares
that are present and entitled to vote for purposes of determining the presence
of a quorum. Votes withheld in connection with the election of one or more of
the nominees for director will not be counted in determining the votes cast and
will have no effect on the vote. With respect to the tabulation of votes cast on
each proposal presented to the
21
stockholders at the meeting, abstentions will be considered as present and
entitled to vote with respect to that specific proposal, whereas broker
non-votes will not be considered as present and entitled to vote with respect to
that specific proposal. Therefore, abstentions will have the affect of a vote
against each proposal, but broker non-votes will have no effect on the vote for
or against each proposal. Under NYSE rules, however, with respect to any
proposal that is a prerequisite to listing of additional or new securities, the
total vote cast on the proposal must represent at least a majority of all
outstanding shares of our common stock entitled to vote on the proposal. With
respect to these proposals, broker non-votes are not counted as part of the
total vote cast on the proposal. The term "broker non-votes" commonly refers to
shares held in street name for customers, where the broker does not have
authority under NYSE rules to vote on its own initiative on particular items,
and the broker has not received instructions from the beneficial owners.
HOW TO OBTAIN OUR ANNUAL REPORT ON FORM 10-K
We will provide without charge a copy of our annual report on Form 10-K for
the fiscal year ended June 30, 2001, including financial statements and
schedule, to each of our stockholders of record on December 3, 2001 and each
beneficial owner of stock on that date, upon receipt of a written request mailed
to our offices, 800 South Northpoint Boulevard, Waukegan, Illinois 60085,
attention: Treasurer. In the event that exhibits to the Form 10-K are requested,
a reasonable fee will be charged for reproduction of the exhibits. Please note
that you can obtain our Form 10-K and all other documents that we file
electronically, at the SEC's website: www.sec.gov. Requests from beneficial
owners of common stock must set forth a good faith representation as to their
ownership.
IT IS IMPORTANT THAT YOU RETURN THE ACCOMPANYING PROXY CARD PROMPTLY.
THEREFORE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE
EARNESTLY REQUESTED TO MARK, DATE, SIGN AND RETURN YOUR PROXY IN THE ENCLOSED
ENVELOPE TO WHICH NO POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED STATES. YOU
MAY REVOKE THE PROXY AT ANY TIME BEFORE IT IS EXERCISED. IF YOU ATTEND THE
MEETING IN PERSON, YOU MAY WITHDRAW THE PROXY AND VOTE YOUR OWN SHARES.
By Order of the Board of Directors,
ORRIN J. EDIDIN
Executive Vice President, Chief
Operating Officer,
Secretary and General Counsel
Chicago, Illinois
December 3, 2001
22
WMS INDUSTRIES INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
THE UNDERSIGNED, revoking all previous proxies, hereby appoints BRIAN
R. GAMACHE, SCOTT D. SCHWEINFURTH and ORRIN J. EDIDIN, or any of them, as
attorneys, agents and proxies with power of substitution, and with all powers
that the undersigned would possess if personally present, to vote all shares of
common stock of WMS Industries Inc. (the "Company") which the undersigned is
entitled to vote at the Annual Meeting of Stockholders of the Company to be held
on January 15, 2002 and at all adjournments thereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH
THE SPECIFICATIONS MADE BY THE UNDERSIGNED UPON THE FOLLOWING PROPOSALS, MORE
FULLY DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT. IF NO INSTRUCTIONS ARE
GIVEN BY THE UNDERSIGNED, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED
"FOR" THE ELECTION OF THE NOMINEES FOR DIRECTORS DESIGNATED BY THE BOARD OF
DIRECTORS AND "FOR" PROPOSAL 2.
(1) Election of Directors.
[ ] FOR all nominees listed (except [ ] WITHHOLD AUTHORITY
as marked to the contrary) to vote for all nominees listed
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEES, STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW:
William C. Bartholomay / Brian R. Gamache / William E. McKenna / Norman J.
Menell / Donna B. More / Louis J. Nicastro / Neil D. Nicastro / Harvey Reich /
David M. Satz, Jr. / Ira S. Sheinfeld
(2) Ratification of appointment of Ernst & Young LLP as independent auditors for
fiscal 2002.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
Dated:
-----------------------------,--------
--------------------------------------------
(Signature)
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(Signature)
NOTE: Please sign exactly as your name(s)
appear hereon. If signing as attorney,
executor, administrator, trustee or guardian,
give your full title as such. If signatory
is a corporation, sign the full corporate name
by a duly authorized officer. If shares are
held jointly, each stockholder named should
sign.
NOTE: PLEASE MARK, DATE, SIGN AND MAIL THIS PROXY IN THE ENVELOPE ENCLOSED FOR
THIS PURPOSE. NO POSTAGE IS REQUIRED FOR MAILING IN THE UNITED STATES.