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0000950136-04-002900.txt : 20040903
0000950136-04-002900.hdr.sgml : 20040903
20040903161357
ACCESSION NUMBER: 0000950136-04-002900
CONFORMED SUBMISSION TYPE: DEF 14A
PUBLIC DOCUMENT COUNT: 7
CONFORMED PERIOD OF REPORT: 20040928
FILED AS OF DATE: 20040903
DATE AS OF CHANGE: 20040903
EFFECTIVENESS DATE: 20040903
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: SCIENTIFIC GAMES CORP
CENTRAL INDEX KEY: 0000750004
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373]
IRS NUMBER: 810422894
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: DEF 14A
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-13063
FILM NUMBER: 041017100
BUSINESS ADDRESS:
STREET 1: 750 LEXINGTON AVE
CITY: NEW YORK
STATE: NY
ZIP: 10022
BUSINESS PHONE: 3027374300
MAIL ADDRESS:
STREET 1: 750 LEXINGTON AVE
CITY: NEW YORK
STATE: NY
ZIP: 10022
FORMER COMPANY:
FORMER CONFORMED NAME: AUTOTOTE CORP
DATE OF NAME CHANGE: 19920703
FORMER COMPANY:
FORMER CONFORMED NAME: UNITED TOTE INC
DATE OF NAME CHANGE: 19920317
DEF 14A
1
file001.htm
SCHEDULE 14 A
UNITED
STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
SCHEDULE
14A
Proxy Statement Pursuant to Section 14(a)
of
the Securities Exchange Act of
1934
Filed by the
Registrant
Filed by a Party other than the
Registrant
Check the appropriate
box:
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Preliminary
Proxy Statement |
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Confidential, for Use
of the Commission Only (as permitted by Rule
14a-6(e)(2)) |
Definitive Proxy
Statement |
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Definitive Additional
Materials |
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Soliciting Material
Pursuant to Rule 14a-12 |
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SCIENTIFIC GAMES
CORPORATION
(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):
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Fee computed on
table below per Exchange Act Rules 14a-6(i)(1) and
0-11. |
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(1) |
Title of each class of securities
to which transaction applies:
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(2) |
Aggregate
number of securities to which transaction applies:
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(3) |
Per
unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:
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(4) |
Proposed
maximum aggregate value of transaction:
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(5) |
Total
fee paid:
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Fee paid previously with preliminary
materials. |
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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. |
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(1) |
Amount Previously Paid:
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(2) |
Form,
Schedule or Registration Statement No.:
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(3) |
Filing
Party:
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(4) |
Date
Filed:
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September
2, 2004
Dear Stockholder:
You are cordially
invited to attend the Annual Meeting of Stockholders of Scientific
Games Corporation to be held at 10:00 a.m. on Tuesday, September 28,
2004, at the Metropolitan Club, 1 East 60th Street, New
York, New York.
At the Annual Meeting, you will be asked to
elect directors and to ratify the appointment of independent
accountants. These matters are described in detail in the accompanying
Notice of Annual Meeting and Proxy Statement.
Whether you plan
to attend in person or not, it is important that your shares be
represented and voted at the Annual Meeting. Therefore, regardless of
the number of shares you own, please complete, sign, date and mail the
enclosed proxy card in the return envelope provided. Most stockholders
will also be able to vote by telephone or over the Internet. Please
refer to your proxy card to see which options are available to you.
I look forward to seeing you at the Annual Meeting.
Sincerely,
|
A. Lorne Weil
Chairman of the
Board |
SCIENTIFIC
GAMES CORPORATION
750 Lexington Avenue, 25th Floor
New York,
NY 10022
NOTICE OF ANNUAL
MEETING
OF STOCKHOLDERS
Notice is hereby given
that the Annual Meeting of Stockholders of Scientific Games Corporation
will be held at 10:00 a.m. on Tuesday, September 28, 2004, at the
Metropolitan Club, 1 East 60th Street, New York, New York,
for the following purposes:
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1. |
To elect
nine members of the Board of Directors to serve for the ensuing year
and until their respective successors are duly elected and
qualified. |
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2. |
To ratify the appointment
of Deloitte & Touche LLP as independent accountants for the Company
for the fiscal year ending December 31,
2004. |
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3. |
To consider and act upon any
other matter that may properly come before the meeting or any
adjournment thereof. The Board of Directors is not presently aware of
any such matter. |
Only stockholders of record at the close
of business on September 1, 2004 are entitled to receive notice of and
to vote at the meeting and any adjournment thereof. A list of the
holders will be open to the examination of stockholders for ten days
prior to the date of the meeting, between the hours of 9:00 a.m.
and 5:00 p.m., at the office of the Secretary of the Company at 750
Lexington Avenue, 25th Floor, New York, New York, and will be available
for inspection at the meeting itself.
Whether you plan to
be personally present at the meeting or not, please complete, date and
sign the enclosed proxy and return it promptly in the enclosed envelope
or, if available to you, submit your proxy by telephone or over the
Internet. If you later desire to revoke your proxy, you may do so at
any time before it is exercised, in the manner described in the
enclosed Proxy Statement.
By Order of the Board
of Directors
|
Martin E. Schloss
Vice
President, General Counsel and Secretary |
Dated:
September 2, 2004
SCIENTIFIC
GAMES CORPORATION
750 Lexington Avenue, 25th Floor
New York,
New York 10022
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of Scientific Games Corporation
("Scientific Games," the
"Company," "we" or
"us") of proxies to be voted at the Annual
Meeting of Stockholders to be held on Tuesday, September 28, 2004, at
10:00 a.m. at the Metropolitan Club, 1 East 60th Street, New
York, New York, and any adjournment or postponement of the meeting, for
the purposes set forth in the Notice of Annual Meeting of
Stockholders.
It is expected that this Proxy Statement and
enclosed form of proxy will be mailed to stockholders beginning on or
about September 3, 2004. The Annual Report for the fiscal year ended
December 31, 2003 is also being mailed to stockholders with this Proxy
Statement.
Stockholders Entitled to Vote
All
stockholders of record at the close of business on September 1, 2004
are entitled to vote at the meeting. At the close of business on
September 1, 2004, a total of 87,286,634 shares of common stock were
outstanding. Each share is entitled to one vote on all matters that
properly come before the meeting.
Voting Procedures
If
you are the record holder of your shares, you can vote in person at the
meeting or by proxy in one of the following three ways:
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1.
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Vote by Mail: Complete, sign, date and return
your proxy card in the enclosed postage-paid envelope. |
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2.
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Vote by Telephone: Call the toll-free number
1-800-proxies. You will need to provide the control number printed on
your proxy card and follow the instructions on your card and the voice
prompts. |
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3. |
Vote over the Internet: Go to
the website www.voteproxy.com. You will need to provide the control
number printed on your proxy card and follow the instructions on your
card and the website. |
If you vote by telephone or over the
Internet, do not return your proxy card.
If you are not the
record holder of your shares (i.e., they are held in
"street" name by a broker, bank or other
nominee), you will receive instructions from the record holder asking
you how you wish to vote. Telephone and Internet voting will be offered
by most brokers and banks. Please refer to the proxy form and other
information provided by the record holder to see which voting options
are available to you. If you wish to vote your shares in person at the
meeting, you must first obtain a proxy issued in your name from the
record holder.
Voting of Proxies
All valid
proxies received prior to the meeting will be voted in accordance with
the instructions specified by the stockholder. If a proxy card is
returned without instructions, the persons named as proxy holders on
your proxy card will vote in accordance with the recommendations of the
Board, which are as follows:
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• |
FOR election of the nominated
directors (Proposal 1); and |
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•
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FOR ratification of the appointment of the
independent accountants (Proposal 2) |
With respect to any other
matter that properly comes before the meeting, the proxy holders will
vote as recommended by the Board or, if no recommendation is given, in
their own discretion.
Changing Your Vote
A proxy may
be revoked at any time prior to its being voted by delivering written
notice to the Secretary of the Company, by delivering a properly
executed later-dated proxy (including by telephone or over the
Internet), or by voting in person at the meeting.
Quorum
The presence, in person or by proxy, of the stockholders of a
majority of the shares entitled to vote at the meeting constitutes a
quorum for the transaction of business.
Vote Required
Election of Directors. Assuming a quorum is present, directors
will be elected by a plurality of the votes cast in person or by proxy
at the meeting.
Ratification of Independent
Accountants. The proposal to ratify the appointment of the
independent accountants requires the affirmative vote of a majority of
the votes entitled to be cast in person or by proxy at the meeting.
Effect of Abstentions
If you vote
"Abstain" (rather than vote
"For" or "Against")
with respect to a proposal, your shares will count as present for
purposes of determining whether a quorum is present but will have the
effect of a negative vote on matters other than the election of
directors.
Effect of Broker Non-Votes
If any broker
"non-votes" occur at the meeting with respect
to your shares, the broker "non votes" will
count for purposes of determining whether a quorum is present but not
for purposes of determining the number of votes cast with respect to a
particular proposal. A broker "non-vote"
occurs when a broker or nominee holding shares for a beneficial owner
does not vote on a particular proposal because the broker or nominee
does not have discretionary voting power on that item and has not
received instructions from the owner. Brokers have discretionary voting
power under the rules governing brokers to vote without instructions
from the beneficial owner on certain
"routine" items such as the election of
directors and the ratification of the appointment of independent
accountants (Proposals 1 and 2) and, accordingly, your shares may be
voted by your broker on Proposals 1 and 2.
2
SECURITY OWNERSHIP
The following table sets forth certain information as of August 15,
2004 as to the security ownership of each person known to us to be the
beneficial owner of more than five percent of the outstanding shares of
our common stock, each of our directors, each of the Named Executive
Officers listed in the Summary Compensation Table, and all of our
directors and executive officers as a group. Except as otherwise
indicated, the stockholders listed in the table below have sole voting
and investment power with respect to the shares indicated.
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Shares
of Common
Stock |
Name |
|
Number(1) |
|
Percent
(1) |
Mafco Holdings Inc.
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21,915,089 |
(2) |
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25.14 |
% |
c/o MacAndrews & Forbes Holdings
Inc. 35 East 62nd Street New York, NY
10021 |
|
A. Lorne Weil
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|
4,242,731 |
(3) |
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|
4.76 |
% |
Peter
A. Cohen
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1,481426 |
(4) |
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1.69 |
% |
Colin
J. O'Brien
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79,020 |
(5) |
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|
* |
Ronald
O. Perelman |
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21,916,870
|
(6) |
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25.14 |
% |
Howard
Gittis |
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11,781 |
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|
|
* |
Barry F.
Schwartz |
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6,781 |
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* |
Eric M.
Turner |
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17,036
|
(7) |
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* |
Brian G.
Wolfson
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53,631 |
(7) |
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* |
Joseph
R. Wright, Jr.
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-0- |
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— |
Alan
J. Zakon |
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547,974
|
(8) |
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* |
Martin
E. Schloss
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378,807 |
(9) |
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* |
William
J. Huntley
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111,000 |
(10) |
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* |
Cliff
O. Bickell |
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106,159
|
(11) |
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* |
Richard
M. Weil(12) |
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280,675 |
(12) |
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* |
All
directors and executive officers as a
group (consisting of 17
persons)(3)(4)(5)(6)(7)(8)(9)(10)(11) |
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29,328,267
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(13) |
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32.50 |
% |
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* |
Represents
less than 1% of the outstanding shares of common
stock. |
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(1) |
Beneficial ownership as
reported in the above table has been determined in accordance with Rule
13d-3 under the Securities Exchange Act of 1934. A person who has the
right to acquire securities within 60 days of August 15, 2004 through
the exercise or conversion of an option, warrant or other security is
deemed to be the beneficial owner of the securities which may be
acquired. Such securities are deemed to be outstanding for the purpose
of calculating the percentage of outstanding securities owned by such
person but are not deemed to be outstanding for the purpose of
calculating the percentage owned by any other person. |
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(2) |
Consists of 21,915,089 shares held by SGMS
Acquisition Corporation, a holding company owned by Mafco Holdings
Inc., whose sole stockholder is Mr. Perelman. A Schedule 13D jointly
filed with the SEC by SGMS Acquisition Corporation and Mafco Holdings
Inc. on November 26, 2003 sets forth information as of such date with
respect to the board of directors and executive officers of such
entities. As noted in Amendment No. 1 to such Schedule 13D filed on
August 9, 2004, the 21,915,089 shares were issued upon conversion of
all of the shares of Series A Convertible Stock held by SGMS
Acquisition Corporation. |
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(3) |
Includes
1,934,000 shares issuable upon exercise of stock options held by Mr.
Weil. Also includes (a) 214,505 shares held for Mr. Weil's
deferred compensation account by a grantor trust established in
connection with the Company's deferred compensation plan and (b)
80,000 shares held by The Lorne Weil Charitable Foundation with respect
to which Mr. Weil serves as President. Excludes 216,644 shares held by
The Lorne Weil 1989 Trust, John Novogrod, Trustee, as to which Mr. Weil
disclaims beneficial
ownership. |
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(4) |
Includes 50,000 shares
issuable upon exercise of a stock option held by Mr. Cohen and 11,400
shares held by members of Mr. Cohen's immediate family. Also
includes (a) 1,024,671 shares held by Ramius Securities, LLC (which
holdings consist of 774,671 shares and 250,000 shares issuable upon
exercise of a warrant) and (b) 262,835 shares held by third party
accounts managed by Ramius Securities, LLC. Mr. Cohen is one of three
managing members of C4S & Co., LLC, the sole managing member of
Ramius Capital Group, LLC, which is the parent company of Ramius
Securities, LLC. Accordingly, Mr. Cohen may be deemed to beneficially
own all of the securities held by Ramius Securities, LLC and the third
party accounts. Mr. Cohen disclaims beneficial ownership of such
securities. |
3
|
|
(5) |
Includes 50,000
shares issuable upon exercise of a stock
option. |
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(6) |
Includes (a) the 21,915,089
shares reported in footnote 2 above which may be deemed to be
beneficially owned by Mr. Perelman, the sole stockholder of Mafco
Holdings Inc., and (b) 1,781 shares held directly by Mr. Perelman. Mr.
Perelman's address is c/o MacAndrews & Forbes Holdings Inc.,
35 East 62nd Street, New York, NY
10021. |
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(7) |
Includes 12,500 shares
issuable upon exercise of a stock
option. |
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(8) |
Includes 137,500 shares
issuable upon exercise of stock
options. |
|
|
(9) |
Includes 306,084 shares
issuable upon exercise of stock
options. |
|
|
(10) |
Includes 79,750 shares
issuable upon exercise of stock
options. |
|
|
(11) |
Includes 92,500 shares
issuable upon exercise of stock
options. |
|
|
(12) |
Includes 251,000 shares
issuable upon exercise of stock options. Richard M. Weil, who is the
brother of A. Lorne Weil, left our employment in July 2004. Previously,
he served as Vice President of International Business
Development. |
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(13) |
Includes (a)
2,827,584 shares issuable upon exercise of stock options and (b)
250,000 shares issuable upon exercise of
warrants. |
4
PROPOSAL 1
ELECTION OF
DIRECTORS
Nominees for Election
The Board of Directors
has nominated for election to the Board the nine persons named below to
serve for a one-year term and until their successors have been duly
elected and qualified or until their earlier death, resignation or
removal. Three of the nominees, Messrs. Ronald O. Perelman, Howard
Gittis and Barry F. Schwartz, were designated for election to the Board
by Mafco Holdings Inc., our largest stockholder. All of the nominees
are presently directors of the Company, and one of the Company's
current directors, Alan J. Zakon, will not be standing for re-election
at the Annual Meeting.
The Board recommends that you vote in
favor of the election of each of the nominees named below as directors
of the Company for the ensuing year, and the persons named as proxies
in the enclosed proxy will vote the proxies received by them for the
election of each of the nominees unless otherwise specified on those
proxies. All of the nominees have indicated a willingness to serve as
directors, but if any nominee becomes unavailable to serve before the
election, proxies may be voted for a substitute nominee selected by the
Board.
The name, age, business experience and certain other
information regarding each of the nominees for director are set forth
below.
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Name |
|
Age |
|
Position
with the
Company |
|
Director Since |
A.
Lorne
Weil |
|
58 |
|
Chairman
of the Board, President and Chief Executive
Officer(1) |
|
|
1989 |
|
Peter A.
Cohen |
|
57 |
|
Vice Chairman of the
Board(1) |
|
|
2000 |
|
Colin J.
O'Brien |
|
65 |
|
Director(2)(4)(5) |
|
|
2000 |
|
Ronald
O.
Perelman |
|
61 |
|
Director(1) |
|
|
2003 |
|
Howard
Gittis |
|
70 |
|
Director(3)(4) |
|
|
2003 |
|
Barry
F.
Schwartz |
|
55 |
|
Director(2)(5) |
|
|
2003 |
|
Eric
M.
Turner |
|
48 |
|
Director(3)(5) |
|
|
2002 |
|
Sir
Brian G.
Wolfson |
|
69 |
|
Director(2) |
|
|
1988 |
|
Joseph
R. Wright,
Jr. |
|
65 |
|
Director(2)(3)(4) |
|
|
2004 |
|
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|
|
|
(1) Member
of Executive Committee (2) Member of Audit Committee
(3) Member of Compensation Committee (4) Member of
Nominating and Corporate Governance Committee (5) Member of
Compliance Committee |
A. Lorne Weil has been
Chairman of our Board since October 1991, our Chief Executive Officer
since April 1992 and our President since August 1997. Mr. Weil was
President of Lorne Weil, Inc., a firm providing strategic planning and
corporate development services to high technology industries, from 1979
to November 1992. Previously, Mr. Weil was Vice President of Corporate
Development at General Instrument Corporation, working with wagering
and cable systems.
Peter A. Cohen has been Vice Chairman
of our Board since February 2003. Mr. Cohen is a founding partner and
principal of Ramius Capital Group, LLC, a private investment management
firm formed in 1994. From November 1992 to May 1994, Mr. Cohen was Vice
Chairman and a director of Republic New York Corporation, as well as a
member of its executive management committee. Mr. Cohen was also
Chairman of Republic's subsidiary, Republic New York Securities
Corporation. Mr. Cohen was Chairman of the Board and Chief Executive
Officer of Shearson Lehman Brothers from 1983 to 1990. Mr. Cohen is a
director of Portfolio Recovery Associates and Titan Corporation.
Colin J. O'Brien has been Chairman of the Audit
Committee of our Board since February 2003. Mr. O'Brien was
employed in various positions with Xerox Corporation from February 1992
to January 2001,
5
including Vice President, Chief Executive
Officer of Xerox's New Enterprise Board and Executive Chairman of
XESystems, Inc., a subsidiary of Xerox. In 1986, Mr. O'Brien
formed an investment company with E.M. Warburg Pincus & Co. Inc.,
making a number of acquisitions in defense electronics. Prior to that
time, Mr. O'Brien served as Chief Executive of Times Fiber
Communications, Inc. and President of General Instrument's cable
television operations. He has held management positions with Union
Carbide in both Canada and Europe. Mr. O'Brien is a director of
Document Sciences Corporation.
Ronald O. Perelman has
been Chairman and Chief Executive Officer of MacAndrews & Forbes
Holdings Inc., a diversified holding company, and various affiliates
since 1980. Mr. Perelman is Chairman of the Board of Panavision Inc.,
Revlon Consumer Products Corporation and Revlon, Inc., and a director
of REV Holdings LLC and M & F Worldwide Corp.
Howard
Gittis has been Vice Chairman & Chief Administrative Officer of
MacAndrews & Forbes Holdings Inc. and various affiliates since 1985
and has been Chairman, President and Chief Executive Officer of M &
F Worldwide Corp. since 2000. Prior to joining MacAndrews & Forbes,
Mr. Gittis was a partner at the Philadelphia law firm of Wolf, Block,
Schorr and Solis-Cohen where he had served as Chairman of the Executive
Committee. Mr. Gittis is a director of Jones Apparel Group, Inc., M
& F Worldwide Corp., Panavision Inc. and Revlon, Inc.
Barry F. Schwartz has been Executive Vice President and
General Counsel of MacAndrews & Forbes Holdings Inc. and various
affiliates since 1993 and was Senior Vice President of MacAndrews &
Forbes from 1989 to 1993. Prior to joining MacAndrews & Forbes, Mr.
Schwartz was a partner at the Philadelphia law firm of Wolf, Block,
Schorr and Solis-Cohen. Mr. Schwartz is a director of REV Holdings LLC
and Revlon Consumer Products Corporation.
Eric M. Turner
served as Senior Vice President of State Street Corporation, a
financial services company, from 1996 to 2003. Mr. Turner was the
executive director of the Massachusetts State Lottery Commission from
1992 to 1995. During his time at the Lottery Commission, Mr. Turner was
elected to positions of Treasurer and Secretary of the North American
Association of State and Provincial Lotteries, a professional
association of 46 North American lotteries. In 1991, Mr. Turner served
as Deputy Treasurer of the Office of the State Treasurer of
Massachusetts. Prior to that time, he was employed with Drexel Burnham
Lambert for approximately 7 years, last serving as Corporate Vice
President, Municipal Finance Department, from 1989 to 1990.
Sir Brian G. Wolfson served as Chairman of Wembley plc, a
United Kingdom company involved in the sports and entertainment
industries, from 1987 to May 1995, and as Deputy Chairman of Wembley
from May 1995 to September 1995. Sir Brian is Chairman of the Board of
Kepner-Tregoe Inc. and Natural Health Trends Corp.
Joseph R.
Wright, Jr. has been President and Chief Executive Officer of
PanAmSat Corporation, a provider of global video and data broadcast
services via satellite, since August 2001. Mr. Wright was the President
of Terremark Worldwide, Inc. from March 2000 to August 2001 and was the
Chairman of GRC International, Inc. from 1996 to March 2000. He was
Executive Vice President and Vice Chairman of W.R. Grace & Co. from
1989 to 1994. Mr. Wright was a member of President Reagan's
Cabinet as Director of the White House Office of Management and Budget
(OMB) from 1988 to 1989 and was Deputy Director of OMB from 1982 to
1988. Mr. Wright is a director of AT&T Government Solutions, Titan
Corporation, Proxim Corporation, Terremark Worldwide, Inc. and Verso
Technologies.
Designees of Mafco Holdings Inc.
Messrs. Perelman, Gittis and Schwartz were designated for election
to the Board by Mafco Holdings Inc., our largest stockholder, pursuant
to its rights under a Stockholders' Agreement with us dated
September 6, 2000, as supplemented by an agreement dated June 26, 2002
and by an agreement dated October 10, 2003. The Stockholders'
Agreement was originally entered into with holders of our Series A
Convertible Preferred Stock in connection with the initial issuance of
the Preferred Stock and provides for, among other things, the right of
the holders to designate up to four members of our Board based on their
ownership of Preferred Stock or the common stock issued upon conversion
thereof. All of the Preferred Stock was converted into common stock in
August 2004. Mafco, which owned approximately
6
92% of the Preferred Stock prior to
conversion and owns approximately 25% of our outstanding common
stock following conversion, has the right to designate up to four
directors based on its level of share ownership. Under a letter dated
October 30, 3003, Mafco waived its right to designate one of the four
directors it could otherwise have designated through the date of this
annual meeting provided that we agreed to use our best efforts to have
Mr. Cohen nominated for election at the meeting. The percentages that
must be maintained in order to designate directors are as follows: (a)
20% to designate four directors; (b) 16% to designate
three directors; (c) 9% to designate two directors; and (d)
4.6% to designate one director. Such percentages, in each case,
are to be determined based on our fully diluted common stock subject to
certain exclusions of common stock or other securities that may be
issued in the future.
THE BOARD RECOMMENDS A VOTE
"FOR" EACH OF THE NINE NOMINEES.
Information about the Board of Directors and Committees
Director Independence. The Board adopted
Directors Independence Guidelines as a basis for determining that
individual directors are independent under the standards of the Nasdaq
Stock Market. This determination, to be made annually, helps assure the
quality of the Board's oversight of management and reduces the
possibility of damaging conflicts of interest. Under these standards, a
director will not qualify as independent if:
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(1) |
the director has been employed by
the Company at any time within the past three years; |
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(2) |
the director has an immediate family
member who has been employed as an executive officer of the Company at
any time within the past three
years; |
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(3) |
the director or an
immediate family member of the director has received in excess of
$60,000 in the current or any of the past three years other than for
Board or Board Committee service, payments arising from investments in
the Company's securities or, in the case of the family member, as
compensation for employment in a non-executive
position; |
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(4) |
the director or an
immediate family member of the director is a partner, controlling
shareholder or executive officer of an organization which made payments
to, or received payments from, the Company in the current or in any of
the past three years that exceed the greater of 5% of the
recipient's consolidated gross revenues or $200,000; |
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(5) |
the director or an immediate family
member of the director is employed as an executive officer of another
entity where at any time during the past three years any of the
executive officers of the Company served on the compensation committee
of such other entity; or |
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(6) |
the
director or an immediate family member of the director is a current
partner of the Company's outside auditor, or was a partner or
employee of the Company's outside auditor who worked on the
Company's audit at any time during any of the past three
years. |
The Board has determined that Messrs. Cohen,
O'Brien, Perelman, Gittis, Schwartz, Turner, Wolfson and Wright
qualify as independent under the rules of the Nasdaq Stock Market.
Board Meetings. The Board of Directors held a
total of six meetings during fiscal 2003. All incumbent directors
attended at least 75% of the aggregate of (i) the total number
of meetings of the Board (held while they were directors) and (ii) the
total number of meetings held by all Committees of the Board on which
they served (during the periods that they served).
Board Committees. The Board of Directors has
five Committees: the Audit Committee, the Compensation Committee, the
Executive Committee, the Nominating and Corporate Governance Committee
and the Compliance Committee. All Committees are comprised solely of
independent directors with the exception of the Executive Committee.
The Board has approved charters for the Audit Committee, the
Compensation Committee and the Nominating and Corporate Governance
Committee which can be accessed through the Corporate Governance link
on our website at www.scientificgames.com. A copy of the Audit
Committee charter is also attached as Appendix A to this Proxy
Statement.
7
Audit Committee. The
Audit Committee currently consists of Colin J. O'Brien
(Chairman), Barry F. Schwartz, Sir Brian G. Wolfson and Joseph R.
Wright, Jr. The Board has determined that each member is independent
under the listing standards of the Nasdaq Stock Market and that Mr.
O'Brien qualifies as an audit committee financial expert under
the rules of the SEC. The Audit Committee hires the Company's
independent accountants and is charged with the responsibility of
overseeing the financial reporting process of the Company. In the
course of performing its functions, the Audit Committee reviews, with
management and the independent accountants, the Company's
internal accounting controls, the annual financial statements, the
report and recommendations of the independent accountants, the scope of
the audit, and the qualifications and independence of the auditors. The
report of the Audit Committee is set forth later in this Proxy
Statement. The Audit Committee held nine meetings during fiscal
2003.
Compensation Committee. The
Compensation Committee currently consists of Howard Gittis (Chairman),
Eric M. Turner and Joseph R. Wright, Jr. The Board has determined that
each member is independent under the listing standards of the Nasdaq
Stock Market. The Compensation Committee sets the compensation of the
Chief Executive Officer and other senior executives of the Company,
administers the stock option plans and the executive compensation
programs of the Company, determines eligibility for, and awards under,
such plans and programs, and makes recommendations to the Board with
regard to the adoption of new employee benefit plans, stock option
plans and executive compensation plans. The report of the Compensation
Committee is set forth later in this Proxy Statement. The Compensation
Committee held eight meetings during fiscal 2003.
Executive Committee. The Executive Committee
currently consists of A. Lorne Weil (Chairman), Peter A. Cohen and
Ronald O. Perelman. The Executive Committee is authorized to exercise
all of the powers and authority of the Board in the management of the
business and affairs of the Company between regular meetings of the
Board, subject to Delaware law. The Executive Committee held two
meetings during fiscal 2003.
Nominating and Corporate
Governance Committee. The Nominating and Corporate Governance
Committee currently consists of Joseph R. Wright, Jr. (Chairman),
Howard Gittis and Colin J. O'Brien. The Board has determined that
each member is independent under the listing standards of the Nasdaq
Stock Market. The Committee is responsible for identifying individuals
who are qualified to become directors, recommending nominees for
membership on the Board and committees of the Board and developing
corporate governance guidelines. The Committee does not have a set of
minimum, specific qualifications that must be met by a candidate for
director and will consider individuals suggested as candidates by
stockholders. The Committee will review the candidate's
background, experience and abilities, and the contributions the
candidate can be expected to make to the collective functioning of the
Board and the needs of the Board at the time. A stockholder wishing to
propose a nominee should submit a recommendation in writing to the
Company's Secretary at least 120 days before the mailing date for
proxy material applicable to the annual meeting for which such
nomination is proposed for submission, indicating the nominee's
qualifications and other relevant biographical information and
providing confirmation of the nominee's consent to serve as a
director. In prior years, candidates have been identified through
recommendations from directors, the Chief Executive Officer and other
third parties. The Committee anticipates that it would use these
sources as well as stockholder recommendations to identify candidates
in the future. The Committee held one meeting during fiscal 2003.
Compliance Committee. The Compliance Committee,
which was established in February 2004, currently consists of Eric M.
Turner (Chairman), Colin J. O'Brien and Barry F. Schwartz. The
Board has determined that each member is independent under the listing
standards of the Nasdaq Stock Market. The Compliance Committee is
responsible for overseeing the Company's regulatory compliance
program and receiving any attorney reports required under
Sarbanes-Oxley with respect to material legal violations. Prior to the
creation of this Board Committee, the regulatory compliance program was
overseen by a committee of the Company whose members included directors
and non-directors.
8
Stockholder Communications with
Directors. Stockholders may communicate with the Board of
Directors or an individual director by sending a letter to the Board or
a director's attention care of the Secretary of the Company at
Scientific Games Corporation, 750 Lexington Avenue, 25th Floor, New
York, New York, 10022. The Secretary will open, log and deliver all
such correspondence (other than advertisements, solicitations or
communications that contain offensive or abusive content) to directors
on a periodic basis, generally in advance of each Board meeting.
Attendance at Stockholders' Meetings. The
Company encourages directors to attend the annual stockholders'
meeting. Last year, Messrs. Weil, Cohen, O'Brien, Turner and
Zakon attended the annual meeting.
Directors'
Compensation
Directors who are not employees of the Company
receive the following compensation:
(a) an annual retainer of $30,000;
(b) an
additional annual retainer of $25,000 for Committee Chairs; and
(c) an additional annual retainer of $75,000 for the Vice Chair of
the Board.
Prior to September 2004, directors were also
paid an annual retainer of $15,000 for serving on the Executive
Committee.
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(a) |
Board Meetings
— a meeting fee of $2,000 for each Board meeting attended in
person, and $500 if attended by telephone conference call;
and |
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(b) |
Committee Meetings — a
meeting fee of $1,000 for each Committee meeting attended in person
that is held on a day other than one on which a Board meeting is held,
and $500 if held on the same day as a Board meeting or if attended by
telephone conference
call. |
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|
(a) |
Restricted Stock
— an annual grant of restricted stock at the beginning of each
fiscal year having an aggregate fair market value of $30,000 for each
director who attended at least 75% of the total number of
meetings held by the Board and Committees on which the director served
in the prior year; and |
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(b) |
Stock
Option — upon becoming a director, and on the fifth anniversary
of the director's election to the Board, a stock option to
purchase 50,000 shares at a price equal to the fair market value of our
common stock on the date of grant. |
The restricted stock granted
to non-employee directors vests in three equal annual installments,
one-third of the total on each of the first, second and third
anniversaries of the date of grant, and the options granted to
non-employee directors become exercisable in four equal annual
installments, one-quarter of the total on each of the first, second,
third and fourth anniversaries of the date of grant, and expire not
later than the tenth anniversary of the date of grant. These awards
vest in full if a director ceases to serve as a director due to death,
disability, retirement or the failure to be re-elected to the Board.
Mr. Weil, the only director who is employed by the Company, does
not receive any additional compensation for his services as a
director.
9
EXECUTIVE
COMPENSATION
Summary Compensation Table
The following
table shows the compensation awarded or paid by us and our subsidiaries
to our Chief Executive Officer and the four other highest paid
executive officers in fiscal 2003 (collectively, the
"Named Executive Officers") for services
rendered for the fiscal years ended December 31, 2001, 2002 and
2003.
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|
Annual
Compensation |
|
Long-Term
Compensation |
|
|
Name
and Principal
Position |
|
Year |
|
Salary |
|
Bonus(1) |
|
Restricted Stock
Awards(2) |
|
Securities Underlying Options
(#) |
|
All Other Compensation(3) |
A. Lorne
Weil |
|
|
2003 |
|
|
$ |
790,958 |
|
|
$ |
1,000,000 |
|
|
$ |
378,692
|
(4) |
|
|
1,150,0000 |
|
|
$ |
19,660
|
(5) |
President
and |
|
|
2002 |
|
|
|
767,176 |
|
|
|
767,176 |
|
|
|
98,142
|
(6) |
|
|
479,000 |
|
|
|
19,660 |
(7) |
Chief Executive
Officer |
|
|
2001 |
|
|
|
754,500 |
|
|
|
754,500 |
|
|
|
11,120
|
(8) |
|
|
261,000 |
|
|
|
18,160 |
(9) |
Martin E.
Schloss |
|
|
2003 |
|
|
|
316,383 |
|
|
|
154,237 |
|
|
|
— |
|
|
|
51,000 |
|
|
|
10,855
|
(5) |
Vice
President, |
|
|
2002 |
|
|
|
306,870 |
|
|
|
153,436 |
|
|
|
12,911
|
(6) |
|
|
24,000 |
|
|
|
10,828 |
(7) |
General Counsel and
Secretary |
|
|
2001 |
|
|
|
301,844 |
|
|
|
139,583 |
|
|
|
1,462
|
(8) |
|
|
46,000 |
|
|
|
9,310 |
(9) |
William J.
Huntley |
|
|
2003 |
|
|
|
300,000 |
|
|
|
150,000 |
|
|
|
— |
|
|
|
78,000 |
|
|
|
6,810
|
(5) |
President, Systems
Division |
|
|
2002 |
|
|
|
300,000 |
|
|
|
150,000 |
|
|
|
4,967
|
(6) |
|
|
23,000 |
|
|
|
62,802 |
(7) |
of Scientific Games International,
Inc. |
|
|
2001 |
|
|
|
275,000 |
|
|
|
136,585 |
|
|
|
563
|
(8) |
|
|
96,000 |
|
|
|
5,993 |
(9) |
Cliff O.
Bickell |
|
|
2003 |
|
|
|
300,000 |
|
|
|
150,000 |
|
|
|
— |
|
|
|
78,000 |
|
|
|
6,810
|
(5) |
President, Printed Products
Division |
|
|
2002 |
|
|
|
287,500 |
|
|
|
143,751 |
|
|
|
— |
|
|
|
23,000 |
|
|
|
6,276
|
(7) |
of
Scientific Games International,
Inc. |
|
|
2001 |
|
|
|
275,000 |
|
|
|
64,240 |
|
|
|
— |
|
|
|
42,000 |
|
|
|
5,993
|
(9) |
Richard M.
Weil
(10) |
|
|
2003 |
|
|
|
273,000 |
|
|
|
136,500 |
|
|
|
— |
|
|
|
58,000 |
|
|
|
10,738
|
(5) |
Former Vice President of
International |
|
|
2002 |
|
|
|
260,000 |
|
|
|
130,000 |
|
|
|
14,792
|
(6) |
|
|
20,000 |
|
|
|
10,704 |
(7) |
Business
Development |
|
|
2001 |
|
|
|
225,000 |
|
|
|
111,375 |
|
|
|
1,677
|
(8) |
|
|
89,000 |
|
|
|
9,106
|
(9) |
|
|
|
(1) |
See
"Report of the Compensation Committee," which
describes performance-based bonuses awarded to the Named Executive
Officers under our management incentive compensation program. The
amounts indicated represent bonuses earned with respect to the fiscal
year, which were paid or deferred (under our deferred compensation
plan) in the following
year. |
|
|
(2) |
The number and
value of the aggregate restricted stock held by the Named Executive
Officers as of December 31, 2003 were as follows: Mr. L. Weil, 179,092
shares with a value of $3,039,191; Mr. Schloss, 17,219 shares with a
value of $292,206; Mr. Huntley, 6,623 shares with a value of
$112,392; and Mr. R. Weil, 19,726 shares with a value of $334,750. The
value was determined by multiplying the number of shares held on
December 31, 2003 by $16.97, the closing price on that
day. |
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(3) |
In accordance with
SEC rules, amounts related to personal benefits, including automobile
allowances, have been omitted, since such amounts did not exceed the
lesser of $50,000 or 10% of the total annual salary and bonus
for the Named Executive
Officer. |
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(4) |
The amount
indicated represents the grant date value of the 48,241 shares of
restricted stock granted to Mr. Weil on June 23, 2003 in connection
with his new employment agreement. The value was calculated by
multiplying the number of shares by $7.85, the closing price on the
grant date. |
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(5) |
The amounts
indicated as All Other Compensation for fiscal 2003 consist of the
following: |
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|
(i) |
Employer
contributions to defined contribution retirement plan: Mr. L. Weil,
$10,000; Mr. Schloss, $10,000; Mr. Huntley, $6,000; Mr. Bickell,
$6,000; and Mr. R. Weil, $10,000. |
|
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|
(ii) |
Insurance
premiums paid for individual life insurance coverage: Mr. L. Weil,
$8,400. |
|
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|
(iii) |
Insurance
premiums paid for group term life insurance coverage: Mr. L. Weil,
$1,260; Mr. Schloss, $855; Mr. Huntley, $810; Mr. Bickell, $810; and
Mr. R. Weil, $738. |
|
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(6) |
The
amounts indicated as restricted stock awards for 2002 represent the
grant date value of the awards of "performance accelerated
restricted stock" granted on May 24, 2002 to the named
executives. The value of each award was calculated by multiplying the
units subject to the award by $8.25, the closing price on the grant
date. |
10
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(7) |
The
amounts indicated as All Other Compensation for fiscal 2002 consist of
the following: |
|
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|
(i) |
Employer
contributions to defined contribution retirement plan: Mr. L. Weil,
$10,000; Mr. Schloss, $10,000; Mr. Huntley, $5,500; Mr. Bickell,
$5,500; and Mr. R. Weil, $10,000. |
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|
(ii) |
Insurance
premiums paid for individual life insurance coverage: Mr. L. Weil,
$8,400. |
|
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|
(iii) |
Insurance
premiums paid for group term life insurance coverage: Mr. L. Weil,
$1,260; Mr. Schloss, $828; Mr. Huntley, $810; Mr. Bickell, $776; and
Mr. R. Weil,
$704. |
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|
(iv) |
Relocation
amounts: Mr. Huntley, $56,492, consisting of payments of $31,786 and
tax reimbursement of
$24,706. |
|
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(8) |
The amounts
indicated as restricted stock awards for 2001 represent the grant date
value of the awards of "performance accelerated restricted
stock" granted on May 25, 2001 to the named executives.
The value of each award was calculated by multiplying the units subject
to the award by $4.30, the closing price on the grant date. |
|
|
(9) |
The amounts indicated as All
Other Compensation for fiscal 2001 consist of the following: |
|
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|
|
(i) |
Employer
contributions to defined contribution retirement plan: Mr. L. Weil,
$8,500; Mr. Schloss, $8,500; Mr. Huntley, $5,250; Mr. Bickell, $5,250;
and Mr. R. Weil, $8,500. |
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|
(ii) |
Insurance
premiums paid for individual life insurance coverage: Mr. L. Weil,
$8,400. |
|
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|
(iii) |
Insurance
premiums paid for group term life insurance coverage: Mr. L. Weil,
$1,260; Mr. Schloss, $810; Mr. Huntley, $743; Mr. Bickell, $743; and
Mr. R. Weil, $606. |
|
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(10)
|
Richard M. Weil, the brother of A. Lorne Weil, left
our employment in July 2004. Previously, he served as Vice President of
International Business Development. |
Option Grants
in Fiscal 2003
The following table sets forth information
regarding stock options granted to the Named Executive Officers during
the fiscal year ended December 31, 2003.
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|
Individual
Grants |
|
Potential Realizable Value at
Assumed Annual Rates of Stock Price Appreciation For Option
Term
(4) |
Name |
|
Number
of Securities Underlying Options Granted |
|
%
of Total Options Granted to Employees In
Fiscal Year |
|
Exercise
Price(3)
($/Share) |
|
Expiration Date |
|
|
5% ($) |
|
10% ($) |
|
A. Lorne
Weil |
|
|
600,000 |
(1) |
|
|
23.69 |
% |
|
$ |
5.13 |
|
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|
02-27-10 |
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|
$ |
1,253,634 |
|
|
$ |
2,921,718 |
|
A.
Lorne
Weil |
|
|
400,000 |
(1) |
|
|
15.79 |
% |
|
|
7.96 |
|
|
|
06-23-10 |
|
|
|
1,297,406 |
|
|
|
3,023,956 |
|
A.
Lorne
Weil |
|
|
150,000 |
(2) |
|
|
5.92 |
% |
|
|
15.96 |
|
|
|
12-07-13 |
|
|
|
1,506,616 |
|
|
|
3,818,663 |
|
Martin
E.
Schloss |
|
|
51,000 |
(2) |
|
|
2.01 |
% |
|
|
15.96 |
|
|
|
12-07-13 |
|
|
|
512,250 |
|
|
|
1,298,345 |
|
William
J.
Huntley |
|
|
78,000 |
(2) |
|
|
3.08 |
% |
|
|
15.96 |
|
|
|
12-07-13 |
|
|
|
783,441 |
|
|
|
1,985,705 |
|
Cliff
O.
Bickell |
|
|
78,000 |
(2) |
|
|
3.08 |
% |
|
|
15.96 |
|
|
|
12-07-13 |
|
|
|
783,441 |
|
|
|
1,985,705 |
|
Richard
M.
Weil(5) |
|
|
58,000 |
(2) |
|
|
2.29 |
% |
|
|
15.96 |
|
|
|
12-07-13 |
|
|
|
582,558 |
|
|
|
1,476,550 |
|
|
|
|
(1) |
These
options to purchase a total of 1 million shares were granted in
connection with Mr. Weil's new employment agreement. Each option
may be exercised six months after grant, but shares representing the
"profit" upon any exercise will be
non-transferable until the third anniversary of the grant date. The
restrictions on the "profit" shares were
scheduled to lapse three months prior to the seventh anniversary of the
grant date, but will lapse on such earlier date due to the achievement
of the stock price performance goals established under the option
agreements. |
|
|
(2) |
These
options were granted under our management incentive compensation
program. Each option becomes exercisable in five equal installments,
one-fifth of the total on each of the first, second, third, fourth and
fifth anniversaries of the date of grant, or in full upon a change in
control. In the event a holder's employment is terminated under
certain circumstances, his option may become fully vested and
exercisable pursuant to his employment agreement with us (see
"Employment
Agreements"). |
|
|
(3) |
The
exercise price of the options is equal to the fair market value of our
common stock on the date of grant. |
|
|
(4) |
The dollar amounts under these
columns are based upon calculations using assumed rates of appreciation
set by the SEC and are not intended to forecast possible future
appreciation of our stock price. |
|
|
(5) |
The option granted to Richard M.
Weil accelerated in full as of July 2, 2004, his last day of
employment, pursuant to the terms of his severance agreement with us
(see "Severance Agreement"). Such option may
be exercised for a period of 90 days following
termination. |
11
Aggregated Option Exercises in Fiscal
2003 and Year-End Option Values
The following table sets forth
information for the Named Executive Officers with respect to the
exercise of stock options during the fiscal year ended December 31,
2003 and the year-end value of unexercised options.
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|
|
|
|
|
|
|
|
|
Name |
|
Shares
Acquired on Exercise (#) |
|
Value Realized
($) |
|
Number of Securities Underlying
Unexercised Options at Dec. 31, 2003 # |
|
Value of
Unexercised In-the-Money Options at Dec. 31,
2003(1)
($) |
Exercisable |
|
Unexercisable |
|
Exercisable |
|
Unexercisable |
|
A.
Lorne
Weil |
|
|
336,000 |
|
|
$ |
4,997,740 |
|
|
|
2,465,250 |
|
|
|
867,750 |
|
|
$ |
30,765,708 |
|
|
$ |
8,733,013 |
|
Martin
E.
Schloss |
|
|
29,750 |
|
|
|
288,153 |
|
|
|
320,250 |
|
|
|
92,000 |
|
|
|
4,714,658 |
|
|
|
524,975 |
|
William
J.
Huntley |
|
|
176,000 |
|
|
|
2,293,498 |
|
|
|
228,250 |
|
|
|
180,750 |
|
|
|
2,967,833 |
|
|
|
1,291,863 |
|
Cliff
O.
Bickell |
|
|
45,000 |
|
|
|
378,550 |
|
|
|
94,250 |
|
|
|
153,750 |
|
|
|
1,226,378 |
|
|
|
1,025,373 |
|
Richard
M.
Weil |
|
|
80,000 |
|
|
|
1,040,950 |
|
|
|
184,500 |
|
|
|
117,500 |
|
|
|
2,462,890 |
|
|
|
699,370 |
|
|
|
|
(1) |
Amounts
are based on the difference between the closing price of our common
stock on December 31, 2003 ($16.97) and the exercise price. |
Supplemental Executive Retirement Plan
We adopted a
Supplemental Executive Retirement Plan, or
"SERP," in order to provide supplemental
retirement benefits for our senior executives. The SERP provides for
retirement benefits according to a formula based on each
participant's years of service and average rate of compensation.
Payments under the SERP will commence upon a participant's
termination of employment after reaching the age of at least 55 and
having at least 10 years of full-time employment with us. The annual
retirement benefit will be an amount equal to 3% of the
participant's average compensation for the three highest
consecutive calendar years in the last ten years before termination of
employment, multiplied by the participant's years of full-time
employment with us up to a maximum of 15 years. Accordingly, the
maximum annual payment under the SERP would be 45% of a
participant's highest average annual compensation. A participant
may receive a total of 15 annual payments in that amount, or may elect
to receive the discounted present value of those 15 annual payments in
equal installments over a period of 5 or 10 years or in a single lump
sum. The date for payment of benefits may be accelerated in the event
of a participant's death or total permanent disability, and
certain additional provisions will apply in the event of a change of
control. For example, a participant whose highest average annual
compensation is $500,000 and who is credited with at least 15 years of
full-time employment with us would receive 15 annual payments of
$225,000 under the SERP. If their highest average compensation were
equivalent to their fiscal 2003 compensation, the Named Executive
Officers who are participants in the SERP would be expected to receive
annual retirement benefits for 15 years in the following estimated
amounts, assuming their retirement after at least 15 years of service:
A. Lorne Weil, $806,000; Martin E. Schloss, $212,000; and William J.
Huntley, $203,000. These amounts would be subject to an offset for
Social Security benefits. Messrs. Weil, Schloss and Huntley have 13, 11
and 30 years of credited service, respectively, under the SERP.
Deferred Compensation Plan
We have a non-qualified
deferred compensation plan that enables our executive officers and
other eligible employees to defer receipt of up to 50% of their
base salary and up to 100% of the cash bonus that may be awarded
under our management incentive compensation program. The plan also
enables our non-employee directors to defer receipt of up to
100% of the fees and other cash compensation payable for
director services. Accounts are maintained for each of the
participants, who elect to have their accounts mirror the performance
of investment options that we may offer from time to time. It is
intended that amounts deferred under the plan will not be subject to
any federal and, in most cases, state and local income taxes until
participants receive payment from the plan. Unless participants elect
to extend a deferral period, deferrals and related earnings will be
paid as soon as practicable following the end of the deferral period.
Accounts may be distributed prior to that date if a participant leaves
the Company, dies or becomes disabled, if there is a change in control,
if we terminate the plan or, under extremely limited circumstances, in
the event of an "unforeseeable
emergency."
12
Employment Agreements
A.
Lorne Weil. Mr. Weil serves as our Chairman, President and
Chief Executive Officer pursuant to an amended and restated employment
agreement dated as of February 28, 2003. Under the agreement, Mr. Weil
is paid a base salary of approximately $816,000, which will be
increased to $1 million on January 1, 2005 (subject to further
increases on each January 1 thereafter to reflect increases, if any,
during the preceding twelve months in the Consumer Price Index for the
Greater New York area). Mr. Weil also has the opportunity annually to
earn up to $1 million as incentive compensation under our management
incentive compensation program in each fiscal year through 2005 and
thereafter by the amount equal to his base salary for the fiscal year.
The agreement has a term of employment ending December 31, 2007, which
extends automatically for an additional year on December 31, 2007 and
on each succeeding December 31 thereafter unless written notice is
given by us or by Mr. Weil prior to the June 30 preceding the date upon
which such extension would become effective. Under the agreement, Mr.
Weil is entitled to participate in the SERP with an annual retirement
benefit equal to approximately $738,000 in the case of a termination
qualifying for benefits during 2004, which amount will be increased by
$40,000 (plus an amount for inflation on the increased benefit) on each
December 31 in the period 2004 to 2007, if he remains employed at that
date. This benefit replaces the amount that would otherwise be
calculated or payable under the SERP which is based on average highest
compensation for three consecutive years.
In the event Mr.
Weil's employment is terminated by us without
"cause" (which includes our election not to
extend the term), or by Mr. Weil for "good
reason" (which includes Mr. Weil's election not to
extend the term and the failure to agree to the terms of his continued
employment), or by reason of "total
disability" (as such terms are defined in the employment
agreement), Mr. Weil will be entitled to receive the following: (a)
cash severance in a lump sum equal to three times a
"severance base amount" of $1,806,000, which
will be adjusted for inflation on each January 1 in the period 2004 to
2007 based on the increase, if any, during the preceding twelve months
in the Consumer Price Index for the Greater New York area; (b) his SERP
benefit; (c) a pro rata annual incentive amount for the year of
termination; (d) full vesting of stock options held at termination,
which will remain exercisable until the scheduled expiration dates of
such options; (e) full vesting and settlement of all deferred stock and
other equity-based awards held at termination; (f) continued
participation in certain employee benefit plans for a period of three
years after termination other than due to "total
disability," in which case the period shall be until age
65, or, if such plans do not allow continuation, a payment in lieu of
such benefits; and (g) a payment to fund any excise tax that may be
imposed under Section 4999 of the Internal Revenue Code by reason of a
change in control, as well as an amount to fund any taxes payable with
respect to such payment by us. If Mr. Weil's employment
terminates due to retirement or death, Mr. Weil will be entitled to
receive the following: (a) the SERP benefit; (b) a pro rata annual
incentive amount for the year of termination; (c) full vesting of stock
options held at termination, which will remain exercisable until the
earlier of the third anniversary of the date of termination and the
scheduled expiration dates of such options; and (d) full vesting and
settlement of all deferred stock and other equity-based awards held at
termination.
Martin E. Schloss. Mr. Schloss serves
as our Vice President, General Counsel and Secretary pursuant to an
employment agreement dated November 1, 2002 and currently receives a
base salary of $350,000 (subject to increases on each January 1 to
reflect increases, if any, in the Consumer Price Index for the Greater
New York area). The agreement has a term of employment ending December
31, 2004, which extends automatically for an additional year on
December 31, 2004 and on each succeeding December 31 thereafter unless
written notice is given by us or by Mr. Schloss prior to the September
30 preceding the date upon which such extension would become effective.
Under the agreement, Mr. Schloss has the opportunity annually to earn
incentive compensation under our management incentive compensation
program and to participate in the SERP with a retirement benefit that
is equal to the greater of (i) the amount calculated under the SERP and
(ii) the amount equal to his then-current base salary plus a bonus
amount calculated by multiplying his then-current base salary by the
average highest percentage of incentive compensation relative to base
salary that he received for three consecutive years. In the event Mr.
Schloss's employment is terminated by us without
"cause" (which includes our election not to
extend the term), or by Mr. Schloss for "good
reason," or by reason of "total
disability" (as such terms are defined in the employment
agreement), Mr. Schloss will be entitled to receive the following: (a)
cash severance
13
in a lump sum equal to the sum of his then
current base salary and an incentive amount equal to the higher of the
average annual incentive compensation paid for the prior three years
and the amount payable upon achievement of maximum performance targets
for the year of termination; (b) his SERP benefit with credit for five
additional years of service; (c) full vesting of stock options held at
termination; (d) full vesting and settlement of all deferred stock held
at termination; and (e) continued participation in certain employee
benefit plans for a period of three years after termination other than
due to "total disability," in which case the
period shall be until age 65, or, if such plans do not allow
continuation, a payment in lieu of such benefits.
In the event
Mr. Schloss's employment is terminated without
"cause" or for "good
reason" and the termination occurs at the time of, within
two years after, or in anticipation of, a "change in
control," he will be entitled to receive the following:
(a) cash severance in a lump sum equal to the three times the sum of
his then-current base salary and an incentive amount equal to the
higher of the average annual incentive compensation paid for the prior
three years and the amount payable upon achievement of maximum
performance targets for the year of termination; (b) his SERP benefit
with credit for five additional years of service; (c) a pro rata annual
incentive amount for the year of termination; (d) full vesting of stock
options held at termination; and (e) full vesting and settlement of all
deferred stock held at termination; and (f) a payment to fund any
excise tax that may be imposed under Section 4999 of the Internal
Revenue Code by reason of a change in control, as well as an amount to
fund any taxes payable with respect to such payment by us. If Mr.
Schloss's employment terminates due to retirement or death, he
will be entitled to receive the following: (a) the SERP benefit; (b) a
pro rata annual incentive amount for the year of termination; (c) full
vesting of stock options held at termination; and (d) full vesting and
settlement of all deferred stock held at termination.
William J. Huntley. Mr. Huntley serves as President of
the Systems Division of Scientific Games International, Inc. pursuant
to an Employment and Severance Benefits Agreement dated September 6,
2000 and currently receives a base salary of $450,000, which was
increased to such rate effective May 1, 2004. The agreement has a term
of employment ending September 5, 2004, which extends automatically for
an additional year on September 5, 2004 and on each succeeding
September 5 thereafter unless written notice is given by us or by Mr.
Huntley at least 30 days prior to the date upon which such extension
would become effective. Under the agreement, Mr. Huntley receives a
transportation allowance of $16,000 and has the opportunity to receive
an annual cash bonus and an annual grant of stock options in amounts
commensurate with, and based on substantially the same criteria as,
those awarded to our executive officers. In the event Mr.
Huntley's employment is terminated by us without cause or in the
event of a constructive termination, Mr. Huntley will be entitled to
receive the following: (a) a sum each month for a period of one year
after termination equal to one-twelfth of the highest annual rate of
base salary plus bonus paid during the twenty-four month period
preceding the date of termination; (b) a pro rata bonus for the year of
termination; and (c) continued participation in certain employee
benefit plans for a period of time not to exceed the period in which
severance is being paid, and if such plans do not allow continuation
and we are unable to obtain substantially similar benefits, payment in
lieu of such benefits. If Mr. Huntley's employment is terminated
due to disability, he will be entitled to receive a pro rata bonus for
the year of termination and to continue to receive all disability, life
and medical insurance benefits for a period of twelve months as well as
his base salary for such period (to the extent payments under our
disability plan do not cover 100% of base salary); and in the
event of Mr. Huntley's death, his beneficiary will be paid a lump
sum payment equal to six months of base salary and a pro rata bonus for
the year of termination.
Cliff O. Bickell. Mr.
Bickell serves as President of the Printed Products Division of
Scientific Games International, Inc. pursuant to an Employment and
Severance Benefits Agreement dated September 6, 2000 and currently
receives a base salary of $375,000, which was increased to such rate
effective January 1, 2004. The agreement has a term of
employment ending September 5, 2004, which extends automatically for an
additional year on September 5, 2004 and on each succeeding September 5
thereafter unless written notice is given by us or by Mr. Bickell at
least 30 days prior to the date upon which such extension would become
effective. Under the agreement, Mr. Bickell receives a transportation
allowance of $16,000 and has the opportunity to receive an annual cash
bonus and an annual grant of stock options in amounts commensurate
with, and based on substantially the same criteria as, those awarded to
our executive
14
officers. In the event Mr. Bickell's
employment is terminated by us without cause or in the event of a
constructive termination, Mr. Bickell will be entitled to receive the
following: (a) a sum each month for a period of one year after
termination equal to one-twelfth of the highest annual rate of base
salary plus bonus paid during the twenty-four month period preceding
the date of termination; (b) a pro rata bonus for the year of
termination; and (c) continued participation in certain employee
benefit plans for a period of time not to exceed the period in which
severance is being paid, and if such plans do not allow continuation
and we are unable to obtain substantially similar benefits, payment in
lieu of such benefits. If Mr. Bickell's employment is terminated
due to disability, he will be entitled to receive a pro rata bonus for
the year of termination and to continue to receive all disability, life
and medical insurance benefits for a period of twelve months as well as
his base salary for such period (to the extent payments under our
disability plan do not cover 100% of base salary); and in the
event of Mr. Bickell's death, his beneficiary will be paid a lump
sum payment equal to six months of base salary and a pro rata bonus for
the year of termination.
Severance Agreement
Richard M. Weil. We entered into a severance agreement
with Richard M. Weil pursuant to which Mr. Weil, who had been employed
as Vice President of International Business Development under an
employment agreement dated January 1, 2003, left our employment in July
2004. Under the severance agreement, Mr. Weil received: (a) cash
severance of $498,100; (b) a payment of $1,705,000 in lieu of any
payments or benefits under the SERP; (c) vesting of stock options,
which can be exercised for a period of 90 days following employment;
(d) vesting of deferred stock; and (e) medical, life insurance and
disability benefits coverage for a period of three years. All previous
arrangements between us and Mr. Weil were terminated upon execution of
the severance agreement, including under his employment agreement,
except for certain provisions relating to such matters as
confidentiality and competition and rights to indemnification.
Change in Control Agreements
We entered into a Change in
Control Agreement dated November 1, 1997 with various executives
including Messrs. Schloss and Huntley, which in the case of Mr. Schloss
has been superceded by his current employment agreement. The Change in
Control Agreement has a term ending on October 31, 2004, which extends
automatically for an additional year on October 31, 2004 and on each
succeeding October 31 thereafter unless written notice is given prior
to the April 30 preceding the date upon which such extension would
become effective. Pursuant to the agreement, if we terminate the
employment of an executive without "cause" or
the executive terminates his employment for "good
reason," at the time of or within two years following a
"change in control" (as such terms are
defined in the agreements), such executive will be entitled to receive
the following: (a) cash severance in a lump sum equal to two times the
sum of his then current base salary and the higher of the average
annual incentive compensation paid to him for the three prior years,
and the amount payable to him upon achievement of the target level of
performance for the year of termination; (b) a pro rata annual
incentive amount for the year of termination; (c) full vesting of stock
options held at termination, and any options which were granted on or
after November 1, 1997 (the effective date of the agreement) or, if
previously granted, were not "in the money"
on such effective date, will remain exercisable until the earlier of 36
months after termination and the scheduled expiration date of such
options; (d) full vesting and settlement of all deferred stock held at
termination; and (e) continued participation in certain employee
benefit plans until the earliest of 18 months, the date equivalent
benefits are provided by a subsequent employer, and age 65, or, if such
plans do not allow continuation, payment in lieu of such benefits. The
agreements also provide that if the executive's employment is
terminated without "cause" and he is not
entitled to the severance described above, he will be entitled to
receive a lump sum cash payment equal to his then current base
salary.
15
Certain Relationships and Related
Transactions
Under a letter dated March 8, 2004, we engaged
Ramius Securities, LLC ("Ramius") to act as a
financial advisor on a non-exclusive basis in connection with certain
acquisition, investment or financing transactions. If Ramius provides
services with respect to a transaction which is consummated by us
during the duration of the engagement letter or within 12 months
thereafter, Ramius would receive a fee equal to 1%, or such
other percentage (not to exceed customary amounts) as may be mutually
agreed upon by the parties, of the acquisition consideration or other
transaction value. The Company may engage a co-advisor or advisors in
addition to Ramius for any transaction, in which case any fee to Ramius
would be reduced by the fees of such co-advisor or advisors (provided
that Ramius would receive a fee representing the relative value of its
services as reasonably determined by us). We may also reasonably
determine not to engage Ramius for any transaction, in which case
Ramius would receive no fee. The engagement letter provides that Ramius
would be entitled to reimbursement of reasonable out-of-pocket expenses
(not to exceed $50,000 in any year unless previously approved by the
Company) and contains certain customary indemnification and other
provisions. The engagement letter continues for a period of three
years, subject to earlier termination by either Ramius or the Company
on 30 days' notice. Peter A. Cohen, a director of the Company, is
the President of Ramius and a principal of Ramius' parent
company, Ramius Capital Group, LLC.
Under a letter agreement
dated October 10, 2003, we agreed to reimburse Mafco Holdings Inc.
("Mafco") $1,000,000 of the expenses it
incurred in connection with its purchase of approximately 92% of
the then outstanding shares of our Series A Convertible Preferred Stock
from Cirmatica Gaming, S.A. and we agreed to continue to pay the
quarterly dividends on the Preferred Stock in kind, rather than in
cash, through December 31, 2003. The letter agreement also provides for
an approximately 13-month extension of the standstill provision under
the Stockholders' Agreement dated September 6, 2000, which,
subject to certain exceptions, will prohibit Mafco from acquiring
beneficial ownership of more than 45% of our stock prior to
October 10, 2005 and from soliciting proxies prior to October 10, 2004.
In addition, the letter agreement reduced the ownership thresholds
under the Stockholders' Agreement that would otherwise have been
required to be maintained in order to designate directors to our Board.
The threshold for designating four directors was reduced from
22.5% to 20%, the threshold for designating three
directors was reduced from 17.5% to 16%, the threshold
for designating two directors was reduced from 10% to 9%
and the threshold for designating one director was reduced from
5% to 4.6%. Such percentages, in each case, are to be
determined based on our fully diluted common stock subject to certain
exclusions of common stock or other securities that may be issued in
the future. The closing of the transaction between Mafco and Cirmatica
occurred on November 19, 2003, whereupon Ronald O. Perelman, Howard
Gittis and Barry F. Schwartz, designees of Mafco, replaced Antonio
Belloni, Rosario Bifulco and Michael Immordino, designees of Cirmatica,
as members of our Board. Mr. Perelman is Chairman, Chief Executive
Officer and the sole stockholder of Mafco, Mr. Gittis is Vice Chairman
of Mafco and Mr. Schwartz is Executive Vice President and General
Counsel of Mafco.
Luke Weil, the son of A. Lorne Weil, has
served as a full-time consultant to Business Strategies & Insight,
L.L.C. ("BSI") since November 2003. BSI is a
public affairs consulting firm that has assisted us since 2001 in
strategic planning relating to our business with governmental
customers, both domestically and overseas. For the year ended December
31, 2003, we paid BSI an aggregate of $302,500 in retainers and project
fees and reimbursed them for approximately $61,000 of out-of-pocket
expenses. For the period January 1 through July 1, 2004, we paid BSI an
aggregate of $355,570 in respect of retainers and project fees and
reimbursed them for approximately $68,000 of out-of-pocket expenses.
Luke Weil is currently compensated by BSI at a rate of $5,000 per
month. Mr. Weil devotes the majority of his time at BSI to the
Scientific Games account.
During 2003, we engaged the services
of Lancio Partners, a marketing firm, for a fee of $80,000 to assist us
in the re-branding of our racing business from Autotote to Scientific
Games. Sarah Bresnahan, the president and owner of Lancio Partners, is
the sister of Sally L. Conkright, Vice President of Organizational
Development for the Company.
Eric Pullman, the brother-in-law of
Martin E. Schloss, the Company's General Counsel, is employed as
Director of Business Development for Autotote Enterprises, our
Connecticut OTB business.
16
Mr. Pullman, who assumed this position
in April 2003, receives a base salary of $125,000 and has the
opportunity to receive a year-end bonus of up to 35% of his base
salary. Mr. Pullman previously provided consulting services to the
Company for approximately 12 months at a monthly rate of $12,500.
Rick Balanetsky, the brother-in-law of DeWayne E. Laird, the
Company's Chief Financial Officer, worked as a computer
consultant for us during 2003 for which he received approximately
$86,000.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Securities Exchange Act of 1934
requires our officers and directors, and persons who beneficially own
more than ten percent of our Common Stock, to file initial reports of
ownership on Form 3 and reports of changes in their ownership on Forms
4 and 5 with the Securities and Exchange Commission
("SEC"). Based solely on a review of the
copies of the reports that our directors, officers and ten percent
holders filed with the SEC and on the representations made by such
persons, we believe that all filing requirements applicable to our
officers, directors and ten percent holders were complied with during
fiscal 2003, except that late Form 4 filings were made by: (a) Cliff
Bickell with respect to an option exercise on February 13, 2003, (b) A.
Lorne Weil with respect to a cashless exercise of a warrant on April
29, 2003 and with respect to a stock option grant on December 8, 2003,
(c) Brooks Pierce with respect to an option exercise on March 25, 2003,
sales on March 28, 2003 and April 1, 2003, and with respect to an
option grant on December 8, 2003 and (d) Brian Wolfson with respect to
an option grant on June 23, 2003. In addition, three former directors,
Antonio Belloni, Rosario Bifulco and Larry Lawrence, each filed a late
Form 4 with respect to a grant of restricted stock on January 2,
2003.
Compensation Committee Interlocks and Insider
Participation
The members of the Compensation Committee during
fiscal 2003 were Alan J. Zakon, Colin J. O'Brien, Howard Gittis
and Rosario Bifulco, who left the Board in November 2003. Eric M.
Turner and Joseph R. Wright, Jr. were appointed to the Committee
following the resignations of Mr. Zakon, who is not standing for
re-election at the meeting, and Mr. O'Brien, in July 2004 and
August 2004, respectively.
No member of this Committee is or has
been an officer or employee of the Company or a subsidiary of the
Company or had any relationship or transaction with the Company
requiring disclosure under this item. No executive officer of the
Company serves as a member of the board of directors or compensation
committee of any entity that has one or more executive officers serving
as a member of our Board or Compensation Committee.
17
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors
administers the Company's executive compensation program. The
Committee's responsibilities include approving awards under the
Company's incentive compensation and stock option plans,
approving the compensation of the Company's executives and making
recommendations to the Board of Directors with regard to the adoption
of new employee benefit plans and new executive compensation plans. The
Committee is comprised of three members of the Board of Directors who
are not officers or employees of the Company. The Committee engages an
outside compensation consultant for insight and advice on matters
related to executive compensation.
Compensation Components
and Philosophy
The principal components of the
Company's compensation program consist of base salaries,
performance-based bonuses and stock options. The Company's
compensation program is designed to provide executives with
compensation that is competitive with other companies, reward
executives based on Company and individual performance and to align
management and stockholder interests by providing incentive
compensation through stock option awards and performance-based
bonuses.
The Compensation Committee believes that executive
performance significantly influences Company performance. Therefore,
the executive compensation program is guided by the principle that
executives should have the potential for increased earnings when
performance objectives are exceeded, provided there is appropriate
downside risk if performance targets are not met.
Executive
Officer Compensation
Base salaries for the Company's
executives other than the Chief Executive Officer, as well as changes
in such salaries, are based upon recommendations by the Chief Executive
Officer and other senior managers and reviewed on an annual basis in
conjunction with the Company's budget for the upcoming fiscal
year, taking into account such factors as competitive industry
salaries, a subjective assessment of the nature of the position and the
contribution and experience of the executive and the length of the
executive's service.
The Company's management
incentive compensation program (the "MICP")
provides annual bonus opportunities for the Company's key
executive personnel based on three criteria: (1) the Company's
overall financial performance relative to the budget for a given fiscal
year as approved by the Board of Directors, (2) the financial
performance of individual business units of the Company for executives
directly involved with the operation of those units, and (3) a
qualitative assessment by the Committee of individual performance not
directly measurable by financial results pursuant to recommendations
made by the Chief Executive Officer and other senior managers in the
Company. The purpose of the MICP is to reward employees who have made
significant contributions to the Company's achievement of its
objectives and to provide an incentive for further contributions. The
financial performance of the Company and its business units are
principally measured under the MICP by the attainment of
"EBITDA" (Earnings Before Interest, Taxes,
Depreciation and Amortization) targets established for the year. If the
financial performance targets are met or exceeded, participants will be
eligible to receive year-end cash bonuses based on a percentage of
their base salaries, subject to adjustment by the Committee after
consideration of various objective and subjective factors. Potential
payments under the MICP during fiscal 2003 ranged from 25% to
50% of base salary for participants other than the Chief
Executive Officer, with each of Messrs. Martin E. Schloss, William J.
Huntley, Cliff O. Bickell and Richard M. Weil having the opportunity to
earn a bonus in an amount equal to 50% of base salary.
In
awarding bonuses for fiscal 2003, the Company considered the
achievement by the Company and its business units of financial
performance targets as well as various strategic objectives during the
fiscal year, including the
following:
|
|
• |
The acquisition of IGT
Online Entertainment Systems, Inc. established Scientific Games as the
second largest on-line lottery systems provider in the industry,
picking up seven North American on-line lottery contracts, six VLT
service contracts and important intellectual
property. |
18
|
|
• |
The
acquisition of MDI Entertainment, Inc., with its portfolio of licensed
properties and entertainment-based promotions, significantly expanded
the offerings of lottery products and services to the instant ticket
customers of Scientific Games and allows us to sell products to
competitors' customers outside of the traditional lottery
procurement cycle. |
|
|
• |
The relocation of
the racing business to the lottery facility in Alpharetta, Georgia and
the re-branding of the business to Scientific Games Racing, which are
intended to provide cost savings and achieve operational and
technological synergies. |
|
|
• |
The award of
contracts for two lottery start-ups -- an instant ticket and
cooperative services contract for the new Tennessee lottery and on-line
contract for the start-up of the North Dakota on-line
lottery. |
|
|
• |
The achievements in product
development reflected by the introduction of the new QuantumTM
pari-mutuel central system and LC3TM which is the
first electronic lottery game card. |
While base salary and the
annual incentive compensation components are tied to employee
responsibility and the Company's financial performance and
progress in achieving strategic goals, the purpose of stock option
grants is to align stockholder and employee interests by providing a
component of compensation tied directly to the performance of the
Company's stock price. Executive personnel have the opportunity
to receive annual grants of stock options under the MICP based on a
formula approved by the Committee. The number of shares subject to
options granted under the MICP for fiscal 2003 represented
approximately 15% of the executives' cash bonus potential
for the fiscal year, subject to upward adjustment or downward
adjustment based on an evaluation of management.
CEO Compensation
Mr. A. Lorne Weil
received a base salary of approximately $790,958 for 2003 under the
terms of his employment agreement dated February 28, 2003, which
provides for an increase in his base salary to $1 million on January 1,
2005 and further increases on each January 1 thereafter during the term
for inflation based on the increase, if any, in the Consumer Price
Index for the Greater New York area during the preceding twelve months.
Mr. Weil's agreement provided him with the opportunity to earn $1
million as incentive compensation for 2003 pursuant to the terms of the
Company's MICP. Mr. Weil received his maximum incentive award as
a result of the Company and Mr. Weil having achieved the financial and
performance objectives referred to above. In addition, the Committee
approved performance accelerated stock option grants covering 1 million
shares to Mr. Weil and a grant of approximately 50,000 shares of
restricted stock in connection with the amendment of Mr. Weil's
employment agreement, which extended the term of employment by three
years to December 31, 2007. The restrictions on these grants will lapse
on an accelerated basis on the third anniversary of the grant date due
to the achievement of the stock price performance goals established
under the agreements. (For additional information relating to Mr.
Weil's employment agreement, see "Employment
Agreements" above.)
Deductibility of
Executive Compensation
The Company expects that the
compensation paid to executive officers during fiscal 2003 will qualify
for income tax deductibility under Section 162(m) of the Internal
Revenue Code. In addition, the Company has a general policy of awarding
stock options to its executive officers only pursuant to plans that the
Company believes will satisfy the requirements of Section 162(m).
|
|
|
|
Dated: April 2004
|
Compensation Committee
(Fiscal
2003) |
|
Alan J. Zakon, Chairman Howard Gittis
Colin J. O'Brien |
19
STOCK PERFORMANCE
GRAPH
The following graph compares the cumulative total
stockholder return over the sixty-two month period from October 31,
1998 through December 31, 2003 on (a) our common stock, (b) the Nasdaq
National Market ("Nasdaq"), on which our
shares of common stock are traded and (c) a peer group index of
companies that provide services similar to ours, consisting of
International Lottery and Totalisator Systems, Inc., Churchill Downs,
Inc. and GTECH Holdings Corp. (the "Peer Group
Index"). We elected to use a peer group index rather than
a published industry or line-of-business index because we are not aware
of any such published index of companies which, in terms of their
businesses, are as comparable to us as those included in the peer group
index. The peer group companies have been weighted based upon their
relative market capitalization each year. The graph assumes that $100
was invested on October 31, 1998 in our common stock, the Nasdaq and
the Peer Group Index and that all dividends were reinvested. We changed
our fiscal year-end from an October 31 year-end to a calendar year-end,
beginning with the year ended December 31, 2001, so that the
measurement period for the performance graph covers the fiscal years
ended October 31, 1999 and 2000, the two-month transition period ended
December 31, 2000, and the fiscal years ended December 31, 2001, 2002
and 2003.
COMPARISON OF SIXTY-TWO MONTH CUMULATIVE TOTAL
RETURN
FOR THE PERIOD BEGINNING ON OCTOBER 31, 1998 AND
ENDING
ON DECEMBER 31,
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/98 |
|
10/99 |
|
10/00 |
|
12/00 |
|
12/01 |
|
12/02 |
|
12/03 |
Scientific
Games
Corporation |
|
$ |
100.00 |
|
|
$ |
157.69 |
|
|
$ |
190.77 |
|
|
$ |
181.54 |
|
|
$ |
538.46 |
|
|
$ |
446.77 |
|
|
$ |
1044.31 |
|
Nasdaq
Stock
Market |
|
$ |
100.00 |
|
|
$ |
140.85 |
|
|
$ |
170.38 |
|
|
$ |
127.67 |
|
|
$ |
70.42 |
|
|
$ |
64.84 |
|
|
$ |
91.16 |
|
Peer
Group
Index |
|
$ |
100.00 |
|
|
$ |
81.81 |
|
|
$ |
75.48 |
|
|
$ |
86.83 |
|
|
$ |
162.11 |
|
|
$ |
191.08 |
|
|
$ |
303.53 |
|
|
20
Change of Accountants in 2003
Effective May 20, 2003, we engaged Deloitte & Touche LLP to
serve as independents accountants and dismissed KPMG LLP, which had
served as independent accountants since 1984. The decision to change
accountants was made by the Audit Committee.
KPMG LLP's
reports on our financial statements for each of the fiscal years ended
December 31, 2001 and 2002 did not contain an adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope or accounting principles, except that KPMG
LLP's audit report included in our Form 10-K filed on March 24,
2003 contained a separate paragraph stating that we had adopted the
provisions of Statement of Financial Standards No. 142,
"Goodwill and Other Intangible
Assets", effective January 1, 2002.
During the
fiscal years ended December 31, 2001 and 2002 and the interim period
between December 31, 2002 and May 20, 2003, there were no
disagreements with KPMG LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or
procedure which, if not resolved to the firm's satisfaction,
would have caused it to make reference to the subject matter of the
disagreement in connection with its audit reports for such years, nor
did any of the events described in Item 304(a)(1)(v) of Regulation S-K
occur during such periods.
During the fiscal years ended
December 31, 2001 and 2002 and the interim period between
December 31, 2002 and May 20, 2003, we did not consult Deloitte
& Touche LLP with respect to the application of accounting
principles to a specified transaction, either completed or proposed, or
with respect to the type of audit opinion that might be rendered on our
financial statements or any other matters or events listed in Item
304(a)(2)(i) or (ii) of Regulation S-K.
REPORT OF THE AUDIT
COMMITTEE
The Audit Committee oversees the Company's
accounting, auditing and financial reporting processes. The Committee
acts under a charter, a copy of which is attached as Appendix A to this
Proxy Statement.
As part of its oversight responsibilities, the
Committee reviewed and discussed the Company's financial
statements for the fiscal year ended December 31, 2003 with management
and Deloitte & Touche LLP, the independent accountants for the
Company for the fiscal year. The Committee also discussed with
representatives of Deloitte & Touche LLP the matters required to be
discussed by Statement on Auditing Standards 61, Communication with
Audit Committees.
The Committee received the written
disclosures and the letter from Deloitte & Touche LLP required by
Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees, and discussed with Deloitte
& Touche LLP its independence from the Company. The
Committee also considered whether the tax consulting services and other
non-audit services provided during 2003 by Deloitte & Touche LLP
are compatible with maintaining auditor independence.
Based on
these reviews and discussions and in reliance thereon, the Committee
recommended to the Board of Directors that the audited financial
statements for the Company be included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2003 for
filing with the Securities and Exchange Commission.
|
|
|
|
|
|
|
|
|
|
|
|
|
Dated:
August 2004 |
|
Audit Committee
(Fiscal
2003) Colin J. O'Brien, Chairman Barry F.
Schwartz Eric M. Turner Sir Brian G.
Wolfson |
|
21
Fees Paid to Independent Accountants for
2003 and 2002
Deloitte & Touche LLP replaced KPMG LLP as
independent accountants beginning with the fiscal year ended December
31, 2003. The amounts shown below for "2003
Fees" represent the fees billed by Deloitte & Touche
LLP for professional services rendered in respect of the fiscal year
ended December 31, 2003; and the amounts shown below for
"2002 Fees" represent the amounts billed by
KPMG LLP for professional services rendered in respect of the fiscal
year ended December 31,
2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 Fees |
|
2002
Fees |
Audit
Fees: |
|
$ |
845,000 |
|
|
$ |
840,000 |
|
Audit
Related Fees: |
|
$ |
545,000 |
|
|
$ |
354,000 |
|
Tax
Fees: |
|
$ |
277,000 |
|
|
$ |
335,000 |
|
All Other
Fees: |
|
|
0 |
|
|
|
0 |
|
|
The Audit Fees listed
above were billed in connection with the audit of our financial
statements for the fiscal year and the review of the financial
statements included in our quarterly reports on Forms 10-Q for the
fiscal year. The amount for 2002 includes $75,000 billed in connection
with the restatement of the 2002 annual report filed on August 14,
2003. The Audit Related Fees listed above were billed for accounting
consultations and audits in connection with acquisitions and in
connection with filings with the Securities and Exchange Commission.
The Tax Fees listed above were billed for tax compliance, planning and
advice, including with respect to proposed and consummated acquisitions
and the integration of recently acquired businesses.
Pre-Approval Policy for Services Performed by Independent
Accountant
The Audit Committee has responsibility for the
appointment, compensation and oversight of the work of the independent
accountant. As part of this responsibility, the Audit Committee must
pre-approve all permissible services to be performed by the independent
accountant.
The Audit Committee has adopted an auditor
pre-approval policy which sets forth the procedures and conditions
pursuant to which pre-approval may be given for services performed by
the independent auditor. Under the policy, the Committee must give
prior approval for any amount or type of service within four categories
— audit, audit-related, tax services or, to the extent permitted
by law, other services — that the independent accountant
provides. Prior to the annual engagement, the Audit Committee may grant
general pre-approval for independent auditor services within these four
categories at maximum pre-approved fee levels. During the year,
circumstances may arise when it may become necessary to engage the
independent auditor for additional services not contemplated in the
original pre-approval and, in those instances, such service will
require separate pre-approval by the Audit Committee if it is to be
provided by the independent auditor. For any pre-approval, the Audit
Committee will consider whether such services are consistent with the
SEC's rules on auditor independence, whether the auditor is best
positioned to provide the most cost effective and efficient service and
whether the service might enhance the Company's ability to manage
or control risk or improve audit quality. The Audit Committee may
delegate to one or more of its members authority to approve a request
for pre-approval provided the member reports any approval so given to
the Audit Committee at its next scheduled meeting.
22
PROPOSAL 2
APPOINTMENT OF
INDEPENDENT ACCOUNTANTS
The Audit Committee has appointed
Deloitte & Touche LLP as independent accountants for the fiscal
year ending December 31, 2004 and stockholders are being asked to
ratify such appointment.
Representatives of Deloitte &
Touche LLP are expected to be present at the meeting, will have an
opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions from stockholders.
Approval of the proposal to ratify the appointment of the
independent accountants requires the affirmative vote of a majority of
the votes entitled to be cast in person or by proxy at the meeting. If
the appointment is not ratified by stockholders, the Audit Committee
will reconsider such appointment.
THE BOARD RECOMMENDS
A VOTE "FOR" THIS PROPOSAL
ANNUAL REPORT ON FORM 10-K
The audited financial
statements for our fiscal year ended December 31, 2003 and certain
other financial and business information are contained in the Annual
Report to Stockholders which accompanies this Proxy Statement.
Stockholders may obtain a copy of our Annual Report on Form 10-K for
the fiscal year ended December 31, 2003 without charge by contacting
Lisa Lettieri, Director of Corporate Communications, Scientific Games
Corporation, 750 Lexington Avenue, 25th Floor, New York, New York 10022
(telephone: 212-754-2233; e-mail:
invrel@scientificgames.com). Stockholders can also access
the Form 10-K through our website at www.scientificgames.com.
OTHER MATTERS
We are not aware of any matter other
than those described in this Proxy Statement that will be acted upon at
the annual meeting. In the event that any other matter properly comes
before the meeting for a vote of stockholders, the persons named as
proxies in the enclosed form of proxy will vote in accordance with
their best judgment on such other matter.
We will pay the costs
of proxy solicitation. Proxies are being solicited primarily by mail,
but, in addition, our officers and employees may solicit proxies in
person, by telephone or electronically. We have retained D.F. King
& Co., Inc. to assist us in soliciting proxies at a fee of $4,000
plus reimbursement of reasonable out-of-pocket costs and expenses.
STOCKHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, if
a stockholder wants to submit a proposal for inclusion in our proxy
materials for the next annual meeting of stockholders, it must be
received at our principal executive offices, 750 Lexington Avenue, 25th
Floor, New York, New York 10022, Attention: Secretary, not later than
May 5, 2005. In order to avoid controversy, stockholders should submit
proposals by means, including electronic means, that permit them to
prove the date of delivery.
If a stockholder intends to present
a proposal for consideration at the next annual meeting outside of the
processes of Rule 14a-8 under Exchange Act, we must receive notice of
such proposal at the address given above by July 19, 2005, or such
notice will be considered untimely under Rule 14a-4(c)(1) under the
Exchange Act, and our proxies will have discretionary voting authority
with respect to such proposal, if presented at the annual meeting,
without including information regarding such proposal in its proxy
materials.
The deadlines described above are calculated by
reference to the mailing date of the proxy materials for this
year's annual meeting. If the Board changes the date of next
year's annual meeting by more than
23
30 days, the Board will, in a timely manner,
inform stockholders of such change and the effect of such change on the
deadlines given above by including a notice under Item 5 in our
earliest possible quarterly report on Form 10-Q, or if that is
impracticable, by any means reasonably calculated to inform the
stockholders.
Your cooperation in giving this matter your
immediate attention and in returning your proxy promptly will be
appreciated.
|
By Order of the Board of
Directors MARTIN E. SCHLOSS
Vice President, General Counsel
and Secretary |
Dated: September 2,
2004
24
APPENDIX
A
AUDIT COMMITTEE CHARTER
I. Purpose
The primary purpose of the Audit
Committee (the "Committee") of the Board of
Directors (the "Board") of Scientific Games
Corporation (the "Company") is to assist the
Board in fulfilling its oversight responsibilities with respect to: (i)
the Company's accounting, auditing, and financial reporting
processes; (ii) the integrity of the Company's financial
statements; (iii) the Company's internal controls and procedures
designed to promote compliance with accounting standards and applicable
laws and regulations; and (iv) the appointment, and evaluation of the
qualifications and independence, of the Company's independent
auditors.
II. Membership and Organization
The Committee shall be comprised of three or more members of
the Board, each of whom shall satisfy the independence and financial
literacy requirements of The Nasdaq Stock Market, Inc.
("Nasdaq") and the Securities and Exchange
Commission (the "SEC"). At least one member
of the Committee shall meet the requirements of Rule 4350(d)(2)(A)(i)
of the Nasdaq Marketplace Rules and, unless the Board shall otherwise
determine, shall also be an "Audit Committee Financial
Expert", as defined by SEC regulations. Each member shall
be free from any relationship that, in the opinion of the Board, would
interfere with his or her exercise of independent judgment. The Board
must determine that each member of the Committee: (i) qualifies as an
"independent director" under Rule 4200 of the
Nasdaq Marketplace Rules, unless the Board determines that an exemption
to such qualification is available under Nasdaq Rule 4350(d)(2)(B),
(ii) meets the "independence" requirements
under Section 10A of the Securities Exchange Act of 1934 (the
"Exchange Act") and (iii) satisfies the other
requirements of Rule 4350(d)(2) of the Nasdaq Marketplace Rules.
The members of the Committee and the Chairman of the
Committee shall be appointed annually by the Board on the
recommendation of the Nominating and Corporate Governance Committee of
the Board. Members shall serve at the pleasure of the Board and for
such term or terms as the Board may determine.
The
Committee shall meet at least four times annually, or more frequently
as the Committee may determine. Members of management, the
Company's independent auditors and others shall attend meetings
to provide pertinent information, as necessary. As part of its goal of
fostering open communication, during its regularly scheduled meetings
the Committee shall meet in separate executive sessions with management
and with the independent auditors to discuss any matters that the
Committee or any of these groups believes should be discussed
privately. The Chairman of the Committee shall report to the Board
regularly regarding the Committee's activities and actions,
including at the first Board meeting following any Committee
meeting.
The Chairman or, in the event of his absence
from any meeting, another member of the Committee designated by vote of
the members in attendance at such meeting, will chair all meetings of
the Committee and set the agendas for such meetings. Any other member
of the Committee shall have the right to submit items to be included on
the agenda for any Committee meeting.
The Committee shall
keep regular minutes of its meetings and report the same to the Board
from time to time and upon request.
A-1
III. Duties and Responsibilities
The Committee shall have and may exercise the following
responsibilities and duties:
Independent Auditors
– Appointment and
Oversight
|
|
1. |
The Committee shall be
directly responsible for the appointment, compensation, retention,
termination and oversight of the work of the Company's
independent auditors (including resolution of disagreements between
management and the independent auditors regarding financial reporting).
The independent auditors shall report directly to the
Committee. |
|
|
2. |
The Committee shall approve in
advance all auditing services (including comfort letters and statutory
audits) performed by the independent auditors. The Committee shall
approve in advance all non-audit services performed by the independent
auditors as permitted under Section 10A of the Exchange Act. The
Committee may delegate to one or more members the authority to grant
pre-approvals required by this section, in which case the decision of
such member or members shall be presented to the Committee at the next
scheduled meeting of the Committee. All approvals shall be in
accordance with the Committee's Auditor Pre-Approval Policy, as
amended from time to time. |
|
|
3. |
The Committee
shall annually review and discuss with the independent auditors all
relationships the independent auditors have with the Company in order
to evaluate their continued independence. In this regard, the Committee
shall (i) review on an annual basis a written statement from the
independent auditors (consistent with Independent Standards Board
Standard No. 1) that discloses all relationships and services that may
impact the objectivity and independence of the independent auditors;
(ii) discuss with the independent auditors any disclosed relationships
or services that may impact their objectivity and independence; and
(iii) satisfy itself as to the independence of the independent
auditors. |
|
|
4. |
The Committee shall annually
obtain and review a report by the independent auditors describing: (i)
the independent auditors' internal quality-control procedures;
and (ii) any material issues raised by the most recent internal
quality-control review, or peer review, of the audit firm, or by any
inquiry or investigation by governmental or professional authorities,
within the preceding five years, respecting one or more independent
audits carried out by the audit firm, and any steps taken to deal with
such issues. |
|
|
5. |
The Committee shall confirm
compliance by the independent auditors with laws and regulations
relating to audit partner rotation. |
|
|
6. |
The
Committee shall obtain, review and discuss quarterly reports from the
independent auditors to the Committee with respect to critical
accounting policies and practices, alternative treatments of financial
information within generally accepted accounting principles that have
been discussed with management, including ramifications of the use of
such alternative disclosure and treatments, and the treatment preferred
by the independent auditors and the impact of each on the quality and
reliability of the Company's financial reporting, and other
material communications with management, such as any management letter
or schedule of unadjusted differences. All material communications
shall be promptly provided to each member of the
Committee. |
|
|
7. |
The Committee shall review with
the independent auditors and management the scope of the proposed audit
plan for the current year, and at the conclusion thereof review such
audit and any comments and recommendations of the independent
auditors. |
|
|
8. |
The Committee shall discuss with
management and the independent auditors any accounting adjustments that
were noted or proposed by the independent auditors but not adopted or
reflected. |
|
|
9. |
The Committee shall regularly
review with the independent auditors any audit problems or difficulties
encountered in the course of the audit work, including any restrictions
on the scope of the independent auditors' activities or access to
requested information and any significant disagreements with management
and management's response thereto. |
A-2
|
|
10. |
The Committee shall
annually review the qualifications, performance and independence of the
independent auditors and the senior members of the independents
auditors' audit engagement
team. |
|
|
11. |
The Committee shall annually
prepare the report required by the proxy rules promulgated by the SEC
to be included in the Company's annual proxy statement. |
Financial Statements
|
|
12. |
The Committee shall review and discuss with
management and the independent auditors the Company's annual
audited financial statements and the Company's quarterly
financial statements (including disclosures made in the
"Management's Discussion and Analysis of Financial
Condition and Results of Operations" portion thereof)
prior to issuance or filing. |
|
|
13. |
The
Committee shall discuss with the independent auditors the matters
required to be discussed by Statement on Auditing Standards No. 61
relating to the conduct of the audit. |
|
|
14. |
The
Committee shall recommend to the Board, if appropriate, that the
Company's annual audited financial statements be included in the
Company's annual report on Form 10-K for filing with the SEC. |
Accounting and Financial Reporting Processes and Risk
Assessment
|
|
15. |
The Committee shall
periodically discuss with the independent auditors, without management
being present, their judgments about the quality, appropriateness and
acceptability of the Company's accounting principles and
financial disclosure practices, as applied in its financial reporting,
and the completeness and accuracy of the Company's financial
statements. |
|
|
16. |
The Committee shall review
with management and the independent auditors any legal, regulatory or
compliance matters that could have a significant impact on the
Company's financial statements, including any correspondence with
regulators or government agencies and any employee complaints or
published reports that raise material issues regarding the
Company's financial statements or accounting policies and any
significant changes in accounting standards or rules promulgated by the
Financial Standards Board, the SEC or other regulatory
authorities. |
|
|
17. |
The Committee shall discuss
generally the types of information to be disclosed and the presentation
to be made in press releases regarding the Company's earnings,
including the use of non-GAAP financial data, and in financial
information and earnings guidance (if any) otherwise publicly announced
or given to ratings agencies or other third
parties. |
|
|
18. |
The Committee shall review with
management and, if necessary, the independent auditors and Company
counsel, press releases announcing quarterly and annual financial
results and other financial reporting information prior to their
release. |
|
|
19. |
The Committee shall review any
off-balance sheet transactions, arrangements and obligations (including
contingent obligations) and any other relationships of the Company with
unconsolidated entities that may have a current or future effect on the
Company's financial statements. |
|
|
20. |
The
Committee shall review and discuss with management, and to the extent
the Committee deems necessary or appropriate, the independent auditors,
the Company's disclosure controls and procedures that are
designed to ensure that the reports the Company files with the SEC
comply with the SEC's rules and
forms. |
|
|
21. |
The Committee shall review the
Company's major financial risk exposures, the Company's
system of internal controls and policies relating to risk assessment
and management and the steps management has taken to monitor and
control such exposures. |
A-3
Internal
Controls
|
|
22. |
The Committee shall
establish procedures for the receipt, retention, and treatment of
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters, and the confidential,
anonymous submission by employees of concerns regarding questionable
accounting or auditing matters. |
|
|
23. |
The
Committee shall review the reports of the Chief Executive Officer and
Chief Financial Officer (in connection with their required
certifications for the Company's filings with the SEC) regarding
any significant deficiencies or material weaknesses in the design or
operation of internal controls, and any fraud that involves management
or other employees who have a significant role in the Company's
internal controls. |
Other
|
|
24. |
The
Committee shall take steps to ensure that the Company shall not hire
any person to perform a financial reporting oversight role who has
provided more than ten hours of audit, review or attest services as
part of the independent auditors' audit engagement team within
the past year. A financial reporting oversight role refers to a role in
which an individual has direct responsibility for or oversight of those
who prepare the Company's financial statements and related
information which will be included in the Company's filings with
the SEC, and also includes members of the Board who may have
significant interaction with the independent auditors' audit
engagement team. |
|
|
25. |
The Committee shall,
prior to the Company entering into any related party transaction
required to be disclosed pursuant to Item 404 of Regulation S-K
promulgated by the SEC (such transaction being a "Related
Party Transaction"), review and approve such transaction
and recommend to the Board that it approve such transaction; however,
the Company may only enter into a Related Party Transaction approved by
the Committee if the Board also approves such transaction. The
Committee shall report to the Board any proposed Related Party
Transaction that it does not approve. The Committee shall also review
and report to the Board any questions of possible conflict of interest
involving Board members, members of senior management or their
immediate families. |
|
|
26. |
The Committee shall
oversee the Company's internal audit function, including (i) the
appointment, replacement, dismissal and compensation of the
Company's senior most internal auditor and (ii) reviewing the
internal audit department's staffing, budget and
responsibilities. |
|
|
27. |
The Committee shall
annually review and evaluate the performance of the Committee,
including compliance by the Committee with this
Charter. |
|
|
28. |
The Committee shall annually
review and assess the adequacy of this Charter and submit any proposed
changes to the Board for approval. |
|
|
29. |
The
Committee shall perform any other activities consistent with this
Charter, and the Company's Bylaws and Certificate of
Incorporation, as the Committee may deem necessary or appropriate for
the fulfillment of its responsibilities under this Charter or as
required by applicable law or regulation, or as may be determined by
the Board. |
IV. Committee Resources and Advisors
The Committee shall have the authority to retain, at the
expense of the Company, such independent legal and other advisors as it
shall deem necessary to carry out its duties, without Board or
management approval.
The Committee members will be
provided with continuing education opportunities in financial reporting
and other areas relevant to the Committee.
The Company
shall provide for appropriate funding, as determined by the Committee,
in its capacity as a committee of the Board, for payment of: (i)
compensation to any registered public accounting firm
A-4
engaged for the purpose of preparing or
issuing an audit report or performing other audit, review or attest
services for the Company; (ii) compensation to any advisors
engaged by the Committee as provided above; and (iii) ordinary
administrative expenses of the Committee that are necessary or
appropriate in carrying out its duties.
V. Limitation of
Committee's Role
While the Committee has the
responsibilities and powers set forth in this Charter, it is not the
duty of the Committee to plan or conduct audits or to determine that
the Company's financial statements and disclosures are complete
and accurate and are in accordance with generally accepted accounting
principles and applicable rules and regulations. These are the
responsibilities of management and the independent
auditors.
A-5
SCIENTIFIC GAMES CORPORATION
750 LEXINGTON AVENUE, 25TH FLOOR, NEW YORK, NEW YORK 10022
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS -- SEPTEMBER 28, 2004
The undersigned hereby appoints Martin E. Scholoss and DeWayne E. Laird, or
either of them, as Proxy or Proxies of the undersigned with full power of
substitution to act for the undersigned and to vote the full number of shares of
the Class A Common Stock of Scientific Games Corporation that the undersigned is
entitled to vote at the Annual Meeting of Stockholders of Scientific Games
Corporation to be held at the Metropolitan Club, 1 East 60th Street, New York,
New York at 10:00 a.m., on Tuesday, September 28, 2004, and at any adjournments
or postponements thereof, in accordance with the instructions set forth on this
proxy card, and in their discretion, with respect to all other matters that may
properly come before the meeting. Any proxy heretofore given by the undersigned
with respect to such shares is hereby revoked.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
ANNUAL MEETING OF STOCKHOLDERS OF
SCIENTIFIC GAMES CORPORATION
SEPTEMBER 28, 2004
-------------------------------
PROXY VOTING INSTRUCTIONS
-------------------------------
MAIL - Date, sign and mail your proxy card in the
envelope provided as soon as possible.
- or -
------------------------
TELEPHONE - Call toll-free 1-800-PROXIES COMPANY NUMBER
(1-800-776-9437) from any touch-tone telephone ---------------- ------
and follow the instructions. Have your proxy card ACCOUNT NUMBER
available when you call. ---------------- ------
- or - ------------------------
INTERNET - Access "www.voteproxy.com" and
follow the on-screen instructions. Have your proxy
card available when you access the web page.
Please detach along perforated line and mail in the envelope provided
IF you are not voting via telephone or the Internet.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS
AND "FOR" PROPOSAL 2. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]
- --------------------------------------------------------------------------------
1. Election of Directors:
NOMINEES:
[ ] FOR ALL NOMINEES A. Lorne Weil
Peter A. Cohen
[ ] WITHHOLD AUTHORITY Colin J. O'Brien
FROM ALL NOMINEES Ronald O. Perelman
Howard Gittis
[ ] FOR ALL EXCEPT Barry F. Schwartz
(See instruction below) Eric M. Turner
Sir Brian G. Wolfson
Joseph R. Wright, Jr.
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and write the name(s) of any such nominee(s) in
the space provided below:
------------------------------------------------------
------------------------------------------------------
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Ratification of Deloitte & Touche LLP as [ ] [ ] [ ]
independent accountants of the Company for
the fiscal year ending December 31, 2004.
3. On such other matters as may properly come
before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR THE ELECTION OF ALL THE NOMINEES FOR DIRECTOR LISTED IN PROPOSAL 1,
FOR PROPOSAL 2, AND, IN ACCORDANCE WITH THE JUDGMENT OF THE PROXIES, FOR OR
AGAINST ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING.
Please check if you plan to attend the meeting. [ ]
- --------------------------------------------------------------------------------
To change the address on your account, please check the box at right
and indicate your new address in the address space above. Please note
that changes to the registered name(s) on the account may not be
submitted via this method. [ ]
- --------------------------------------------------------------------------------
Signature of Stockholder_______________________________ Date:__________________
Signature of Stockholder_______________________________ Date:__________________
NOTE: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give full title as such. If
the signer is a corporation, please sign full corporate name by duly authorized
officer, giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person.
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