SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as Permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
SHUFFLE MASTER, INC.
Name of Registrant as Specified In Its Charter
N/A
Name of Person Filing Proxy Statement if Other Than the Registrant
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies: N/A
2) Aggregate number of securities to which transaction applies: N/A
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11: N/A
4) Proposed maximum aggregate value of transaction: N/A
5) Total fee paid: N/A
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: N/A
2) Form, Schedule or Registration Statement No.: N/A
3) Filing Party: N/A
4) Date Filed: N/A
<PAGE>
SHUFFLE MASTER, INC.
February 10, 1998
TO THE SHAREHOLDERS OF SHUFFLE MASTER, INC.:
You are cordially invited to the Annual Meeting of Shareholders of
Shuffle Master, Inc. to be held on Thursday, March 19, 1998, at 3:00 p.m. at
Lutheran Brotherhood, 625 Fourth Avenue South, Minneapolis, Minnesota. I
encourage you to attend. Whether or not you plan to attend the meeting, I urge
you to complete and sign the accompanying Proxy and return it in the enclosed
envelope. Also attached for your review are the formal Notice of Annual Meeting
and Proxy Statement.
On behalf of your Board of Directors and employees, thank you for your
continued support of Shuffle Master, Inc.
Very truly yours,
/s/ Joseph J. Lahti
Joseph J. Lahti
CHAIRMAN OF THE BOARD
<PAGE>
SHUFFLE MASTER, INC.
10901 Valley View Road
Eden Prairie, Minnesota 55344
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MARCH 19, 1998
To the Shareholders of Shuffle Master, Inc.:
The Annual Meeting of Shareholders ("Annual Meeting") of Shuffle
Master, Inc. ("Shuffle Master" or the "Company") will be held on Thursday, March
19, 1998, at 3:00 p.m. at Lutheran Brotherhood, 625 Fourth Avenue South,
Minneapolis, Minnesota, for the following purposes:
1. To set the number of members of the Board of Directors at five.
2. To elect five directors to hold office until the next Annual
Meeting of Shareholders or until their successors are elected.
3. To amend the 1993 Stock Option Plan by increasing the number of
shares reserved for issuance by 235,000.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only shareholders of record at the close of business on January 13,
1998, are entitled to notice of and to vote at the Annual Meeting or any
adjournment thereof.
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE SIGN, DATE AND
RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU EXPECT TO ATTEND
THE MEETING IN PERSON.
By Order of the Board of Directors
/s/ John A. Rahja
John A. Rahja
ACTING SECRETARY
February 10, 1998
Eden Prairie, Minnesota
<PAGE>
SHUFFLE MASTER, INC.
10901 VALLEY VIEW ROAD
EDEN PRAIRIE, MINNESOTA 55344
---------------
PROXY STATEMENT
---------------
ANNUAL MEETING OF SHAREHOLDERS
MARCH 19, 1998
This Proxy Statement is furnished to holders of shares of Common Stock
of Shuffle Master, Inc., as of January 13, 1998. This Proxy Statement is
furnished in connection with the Board of Directors' solicitation of the
enclosed Proxy for the Annual Meeting of Shareholders. A shareholder giving a
Proxy may revoke it at any time prior to the Annual Meeting by filing written
notice of the termination of the appointment with an officer of the Company, by
attending the Annual Meeting and voting in person, or by filing a new written
appointment of a Proxy with an officer of the Company. The revocation of a Proxy
will not affect any vote taken prior to such revocation. This Proxy Statement
was first mailed to shareholders on or about February 10, 1998.
All properly executed proxies received at or prior to the meeting will
be voted at the meeting. If a shareholder directs how a Proxy is to be voted
with respect to the business coming before the meeting, the Proxy will be voted
in accordance with the shareholder's direction. If a shareholder does not direct
how a Proxy is to be voted, it will be voted in favor of the proposals set forth
in the Notice of Annual Meeting and in favor of the election of the nominees
listed as directors in this Proxy Statement.
At the close of business on January 13, 1998, the record date for the
Annual Meeting, there were 9,974,651 shares of Common Stock outstanding. The
Company's only class of shares is Common Stock. Each share of Common Stock is
entitled to one vote on each matter properly coming before the meeting.
Cumulative voting for the directors is not permitted.
The cost of making this solicitation, including preparation and mailing
of the Notice of Annual Meeting, Proxy and Proxy Statement, and the costs
incurred by brokerage houses and other custodians, nominees and fiduciaries for
forwarding documents to shareholders will be paid by the Company. In certain
instances, officers of the Company may make special solicitations of proxies
either in person or by telephone. Expenses incurred in connection with these
solicitations will be paid by the Company.
<PAGE>
ELECTION OF DIRECTORS
The Bylaws of the Company provide that the shareholders may decrease
the number of directors; provided, however, that the number may be increased by
resolution of the Board of Directors. The number of directors was set at six at
the Annual Meeting of Shareholders held on March 10, 1997, and increased to
seven by resolution of the Board of Directors during fiscal 1997, with the
addition of Mr. Patrick Cruzen to the Board in August 1997. John Breeding and
Diane Breeding resigned from the Board of Directors effective October 31, 1997.
Subsequent to October 31, 1997, Mr. Richard Schuetz resigned from the Board of
Directors, and Dr. Mark Yoseloff was appointed to the Board of Directors. The
Board of Directors, therefore, recommends that the number of directors be
decreased from seven to five because it has not yet identified suitable
candidates to fill the vacancies.
Directors are elected to serve a one-year term, and will serve until
the next Annual Meeting of Shareholders, or until their successors have been
duly elected and qualified. The affirmative vote of the holders of a majority of
the outstanding shares of Common Stock present in person or by proxy at the
Annual Meeting and entitled to vote is required to elect directors. Abstentions
are treated as present and entitled to vote and broker non-votes are treated as
not present and not entitled to vote. The Board of Directors recommends a vote
FOR electing the nominees for directors as set forth below.
All nominees have consented to serve if elected. If any nominee becomes
unable to serve, the persons named as proxies may exercise their discretion to
vote for a substitute nominee. The name, age, business experience and offices
held by each nominee for director are as follows:
Name Age Company Position Director Since
---- --- ---------------- --------------
Joseph J. Lahti 37 Chairman of the Board, President 1993
and Chief Executive Officer
David W. Rogers 46 Director 1994
Thomas A. Sutton 60 Director 1994
Patrick R. Cruzen 50 Director 1997
Mark L. Yoseloff 51 Executive Vice President and 1997
Director
JOSEPH J. LAHTI has served as Executive Vice President since December
1993, as President since October 1995, Chief Executive Officer since June 1996
and Chairman of the Board since October 1997. From 1989 through December 1993,
Mr. Lahti was President of McQuillan Lahti Wilcox, Inc., a financial management
firm. Mr. Lahti also holds the position of President of J.L. Holdings, Inc., a
real estate acquisition, asset management and financial consulting company.
DAVID W. ROGERS recently was named the Executive Vice President of
Cargill Europe. Mr. Rogers has been employed by Cargill, Inc. since 1973, and
held the position of President of the Financial Markets Division of Cargill,
Inc. prior to his recent position change.
THOMAS A. SUTTON was employed by Borden, Inc. from 1972 to 1992, most
recently serving as Vice President Planning-Pasta Group. Since 1992, Mr. Sutton
has managed his personal investments.
DR. MARK L. YOSELOFF has been Executive Vice President of the Company
since August 1997 and was appointed to the Company's Board of Directors in
November 1997. From August 1996 to July 1997, Dr. Yoseloff served as consultant
to the Company. From May 1996 through the present, Dr. Yoseloff has held the
position of President of Well Suited, LLC. Dr. Yoseloff also holds the position
of President of Visual Communications Consultants, Inc. (d/b/a/ Advanced Gaming
Concepts), a company he founded in August 1993. Dr. Yoseloff held the positions
of President of Recognition, Inc. and Vice President of Clear Images, Inc. from
March 1987 to August 1993.
<PAGE>
PATRICK R. CRUZEN was appointed to the Company's Board of Directors in
August of 1997. Mr. Cruzen has been the Chief Executive Officer of Cruzen &
Associates, a consulting and executive search firm for the gaming industry,
since September 1996. From June 1994 to September 1996, Mr. Cruzen was President
of Grand Casinos, Inc. Mr. Cruzen held the position of Senior Vice President at
the MGM Grand Hotel in Las Vegas from September 1990 to May 1994.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended October 31, 1997, the Board of Directors
held meetings on eight occasions. All Board members attended at least 75% of the
meetings.
Standing committees of the Board of Directors include the Audit
Committee, the Compensation Committee, and the Option Committee.
The Audit Committee includes Messrs. Rogers and Sutton and is
responsible for recommending the appointment of the independent auditors for the
Company, reviewing the scope of the audit, examining the auditors' reports,
making appropriate recommendations to the Board of Directors as a result of such
review and examination, and making inquiries into the effectiveness of the
financial and accounting functions and internal controls of the Company. The
Audit Committee met three times in fiscal 1997.
The Compensation Committee currently includes Messrs. Rogers, Sutton
and Cruzen, and is responsible for recommending to the Board of Directors the
compensation of the executive officers of the Company. Mr. Schuetz was a member
of the Compensation Committee during fiscal 1997. The Compensation Committee met
three times in fiscal 1997.
The Option Committee currently includes Messrs. Rogers and Sutton and
is responsible for recommending individual stock option grants to the Board of
Directors. Diane Breeding was a member of the Option Committee during fiscal
1997. The Option Committee met four times in fiscal 1997.
PROPOSAL TO AMEND THE 1993 STOCK OPTION PLAN
The shareholders will be asked to approve an amendment to the Shuffle
Master, Inc. 1993 Stock Option Plan (the "Plan"). The Plan was originally
approved at the 1994 Annual Meeting, at which time 525,000 shares were reserved
for issuance. In March 1996, the shareholders approved an amendment to the Plan,
whereby 200,000 additional shares of the Company's Common Stock were reserved
for issuance. In January 1998, the Board of Directors adopted an amendment to
the Plan, increasing the number of shares of the Company's Common Stock reserved
for issuance by 235,000. Upon approval of this amendment, the total number of
shares reserved for issuance will be 960,000. Under the Plan, the Company has
granted options to purchase 958,558 shares. In the event the proposed amendment
is not approved by shareholders, grants of 191,641 options made in October 1997
and 37,789 options made in January 1998 provide that such options will be
treated as non-plan options.
The purposes of the Plan are: (i) to improve individual performance by
providing long-term incentives and rewards to employees, directors and
consultants of the Company; (ii) to assist the Company in attracting, retaining
and motivating employees, directors and consultants; and (iii) to align the
interests of such persons with those of the Company's shareholders.
The Board of Directors believes the proposal is in the best interests
of the Company and its shareholders and recommends its approval. The affirmative
vote of the holders of a majority of the outstanding shares of Common Stock
present in person or by proxy at the meeting and entitled to vote is required
for approval of the proposal. The Board of Directors recommends a vote FOR
amending the Shuffle Master, Inc. 1993 Stock Option Plan.
<PAGE>
EXECUTIVE OFFICERS
In addition to Joseph J. Lahti and Mark J. Yoseloff, whose biographies
were listed previously, Gary W. Griffin serves as an executive officer of the
Company.
GARY W. GRIFFIN has been the Vice President of Finance for the Company
since June 1997, and Chief Financial Officer since October 1997. Mr. Griffin
joined Shuffle Master, Inc. in April 1996 as Vice President of Financial
Relations and Corporate Development. From January 1995 to March 1996 Mr. Griffin
was self-employed as a consultant. From August 1988 through December 1994, Mr.
Griffin was employed by Ecolab Inc., first as Director of Corporate Development
and later as Controller of the Textile Care Division.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, certain officers and persons holding ten percent of the
Company's Common Stock to file reports regarding their ownership, acquisitions
and dispositions of the Company's Common Stock with the Securities and Exchange
Commission. During the year ended October 31, 1997, John and Diane Breeding
failed to file one report on a timely basis disclosing the sale of 5,000 shares
of Common Stock owned by The Breeding Foundation, a non-profit foundation, of
which Mr. and Mrs. Breeding are the only members.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued for
services rendered in all capacities to the Company during the fiscal years ended
October 31, 1997, 1996 and 1995, for the Chief Executive Officer, for one other
executive officer serving at October 31, 1997, and for two former executive
officers whose compensation earned in fiscal 1997 exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
Name and Fiscal --------------------- ------------ All Other
Principal Position Year Salary Bonus Options Compensation
- ------------------------------- ------ ------- ------ ------------ ------------
($) ($) (#) ($)
<S> <C> <C> <C> <C> <C>
Joseph J. Lahti 1997 231,346 91,125 41,904 --
Chairman of the Board, 1996 182,692 -- 61,590 --
President and Chief 1995 147,500 -- 66,575 --
Executive Officer
John G. Breeding(1) 1997 256,731 -- 94,000 --
Former Chairman of the 1996 197,923 -- -- --
Board 1995 143,750 -- 61,650 --
Thomas S. Nieman(2) 1997 120,645 -- 1,790 46,153
Vice President of 1996 150,000 29,000 11,401 --
Marketing and Sales 1995 106,250 11,480 22,500 --
Gary W. Griffin(3) 1997 115,028 44,550 30,000 --
Chief Financial Officer and --
Vice President of Finance
</TABLE>
- -------------------------------
(1) Mr. Breeding resigned as Chairman of the Board on October 31, 1997.
(2) Mr. Nieman ceased to be an executive officer of the Company effective
July 7, 1997. From July 7, 1997, to October 31, 1997, Mr. Nieman was
paid $46,153 under a separation agreement.
(3) Mr. Griffin began employment with the Company in April 1996, and became
an executive officer during fiscal 1997.
<PAGE>
OPTION GRANTS DURING THE FISCAL YEAR ENDED OCTOBER 31, 1997
The following table sets forth information with respect to each option
granted to the executive officers named in the Summary Compensation Table during
the fiscal year ended October 31, 1997:
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Appreciation for Option
Percentage of Total Term(1)
Options Options Granted to Exercise Expiration ------------------------
Name Granted Employees in Fiscal Year Price Date 5% 10%
- ----------------- ------- ------------------------ -------- ---------- ---------- ---------
(#) (%) ($) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
Joseph J. Lahti 40,000 9.8 8.25 10/2007 207,535 525,935
1,904 .5 9.38 1/2007 11,226 28,448
John G. Breeding 94,000 22.9 8.75 10/2007 517,266 1,310,853
Thomas S. Nieman 1,790 .4 9.38 1/2007 10,554 26,745
Gary W. Griffin 29,263 7.1 8.25 10/2007 151,828 384,761
737 .2 9.38 1/2007 4,345 11,012
</TABLE>
- --------------------------
(1) The compounding assumes a ten-year exercise period for all option
grants. These amounts represent certain assumed rates of appreciation,
based on Securities and Exchange Commission rules. Actual gains, if
any, on stock option exercises are dependent on the future performance
of the Common Stock, overall stock market conditions, and continued
employment of the option holder through the vesting period. The amounts
reflected in this table may not necessarily be achieved.
AGGREGATE OPTIONS EXERCISED IN THE FISCAL YEAR ENDED OCTOBER 31, 1997 AND
OPTION VALUES AT OCTOBER 31, 1997
The following table sets forth certain information regarding options to
purchase shares of Common Stock exercised during the Company's fiscal year ended
October 31, 1997, and the number and value of options to purchase shares of
Common Stock held as of October 31, 1997, by the executive officers of the
Company named in the Summary Compensation Table:
<TABLE>
<CAPTION>
Value of Unexercised
Number of Number of Options In-the-Money
Shares at October 31, 1997 Options at October 31, 1997(2)
Acquired Value ----------------------------- ------------------------------
Name on Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- ------------------- ----------- ---------- ----------- ------------- ----------- -------------
(#) ($) (#) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
Joseph J. Lahti(3) -- -- 118,160 115,001 3,988 1,875
John G. Breeding(4) -- -- 21,413 154,000 26,573 --
Thomas S. Nieman -- -- 22,524 1,500 -- --
Gary W. Griffin -- -- 7,405 42,595 -- --
</TABLE>
- -------------------------
(1) Value Realized is the difference between the closing price per share on
the date of exercise, and the option price per share, multiplied by the
number of shares acquired upon exercise of the option.
(2) Value of Unexercised In-the-Money Options is the difference between the
closing price per share of $7.88 at October 31, 1997, and the exercise
price per share multiplied by the number of shares subject to options.
(3) A grant of 40,000 options to Mr. Lahti in fiscal 1996 included vesting
limitations with regard to a loan advanced to Mr. Lahti, as discussed
under "Certain Relationships and Related Party Transactions." Although
13,333 of the 40,000 options granted have met the time requirements of
the vesting schedule, the exercise of these options remains restricted
until the loan is repaid to the Company. These options are included as
unexercisable at October 31, 1997.
(4) A grant of 60,000 options to Mr. Breeding in fiscal 1995 included
vesting limitations with regard to a loan advanced to Mr. Breeding, as
discussed under "Certain Relationships and Related Party Transactions."
The exercise of these options was restricted until the loan was repaid
to the Company. Since the loan was not repaid until November, these
options are included as unexercisable at October 31, 1997.
<PAGE>
COMPENSATION OF DIRECTORS
To align the interests of the outside directors with the shareholders,
the Board has elected not to pay any cash compensation to outside directors, but
to compensate such directors with stock option grants. Pursuant to the Company's
Outside Directors' Option Plan (the "Directors' Plan"), each director who is not
an employee of the Company is entitled to receive an annual non-discretionary
grant of options to purchase 3,000 shares of Common Stock after each Annual
Meeting of Shareholders. The exercise price of the options is equal to the
closing price of the Company's Common Stock on the date of grant. The options
are immediately exercisable and expire the earlier of seven years from the date
of grant, or thirty days after leaving the Board. Directors who are not
employees of the Company are also eligible for grants of nonqualified options in
addition to those provided by the Directors' Plan. At the March 1997 Annual
Meeting, Messrs. Rogers and Sutton declined the annual non-discretionary option
grants under the Directors' Plan, while option grants of 3,000 shares were made
to Ms. Breeding and Mr. Schuetz, at an exercise price of $8.81. As an incentive
for joining the Board of Directors, Mr. Cruzen received an option grant under
the Directors' Plan of 6,000 shares in October 1997, at an exercise price of
$8.75. These options vest as follows: 50% immediately, 25% one year after the
date of grant and 25% two years after date of grant, and expire seven years from
date of grant.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
OVERVIEW AND PHILOSOPHY
The Compensation Committee of the Board of Directors (the "Committee")
is composed entirely of outside directors and is responsible for developing and
making recommendations to the Board with respect to the Company's compensation
policies. In addition, the Committee, pursuant to authority delegated by the
Board, recommends on an annual basis the compensation to be paid to the Chief
Executive Officer and each of the other executive officers of the Company.
It is the intention of the Committee to utilize a pay-for-performance
compensation strategy that is directly related to achievement of the Company's
financial performance and growth objectives. The primary elements of the
executive compensation program are base salary, annual cash incentives based on
performance, and long-term incentives in the form of stock options. These
elements are designed to: (i) provide compensation opportunities that will allow
the Company to attract and retain talented executive officers who are essential
to the Company's success; (ii) provide compensation that rewards corporate
performance and motivates the executive officers to achieve corporate strategic
objectives; and (iii) align the interests of executive officers with the
long-term interests of shareholders through stock-based awards.
BASE SALARY
Base salaries of the Company's executive officers are intended to be
competitive with the median base salaries paid by other corporations engaged in
business similar to the Company, such as suppliers to the gaming industry. Base
salaries are determined for executive officer positions using compensation
surveys, taking into account variables such as geography, job comparability,
size of each corporation and its industry. In addition to base salary, executive
officers are eligible to participate in the Company's employee benefit plans on
the same terms as other employees, except that executive officers are not
entitled to annual employee option grants under the 1993 Stock Option Plan.
INCENTIVE COMPENSATION
The purpose of the annual bonus program is to provide a short-term,
direct financial incentive in the form of an annual cash bonus to executive
officers if the Company achieves a targeted level of financial performance. Each
executive officer is eligible to receive a cash bonus determined by a formula
proposed by the Committee and approved by the Board of Directors. Incentive
compensation is reviewed annually. The Committee may also provide cash bonus
opportunities to executive officers, based upon meeting certain operational
objectives.
<PAGE>
LONG-TERM INCENTIVES
The 1993 Stock Option Plan is the basis of the Company's long-term
incentive plan for executive officers and other key employees. The objective of
this plan is to align executive officers' long-term interests with those of the
shareholders by creating a direct incentive for executive officers to increase
shareholder value. The option grants allow executive officers to purchase shares
of Company stock at a price equal to the fair market value of the stock on the
date of grant over a term of ten years. The award of option grants is consistent
with the Company's objective to include in total compensation a long-term equity
interest for executive officers, with greater opportunity for reward if
long-term performance is sustained.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Lahti became Chief Executive Officer of the Company in June 1996,
and has also served as its President since October 1995. Mr. Lahti began his
employment with the Company as its Chief Operating Officer and Executive Vice
President in December 1993.
Since Mr. Lahti joined the Company, revenues have grown from $554,000
for fiscal 1993 to $28,736,000 for fiscal 1997, while net income increased to
$5,122,000 for fiscal 1997 from a net loss of $1,107,000 for fiscal 1993. The
shuffler systems, including sales and leases, have shown exceptional growth over
the past five years. During fiscal 1997, Mr. Lahti successfully directed the
conversion of the Let It Ride The Tournament(TM) table game to the Let It Ride
Bonus(TM) game in Nevada and Mississippi. In addition, the Company added Let It
Ride The Tournament(TM) tables at Foxwoods Casino and Mohegan Sun Casino, two of
the largest Indian gaming properties in the United States. As of October 31,
1997, there were Let It Ride Bonus(TM) tables in eleven gaming jurisdictions
compared to Let It Ride The Tournament(TM) tables in only Nevada and Mississippi
at October 31, 1996.
Mr. Lahti's base salary was $225,000 for fiscal 1997. Mr. Lahti earned
a performance bonus of $91,125 for fiscal 1997 based upon the Company's
performance relative to its financial objectives.
For fiscal 1998, Mr. Lahti's base salary was recommended by the
Compensation Committee and approved by the Board to be $236,250. The effective
date of the increase in Mr. Lahti's base salary has not yet been determined. He
may also earn a performance bonus of up to two times base salary if the Company
achieves certain financial objectives which were recommended by the Committee
and approved by the Board of Directors.
CONCLUSION
The Committee believes that the executive compensation plan discussed
in this Proxy Statement is consistent with the overall corporate strategy for
continued growth in earnings and shareholder value.
David W. Rogers
Thomas A. Sutton
Patrick R. Cruzen
MEMBERS OF THE COMPENSATION COMMITTEE
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return,
assuming $100 invested on December 8, 1992 (the day the Company's Common Stock
commenced trading on the Nasdaq Small-Cap Market), as if such amount had been
invested in each of: (i) the Company's Common Stock; (ii) the stocks included in
the Dow Jones Industrial Average; and (iii) a peer group index of twelve
companies(1) that market and sell products and services similar to those of the
Company. The Company elected to use this peer group index rather than a
published industry or line-of-business index because it believes this peer group
is comprised of companies whose business is more similar to that of the Company.
The graph assumes the reinvestment of all dividends and reallocation of invested
funds, based on market capitalization, at the beginning of each indicated
period.
<TABLE>
<CAPTION>
12/8/92 10/31/93 10/31/94 10/31/95 10/31/96 10/31/97
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Peer Group $100.00 $126.18 $ 71.39 $ 57.85 $ 78.94 $ 86.07
Dow Jones Industrial Average $100.00 $113.75 $123.74 $154.65 $188.91 $237.38
Shuffle Master Inc. $100.00 $400.00 $330.83 $489.98 $444.98 $315.00
</TABLE>
- ------------------------
(1) The peer group is comprised of the following companies: Alliance Gaming
Corp.; Autotote Corporation; Bally Gaming International, Inc. (prior to
its acquisition by Alliance Gaming Corp. in June 1996); Casino Data
Systems (first publicly traded April 1993); GTech Holdings Corporation;
International Game Technology; Mikohn Gaming Corporation (first
publicly traded November 1993); Scientific Games Holdings Corp. (first
publicly traded August 1993); Sodak Gaming, Inc. (first publicly traded
June 1993); Stuart Entertainment Inc.; Video Lottery Technologies; and
WMS Industries, Inc. Each company included in the peer group is engaged
in the manufacture and sale of gaming products.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of January 13, 1998, the number of
shares of Common Stock beneficially owned: (i) by each person known by the
Company to be the beneficial owner of more than 5% of the outstanding shares of
Common Stock; (ii) by each director of the Company; (iii) by each executive
officer of the Company named in the Summary Compensation Table; and (iv) by all
directors and executive officers of the Company as a group.
Number of Shares Beneficially Owned(1)
Name and Address --------------------------------------
of Beneficial Owner Shares Percent
- ----------------------------------------- ---------------- --------------
John G. Breeding and Diane L. Breeding(2) 716,143 7.1%
10569 Bluff Road
Eden Prairie, Minnesota 55347
Joseph J. Lahti 160,461 1.6%
10901 Valley View Road
Eden Prairie, Minnesota 55344
Mark L. Yoseloff(3) 125,500 1.2%
1106 Palms Airport Drive
Las Vegas, NV 89119
Thomas S. Nieman 24,024 *
228 Desert View
Las Vegas, Nevada 89107
Gary W. Griffin 10,005 *
10901 Valley View Road
Eden Prairie, Minnesota 55344
David W. Rogers 35,650 *
15605 16th Place North
Plymouth, Minnesota 55447
Thomas A. Sutton 24,000 *
20330 Knightsbridge Road
Shorewood, Minnesota 55331
Patrick R. Cruzen 3,000 *
63010 Maple Ridge Drive
Excelsior, Minnesota 55331
All directors and executive 382,640 3.7%
officers as a group (7 persons)
- ----------------------------
* Less than 1%
(1) Shares not outstanding but deemed beneficially owned by virtue of the
individual's right to acquire them through the exercise of stock
options, as of January 13, 1998, or within 60 days of such date, are
treated as outstanding when determining the percent of the outstanding
shares of Common Stock owned by the individual and when determining the
percent owned by the group as follows: Joseph J. Lahti, 133,160 shares;
Mark L. Yoseloff, 12,500 shares; Thomas S. Nieman, 24,024 shares; Gary
W. Griffin, 7,405 shares; David W. Rogers, 18,000 shares; Thomas A.
Sutton, 18,000 shares; Patrick R. Cruzen, 3,000 shares; and all
directors and executive officers as a group, 216,089 shares.
(2) The number of shares beneficially owned by John G. Breeding and Diane
L. Breeding includes 81,413 shares subject to stock options.
(3) The number of shares beneficially owned by Mark L. Yoseloff includes
shares issued and to be issued under a certain transaction with the
Company. See "Certain Relationships and Related Party Transactions."
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In February 1995, the Board of Directors of the Company approved a
$300,000 loan to Mr. Breeding. The loan had a floating interest rate at the
prime rate plus one percent, maturing in February 1998. The loan was secured by
a second mortgage on Mr. Breeding's residence, and was further secured by a
restriction on Mr. Breeding's vesting schedule under his January 1995 grant of
60,000 stock options. The restriction required loan repayment before vested
options could be exercised. At October 31, 1997, the amount due including
accrued interest was $376,395. In November 1997, Mr. Breeding repaid the entire
loan including $78,453 of accrued interest.
In October 1997, the Board of Directors authorized the repurchase of up
to $3,500,000 of Mr. and Mrs. Breedings' Common Stock. On October 31, 1997, the
Company repurchased 424,242 shares of Common Stock from the Breedings at a total
cost of $3,500,000.
In October 1996, the Board of Directors of the Company approved a
$300,000 loan to Mr. Lahti. These funds were advanced to Mr. Lahti in November
1996. The loan bears interest at seven percent, and is secured by 17,000 shares
of Shuffle Master, Inc. Common Stock which were pledged as collateral. The note
is further secured by a restriction on Mr. Lahti's vesting schedule under his
October 1996 grant of 40,000 options. The restriction requires loan repayment
before vested options can be exercised. As of October 31, 1997, the amount due
including accrued interest was $320,708. The loan plus all accrued interest is
due November 1999.
In March 1997, the Company purchased certain intellectual property from
Dr. Yoseloff and a company owned by Dr. Yoseloff. The purchase price (the amount
of which is the subject of a confidential treatment request to the Securities
and Exchange Commission) included amounts previously paid to such company for
certain licensing rights and amounts previously paid to another company owned by
Dr. Yoseloff. The balance of such purchase price is to be paid by the issuance
of 108,000 shares of the Company's Common Stock which were valued at $8.75 per
share, and cash payments (the amount of which is the subject of a confidential
treatment request to the Securities and Exchange Commission), both to be made
equally over twenty (20) quarterly installments, beginning March 7, 1997. There
was no stated interest rate in the agreement. Interest was imputed for financial
statement purposes at seven percent. Under the terms of this agreement, Dr.
Yoseloff will receive additional payments (the amount of which is the subject of
a confidential treatment request to the Securities and Exchange Commission) for
five years contingent on his continued employment with the Company.
In a related but separate agreement, Dr. Yoseloff signed a five-year
employment contract with the Company commencing August 1, 1997. Under the terms
of the contract, Dr. Yoseloff will receive $100,000 per year in salary for each
of the five years following the beginning of his employment. In addition, the
Company reimbursed Dr. Yoseloff $10,000 for moving expenses under the terms of
the contract.
For the period from November 1, 1996, to July 31, 1997, prior to Dr.
Yoseloff becoming an employee of the Company, Dr. Yoseloff and a company owned
by him received $194,643 from the Company for consulting fees.
TERMINATION OF EMPLOYMENT ARRANGEMENT
In fiscal 1997, the Company entered into a termination of employment
arrangement with Mr. Lahti which, in the event of termination other than for
cause, provides for payment of an amount equal to his then-current base salary
over a one year period commencing on the date of termination. Such amount would
be based on Mr. Lahti's fiscal 1998 salary of $236,250, as recommended by the
Compensation Committee and approved by the Board of Directors.
<PAGE>
INDEPENDENT AUDITORS
Representatives of Deloitte & Touche LLP, the Company's independent
auditors for the fiscal year ended October 31, 1997, will be present at the
Annual Meeting. The Board of Directors expects to retain Deloitte & Touche LLP
as the Company's independent auditors for the fiscal year ending October 31,
1998.
SUBMISSION OF SHAREHOLDER PROPOSALS
The rules of the Securities and Exchange Commission permit shareholders
of the Company to present proposals for shareholder action in the Company's
Proxy Statement. Shareholder proposals prepared in accordance with the proxy
rules intended to be presented at the Company's 1999 Annual Meeting must be
received by the Company on or before October 13, 1998.
OTHER BUSINESS
The Board of Directors of the Company does not intend to present any
business at the meeting other than the matters specifically set forth in this
Proxy Statement and knows of no other business to come before the meeting.
By Order of the Board of Directors
/s/ John A. Rahja
John A. Rahja
Date: February 10, 1998 ACTING SECRETARY
<PAGE>
SHUFFLE MASTER, INC. PROXY
10901 VALLEY VIEW ROAD
EDEN PRAIRIE, MINNESOTA 55344
The undersigned hereby appoints Joseph J. Lahti and Mark L. Yoseloff, and each
of them with full power of substitution, his or her Proxies to represent and
vote, as designated below, all of the shares of Common Stock of Shuffle Master,
Inc., registered in the name of the undersigned as of January 13, 1998, with the
powers the undersigned would possess if personally present at the Annual Meeting
of Shareholders to be held on Thursday, March 19, 1998, at 3:00 p.m. at Lutheran
Brotherhood, 625 Fourth Avenue South, Minneapolis, Minnesota, or at any
adjournment thereof, hereby revoking any proxy or proxies previously given.
1. Proposal to decrease the number of directors to five:
|_| FOR |_| AGAINST |_| ABSTAIN
2. Election of directors:
|_| FOR all nominees listed below |_| WITHHOLD AUTHORITY
(except as marked to the contrary to vote for all nominees listed
below) below
(To WITHHOLD authority to vote for any individual nominee, draw a line
through the nominee's name below)
JOSEPH J. LAHTI DAVID W. ROGERS THOMAS A. SUTTON
MARK L. YOSELOFF PATRICK R. CRUZEN
(CONTINUED, AND TO BE COMPLETED AND SIGNED ON THE REVERSE SIDE)
- --------------------------------------------------------------------------------
(CONTINUED FROM THE OTHER SIDE)
3. Proposal to amend the 1993 Stock Option Plan:
|_| FOR |_| AGAINST |_| ABSTAIN
4. In their discretion, the appointed Proxies are authorized to vote upon such
other business as may properly come before the Annual Meeting of
Shareholders or any adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED, OR IF NO
DIRECTION IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL. THIS PROXY IS SOLICITED ON
BEHALF OF THE BOARD OF DIRECTORS.
Date: ________________________________, 1998
____________________________________________
(Signature)
____________________________________________
(Second signature)
PLEASE DATE AND SIGN ABOVE exactly as your
name appears at left, indicating where
appropriate, official position or
representative capacity.
