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 11, 1999
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 Wednesday, March 17, 1999, at the MGM Grand
Conference Center, 4701 Koval Lane, Las Vegas, Nevada, at 10:00 a.m., Pacific
Standard Time. 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,
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 17, 1999
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 Wednesday,
March 17, 1999, at the MGM Grand Conference Center, 4701 Koval Lane, Las Vegas,
Nevada, at 10:00 a.m., Pacific Standard Time, for the following purposes:
1. To set the number of members of the Board of Directors at four.
2. To elect four 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 250,000.
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 22,
1999, 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,
Gary W. Griffin
SECRETARY
February 11, 1999
Eden Prairie, Minnesota
<PAGE>
SHUFFLE MASTER, INC.
10901 VALLEY VIEW ROAD
EDEN PRAIRIE, MINNESOTA 55344
----------------------
PROXY STATEMENT
----------------------
ANNUAL MEETING OF SHAREHOLDERS
MARCH 17, 1999
This Proxy Statement is furnished to holders of shares of Common Stock
of Shuffle Master, Inc., as of January 22, 1999, 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 11, 1999.
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 22, 1999, the record date for the
Annual Meeting, there were 8,019,284 shares of Common Stock outstanding. 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. The Company will pay
expenses incurred in connection with these solicitations.
1
<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 five at
the Annual Meeting of Shareholders held on March 19, 1998. Subsequent to October
31, 1998, Mr. David W. Rogers resigned from the Board of Directors citing his
relocation to Europe, which did not allow him to actively participate in his
Board responsibilities. The Board of Directors, therefore, recommends that the
number of directors be decreased from five to four because it has not yet
identified a suitable candidate to fill the vacancy. The search for Board
candidates is encumbered by the rigid and costly background investigation
imposed on all of its directors by the many gaming jurisdictions in which the
Company is licensed.
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 38 Chairman of the Board, President and 1993
Chief Executive Officer
Mark L. Yoseloff 52 Executive Vice President and Director 1997
Patrick R. Cruzen 51 Director 1997
Thomas A. Sutton 61 Director 1994
JOSEPH J. LAHTI has served as Executive Vice President since December
1993, 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.
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.
PATRICK R. CRUZEN was appointed to the Company's Board of Directors in
August 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.
2
<PAGE>
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.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended October 31, 1998, the Board of Directors
held meetings on six 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. Mr. Rogers was
a member of each of these committees during fiscal 1998.
The Audit Committee includes Messrs. Cruzen and Sutton and is
responsible for recommending the appointment of the independent auditors for the
Company, reviewing the scope of the audit, examining the auditor's 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 four times in fiscal 1998.
The Compensation Committee includes Messrs. Cruzen and Sutton and is
responsible for recommending to the Board of Directors the compensation of the
executive officers of the Company. The Compensation Committee met four times in
fiscal 1998.
The Option Committee includes Messrs. Cruzen and Sutton and is
responsible for recommending individual stock option grants to the Board of
Directors. The Option Committee met four times in fiscal 1998.
PROPOSAL TO AMEND THE 1993 STOCK OPTION PLAN
The shareholders are 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 and March 1998, the shareholders approved amendments
to the Plan, whereby 200,000 and 235,000 additional shares of the Company's
Common Stock were reserved for issuance, respectively. In January 1999, 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 250,000. Upon
approval of this amendment, the total number of shares reserved for issuance
will be 1,210,000. In the event the proposed amendment is not approved by
shareholders, grants of 225,000 options made in October 1998 provide that such
options will be treated as non-plan options.
The purposes of the Plan are: (i) to incent individual performance by
providing the opportunity for long-term rewards to employees and consultants of
the Company; (ii) to assist the Company in attracting, retaining and motivating
employees 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.
3
<PAGE>
EXECUTIVE OFFICERS
In addition to Joseph J. Lahti and Mark L. 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, Chief Financial Officer since November 1997, and Secretary
since February 1998. Mr. Griffin joined the Company 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. All executive officers and directors filed reports as required
during the year ended October 31, 1998.
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, 1998, 1997 and 1996, for the Chief Executive Officer and two other
executive officers serving at October 31, 1998, whose compensation earned in
fiscal 1998 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 1998 236,250 -- 75,000 --
Chairman of the Board, 1997 231,346 91,125 41,904 --
President and Chief 1996 182,692 -- 61,590 --
Executive Officer
Gary W. Griffin(1) 1998 130,000 -- 45,000 --
Chief Financial Officer, 1997 115,028 44,550 30,000 --
Vice President of Finance
and Secretary
Mark L. Yoseloff(2) 1998 100,000 -- 45,000 --
Executive Vice President 1997 23,462 20,250 40,000 --
</TABLE>
- -----------------------------
(1) Mr. Griffin began employment with the Company in April 1996, and became an
executive officer during fiscal 1997.
(2) Dr. Yoseloff began employment with the Company as an executive officer in
August 1997.
4
<PAGE>
OPTION GRANTS DURING THE FISCAL YEAR ENDED OCTOBER 31, 1998
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, 1998:
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Percentage of Total Price Appreciation for Option
Options Granted to Term(1)
Options Employees Exercise Expiration -----------------------------
Name Granted Fiscal Year Price Date 5% 10%
- ------------------- --------- --------------------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
(#) (%) ($) ($) ($)
Joseph J. Lahti 50,000 19.0 7.94 10/2008 249,671 632,716
25,000 9.5 9.92 10/2008 155,966 395,248
Gary W. Griffin 30,000 11.4 7.94 10/2008 149,803 379,629
15,000 5.7 9.92 10/2008 93,580 237,149
Mark L. Yoseloff 30,000 11.4 7.94 10/2008 149,803 379,629
15,000 5.7 9.92 10/2008 93,580 237,149
</TABLE>
(1) The compounding assumes a ten-year exercise period for all option
grants. These amounts represent certain assumed rates of appreciation,
based on Securities and Exchange Commission rules. Actual gains, if
any, on stock option exercises are dependent on the future performance
of the Common Stock, overall stock market conditions, and continued
employment of the option holder through the vesting period. The
amounts reflected in this table may not necessarily be achieved.
AGGREGATE OPTIONS EXERCISED IN THE FISCAL YEAR ENDED OCTOBER 31, 1998 AND
OPTION VALUES AT OCTOBER 31, 1998
The following table sets forth certain information regarding options
to purchase shares of Common Stock exercised during the Company's fiscal year
ended October 31, 1998, and the number and value of options to purchase shares
of Common Stock held as of October 31, 1998, by the executive officers named in
the Summary Compensation Table:
<TABLE>
<CAPTION>
Value of Unexercised
Number of Options In-the-Money
Number of Shares at October 31, 1998 Options at October 31, 1998(2)
Acquired Value ------------------------------- -------------------------------
Name on Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- ------------------- ------------------ ------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
(#) ($) (#) (#) ($) ($)
Joseph J. Lahti(3) -- -- 159,827 148,334 11,499 3,000
Gary W. Griffin -- -- 23,824 71,176 -- 1,800
Mark L. Yoseloff -- -- 38,333 71,667 -- 1,800
</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 $8.00 at October 31, 1998, 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 26,666 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, 1998.
5
<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 had been entitled to receive an annual
non-discretionary grant of options to purchase 3,000 shares of Common Stock
after each Annual Meeting of Shareholders. For the March 1999 Annual Meeting,
the option grant will include an additional 3,000 options to make the total
grant 6,000 options. 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 1998 Annual Meeting,
Messrs. Rogers, Sutton, and Cruzen each were granted options to purchase 3,000
shares at an exercise price of $10.56 under the Directors' Plan.
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, and
cannot participate in the employee wide profit sharing 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. No bonuses were paid to executive officers in
fiscal 1998 since the Company did not
6
<PAGE>
achieve the financial performance objectives set by the Board. The Committee may
also provide cash bonus opportunities to executive officers based upon meeting
specific operational objectives. No bonuses were paid to executive officers in
fiscal 1998 based on achieving operational objectives.
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. However, one third of the options
granted to each of the executive officers in October 1998 were priced at 125% of
the fair market value of the stock on the date of grant. 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
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 $27,124,000 for fiscal 1998, while operating income increased
from an operating loss of $1,217,000 for fiscal 1993 to operating income of
$4,313,000 for fiscal 1998. Fiscal 1998 operating income included a $2,650,000
charge for the relocation of the Company's administrative functions and
manufacturing operations from Minneapolis, Minnesota to Las Vegas, Nevada, and
asset valuation allowances. The asset valuation allowance principally covered
inventory of older model single deck shufflers that will be replaced by a new
model. Based on the available market for the Company's shuffler systems,
placements of these systems, including sales and leases, have shown exceptional
growth over the past five years. The total number of shufflers sold and on lease
as of October 31, 1998, was in excess of 4,800 units. During fiscal 1998, Mr.
Lahti successfully directed the conversion from the marginally profitable Let It
Ride The Tournament(TM) table game to the more profitable Let It Ride Bonus(TM)
table game. Following the conversion in the fourth quarter of fiscal 1997, Mr.
Lahti oversaw the expansion of Let It Ride Bonus from 220 Bonus tables in eleven
gaming jurisdictions at October 31, 1997, to 375 Bonus tables in twenty gaming
jurisdictions at October 31, 1998.
Mr. Lahti's base salary was $236,250 for fiscal 1998. Mr. Lahti did
not earn a bonus for fiscal 1998 since the financial performance objectives set
by the Board were not achieved. For fiscal 1999, Mr. Lahti's base salary will
remain unchanged. He may earn a performance bonus of up to two times base salary
if the Company achieves specific financial objectives that 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.
Thomas A. Sutton
Patrick R. Cruzen
MEMBERS OF THE COMPENSATION COMMITTEE
7
<PAGE>
STOCK PERFORMANCE GRAPH
For comparison of the Company's stock to a broad market index, the
Company has elected to change the comparative index to the Russell 2000 Index
from the Dow Jones Industrial Average. The Company believes the Russell 2000
Index provides a better comparison given that the relative size and nature
(sales, assets, market capitalization, and other factors) of the companies
included in this index are more similar to the Company than is the size of the
companies included in the Dow Jones Industrial Average.
For comparison to a peer group, the Company has elected to use a new
peer group(1) because it believes the members of the new peer group are more
similar to the Company than were the members of the old peer group(2) in light
of the nature of their respective businesses, market capitalization, sales and
other factors. For example, some of the companies included in the old peer
group, although associated with the general "gaming" industry, are companies
engaged in the lottery business and do not market their products primarily to
casinos. The Company has elected to compare an investment in its stock to a peer
group index rather than a published industry index because it believes such peer
group indices (both the old peer group and the new peer group) include companies
whose businesses are more similar to that of the Company than any published
index.
The following graph compares the cumulative total shareholder return
for the last five fiscal years, assuming $100 invested October 31, 1993, and the
reinvestment of all dividends, as if such amount had been invested in (i) the
Company's Common Stock; (ii) the stocks included in a broad equity market index;
and (iii) the stocks of a peer group index.
[PLOT POINTS CHART]
<TABLE>
<CAPTION>
------------------------------------------------------------------
10/31/93 10/31/94 10/31/95 10/31/96 10/31/97 10/31/98
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shuffle Master, Inc. 100.00 80.31 122.50 111.25 78.75 80.00
- -------------------------------------------------------------------------------------------------
Dow Jones Industrial Average 100.00 109.14 136.40 176.92 222.36 261.27
- -------------------------------------------------------------------------------------------------
Old Peer Group 100.00 56.50 45.79 62.55 68.25 53.23
- -------------------------------------------------------------------------------------------------
Russell 2000 Index 100.00 99.65 117.93 137.51 177.85 156.79
- -------------------------------------------------------------------------------------------------
New Peer Group 100.00 58.99 57.14 76.64 70.65 33.14
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) The new peer group is comprised of the following companies: Acres Gaming
Incorporated; Alliance Gaming Corp.; Casino Data Systems (first publicly
traded April 1993); Mikohn Gaming Corporation (first publicly traded
November 1993); Paul-Son Gaming Corporation (first publicly traded March
1994); Silicon Gaming Inc. (first publicly traded July 1996) and WMS
Industries, Inc.
(2) The old peer group was comprised of the following companies: Alliance
Gaming Corp.; Autotote Corporation; Alliance Gaming Corp.; 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.; Powerhouse Technologies Inc. (f/k/a Video
Lottery Technologies); and WMS Industries, Inc.
8
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of Common Stock of
the Company 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; (iii) by each executive officer named in the Summary
Compensation Table; and (iv) by all directors and executive officers as a group,
as of January 22, 1999.
Number of Shares Beneficially Owned(1)
Name and Address --------------------------------------
of Beneficial Owner Shares Percent
- ----------------------------------------- ---------------- --------------------
John G. Breeding and Diane L. Breeding(2) 670,477 8.2%
10569 Bluff Road
Eden Prairie, Minnesota 55347
Joseph J. Lahti 187,128 2.3%
10901 Valley View Road
Eden Prairie, Minnesota 55344
Mark L. Yoseloff(3) 156,333 1.9%
1106 Palms Airport Drive
Las Vegas, Nevada 89119
Gary W. Griffin 26,424 *
10901 Valley View Road
Eden Prairie, Minnesota 55344
Thomas A. Sutton 27,000 *
20330 Knightsbridge Road
Shorewood, Minnesota 55331
Patrick R. Cruzen 7,500 *
63010 Maple Ridge Drive
Excelsior, Minnesota 55331
All directors and executive 404,384 4.9%
officers as a group (5 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 22, 1999, 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. Shares related to such stock options included in the table
above are as follows: Joseph J. Lahti, 159,827 shares; Mark L. Yoseloff,
38,333 shares; Gary W. Griffin, 23,824 shares; Thomas A. Sutton, 21,000
shares; Patrick R. Cruzen, 7,500 shares; and all directors and executive
officers as a group, 250,484 shares.
(2) The number of shares beneficially owned by John G. Breeding and Diane L.
Breeding includes 112,747 shares subject to stock options exercisable
within 60 days of the record date.
(3) The number of shares beneficially owned by Mark L. Yoseloff includes 64,800
shares to be issued under a certain transaction with the Company. See
"Certain Relationships and Related Transactions."
9
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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, 1998, the amount due
including accrued interest was $341,708. 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 filing with 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 filing with the Securities and Exchange Commission),
both to be made equally over twenty (20) quarterly installments, beginning March
7, 1997. The Company had made all scheduled payments under this agreement. 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 filing with 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.
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. In fiscal 1998,
the Company entered into a termination of employment arrangement with Mr.
Griffin whereby Mr. Griffin will receive nine months of his then-current base
salary in the event of a change of control of the Company.
INDEPENDENT AUDITORS
Representatives of Deloitte & Touche LLP, the Company's independent
auditors for the fiscal year ended October 31, 1998, 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,
1999.
10
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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 14, 1999.
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,
Gary W. Griffin
Date: February 11, 1999 SECRETARY
11
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SHUFFLE MASTER, INC. PROXY
10901 VALLEY VIEW ROAD
EDEN PRAIRIE, MN 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 22, 1999, with the
powers the undersigned would possess if personally present at the Annual Meeting
of Shareholders to be held on Wednesday, March 17, 1999, at the MGM Grand
Conference Center, 4701 Koval Lane, Las Vegas, Nevada, at 10:00 a.m., Pacific
Standard Time, or at any adjournment thereof, hereby revoking any proxy or
proxies previously given.
1. Proposal to decrease the number of directors to four:
|_| FOR |_| AGAINST |_| ABSTAIN
2. Election of directors:
|_| FOR all nominees listed below |_| WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees
contrary below) listed below
(To WITHHOLD authority to vote for any individual nominee, draw a line
through the nominee's name below)
JOSEPH J. LAHTI MARK L. YOSELOFF THOMAS A. SUTTON
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: ____________________________, 1999
________________________________________
(Signature)
________________________________________
(Second signature)
PLEASE DATE AND SIGN ABOVE exactly as
your name appears at left, indicating
where appropriate, official position or
representative capacity.
