SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A1
_X_ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended October 31, 1999, or
___ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
COMMISSION FILE NO. (0-20820)
SHUFFLE MASTER, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1448495
(State or other jurisdiction of incorporation) (Identification No.)
10901 VALLEY VIEW ROAD
EDEN PRAIRIE, MINNESOTA 55344
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 943-1951
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: Common Stock,
par value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _X_
As of February 28, 2000, 7,140,393 shares of Common Stock of the registrant
were outstanding. The aggregate market value of Common Stock beneficially owned
by non-affiliates on that date was $74,974,000 based upon the last reported sale
price of the Common Stock at that date by The Nasdaq Stock Market.
<PAGE>
This Form 10-K/A1 is filed to amend items 10, 11, 12 and 13. The
remaining items of the Form 10-K previously filed are not amended hereby.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information about each of the
Company's directors and executive officers.
Name Age Company Position Director Since
- ---- --- ---------------- --------------
Joseph J. Lahti 39 Chairman of the Board, President 1993
and Chief Executive Officer
Mark L. Yoseloff 53 Executive Vice President and 1997
Director
Patrick R. Cruzen 52 Director 1997
Thomas A. Sutton 62 Director 1994
Gary W. Griffin 44 Vice President of Finance and Chief n/a
Financial Officer
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.
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, 1999.
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<PAGE>
ITEM 11. 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, 1999, 1998 and 1997, for the Chief Executive Officer and two other
executive officers serving at October 31, 1999, whose compensation earned in
fiscal 1999 exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
Name and Fiscal ------------------ ------------ All Other
Principal Position Year Salary Bonus Options Compensation
- ---------------------------- ---- ------- ------- ------------ ------------
($) ($) (#) ($)
<S> <C> <C> <C> <C> <C>
Joseph J. Lahti 1999 236,250 113,000 -- 4,000
Chairman of the 1998 236,250 -- 75,000 --
Board, President and 1997 231,000 91,000 41,904 --
Chief Executive Officer
Gary W. Griffin 1999 149,000 71,000 25,000(2) 3,000
Chief Financial Officer, 1998 130,000 -- 45,000 --
Vice President of 1997 115,000 45,000 30,000 --
Finance and Secretary
Mark L. Yoseloff (1) 1999 110,000 75,000 20,000(2) 1,000
Executive Vice 1998 100,000 -- 45,000 --
President 1997 23,000 20,000 40,000 --
</TABLE>
(1) Dr. Yoseloff began employment with the Company as an executive officer
during fiscal 1997.
(2) Annual option grants are typically made prior to the end of each fiscal
year; however, in 1999 the options shown were granted on November 4,
1999, just after the close of fiscal 1999.
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OPTION GRANTS DURING THE FISCAL YEAR ENDED OCTOBER 31, 1999
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, 1999:
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Percentage of Total Annual Rates of Stock
Options Granted to Price Appreciation for
Options Employees Exercise Expiration Option Term(2)
Name Granted(1) During Fiscal Year Price Date 5% 10%
- ---------------- ------- ------------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Joseph J. Lahti -- -- -- -- -- --
Gary W. Griffin 25,000 10.1 8.50 11/3/09 134,000 339,000
Mark L. Yoseloff 20,000 8.1 8.50 11/3/09 107,000 271,000
</TABLE>
(1) Annual option grants are typically made prior to the end of each fiscal
year; however, in 1999 the options shown were granted on November 4,
1999, just after the close of fiscal 1999.
(2) 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.
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<PAGE>
AGGREGATE OPTIONS EXERCISED IN THE FISCAL YEAR ENDED OCTOBER 31, 1999
AND OPTION VALUES AT OCTOBER 31, 1999
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, 1999, and the number and value of options to purchase shares of
Common Stock held as of October 31, 1999, by the executive officers named in the
Summary Compensation Table:
<TABLE>
<CAPTION>
Number Value of Unexercised
of Number of Options In-the-Money
Shares at October 31, 1999 Options at October 31, 1999(2)
on Value --------------------------- ------------------------------
Name Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- ------------------ -------- ----------- ----------- ------------- ----------- -------------
(#) ($) (#) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
Joseph J. Lahti(3) -- -- 204,827 103,334 96,067 37,501
Gary W. Griffin -- -- 55,245 64,755 21,543 34,172
Mark L. Yoseloff -- -- 66,666 63,334 35,366 25,184
</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 $8.875 at October 31, 1999, 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
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, 1999.
COMPENSATION OF DIRECTORS
The Board has elected to compensate outside directors with a one
thousand dollar ($1,000.00) quarterly payment and with stock option grants
pursuant to the Company's Outside Directors' Option Plan ("Director's Plan").
Each Director who is not an employee of the Company is entitled to receive an
annual non-discretionary grant of options to purchase three thousand shares
(3,000) of common stock after each annual meeting of shareholders. In addition,
the Board can make discretionary grants to outside Directors under the
Director's Plan. In January of 2000, the Board made a discretionary grant under
the Director's Plan of an option to purchase five thousand shares (5,000) of the
Company's common stock to each of its outside Directors. 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 (7) years from the date of grant or thirty (30) days after leaving the
Board.
6
<PAGE>
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 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 1999. 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 1999. Performance bonuses were
earned by executives based on fiscal 1999 performance and paid in December,
1999.
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
7
<PAGE>
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 was 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 $28,926,000 for fiscal 1999, while operating income increased
from an operating loss of $1,217,000 for fiscal 1993 to operating income of
$5,286,000 for fiscal 1999. Fiscal 1999 operating income is stated net of a
$2.75 million charge related to the settlement of the Company's litigation with
Mikohn Gaming Corporation's subsidiary Progressive Games, Inc. ("PGI"). The
settlement included cross-licensing terms that will result in the Company
receiving a total of $2.9 million from Mikohn over the next five years. In
addition to settling the Mikohn/PGI lawsuit, Mr. Lahti also successfully
executed agreements for the acquisition of Three Card Poker, a popular new
specialty table game, the rights in the U.S. and Caribbean for Shuffle Master to
distribute certain TCS Group products, and the licensing of Press Your Luck for
video slot game applications. With regard to the Company's core shuffler and
table game product lines, placements (including sold, leased and licensed
products) have shown strong growth over the past six years. The total of
cumulative shufflers sold and shufflers currently on lease as of October 31,
1999, was in excess of 5,700 units, compared to 210 as of the end of fiscal
1993. Table games have increased by 822 units over the same period. During
fiscal 1999, Mr. Lahti presided over the rollout of the ACE(TM) single deck
shuffler and the development of the new continuous multi-deck King(TM) shuffler.
To create additional revenue streams, the Company also began to invest in the
development of a new hardware and software game system for slot machines. The
system should provide game developers a more timely and cost effective means for
game development and should allow casino operators greater flexibility in game
purchasing decisions.
Mr. Lahti's base salary was $236,250 for fiscal 1999. Mr. Lahti earned
a bonus of $113,000 for fiscal 1999 as a result of the achievement of the
financial performance objectives set by the Board. For fiscal 2000, Mr. Lahti's
base salary will increase by 4% to $ 246,000. Additional terms of Mr. Lahti's
compensation package remain under negotiation with 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.
8
<PAGE>
Thomas A. Sutton
Patrick R. Cruzen
MEMBERS OF THE COMPENSATION COMMITTEE
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return
for the last five fiscal years, assuming $100 invested at October 31, 1994, with
the reinvestment of all dividends, as if such amounts had been invested in: (i)
the Company's Common Stock; (ii) the stocks included in the Russell 2000 Index;
and (iii) the stocks of a peer group index. 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 index includes companies
whose businesses are more similar to that of the Company than any published
index.
PERFORMANCE CHART
[GRAPH OMITTED]
10/31/94 10/31/95 10/31/96 10/31/97 10/31/98 10/31/99
-------- -------- -------- -------- -------- --------
Peer Group(1) $100.00 $96.87 $129.93 $119.77 $56.18 $133.44
Russell 2000 Index $100.00 $118.35 $138.00 $178.48 $157.34 $180.74
Shuffle Master, Inc. $100.00 $148.48 $134.85 $95.45 $96.97 $107.68
(1) The peer group index is comprised of the following companies: Acres
Gaming Incorporated; Alliance Gaming Corp.; Casino Data Systems; Mikohn
Gaming Corporation; Paul-Son Gaming Corporation; Silicon Gaming Inc.
(first publicly traded July 1996) and WMS Industries, Inc.
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<PAGE>
ITEM 12. 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 February 28, 2000.
Shares Beneficially Owned (1)
Name and Address ------------------------------------
of Beneficial Owner Number Percent
- ------------------------------------------ ------------- -------------------
John G. Breeding and Diane L. Breeding (2) 418,860 5.8%
370 Rockridge Drive
Sedona, AZ 86336
Joseph J. Lahti 237,128 3.2%
10901 Valley View Road
Eden Prairie, Minnesota 55344
Mark L. Yoseloff (3) 184,666 2.5%
1106 Palms Airport Drive
Las Vegas, Nevada 89119
Gary W. Griffin 58,845 *
10901 Valley View Road
Eden Prairie, Minnesota 55344
Thomas A. Sutton 38,000 *
20330 Knightsbridge Road
Shorewood, Minnesota 55331
Patrick R. Cruzen 20,000 *
6310 Maple Ridge Drive
Excelsior, Minnesota 55331
All directors and executive 538,639 7.1%
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 February 28, 2000, 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, 204,827
shares; Mark L. Yoseloff, 66,666 shares; Gary W. Griffin, 55,245
shares; Thomas A. Sutton, 32,000 shares; Patrick R. Cruzen, 20,000
shares; and all directors and executive officers as a group, 378,738
shares.
(2) The number of shares beneficially owned by John G. Breeding and Diane
L. Breeding includes 62,667 shares subject to stock options exercisable
within 60 days of February 28, 2000.
10
<PAGE>
(3) The number of shares beneficially owned by Mark L. Yoseloff includes
43,200 shares to be issued under a certain transaction with the
Company. See "Certain Relationships and Related Transactions."
ITEM 13. 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, 1999, the amount due
including accrued interest was $363,000. The terms of the loan were modified to
extend the due date to November 4, 2002 and provide that all accrued interest be
paid on or before May 1, 2000.
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 has made all payments required to date 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.
11
<PAGE>
EXHIBITS
Only exhibits filed with this Amendment to Form 10-K are listed.
Item No. Description
- -------- -----------
23.1 Consent of Deloitte & Touche LLP
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SHUFFLE MASTER, INC.
Date: February 28, 2000 By: /s/ Joseph J. Lahti
----------------------------------
Chief Executive Officers
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signature and Title Date Executed
- ------------------- -------------
/s/ Joseph J. Lahti February 28, 2000
- ----------------------------------
Chief Executive Officer
and Chairman of the Board
/s/ Gary W. Griffin February 28, 2000
- ----------------------------------
Chief Financial Officer
/s/ Gerald W. Koslow February 28, 2000
- ----------------------------------
Corporate Controller
/s/ Mark L. Yoseloff February 28, 2000
- ----------------------------------
Executive Vice President
and Director
/s/ Patrick R. Cruzen February 28, 2000
- ----------------------------------
Director
/s/ Thomas A. Sutton February 28, 2000
- ----------------------------------
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements no.
33-88124, no. 33-88180 and no. 333-09623 on Form S-8 of our report dated
December 23, 1999, relating to the financial statements as of and for the years
ended October 31, 1999, 1998, and 1997, appearing in this annual report on Form
10-K/A1 of Shuffle Master, Inc. for the year ended October 31, 1999.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
February 28, 2000
