SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 Rule 14a-11(c) or Rule 14a-12
INNOVATIVE GAMING CORPORATION OF AMERICA
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[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:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] 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:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE>
INNOVATIVE GAMING CORPORATION OF AMERICA
4725 AIRCENTER CIRCLE
RENO, NEVADA 89502
------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 28, 1999
------------------
TO THE SHAREHOLDERS OF INNOVATIVE GAMING CORPORATION OF AMERICA:
Please take notice that the Annual Meeting of Shareholders of Innovative Gaming
Corporation of America will be held, pursuant to due call by the Board of
Directors of the Company at the Company's headquarters at 4725 Aircenter Circle,
Reno, Nevada 89502 on Friday, May 28, 1999, at 10:00 a.m., or at any adjournment
or adjournments thereof, for the purpose of considering and taking appropriate
action with respect to the following:
1. To elect five directors.
2. To transact any other business as may properly come before the
meeting or any adjournments thereof.
Pursuant to due action of the Board of Directors, shareholders of
record on April 1, 1999, will be entitled to vote at the meeting or any
adjournments thereof.
A PROXY FOR THE MEETING IS ENCLOSED. YOU ARE REQUESTED TO FILL IN AND
SIGN THE PROXY, WHICH IS SOLICITED BY THE BOARD OF DIRECTORS, AND MAIL IT
PROMPTLY IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors
INNOVATIVE GAMING CORPORATION OF AMERICA
Scott H. Shackelton
Secretary
April 23, 1999
<PAGE>
INNOVATIVE GAMING CORPORATION OF AMERICA
4725 AIRCENTER CIRCLE
RENO, NEVADA 89502
---------------
PROXY STATEMENT
---------------
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
MAY 28, 1999
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Innovative Gaming Corporation of America
(the "Company") to be used at the Annual Meeting of Shareholders of the Company
to be held May 28, 1999. The approximate date on which this Proxy Statement and
the accompanying proxy were first sent or given to shareholders was April 23,
1999. Each shareholder who signs and returns a proxy in the form enclosed with
this Proxy Statement may revoke the same at any time prior to its use by giving
notice of such revocation to the Company in writing, in open meeting or by
executing and delivering a new proxy to the Secretary of the Company. Unless so
revoked, the shares represented by each proxy will be voted at the meeting and
at any adjournments thereof. Presence at the meeting of a shareholder who has
signed a proxy does not alone revoke that proxy. Only shareholders of record at
the close of business on April 1, 1999 (the "Record Date") will be entitled to
vote at the meeting or any adjournments thereof.
VOTING SECURITIES AND
PRINCIPAL HOLDERS THEREOF
The Company has outstanding one class of voting securities, Common
Stock, $0.01 par value, of which 7,301,175 shares were outstanding as of the
close of business on the Record Date. Each share of Common Stock is entitled to
one vote on all matters put to a vote of shareholders.
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of April 23, 1999, by (i) each person
known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock, (ii) each director, (iii) each executive officer named
in the Summary Compensation Table, and (iv) all executive officers and
1
<PAGE>
directors as a group. Unless otherwise indicated, each of the following persons
has sole voting and investment power with respect to the shares of Common Stock
set forth opposite their respective names.
NAME OF BENEFICIAL OWNER NUMBER PERCENT OF CLASS
- ------------------------ ------ ----------------
Edward G. Stevenson............................ 263,000(1) 3.5
Lyle Berman ................................... 33,000(2) *
Barrett V. Johnson............................. 25,000(3) *
Scott H. Shackelton............................ 60,000(4) *
Ronald R. Zideck............................... 1,000(5) *
Ronald A. Johnson.............................. 0 *
Leo V. Seevers................................. 0 *
All executive officers and directors as a
group (seven persons).......................... 382,000(6) 5.0
- --------------------
* Less than 1%.
(1) Includes 258,000 shares that such person has the right to acquire
within 60 days.
(2) Does not include 325,000 shares of Common Stock and 102,500 shares of
Common Stock issuable upon exercise of a warrant (the "Warrant")
beneficially owned by Lakes Gaming, Inc. ("Lakes") of which Mr. Berman
disclaims beneficial ownership. Mr. Berman is Chairman of the Board and
a principal shareholder of Lakes. On April 22, 1999, the Company
redeemed 700,000 shares of the Company's Common Stock beneficially
owned by Lakes for $1.25 per share in exchange for a Convertible Note
in the principal amount of $875,000 and a warrant to purchase 87,500
shares of the Company's Common Stock. See "Related Party Transactions."
(3) Includes 25,000 shares that such person has the right to acquire within
60 days.
(4) Includes 55,000 shares that such person has the right to acquire within
60 days.
(5) Mr. Zideck has shared voting rights with his spouse.
(6) Includes 338,000 shares that such persons have the right to acquire
within 60 days.
2
<PAGE>
ELECTION OF DIRECTORS
Five directors are to be elected at the meeting, each director to hold
office until the next Annual Meeting of Shareholders, or until his successor is
elected and qualified. The persons listed below are now serving as directors of
the Company and have consented to serve as a director, if elected. The Board of
Directors proposes for election the following nominees:
EDWARD G. STEVENSON, age 52, has been Chairman of the Board since June
1998 and Chief Executive Officer and a director of the Company since February
1996 and served as President from February 1996 to October 1998. Prior to
joining the Company, Stevenson served as President and Chief Operating Officer
of Little Six, Inc. d/b/a Mystic Lake Casino in Prior Lake, Minnesota from
January 1995 to March 1996. From 1988-1991 and from October 1992 to January
1995, Mr. Stevenson was President of CMS International/Summit Casinos of Reno,
Nevada. From June 1991 to October 1992, Mr. Stevenson served as President of the
Gaming Operations Division for International Game Technology.
LYLE BERMAN, age 57, has served as a director of the Company since
December 1992. Mr. Berman has been Chairman of the Board of Lakes since its
inception in June 1998 and Chairman of the Board of its predecessor, Grand
Casinos, Inc. since October 1991, and Chief Executive Officer of Grand Casinos,
Inc. from October 1991 through March 1998. Mr. Berman has been Chairman of the
Board and Chief Executive Officer of Rainforest Cafe, Inc. since February 1994.
Mr. Berman is also a director of G-III Apparel Group Ltd., New Horizon Kids
Quest, Inc., Park Place Entertainment Corporation and Wilson's-The Leather
Experts, Inc. Mr. Berman had been Chief Executive Officer of Stratosphere
Corporation from July 1994 through July 1997 and Chairman from July 1996 through
July 1997. Stratosphere Corporation filed for reorganization under Chapter 11 of
the U.S. Bankruptcy Code in January 1997.
RONALD R. ZIDECK, age 61, served as a director of the Company from
September 1997 to May 1998 and has been a director of the Company since April
1999. Mr. Zideck was the managing partner of the Nevada office of Grant Thornton
LLP from 1981 to 1997, and specializes in audit and regulatory reporting for the
gaming industry. He served on Grant Thornton LLP's National Executive Committee
from 1991 to 1997. Mr. Zideck has also served on the Board of Directors of
Harveys Casino Resorts, which owned and operated casino resorts in Nevada,
Colorado and Iowa, and joined the Board of Directors of Comstock Bancorp in
December 1997.
RONALD A. JOHNSON, age 58, has been a director of the Company since
April 1999. Mr. Johnson has been a CPA for 35 years, licensed in California and
Nevada. He was the Managing Partner of Chanslor, Barbieri, & DeWhitt and a
Partner in the national firm of McGladrey & Pullen LLP. Formerly, Mr. Johnson
was President of Jazz Enterprises, and Chief Financial Officer and director of
Lodging & Gaming Systems. Mr. Johnson is currently on the Board of Directors of
Sierra West Bank, a Director of Burgarello Alarm, Trustee Emeritus of the
University of Nevada, Reno Foundation, and a self-employed CPA and financial
advisor.
3
<PAGE>
LEO V. SEEVERS, age 59, has been a director of the Company since April
1999. Mr. Seevers most recently was an Executive Vice President for Pioneer
Citizens Bank of Nevada from 1989 through 1998. Formerly, Mr. Seevers was a
Senior Vice President of First Interstate of Nevada. Mr. Seevers presently
serves on the Board of Directors of several non-profit organizations.
PROXIES AND VOTING
The affirmative vote of the holders of the greater of: a) a majority of
the outstanding shares of Common Stock of the Company present and entitled to
vote on the election of directors; or b) a majority of the voting power of the
minimum number of shares entitled to vote that would constitute a quorum for
transaction of business at the meeting, is required for election to the Board of
each of the nominees named above. A shareholder who abstains with respect to the
election of directors is considered to be present and entitled to vote on the
election of directors at the meeting, and is in effect casting a negative vote,
but a shareholder (including a broker) who does not give authority to a Proxy to
vote, or withholds authority to vote, on the election of directors, shall not be
considered present and entitled to vote on the election of directors.
All shares represented by proxies will be voted for the election of the
foregoing nominees unless a contrary choice is specified. If any nominee should
withdraw or otherwise become unavailable for reasons not presently known, the
proxies which would have otherwise been voted for such nominee will be voted for
such substitute nominee as may be selected by the Board of Directors.
4
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the cash and noncash compensation for
each of the last three fiscal years awarded to or earned by the Chief Executive
Officer and the most highly compensated officers other than the Chief Executive
Officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------- LONG-TERM
SALARY OTHER ANNUAL COMPENSATION
COMPENSATION BONUS(1) COMPENSATION SECURITIES
FISCAL ------------ -------- ------------ UNDERLYING
NAME AND PRINCIPAL POSITION YEAR $ $ $ OPTIONS
--------------------------- ---- - - - -------
<S> <C> <C> <C> <C> <C>
Edward G. Stevenson (2) 1998 250,962 70,000 6,000 300,000(3)
Chairman of the Board and
Chief Executive Officer 1997 251,000 70,000 6,000 - 0 -
1996 208,974 - 0 - 5,000 300,000(4)
Scott H. Shackelton (5) 1998 135,519 15,000 5,700 120,000(3)
Chief Financial Officer
1997 136,000 - 0 - 5,700 60,000(4)
1996 76,284 - 0 - 3,325 60,000(4)
Barrett V. Johnson(6) 1998 137,192 15,000 5,300 100,000(3)
President and Chief Operating Officer
</TABLE>
- -------------------------
(1) Bonuses were determined under the Company's Management Incentive Plan.
(2) Mr. Stevenson began his employment with the Company in February 1996.
(3) Includes options granted in exchange for previously granted options
which were canceled in connection with the issuance of replacement
grants in Fiscal 1998. See "Option Grants in Fiscal 1998."
(4) These options have been canceled in connection with the issuance of
replacement grants in Fiscal 1998. See "Option Grants in Fiscal 1998."
(5) Mr. Shackelton began his employment with the Company in June 1996.
(6) Mr. Johnson began his employment with the Company in January 1998 and
became President and Chief Operating Officer in October 1998.
5
<PAGE>
OPTION GRANTS IN FISCAL 1998
The following table sets forth certain information concerning the grant
of stock options to the Company's executive officers named in the Summary
Compensation Table during the fiscal year ended December 31, 1998 ("Fiscal
1998".)
<TABLE>
<CAPTION>
PERCENT OF POTENTIAL REALIZABLE
NUMBER OF TOTAL OPTIONS VALUE AT ASSUMED
TOTAL GRANTED TO ANNUAL RATES OF STOCK
SECURITIES EMPLOYEES IN PRICE APPRECIATION FOR
UNDERLYING FISCAL YEAR EXERCISE OPTION TERM (1)($)
OPTIONS ------------- OR BASE EXPIRATION ----------------------
NAME GRANTED (#) (%) PRICE ($/SH) DATE 5% 10%
- ---- ----------- --- ------------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Edward G. Stevenson 300,000(2) 34.7 $1.00 12/29/2008 $188,668 $478,123
Scott H. Shackelton 120,000(2) 13.9 $1.125 12/14/2008 85,278 216,111
Barrett V. Johnson 50,000(3) 5.8 $2.69 01/19/2008 84,586 214,358
50,000(3) 5.8 $2.00 10/01/2008 62,889 159,374
100,000(2) 11.6 $1.125 12/14/2008 71,065 180,093
</TABLE>
- -------------------------
(1) Amounts shown in these columns have been derived by multiplying the
exercise price by the annual appreciation rate shown (compounded for
the term of the options), multiplying the result by the number of
shares covered by the options, and subtracting the aggregate exercise
price of the options. The dollar amounts set forth under this heading
are the result of calculations at the 5% and 10% rates set by the
Securities and Exchange Commission, and therefore are not intended to
forecast possible future appreciation, if any, of the Company's stock
price.
(2) Such options were issued as replacement grants in December 1998 in
exchange for options previously issued. These replacement grants were
issued at an exercise price equal to market value of the Company's
Common Stock on such date. In each case, the replacement grant of
options were subject to a new vesting schedule, whereby the shares that
had already vested remain vested and the vesting date of one half of
all unvested options was extended by 12 months.
(3) These options were canceled in connection with the issuance of
replacement grants in December 1998.
6
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
The following table summarizes information with respect to options held
by the executive officers named in the Summary Compensation Table and the value
of the options held by such persons at the end of Fiscal 1998.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS AT MONEY OPTIONS
FY-END (#) FY-END ($)(1)
---------- --------------
SHARES VALUE
ACQUIRED ON REALIZED EXER- UNEXER- EXER- UNEXER-
NAME EXERCISE # $ CISABLE CISABLE CISABLE CISABLE
- ---- ---------- -- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Edward G. Stevenson -- -- 258,000 42,000 -- --
Scott H. Shackelton -- -- 50,000 70,000 -- --
Barrett V. Johnson -- -- 20,000 80,000 -- --
</TABLE>
- -------------------------
(1) Based upon the closing sales price as reported on the Nasdaq National
Market System, of the Company's Common Stock on December 31, 1998.
7
<PAGE>
STOCK OPTION REPRICING
The following table summarizes stock options granted to the executive
officers of the Company that have been repriced during the past ten fiscal
years.
TEN-YEAR OPTION REPRICING
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF MARKET ORIGINAL
SECURITIES PRICE OF EXERCISE OPTION TERM
UNDERLYING STOCK AT PRICE AT NEW REMAINING AT
OPTIONS TIME OF TIME OF EXERCISE DATE OF
NAME DATE REPRICED REPRICING REPRICING PRICE REPRICING
- ---- ---- -------- --------- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Edward G. Stevenson 12/29/98 300,000 $ 1.00 $ 4.75 $ 1.00 7 yrs. 2 mos.
10/8/96 300,000 $ 4.75 $ 7.50 $ 4.75 9 yrs. 4 mos.
Scott H. Shackelton 12/14/98 60,000 $1.125 $ 4.75 $1.125 7 yrs. 10 mos.
12/14/98 60,000 $1.125 $ 4.13 $1.125 8 yrs. 7 mos.
Barrett V. Johnson 12/14/98 50,000 $1.125 $ 2.69 $1.125 9 yrs 1 mos.
12/14/98 50,000 $1.125 $ 2.00 $1.125 9 yrs. 10 mos.
Barry Fentz(1) 1/5/95 75,000 $ 4.00 $ 6.00 $ 4.00 8 yrs. 8 mos.
1/5/95 20,000 $ 4.00 $ 6.00 $ 4.00 9 yrs. 6 mos.
</TABLE>
- -------------------------
(1) Mr. Fentz resigned from the Company effective July 15, 1996.
The Company's Compensation Committee of the Board of Directors (the
"Compensation Committee") believes that stock options play an extremely
important role in attracting and retaining talented executives, and motivating
them to perform up to their full potential. The Company's Compensation Committee
decided to offer all employees of the Company, including the named executive
officers above, the option of exchanging existing options issued to such
optionee with new options with new terms in December 1998. In each case, the
replacement grants were issued at an exercise price equal to the fair market
value of the Company's Common Stock on such date. In each case, the replacement
grant of stock options were subject to a new vesting schedule whereby the shares
that had already vested remained vested and the vesting date of one-half of all
unvested options was extended by 12 months.
These offers by the Compensation Committee were in response to a
precipitous decrease in the market price of the Company's Common Stock to a
level which, in the opinion of the Compensation Committee, had the effect of
eliminating substantially all the incentive value of such stock options. The
Compensation Committee concluded, that short-term financial performance
considerations should not unduly influence long-term compensation strategies.
The Compensation Committee believes that stock options play an extremely
important role in attracting and retaining talented executives, and motivating
them to perform up to their full potential. Accordingly, the
8
<PAGE>
Compensation Committee determined that the issuance of replacement options at
the current market value was both necessary and consistent with its strategy of
providing executives with tangible long-term performance incentives.
RELATED PARTY TRANSACTIONS
On April 21, 1999, the Company and Lakes entered into a Stock
Redemption Agreement pursuant to which the Company agreed to redeem 700,000
shares of the Company's Common Stock beneficially owned by Lakes (the "Lakes
Redemption") in exchange for a convertible note (the "Note") and a warrant to
acquire 87,500 shares of Common Stock (the "Warrant"). Mr. Berman, a director of
the Company, is Chairman of the Board and a significant shareholder of Lakes.
Prior to the Lakes Redemption, Lakes beneficially owned 15.2% of the Company's
outstanding Common Stock. The Company's Board of Directors believed it would
improve the Company's ability to obtain timely licensing in certain key gaming
jurisdictions if Lakes beneficially owned 4.9% or less of the Company's
outstanding Common Stock.
Pursuant to the Lakes Redemption, which was consummated April 22, 1999,
the Company issued the Note with a principal amount of $875,000, convertible
into Common Stock at $1.25 per share, the closing sales price of the Company's
Common Stock on the day immediately prior to the date of the consummation of the
Lakes Redemption. The Note is not convertible until April 22, 2000 and is
unsecured. The Company may require conversion of all or a portion of the
principal amount of the Note after April 22, 2000. Principal and interest on the
Note, which is five percent (5%) per annum, is due April 22, 2004. The Note also
provides that Lakes has the same status as a Common Stock shareholder in
liquidation in the event of bankruptcy of the Company.
The Warrant has a term of three years and an exercise price of $1.25
per share, the closing sales price of the Company's Common Stock on the date of
the consummation of the Lakes Redemption. Neither the Note may be converted nor
the Warrant exercised if, immediately following such conversion or exercise, as
the case may be, Lakes would beneficially own in excess of 4.9% of the Company's
outstanding Common Stock. Both the Note and the Warrant have "piggyback"
registration rights that require the Company to register such shares in the
event that the Company files certain types of registration statements with the
Securities and Exchange Commission.
EMPLOYMENT AGREEMENTS
In February 1996, the Company entered into a three year employment
agreement with Edward G. Stevenson pursuant to which Mr. Stevenson has served
the Company as President and Chief Executive Officer. Mr. Stevenson was named
Chairman of the Board in June 1998. Pursuant to such agreement, Mr. Stevenson
received an annual base salary of $250,000 and was eligible for an annual bonus
of up to 25% of his base salary as determined by the Company's Board of
Directors. In addition, Mr. Stevenson was eligible for an annual bonus of up to
25% of his base salary, the exact amount to be determined pursuant to a profit
formula to be determined by the Compensation
9
<PAGE>
Committee of the Company's Board of Directors. Pursuant to such agreement, the
Company paid Mr. Stevenson bonuses of $70,000 in Fiscal 1997, $70,000 in Fiscal
1998 and no bonus in Fiscal 1996. Mr. Stevenson was also granted 300,000 options
to purchase shares of the Company's Common Stock at $7.50 per share. 50,000 of
such options vested on February 15, 1996 and the balance vested over three years
on a pro-rata basis beginning February 15, 1997. The exercise price of such
stock options were repriced in October 1996 to $4.75 per share and were repriced
in December 1998 to $1.00 per share. Upon termination "without cause," Mr.
Stevenson is entitled to the greater of his base salary for 12 months or the
base salary for the balance of the remaining term of such employment agreement.
Mr. Stevenson has agreed not to compete with the Company while employed by the
Company and the period during which severance is paid, if any. The Company and
Mr. Stevenson entered into a new three year Employment Agreement on
substantially the same terms in January 1999.
In June 1996, the Company entered into an employment agreement with
Scott H. Shackelton pursuant to which Mr. Shackelton serves the Company as Vice
President of Finance, Chief Financial Officer and Secretary. The agreement had
an initial term of two years and provides for automatic renewal for successive
one year terms after June 1998. Pursuant to such agreement, Mr. Shackelton
receives an annual base salary of $135,000 and is eligible to receive an annual
bonus or merit increase of up to 25% of his base salary, the exact amount to be
determined by the Company's Board of Directors. Mr. Shackelton is also eligible
to receive an additional bonus of up to 25% of his current base salary each
year, the exact amount to be determined pursuant to a profit formula to be
determined by the Compensation Committee of the Company's Board of Directors.
Mr. Shackelton was paid a bonus of $15,000 in Fiscal 1998 and no bonus in Fiscal
1996 and 1997 pursuant to this provision. Mr. Shackelton was also granted 60,000
options pursuant to such agreement to purchase shares of the Company's Common
Stock at $4.75 per share. Ten thousand (10,000) of such options vested on August
21, 1996, and the balance of such options vest over five years on a pro-rata
basis beginning June 10, 1997. An additional 60,000 options to purchase shares
of the Company's Common Stock at $4.13 per share were granted on July 24, 1997
in lieu of any bonus payment. These options were repriced in December 1998 to
$1.125 per share. Upon termination "without cause" Mr. Shackelton is entitled to
the greater of his base salary for twelve (12) months or the base salary for the
remaining term of such employment agreement. Mr. Shackelton has agreed not to
compete with the Company while employed by the Company and the period during
which severance is paid, if any.
In January 1998, the Company entered into an employment agreement with
Barrett V. Johnson pursuant to which Mr. Johnson served the Company as Vice
President of Engineering. The agreement had an initial term of two years.
Pursuant to such agreement, Mr. Johnson receives an annual base salary of
$130,000 and is eligible to receive an annual bonus as determined by the
Compensation Committee of the Company's Board of Directors. Mr. Johnson received
a bonus of $15,000 in Fiscal 1998. Mr. Johnson was also granted 50,000 options
pursuant to such agreement to purchase shares of the Company's Common Stock at
$2.69 per share. Ten thousand (10,000) of such options vested January 19, 1998,
and the balance of such options vest over four years on a pro-rata basis
beginning January 19, 1999. These options were repriced in December 1998 to
$1.125 per share. Upon termination "without cause" Mr. Johnson is entitled to
payment of his base salary for a period of twelve months. Mr. Johnson has agreed
not to compete with the Company while
10
<PAGE>
employed by the Company and for a period of twelve months following termination
of such employment. In October 1998, the Company and Mr. Johnson entered into a
new two year employment agreement pursuant to which Mr. Johnson serves the
Company as President and Chief Operating Officer. Pursuant to the new employment
agreement, Mr. Johnson receives an annual base salary of $180,000. The terms of
the new employment agreement are otherwise substantially the same as the prior
agreement. Mr. Johnson was granted an additional 50,000 options to purchase
shares of the Company's Common Stock at $2.00 per share. These options were
repriced in December 1998 to $1.125 per share. Ten thousand (10,000) of such
options vested October 1, 1998, and the balance of such options vest over five
years beginning October 1, 1999.
DIRECTOR COMPENSATION
Directors who are not employees of the Company are paid an annual fee
of $10,000, $1,000 for each Board meeting and $500 for each committee meeting
they attend, provided that the maximum paid to such director per day will be the
greater amount due for any single meeting in the case of multiple meetings
attended. In 1997, the Company's Shareholders approved the 1997 Director Stock
Option Plan pursuant to which 100,000 shares were reserved for issuance. No
options were granted to Non-Employee directors in 1998. Pursuant to the 1997
Director Stock Option Plan, the Company has issued in April 1999, 20,000 options
to each of Ronald M. Zideck, Ronald A. Johnson and Leo V. Seevers at an exercise
price of $1.00 per share. Five thousand of such options vested immediately and
the balance vest on a pro-rata basis on the first, second and third
anniversaries of the date of grant. An additional 5,000 options to purchase
shares of the Company's Common Stock will be granted annually to each Director
beginning in the fourth year that they serve as a director of the Company. Mr.
Berman has waived all such Director fees and stock options to date. Directors
who are employees of the Company are not paid fees or additional remuneration
for service as members of the Board or its Committees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee presently consists of Lyle Berman.
Paul A Bible, who resigned as a Director of the Company in December 1998, served
on the Compensation Committee through December 1998. Messrs. Zideck and Seevers
have been nominated for the Compensation Committee and will serve if elected to
the Board of Directors at the 1999 Annual Meeting of Shareholders. Mr. Berman is
Chairman of the Board of Lakes Gaming, Inc.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Decisions on compensation of the Company's executives generally have
been made by the Compensation Committee of the Board of Directors. Each member
of the Compensation Committee is a non-employee director. All decisions by the
Compensation Committee relating to the compensation of the Company's executive
officers are reviewed by the full Board of Directors. Pursuant to rules designed
to enhance disclosure of the Company's policies toward executive compensation,
set forth below is a report prepared by the Compensation Committee addressing
the compensation policies for the Company for the year ended December 31, 1998,
as they affected the Company's executive officers.
11
<PAGE>
-COMPENSATION COMMITTEE
The Compensation Committee's executive compensation policies are
designed to provide competitive levels of compensation that integrate pay with
the Company's annual objectives and long-term goals, reward above-average
corporate performance, recognize individual achievements, and assist the Company
in attracting and retaining qualified executives. Executive compensation is set
at levels that the Compensation Committee believes to be consistent with others
in the Company's industry.
-EXECUTIVE OFFICER COMPENSATION
There are three elements in the Company's executive compensation
program, all determined by individual and corporate performance.
* Base salary compensation
* Annual incentive compensation
* Stock options
Total compensation opportunities are competitive with those offered by
employers of comparable size, growth and profitability in the Company's
industry.
-CASH COMPENSATION
Base salary compensation is determined by the potential impact the
individual has on the Company, the skills and experiences required by the job,
and the performance and potential of the incumbent in the job. In the case of
each of Edward G. Stevenson, the Chief Executive Officer, Barrett V. Johnson,
the Chief Operating Officer, and Scott H. Shackelton, the Chief Financial
Officer, the base compensation is governed pursuant to such executive's
employment agreement with the Company.
Annual incentive compensation for executives of the Company is based
primarily on corporate operating earnings and revenue growth and the Company's
positioning for future results, but also includes an overall assessment by the
Compensation Committee of executive management's performance, as well as market
conditions. The following cash bonuses were paid to the Company's executive
officers in Fiscal 1998:
Edward G. Stevenson $70,000
Barrett V. Johnson $15,000
Scott H. Shackelton $15,000
12
<PAGE>
The Compensation Committee recognizes that revenues decreased in 1998,
a year that the Company continued to attempt to reposition itself in an
intensely competitive and somewhat depressed gaming machine market. The
Compensation Committee, however, felt that Mr. Stevenson's bonus was warranted,
given his continued efforts to diversify the Company's product line. The
Compensation Committee also believes that an executive should not be penalized
because of an overall weak market for gaming-related stocks in 1998.
-STOCK OPTIONS
Awards of stock grants under the Company's 1992 Stock Option and
Compensation Plan (the "1992 Plan") are designed to promote the identity of
long-term interests between the Company's executives and its shareholders and
assist in the retention of executives. The Plan also permits the Committee to
grant stock options to key personnel. Options become exercisable based upon
criteria established by the Company. In October 1998, the Board also adopted the
1998 Non-Executive Stock Option Plan (the "1998 Plan") pursuant to which 200,000
shares of Common Stock were reserved for issuance for grants to Company
employees who are not executive officers of the Company. In March 1999, the
Board approved an increase in the number of shares reserved for issuance under
the 1998 Plan to an aggregate of 350,000.
The Compensation Committee surveys employee stock option programs of
companies with similar capitalization to the Company prior to recommending the
grant of options to executives. While the value realizable from exercisable
options is dependent upon the extent to which the Company's performance is
reflected in the market price of the Company's Common Stock at any particular
point in time, the decision as to whether such value will be realized in any
particular year is determined by each individual executive and not by the
Compensation Committee.
In October 1998, in connection with promoting Barrett V. Johnson as the
Company's Chief Operating Officer, the Company issued to Mr. Johnson options to
purchase 50,000 shares of the Company's Common Stock, exercisable at $2.00 per
share. These options were repriced in December 1998 to $1.125 per share.
In December 1998, the Compensation Committee approved a policy pursuant
to which employees, including executive officers, having options granted under
the 1992 Plan were entitled to cancel and exchange such options for the same
amount of options having an exercise price equal to the average closing price of
the Company's Common Stock on the date of exchange. Additionally, each December
1998 replacement grant of options contained a new vesting schedule pursuant to
which shares that had already vested remained vested and the vesting date of
one-half of all unvested options was extended by 12 months. Options to purchase
783,050 shares of Common Stock were exchanged for options to purchase 783,050
shares of Common Stock pursuant to this policy.
The Compensation Committee believes that stock options are a critical
component of the compensation offered by the Company to promote long-term
retention of key employees, motivate high levels of performance and recognize
employee contributions to the success of the Company.
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<PAGE>
Prior to the issuing replacement grants, the exercise price of all of the
outstanding options held by employees was in excess of the market price, and the
Committee believed that such options were no longer an effective tool to
encourage employee retention or to motivate high levels of performance. The
replacement grant program was generally available to all executive officers and
employees of the Company.
-CEO COMPENSATION
Pursuant to an employment agreement with the Company, the Company pays
Mr. Stevenson a base salary of $250,000. For reasons indicated above in this
report, the Compensation Committee did offer Mr. Stevenson the opportunity to
exchange his existing stock options for replacement grants pursuant to the
repricing policy approved for all employees and paid Mr. Stevenson a $70,000
bonus in Fiscal 1998.
To date, no executive officer of the Company has received compensation
that exceeds $1 million per year.
LYLE BERMAN
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<PAGE>
STOCK PERFORMANCE GRAPH
The Securities and Exchange Commission requires that the Company
include in this Proxy Statement a line-graph presentation comparing cumulative,
five-year return to the Company's shareholders (based on appreciation of the
market price of the Company's Common Stock) on an indexed basis with (i) a broad
equity market index and (ii) an appropriate published industry or line-
of-business index, or peer group index constructed by the Company. The following
presentation compares the Company's Common Stock price in the period from July
30, 1993 to December 31, 1998, to the S&P 500 Stock Index and to a "peer group"
index created by the Company over the same period. The "peer group" index
consisted of the common stock of: Acres Gaming, Inc., Alliance Gaming, Casino
Data Systems, International Game Technology, Mikohn Gaming Corp., Shuffle
Master, Inc. and WMS Industries. The presentation assumes that the value of an
investment in each of the Company's Common Stock, the S&P 500 Index, and the
peer group index was $100 on July 30, 1993, and that any dividends paid were
reinvested in the same security.
TOTAL RETURN TO STOCKHOLDERS
(ASSUMES $100 INVESTMENT ON 7/30/93)
[PLOT POINTS CHART]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
TOTAL RETURN ANALYSIS
7/30/93 7/27/94 12/31/94 12/29/95 12/31/96 12/31/97 12/31/98
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INNOVATIVE GAMING $ 100.00 $ 58.00 $ 31.50 $ 57.00 $ 47.00 $ 18.00 $ 8.00
- ----------------------------------------------------------------------------------------------------------------
PEER GROUP $ 100.00 $ 64.53 $ 59.08 $ 61.89 $ 75.33 $ 100.86 $ 104.61
- ----------------------------------------------------------------------------------------------------------------
S&P 500 $ 100.00 $ 105.14 $ 106.74 $ 146.81 $ 180.49 $ 240.69 $ 309.47
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Source: Carl Thompson Associates www.ctaonline.com (800) 959-9677. Data from
Bloomberg Financial Markets.
15
<PAGE>
OTHER MATTERS
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors held four meetings during Fiscal 1998. The
Company has a Compensation Committee presently consisting of Mr. Lyle Berman and
an Audit Committee presently consisting of Mr. Berman, but does not have a
nominating committee of the Board of Directors. Prior to December 1998, Mr. Paul
A. Bible was a member of the Board of Directors, the Compensation Committee and
the Audit Committee of the Company. In December 1998, Mr. Bible resigned from
the Board of Directors, the Compensation Committee and the Audit Committee.
Prior to May 1998, Mr. Ronald M. Zideck was a member of the Board of Directors,
the Compensation Committee and the Audit Committee of the Company. Messrs.
Zideck and Ronald A. Johnson have agreed to serve on the Audit Committee and
Messrs. Zideck and Leo V. Seevers have agreed to serve on the Compensation
Committee if elected to the Board of Directors at the 1999 Annual Meeting of
Shareholders.
The Company's Compensation Committee did not meet during 1998, but did
take action pursuant to written actions during 1998. The Compensation Committee
administers the 1992 Stock Option and Compensation Plan and the 1998
Non-Executive Employee Stock Option Plan. The Company's Audit Committee, did not
meet during 1998, but did take action pursuant to written actions during 1998.
INDEPENDENT ACCOUNTANTS
During October 1998, Arthur Andersen LLP resigned as independent public
accountants for the Company and the Company retained Kafoury & Armstrong & Co.
in their place. Representatives of Kafoury & Armstrong & Co. are expected to be
present at the 1999 Annual Meeting of Shareholders, will have the opportunity to
make a statement if they desire to do so, and are expected to be available to
respond to appropriate questions.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and NASDAQ. Officers, directors and greater than ten percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file. Based solely on review of the copies of such forms
furnished to the Company, or written representations that no Forms 5 were
required, the Company believes that during the year ended December 31, 1998 all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten-percent beneficial owners were complied with.
16
<PAGE>
PROPOSALS OF SHAREHOLDERS
All proposals of shareholders intended to be presented at the 2000
Annual Meeting of Shareholders of the Company must be received by the Company at
its executive offices on or before December 17, 1999.
On May 21, 1998, the Securities and Exchange Commission amended Rule
14a-4 of the Securities Exchange Act of 1934. The amendment governs the
Company's use of its discretionary proxy voting authority with respect to a
shareholder proposal which the shareholder has not sought to include in the
Company's proxy statement. The new amendment provides that if a proponent of a
proposal fails to notify the Company at least 45 days prior to the month and day
of mailing of the prior year's proxy statement of a shareholder proposal, then
the management proxies will be allowed to use their discretionary voting
authority when the proposal is raised at the meeting, without any discussion of
the matter in the proxy statement.
With respect to the Company's 2000 Annual Meeting of Shareholders, if
the Company is not provided notice of a stockholder proposal which the
stockholder has not previously sought to include in the Company's proxy
statement by March 2, 2000, the management proxies will be allowed to use their
discretionary authority as outlined above.
SOLICITATION
The Company will bear the cost of preparing, assembling and mailing the
proxy, Proxy Statement, Annual Report and other material which may be sent to
the shareholders in connection with this solicitation. Brokerage houses and
other custodians, nominees and fiduciaries may be requested to forward
soliciting material to the beneficial owners of stock, in which case they will
be reimbursed by the Company for their expenses in doing so. Proxies are being
solicited primarily by mail, but, in addition officers and regular employees of
the Company may solicit proxies personally, by telephone, by telegram or by
special letter.
The Board of Directors does not intend to present to the meeting any
other matter not referred to above and does not presently know of any matters
that may be presented to the meeting by others. However, if other matters come
before the meeting, it is the intent of the persons named in the enclosed proxy
to vote the proxy in accordance with their best judgment.
By Order of the Board of Directors
INNOVATIVE GAMING CORPORATION OF AMERICA
Scott H. Shackelton
Secretary
17
<PAGE>
(FORM OF PROXY)
INNOVATIVE GAMING CORPORATION OF AMERICA
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS - MAY 28, 1999
The undersigned, a shareholder of Innovative Gaming Corporation of
America, hereby appoints Edward G. Stevenson and Scott H. Shackelton, and each
of them, as proxies, with full power of substitution, to vote on behalf of the
undersigned the number of shares which the undersigned is then entitled to vote,
at the Annual Meeting of Shareholders of Innovative Gaming Corporation of
America to be held at the Company's headquarters at 4725 Aircenter Circle, Reno,
Nevada 89502, on Friday, May 28, 1999, at 10:00 a.m., and at any and all
adjournments thereof, with all the powers which the undersigned would possess if
personally present, upon:
1. Election of Directors:
[ ] FOR all nominees [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below)
Edward G. Stevenson, Lyle Berman, Ronald R. Zideck,
Ronald A. Johnson, Leo V. Seevers
INSTRUCTION: To withhold authority to vote for any individual nominee
write that nominee's name on the space provided below.
---------------------------------------------------
2. Such other business as may properly come before the meeting or
any adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES.
The undersigned hereby revokes all previous proxies relating to the
shares covered hereby and acknowledges receipt of the Notice and Proxy Statement
relating to the Annual Meeting of Shareholders.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. When
properly executed, this proxy will be voted on the proposal set forth herein as
directed by the shareholder, but if no direction is made in the space provided,
this proxy will be voted FOR the election of all nominees for director.
Dated ______________, 1999
________________________________________
(Shareholder must sign exactly as the
name appears at left. When signed as a
corporate officer, executor,
administrator, trustee, guardian, etc.,
please give full title as such. Both
joint tenants must sign.)
18
